ITEM 1. FINANCIAL STATEMENTS
INSPIRED
ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(in
millions, except share data)
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Cash
|
|
$
|
39.9
|
|
|
$
|
29.1
|
|
Accounts receivable, net
|
|
|
18.6
|
|
|
|
24.2
|
|
Inventory, net
|
|
|
19.0
|
|
|
|
18.8
|
|
Prepaid expenses and other current assets
|
|
|
17.0
|
|
|
|
23.2
|
|
Total current assets
|
|
|
94.5
|
|
|
|
95.3
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
68.4
|
|
|
|
79.3
|
|
Software development costs, net
|
|
|
41.0
|
|
|
|
46.9
|
|
Other acquired intangible assets subject to amortization, net
|
|
|
7.3
|
|
|
|
9.9
|
|
Goodwill
|
|
|
75.4
|
|
|
|
80.9
|
|
Right of use asset
|
|
|
12.7
|
|
|
|
9.4
|
|
Investment
|
|
|
—
|
|
|
|
0.6
|
|
Other assets
|
|
|
4.0
|
|
|
|
5.1
|
|
Total assets
|
|
$
|
303.3
|
|
|
$
|
327.4
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
21.3
|
|
|
$
|
22.2
|
|
Accrued expenses
|
|
|
26.7
|
|
|
|
31.2
|
|
Corporate tax and other current taxes payable
|
|
|
6.0
|
|
|
|
6.6
|
|
Deferred revenue, current
|
|
|
9.2
|
|
|
|
10.1
|
|
Operating lease liabilities
|
|
|
3.3
|
|
|
|
3.6
|
|
Other current liabilities
|
|
|
1.4
|
|
|
|
1.9
|
|
Current portion of long-term debt
|
|
|
24.7
|
|
|
|
2.6
|
|
Current portion of finance lease liabilities
|
|
|
0.6
|
|
|
|
0.1
|
|
Total current liabilities
|
|
|
93.2
|
|
|
|
78.3
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
268.4
|
|
|
|
270.5
|
|
Long term finance lease liabilities
|
|
|
0.5
|
|
|
|
—
|
|
Deferred revenue, net of current portion
|
|
|
13.9
|
|
|
|
17.7
|
|
Derivative liability
|
|
|
1.6
|
|
|
|
—
|
|
Operating lease liabilities
|
|
|
9.2
|
|
|
|
5.2
|
|
Other long-term liabilities
|
|
|
8.3
|
|
|
|
5.2
|
|
Total liabilities
|
|
|
395.1
|
|
|
|
376.9
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit
|
|
|
|
|
|
|
|
|
Preferred stock; $0.0001 par value; 1,000,000 shares authorized
|
|
|
—
|
|
|
|
—
|
|
Series A Junior Participating Preferred stock; $0.0001
par value; 1,000,000 shares authorized; 49,000 shares designated; no shares issued and outstanding at June 30, 2020 and December
31, 2019
|
|
|
—
|
|
|
|
—
|
|
Common stock; $0.0001 par value; 49,000,000 shares authorized;
22,405,376 shares and 22,230,768 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively
|
|
|
—
|
|
|
|
—
|
|
Additional paid in capital
|
|
|
348.6
|
|
|
|
346.6
|
|
Accumulated other comprehensive income
|
|
|
42.7
|
|
|
|
45.1
|
|
Accumulated deficit
|
|
|
(483.1
|
)
|
|
|
(441.2
|
)
|
Total stockholders’ deficit
|
|
|
(91.8
|
)
|
|
|
(49.5
|
)
|
Total liabilities and stockholders’
deficit
|
|
$
|
303.3
|
|
|
$
|
327.4
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
INSPIRED
ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(in
millions, except share and per share data)
(Unaudited)
|
|
Three Months Ended
June
30,
|
|
|
Six Months Ended
June
30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
$
|
15.2
|
|
|
$
|
25.6
|
|
|
$
|
58.4
|
|
|
$
|
56.4
|
|
Hardware
|
|
|
0.4
|
|
|
|
1.1
|
|
|
|
9.5
|
|
|
|
4.0
|
|
Total revenue
|
|
|
15.6
|
|
|
|
26.7
|
|
|
|
67.9
|
|
|
|
60.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales, excluding depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service
|
|
|
(3.1
|
)
|
|
|
(5.3
|
)
|
|
|
(9.7
|
)
|
|
|
(10.7
|
)
|
Cost of hardware
|
|
|
(0.3
|
)
|
|
|
(1.0
|
)
|
|
|
(7.3
|
)
|
|
|
(2.6
|
)
|
Selling, general and administrative expenses
|
|
|
(10.6
|
)
|
|
|
(12.8
|
)
|
|
|
(39.7
|
)
|
|
|
(27.5
|
)
|
Stock-based compensation expense
|
|
|
(1.0
|
)
|
|
|
(2.3
|
)
|
|
|
(2.0
|
)
|
|
|
(4.4
|
)
|
Acquisition and integration related transaction expenses
|
|
|
(1.2
|
)
|
|
|
(0.7
|
)
|
|
|
(4.4
|
)
|
|
|
(1.6
|
)
|
Depreciation and amortization
|
|
|
(13.3
|
)
|
|
|
(9.1
|
)
|
|
|
(25.9
|
)
|
|
|
(18.8
|
)
|
Net operating loss
|
|
|
(13.9
|
)
|
|
|
(4.5
|
)
|
|
|
(21.1
|
)
|
|
|
(5.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.4
|
|
|
|
0.1
|
|
Interest expense
|
|
|
(8.1
|
)
|
|
|
(4.0
|
)
|
|
|
(14.2
|
)
|
|
|
(8.5
|
)
|
Change in fair value of earnout liability
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2.3
|
)
|
Change in fair value of derivative liability
|
|
|
—
|
|
|
|
(1.3
|
)
|
|
|
—
|
|
|
|
(0.1
|
)
|
Loss from equity method investee
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.5
|
)
|
|
|
—
|
|
Other finance income (expense)
|
|
|
(2.5
|
)
|
|
|
(0.9
|
)
|
|
|
(6.2
|
)
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(10.5
|
)
|
|
|
(6.1
|
)
|
|
|
(20.5
|
)
|
|
|
(10.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(24.4
|
)
|
|
|
(10.6
|
)
|
|
|
(41.6
|
)
|
|
|
(15.7
|
)
|
Income tax expense
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
(0.3
|
)
|
|
|
—
|
|
Net loss
|
|
|
(24.5
|
)
|
|
|
(10.7
|
)
|
|
|
(41.9
|
)
|
|
|
(15.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss)/income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain
|
|
|
0.4
|
|
|
|
0.7
|
|
|
|
3.5
|
|
|
|
0.2
|
|
Change in fair value of hedging instrument
|
|
|
(0.8
|
)
|
|
|
2.4
|
|
|
|
(2.3
|
)
|
|
|
0.3
|
|
Reclassification of gain on hedging instrument to comprehensive
income
|
|
|
0.3
|
|
|
|
(2.6
|
)
|
|
|
0.7
|
|
|
|
(1.1
|
)
|
Actuarial losses on pension plan
|
|
|
(8.7
|
)
|
|
|
(2.0
|
)
|
|
|
(4.3
|
)
|
|
|
(1.1
|
)
|
Other comprehensive loss
|
|
|
(8.8
|
)
|
|
|
(1.5
|
)
|
|
|
(2.4
|
)
|
|
|
(1.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(33.3
|
)
|
|
$
|
(12.2
|
)
|
|
$
|
(44.3
|
)
|
|
$
|
(17.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share – basic and diluted
|
|
$
|
(1.09
|
)
|
|
$
|
(0.48
|
)
|
|
$
|
(1.87
|
)
|
|
$
|
(0.73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of shares outstanding during the period – basic and diluted
|
|
|
22,400,107
|
|
|
|
22,193,955
|
|
|
|
22,392,218
|
|
|
|
21,583,648
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
INSPIRED
ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR
THE PERIOD JANUARY 1, 2020 TO JUNE 30, 2020
(in
millions, except share data)
(Unaudited)
|
|
Common stock
|
|
|
Additional
paid in
|
|
|
Accumulated
other
comprehensive
|
|
|
Accumulated
|
|
|
Total
stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
income
|
|
|
deficit
|
|
|
deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2020
|
|
|
22,230,768
|
|
|
$
|
—
|
|
|
$
|
346.6
|
|
|
$
|
45.1
|
|
|
$
|
(441.2
|
)
|
|
$
|
(49.5
|
)
|
Foreign currency translation adjustments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3.1
|
|
|
|
—
|
|
|
|
3.1
|
|
Actuarial gains on pension plan
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4.4
|
|
|
|
—
|
|
|
|
4.4
|
|
Change in fair value of hedging instrument
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1.5
|
)
|
|
|
—
|
|
|
|
(1.5
|
)
|
Reclassification of loss on hedging instrument to comprehensive
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.4
|
|
|
|
—
|
|
|
|
0.4
|
|
Shares issued in net settlement of RSUs
|
|
|
166,959
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Stock-based compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
1.0
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.0
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(17.4
|
)
|
|
|
(17.4
|
)
|
Balance as of March 31, 2020
|
|
|
22,397,727
|
|
|
$
|
—
|
|
|
$
|
347.6
|
|
|
$
|
51.5
|
|
|
$
|
(458.6
|
)
|
|
$
|
(59.5
|
)
|
Foreign currency translation adjustments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.4
|
|
|
|
—
|
|
|
|
0.4
|
|
Actuarial loss on pension plan
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(8.7
|
)
|
|
|
—
|
|
|
|
(8.7
|
)
|
Change in fair value of hedging instrument
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.8
|
)
|
|
|
—
|
|
|
|
(0.8
|
)
|
Reclassification of loss on hedging instrument to comprehensive
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.3
|
|
|
|
—
|
|
|
|
0.3
|
|
Stock-based compensation expense – ESPP
|
|
|
7,649
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Stock-based compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
1.0
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.0
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(24.5
|
)
|
|
|
(24.5
|
)
|
Balance as of June 30, 2020
|
|
|
22,405,376
|
|
|
$
|
—
|
|
|
$
|
348.6
|
|
|
$
|
42.7
|
|
|
$
|
(483.1
|
)
|
|
$
|
(91.8
|
)
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
INSPIRED
ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR
THE PERIOD JANUARY 1, 2019 TO JUNE 30, 2019
(in
millions, except share data)
(Unaudited)
|
|
Common stock
|
|
|
Additional
paid in
|
|
|
Accumulated
other
comprehensive
|
|
|
Accumulated
|
|
|
Total
stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
income
|
|
|
deficit
|
|
|
deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2019
|
|
|
20,870,397
|
|
|
$
|
—
|
|
|
$
|
329.9
|
|
|
$
|
55.9
|
|
|
$
|
(404.2
|
)
|
|
$
|
(18.4
|
)
|
Foreign currency translation adjustments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.5
|
)
|
|
|
—
|
|
|
|
(0.5
|
|
Actuarial gains on pension plan
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.9
|
|
|
|
—
|
|
|
|
0.9
|
|
Change in fair value of hedging instrument
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2.1
|
)
|
|
|
—
|
|
|
|
(2.1
|
)
|
Reclassification of loss on hedging instrument to comprehensive
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.5
|
|
|
|
—
|
|
|
|
1.5
|
|
Shares issued in earnout
|
|
|
1,323,558
|
|
|
|
—
|
|
|
|
8.6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8.6
|
)
|
Stock-based compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
1.7
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.7
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5.0
|
)
|
|
|
(5.0
|
)
|
Balance as of March 31, 2019
|
|
|
22,193,955
|
|
|
$
|
—
|
|
|
$
|
340.2
|
|
|
$
|
55.7
|
|
|
$
|
(409.2
|
)
|
|
$
|
(13.3
|
)
|
Foreign currency translation adjustments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.7
|
|
|
|
—
|
|
|
|
0.7
|
|
Actuarial losses on pension plan
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2.0
|
)
|
|
|
—
|
|
|
|
(2.0
|
)
|
Change in fair value of hedging instrument
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2.4
|
|
|
|
—
|
|
|
|
2.4
|
|
Reclassification of loss on hedging instrument to comprehensive
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2.6
|
)
|
|
|
—
|
|
|
|
(2.6
|
)
|
Conversion of awards previously classified as derivatives
|
|
|
—
|
|
|
|
—
|
|
|
|
0.8
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.8
|
|
Stock-based compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
2.1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2.1
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
(10.7
|
)
|
|
|
(10.7
|
)
|
Balance as of June 30, 2019
|
|
|
22,193,955
|
|
|
$
|
—
|
|
|
$
|
343.1
|
|
|
$
|
54.2
|
|
|
$
|
(419.9
|
)
|
|
$
|
(22.6
|
)
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
INSPIRED
ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in
millions)
(Unaudited)
|
|
Six Months Ended
June
30,
|
|
|
|
2020
|
|
|
2019
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(41.9
|
)
|
|
$
|
(15.7
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
25.9
|
|
|
|
18.8
|
|
Amortization of right of use asset
|
|
|
2.0
|
|
|
|
—
|
|
Stock-based compensation expense
|
|
|
2.0
|
|
|
|
4.4
|
|
Change in fair value of derivative liability
|
|
|
—
|
|
|
|
0.1
|
|
Change in fair value of earnout liability
|
|
|
—
|
|
|
|
2.3
|
|
Impairment of investment in equity method investee
|
|
|
0.7
|
|
|
|
—
|
|
Foreign currency translation on senior bank debt
|
|
|
6.6
|
|
|
|
0.3
|
|
Foreign currency translation on cross currency swaps
|
|
|
—
|
|
|
|
(0.6
|
)
|
Reclassification of gain on hedging instrument to comprehensive income
|
|
|
0.5
|
|
|
|
—
|
|
Non-cash interest expense relating to senior debt
|
|
|
1.2
|
|
|
|
0.9
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
3.7
|
|
|
|
0.8
|
|
Inventory
|
|
|
(1.4
|
)
|
|
|
(0.5
|
)
|
Prepaid expenses and other assets
|
|
|
5.7
|
|
|
|
4.5
|
|
Corporate tax and other current taxes payable
|
|
|
0.1
|
|
|
|
(0.5
|
)
|
Accounts payable
|
|
|
0.8
|
|
|
|
4.4
|
|
Deferred revenues and customer prepayment
|
|
|
(3.8
|
)
|
|
|
(2.1
|
)
|
Accrued expenses
|
|
|
9.3
|
|
|
|
2.4
|
|
Operating lease liabilities
|
|
|
(1.6
|
)
|
|
|
—
|
|
Other long-term liabilities
|
|
|
0.4
|
|
|
|
0.2
|
|
Net cash provided by operating activities
|
|
|
10.2
|
|
|
|
19.7
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(8.8
|
)
|
|
|
(2.2
|
)
|
Disposals of property and equipment
|
|
|
—
|
|
|
|
0.2
|
|
Purchases of capital software
|
|
|
(6.7
|
)
|
|
|
(7.8
|
)
|
Net cash used in investing activities
|
|
|
(15.5
|
)
|
|
|
(9.8
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of revolver
|
|
|
22.3
|
|
|
|
9.3
|
|
Debt fees incurred
|
|
|
(3.1
|
)
|
|
|
—
|
|
Repayments of finance leases
|
|
|
(0.6
|
)
|
|
|
(0.3
|
)
|
Net cash provided by financing activities
|
|
|
18.6
|
|
|
|
9.0
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
(2.5
|
)
|
|
|
(1.2
|
)
|
Net increase in cash
|
|
|
10.8
|
|
|
|
17.7
|
|
Cash, beginning of period
|
|
|
29.1
|
|
|
|
16.0
|
|
Cash, end of period
|
|
$
|
39.9
|
|
|
$
|
33.7
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest
|
|
$
|
0.4
|
|
|
$
|
8.2
|
|
Cash paid during the period for income taxes
|
|
$
|
0.1
|
|
|
$
|
—
|
|
Cash paid during the period for operating leases
|
|
$
|
1.2
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
Lease liabilities arising from obtaining right of use assets
|
|
$
|
(6.1
|
)
|
|
$
|
—
|
|
Adjustment to goodwill arising from adjustment to fair value of assets acquired
|
|
$
|
(0.3
|
)
|
|
$
|
—
|
|
Capitalized interest payments
|
|
$
|
10.6
|
|
|
$
|
—
|
|
Property and equipment acquired through finance lease
|
|
$
|
1.5
|
|
|
$
|
—
|
|
Additional paid in capital reclassified from derivative liability
|
|
$
|
—
|
|
|
$
|
0.8
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
1.
|
Nature
of Operations, Management’s Plans and Summary of Significant Accounting Policies
|
Company
Description and Nature of Operations
Inspired
Entertainment, Inc. (the “Company,” “we,” “our,” and “us”) is a global business-to-business
gaming technology company, supplying Server Based Gaming (“SBG”) and Virtual Sports (which includes Interactive) systems
to regulated lottery, betting and gaming operators worldwide through an “omni-channel” distribution strategy. We provide
end-to-end digital gaming solutions on our proprietary and secure network, which accommodates a wide range of devices, including
land-based gaming machine terminals, mobile devices such as smartphones and tablets and online computer and social applications.
Our products can be found in licensed betting offices, adult gaming centers, bingo halls, and through our Acquired Businesses
(defined herein), in UK pubs, airports, motorway service areas, and leisure parks.
Management
Liquidity Plans
As
of June 30, 2020, the Company’s cash on hand was $39.9 million, and the Company had working capital of $1.3 million. The
Company recorded net losses of $41.9 million and $15.7 million for the six months ended June 30, 2020 and 2019, respectively.
Net losses include non-cash stock-based compensation of $2.0 million and $4.4 million for the six months ended June 30, 2020 and
2019, respectively. Historically, the Company has generally had positive cash flows from operating activities and has relied on
a combination of cash flows provided by operations and the incurrence of debt and/or the refinancing of existing debt to fund
its obligations. Cash flows provided by operations amounted to $10.2 million and $19.7 million for the six months ended June 30,
2020 and 2019, respectively. Working capital of $1.3 million includes a non-cash settled item of $9.2 million of deferred income.
Management currently believes that, absent any unanticipated coronavirus (“COVID-19”) impact (see below), the Company’s
cash balances on hand, cash flows expected to be generated from operations, ability to control and defer capital projects and
amounts available from the Company’s external borrowings will be sufficient to fund the Company’s net cash requirements
through August 2021.
Our business is being, and will continue to
be, adversely affected by the rapidly expanding nature of the COVID-19 pandemic. Whilst the majority of venues offering land-based
gaming, including our products, have now re-opened, social distancing measures have impacted the ability of some venues to operate
to the same capacity. In addition, the risk of there being a “second wave” or other additional periods of increases
or spikes in the number of COVID-19 cases in areas in which we operate, which could see the government re-impose restrictions on,
or changes to, our operations up to and including complete or partial closures of retail venues, and the long-term impacts of the
pandemic on the global economy, trade relations, consumer behavior, our industry and our business operations, remains.
Due to the closure of land-based revenues we
saw a significant increase in our online revenues from slots and virtual sports and following the success of this area of the business
and the successful re-opening of various revenue streams, the Company repaid £10 million ($12.4 million) of the revolving
credit facility subsequent to the end of the period, on July 14, 2020. There is a risk of further shutdowns in certain markets
if COVID-19 cases increase.
Basis
of Presentation
The
accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to
the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”).
Certain information or footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have
been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they
do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of
operations, or cash flows. It is management’s opinion, however, that the accompanying unaudited interim condensed consolidated
financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation
of the financial position, operating results and cash flows for the periods presented.
The
accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s
consolidated financial statements and notes thereto for the years ended December 31, 2019 and 2018. The financial information
as of December 31, 2019 is derived from the audited consolidated financial statements presented in the Company’s Annual
Report on Form 10-K filed with the SEC on March 30, 2020. The interim results for the six months ended June 30, 2020 are not necessarily
indicative of the results to be expected for the year ending December 31, 2020 or for any future interim periods.
Inventory
consists of the following:
|
|
June 30,
2020
|
|
|
December
31,
2019
|
|
|
|
(in millions)
|
|
Component parts
|
|
$
|
13.3
|
|
|
$
|
12.7
|
|
Work in progress
|
|
|
1.5
|
|
|
|
2.1
|
|
Finished goods
|
|
|
4.2
|
|
|
|
4.0
|
|
Total inventories
|
|
$
|
19.0
|
|
|
$
|
18.8
|
|
Component
parts include parts for gaming terminals. Included in inventory are reserves for excess and slow-moving inventory of $1.2 million
and $0.9 million as of June 30, 2020 and December 31, 2019, respectively. Our finished goods inventory primarily consists of gaming
terminals which are ready for sale.
3.
|
Contract
Liabilities and Other Disclosures
|
The
following table summarizes contract related balances:
|
|
Accounts
Receivable
|
|
|
Unbilled
Accounts
Receivable
|
|
|
Deferred
Income
|
|
|
Customer
Prepayments
and Deposits
|
|
|
|
(in millions)
|
|
At June 30, 2020
|
|
$
|
19.7
|
|
|
$
|
7.4
|
|
|
$
|
(24.0
|
)
|
|
$
|
(0.9
|
)
|
At December 31, 2019
|
|
$
|
24.5
|
|
|
$
|
15.3
|
|
|
$
|
(27.8
|
)
|
|
$
|
(1.9
|
)
|
At December 31, 2018
|
|
$
|
11.5
|
|
|
$
|
11.0
|
|
|
$
|
(32.0
|
)
|
|
$
|
(3.6
|
)
|
Revenue
recognized that was included in the deferred income balance at the beginning of the period amounted to $5.9 million and $9.6 million
for the six months ended June 30, 2020 and the year ended December 31, 2019, respectively.
4.
|
Long Term and
Other Debt
|
On
September 27, 2019, the Company, together with certain direct and indirect wholly-owned subsidiaries, entered into a Senior Facilities
Agreement (the “SFA”) with Lucid Agency Services Limited, as agent, Nomura International plc and Macquarie Corporate
Holdings Pty Limited (UK Branch) as arrangers and/or bookrunners and each lender party thereto (the “Lenders”), pursuant
to which the Lenders agreed to provide, subject to certain conditions, two tranches of senior secured term loans (the “Term
Loans”), in an original principal amount of £140.0 million ($173.0 million) and €90.0 million ($101.1 million),
respectively and a secured revolving facility loan in an original principal amount of £20.0 million ($24.7 million).
On
June 25, 2020, the Company, certain direct and indirect subsidiaries of the Company, Lucid Agency Services Limited, and Lucid
Trustee Services Limited as security agent under the SFA and the Intercreditor Agreement (as defined in the SFA), entered into
an Amendment and Restatement Agreement (the “ARA”) with respect to the SFA.
The
ARA amends the SFA by, among other things, (i) capitalizing certain interest payments that fell due on April 1, 2020, (ii) resetting
the leverage and capital expenditure financial covenants applicable under the SFA, removing certain rating requirements under
the SFA, (iii) allowing the Company and its subsidiaries to incur additional indebtedness under the UK Coronavirus Large Business
Interruption Loan Scheme under a stand-alone facility, which may rank pari passu or junior to the facilities under the
SFA, in an amount not exceeding £10.0 million ($12.4 million), (iv) removing certain rating requirements under the SFA,
(v) limiting the ability of the Company and its subsidiaries to incur additional indebtedness, including by reducing the amount
of general indebtedness the Company and its subsidiaries are permitted to incur and removing the ability to incur senior secured,
second lien and unsecured indebtedness in an amount not exceeding the aggregate of (A) an unlimited amount, as long as, pro forma
for the utilization of such indebtedness, the consolidated total net leverage ratio does not exceed the lower of 3.4:1 and the
then applicable ratio with respect to the consolidated total net leverage financial covenant summarized further below, plus (B)
an amount equal to the greater of £16.0 million ($19.8 million) and 25% of the consolidated pro forma EBITDA of the Company
and its subsidiaries for the relevant period (as defined in the SFA, but disregarding, for the purposes of calculating the usage
of such cap, any financial indebtedness applied to refinancing other financial indebtedness, together with any related interest,
fees, costs and expenses), (vi) increasing the margin applicable to the Facilities (as defined in the SFA) by 1% and adding an
additional payment-in-kind margin of 0.75% payable on any principal amounts outstanding under Facility B (as defined in the SFA)
after September 24, 2021 (the “Relevant Date”), (vii) adding an exit fee payable by the Company with respect to any
repayment or prepayment of Facility B after the Relevant Date at the time of such repayment or prepayment in an amount equal to
0.75% of the principal amount of Facility B being repaid or prepaid, (viii) removing any ability to carry forward or carry back
any unused allowance under the capital expenditure financial covenant in the SFA and (ix) granting certain additional information
rights to the Lenders under the SFA, including the provision of a budget, and certain board observation rights until December
31, 2022. All other material terms of the SFA remain unchanged in all material respects.
In
consideration for the amendments listed above, the Company agreed to pay the Lenders an amendment fee equal to 1% of the Total
Commitments (as defined in the SFA) after giving effect to the capitalization of the interest payment described above. The amendment
fee is payable to the Lenders pro rata to their commitments under the SFA.
The
modification to the SFA is not considered to be substantial in accordance with Topic 470-50 and has therefore not been treated
as a debt extinguishment. The amendment fees, amounting to $3.1 million, are associated with the modified debt instrument and
will be amortized along with the existing unamortized debt issuance costs. Fees payable to third parties are expensed as incurred,
resulting in $1.0 million charged to interest expense for the three months ended June 30, 2020.
There were no breaches of the debt covenants in the periods ended
June 30, 2020 and December 31, 2019.
Outstanding
Debt and Finance Leases
The
following reflects outstanding debt as of June 30, 2020:
|
|
Principal
|
|
|
Unamortized
deferred
financing charge
|
|
|
Book value,
June 30,
2020
|
|
|
|
(in millions)
|
|
Senior bank debt
|
|
$
|
309.5
|
|
|
$
|
(16.4
|
)
|
|
$
|
293.1
|
|
Finance lease liabilities
|
|
|
1.1
|
|
|
|
—
|
|
|
|
1.1
|
|
Total long-term debt outstanding
|
|
|
310.6
|
|
|
|
(16.4
|
)
|
|
|
294.2
|
|
Less: current portion of long-term debt
|
|
|
(25.3
|
)
|
|
|
—
|
|
|
|
(25.3
|
)
|
Long-term debt, excluding current portion
|
|
$
|
285.3
|
|
|
$
|
(16.4
|
)
|
|
$
|
268.9
|
|
5.
|
Derivatives
and Hedging Activities
|
On
January 15, 2020, the Company entered into two interest rate swaps with UBS AG designed to protect the Company against adverse
fluctuations in interest rates by reducing its exposure to variability in cash flows on a portion of the current floating rate
debt facilities. The swaps fix the variable interest rate of the current debt facilities and provide protection over potential
interest rate increases by providing a fixed rate of interest payment in return. These interest rate swaps are for £95 million
at a fixed rate of 0.9255% based on the 6-month LIBOR rate and for €60 million at a fixed rate of 0.102% based on the 6 month
EUROLIBOR rate and are effective until maturity on October 1, 2023.
Hedges
of Multiple Risks
The
Company’s objectives in using interest rate derivatives are to add stability to interest and to manage its exposure to interest
rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk
management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty
in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional
amount.
For
derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded
in Accumulated Other Comprehensive Income and subsequently reclassified into interest expense in the same period(s) during which
the hedged transaction affects earnings. Amounts reported in Accumulated Other Comprehensive Income related to derivatives will
be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the next twelve
months, the Company estimates that an additional $1.5 million will be reclassified as an increase to interest expense.
As
of June 30, 2020, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges
of interest rate risk:
Interest
Rate Derivative
|
|
Number
of
Instruments
|
|
Notional
|
Interest
rate swaps
|
|
2
|
|
|
£95
million at a fixed rate of 0.9255% based on the 6-month LIBOR rate and €60 million at a fixed rate of 0.102% based on
the 6 month EUROLIBOR rate
|
The
table below presents the fair value of the Company’s derivative financial instruments as well as their classification in
the consolidated balance sheet as of June 30, 2020.
|
|
Balance
Sheet
Classification
|
|
Asset
Derivatives
Fair Value
|
|
|
Balance
Sheet
Classification
|
|
Liability
Derivatives
Fair Value
|
|
|
|
|
|
(in millions)
|
|
|
|
|
(in millions)
|
|
Derivatives
designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate Products
|
|
Fair
Value of Hedging Instruments
|
|
$
|
—
|
|
|
Other
Current Liabilities and long term Derivative Liability
|
|
$
|
(2.1
|
)
|
Total
derivatives designated as hedging instruments
|
|
|
|
$
|
—
|
|
|
|
|
$
|
(2.1
|
)
|
The
table below presents the effect of fair value and cash flow hedge accounting on Accumulated Other Comprehensive Income for the
six months ended June 30, 2020.
|
|
Amount
of Gain/(Loss)
Recognized in
Other
Comprehensive
Income on
Derivative
|
|
|
|
|
Location of
Gain/(Loss)
Reclassified
from
Accumulated Other
Comprehensive
Income into
Income
|
|
|
|
(in millions)
|
|
|
|
|
(in millions)
|
|
Interest
Rate and Foreign Exchange Products
|
|
$
|
(2.3
|
)
|
|
Interest
Expense
|
|
$
|
(0.7
|
)
|
Total
|
|
$
|
(2.3
|
)
|
|
|
|
$
|
(0.7
|
)
|
The
table below presents the effect of the Company’s derivative financial instruments on the Consolidated Statements of Operations
for the six months ended June 30, 2020.
|
|
Interest
Expense
|
|
|
|
(in millions)
|
|
Total amounts of income
and expense line items presented in the statement of operations and comprehensive loss in which the effects of fair value
or cash flow hedges are recorded
|
|
$
|
14.2
|
|
|
|
|
|
|
Gain/(loss) on cash flow hedging relationships in Subtopic 815-20
|
|
$
|
(0.7
|
)
|
The
table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives
as of June 30, 2020. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value.
The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the consolidated
balance sheet.
The
ISDA Master Agreement between Gaming Acquisitions Limited, a wholly-owned subsidiary of the Company, and UBS AG is documented
using the 2002 Form and the ISDA standard set-off provision in Section 6(f) of the ISDA Master Agreement apply to both parties
and is only modified to include Affiliates of the Payee. There is no CSA and thus there is no collateral posting.
Offsetting
of Derivative Assets
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Amounts Not Offset in the
Statement of Financial Position
|
|
|
|
Gross
Amounts
of Recognized
Assets
|
|
|
Gross
Amounts
Offset in the
Statement of
Financial
Position
|
|
|
Net
Amounts
of Assets
presented
in the
Statement
of Financial
Position
|
|
|
Financial
Instruments
|
|
|
Cash
Collateral
Received
|
|
|
Net
Amount
|
|
|
|
(in
millions)
|
|
Fair
value of hedging instrument
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Offsetting
of Derivative Liabilities
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Amounts Not Offset in the
Statement of Financial Position
|
|
|
|
Gross
Amounts
of Recognized
Liabilities
|
|
|
Gross
Amounts
Offset in the
Statement of
Financial
Position
|
|
|
Net
Amounts
of Liabilities
presented
in the
Statement
of Financial
Position
|
|
|
Financial
Instruments
|
|
|
Cash
Collateral
Received
|
|
|
Net
Amount
|
|
|
|
(in
millions)
|
|
Fair
value of hedging instrument
|
|
$
|
2.1
|
|
|
$
|
—
|
|
|
$
|
2.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Credit-risk-related
Contingent Features
The
Company has entered into an industry standard ISDA Master Agreement, with a negotiated Scheduled thereto (the “ISDA Agreement”),
with the counterparty to its derivative transactions and which ISDA Agreement sets forth various provisions which govern the trading
relationship between the Company and its counterparty. Such provisions include certain events which, if triggered by either party,
may give rise to an acceleration of the ISDA Agreement, thus triggering the exchange of a breakage payment between the parties.
The
ISDA Agreement with the Company’s derivative counterparty contains a provision where the Company could be declared in default
on its derivative obligations if, among others, its repayment of the underlying indebtedness is accelerated by the lender due
to the Company’s default on the indebtedness. The ISDA Agreement can also be accelerated if Lucid Trustee Services Limited
requests or requires that the lender terminates or closes-out any Transaction under the ISDA Agreement pursuant to Clause 4.10
of the Intercreditor Agreement between primarily the Company, Lucid Agency Services as Senior Agent and Lucid Trustee Services
Limited as Security Agent; in the event of certain refinancing circumstances; and in the event of certain reductions in the principal
with respect to amounts loaned under the Senior Facilities Agreement.
As
of June 30, 2020, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any
adjustment for nonperformance risk, related to the ISDA Agreements was $2.1 million. As of June 30, 2020, the Company has not
posted any collateral related to the ISDA Agreement, as no collateral is required under the terms of such ISDA Agreement. If the
Company had breached any of the provision under the ISDA Agreement which resulted in an acceleration of the ISDA Agreement at
June 30, 2020, it could have been required to settle its obligations under the ISDA Agreement at its termination value of $2.5
million
6.
|
Fair
Value Measurements
|
Fair
value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset and liability in an orderly transaction between market participants at
the measurement date. We estimate the fair value of our assets and liabilities utilizing an established three-level hierarchy.
The hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date as
follows:
|
Level
1:
|
Quoted
prices in active markets for identical assets or liabilities.
|
|
|
|
|
Level
2:
|
Observable
inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient
volume or infrequent transactions (less active markets), or model-derived valuations in which all significant inputs are observable
or can be derived principally from or corroborated with observable market data for substantially the full term of the assets
or liabilities. Level 2 inputs also include non-binding market consensus prices that can be corroborated with observable market
data, as well as quoted prices that were adjusted for security-specific restrictions.
|
|
|
|
|
Level
3:
|
Unobservable
inputs that are supported by little or no market activity that are significant to the fair value of the asset or liability.
Level 3 inputs also include non-binding market consensus prices or non-binding broker quotes that are unable to be corroborated
with observable market data.
|
The
fair value of our financial assets and liabilities is determined by reference to market data and other valuation techniques as
appropriate. We believe the fair value of our financial instruments approximates their recorded values.
For
each period, derivative financial instrument assets and liabilities measured at fair value on a recurring basis are included in
the financial statements as per the table below.
|
|
|
|
June
30,
|
|
|
December
31,
|
|
|
|
Level
|
|
2020
|
|
|
2019
|
|
|
|
|
|
(in millions)
|
|
Derivative liability (see
Note 5)
|
|
2
|
|
$
|
2.1
|
|
|
$
|
—
|
|
Long term receivable (included in other assets)
|
|
2
|
|
$
|
1.3
|
|
|
$
|
1.5
|
|
Level
3 liabilities are valued using unobservable inputs to the valuation methodology that are significant to the measurement of the
fair value of the derivative liabilities. For fair value measurements categorized within Level 3 of the fair value hierarchy,
the Company’s principal financial officer, who reports to the principal executive officer, determines its valuation policies
and procedures. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value
calculations are the responsibility of the Company’s Principal Financial Officer and approved by the Principal Executive
Officer.
At
June 30, 2020 and December 31, 2019, there were no transfers in or out of Level 3 from other levels in the fair value hierarchy.
7.
|
Stock-Based
Compensation
|
The
Company’s stock-based compensation plans authorize awards of restricted stock units (“RSUs”), stock options
and other equity-related awards. In May 2019, in conjunction with the Company’s stockholders approving the 2018 Omnibus
Incentive Plan (the “2018 Plan”), which authorizes a total of 2,550,000 shares to be issued pursuant to awards thereunder,
the balances available for awards under the Company’s predecessor plans (i.e., the 2016 Long-Term Incentive Plan and the
Second Long-Term Incentive Plan) (collectively, the “Prior Plans”) were terminated. Although outstanding awards under
the Prior Plans remain governed by the terms of the Prior Plans, no new awards will be granted or become available for grant under
the Prior Plans.
As
of June 30, 2020, there were (i) 2,429,011 shares subject to outstanding awards under the Prior Plans, including 1,092,633 shares
subject to market-price vesting conditions, and (ii) 1,139,739 shares subject to outstanding awards under the 2018 Plan, including
100,000 shares subject to performance-based target awards and 241,077 shares subject to awards that were previously subject to
performance criteria that were determined to be met in June 2020 (at a level equal to approximately 87% of the target awards)
which awards continue to remain subject to a time-based vesting schedule. As of June 30, 2020, there were 1,136,945 shares available
for new awards under the 2018 Plan and no shares available for new awards under the Prior Plans. All awards consist of RSUs and
Restricted Stock.
The
Company also has an employee stock purchase plan (“ESPP”) that authorizes the issuance of up to an aggregate of 500,000
shares of common stock pursuant to purchases thereunder by employees. The ESPP, which was approved by stockholders in July 2017,
is administered by the Compensation Committee which has discretion to designate the length of offering periods and other terms
subject to the requirements of the ESPP. The Company held a twelve-month offering period under the ESPP that began on June 3,
2019 and ended on June 2, 2020. This offering period authorized employees to contribute up to 10% of their base compensation to
purchase a maximum of 1,000 shares at a discounted purchase price that would be equal 85% of the lower of: (i) the closing
price at the beginning of the offering period and (ii) the closing price at the end of the offering period. A total of 7,649 shares
were purchased on the last day of the offering period, June 2, 2020, at a discounted price of $3.2215 per share. As of June 30,
2020, a total of 467,751shares remain available for purchase under the ESPP.
A
summary of the Company’s RSU activity during the six months ended June 30, 2020 is as follows:
|
|
Number of
Shares
|
|
|
|
|
|
Unvested Outstanding at January 1, 2020
|
|
|
1,571,964
|
|
Granted
|
|
|
247,405
|
|
Forfeited
|
|
|
(47,613
|
)
|
Vested
|
|
|
(198,701
|
)
|
Unvested Outstanding at June 30, 2020
|
|
|
1,573,055
|
|
In
addition, the Company issued a total of 166,959 shares during the six months ended June 30, 2020 in connection with the net settlement
of RSUs that vested on December 31, 2019.
Stock-based
compensation is recognized as an expense on a straight-line basis over the requisite service period, which is generally the vesting
period. For performance awards that are contingent upon the Company achieving certain pre-determined financial performance targets,
compensation expense is calculated based on the number of shares expected to vest after assessing the probability that the performance
criteria will be met. Determining the probability of achieving a performance target requires estimates and judgment.
The
Company recognized stock-based compensation expense for Restricted Stock and RSUs amounting to $1.0 million and $2.3 million for
the three months ended June 30, 2020 and 2019, respectively, and $2.0 million and $4.4 million for the six months ended June 30,
2020 and 2019, respectively. Total unrecognized compensation expense related to unvested stock awards and unvested RSUs at June
30, 2020 amounts to $5.9 million and is expected to be recognized over a weighted average period of 1.7 years.
8.
|
Accumulated
Other Comprehensive Loss (Income)
|
The
accumulated balances for each classification of comprehensive loss (income) are presented below:
|
|
Foreign Currency Translation
Adjustments
|
|
|
Change in Fair Value of Hedging
Instrument
|
|
|
Unrecognized Pension Benefit
Costs
|
|
|
Accumulated Other Comprehensive
(Income)
|
|
|
|
(in millions)
|
|
Balance at January 1, 2020
|
|
$
|
(76.5
|
)
|
|
$
|
1.4
|
|
|
$
|
30.0
|
|
|
$
|
(45.1
|
)
|
Change during the period
|
|
|
(3.1
|
)
|
|
|
1.1
|
|
|
|
(4.4
|
)
|
|
|
(6.4
|
)
|
Balance at March 31, 2020
|
|
|
(79.6
|
)
|
|
|
2.5
|
|
|
|
25.6
|
|
|
|
(51.5
|
)
|
Change during the period
|
|
|
(0.4
|
)
|
|
|
0.5
|
|
|
|
8.7
|
|
|
|
8.8
|
|
Balance at June 30, 2020
|
|
$
|
(80.0
|
)
|
|
$
|
3.0
|
|
|
$
|
34.3
|
|
|
$
|
(42.7
|
)
|
|
|
Foreign Currency Translation
Adjustments
|
|
|
Change in Fair Value of Hedging
Instrument
|
|
|
Unrecognized Pension Benefit
Costs
|
|
|
Accumulated Other Comprehensive
(Income)
|
|
|
|
(in millions)
|
|
Balance at January 1, 2019
|
|
$
|
(78.9
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
23.1
|
|
|
$
|
(55.9
|
)
|
Change during the period
|
|
|
0.5
|
|
|
|
0.6
|
|
|
|
(0.9
|
)
|
|
|
0.2
|
|
Balance at March 31, 2019
|
|
|
(78.4
|
)
|
|
|
0.5
|
|
|
|
22.2
|
|
|
|
(55.7
|
)
|
Change during the period
|
|
|
(0.7
|
)
|
|
|
0.2
|
|
|
|
2.0
|
|
|
|
1.5
|
|
Balance at June 30, 2019
|
|
$
|
(79.1
|
)
|
|
$
|
0.7
|
|
|
$
|
24.2
|
|
|
$
|
(54.2
|
)
|
Included
within accumulated other comprehensive income is an amount of $0.9 million relating to the change in fair value of discontinued
hedging instruments. This amount will be amortized as a charge to income over the life of the original instrument, to August 2021
in accordance with US GAAP. The remaining $2.1 million relates to currently active hedging instruments.
Basic
loss per share (“EPS”) is computed by dividing net loss available to common stockholders by the weighted average number
of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives
effect to all dilutive potential shares of common stock outstanding during the period, including stock options, restricted stock,
RSUs and warrants, using the treasury stock method, and convertible debt or convertible preferred stock, using the if-converted
method. Diluted EPS excludes all dilutive potential of shares of common stock if their effect is anti-dilutive.
The
computation of diluted EPS excludes the common stock equivalents of the following potentially dilutive securities because their
inclusion would be anti-dilutive:
|
|
Three and Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
RSUs
|
|
|
2,944,634
|
|
|
|
3,066,697
|
|
Unvested Restricted Stock
|
|
|
624,116
|
|
|
|
624,116
|
|
Stock Warrants
|
|
|
9,539,565
|
|
|
|
9,539,565
|
|
|
|
|
13,108,315
|
|
|
|
13,230,378
|
|
10.
|
Other
Finance Income (Costs)
|
Other
finance income (costs) consisted of the following for the three and six months ended June 30, 2020 and 2019:
|
|
Three
Months Ended
June
30,
|
|
|
Six
Months Ended
June
30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(in millions)
|
|
|
(in millions)
|
|
Pension interest cost
|
|
$
|
(0.5
|
)
|
|
$
|
(0.7
|
)
|
|
$
|
(1.1
|
)
|
|
$
|
(1.4
|
)
|
Expected return on pension plan assets
|
|
|
0.7
|
|
|
|
0.9
|
|
|
|
1.5
|
|
|
|
1.8
|
|
Foreign currency translation on senior bank debt
|
|
|
(2.7
|
)
|
|
|
(3.2
|
)
|
|
|
(6.6
|
)
|
|
|
(0.3
|
)
|
Foreign currency remeasurement on hedging instrument
|
|
|
—
|
|
|
|
2.1
|
|
|
|
—
|
|
|
|
0.2
|
|
|
|
$
|
(2.5
|
)
|
|
$
|
(0.9
|
)
|
|
$
|
(6.2
|
)
|
|
$
|
0.3
|
|
The
effective income tax rate for the three months ended June 30, 2020 and 2019 was 0.4% and 0.9%, respectively, resulting in a $0.1
million income tax expense in both periods. The effective income tax rate for the six months ended June 30, 2020 and 2019 was
0.7% and 0.0%, respectively, resulting in a $0.3 million and $0.0 million income tax expense, respectively. The Company’s
effective income tax rate has fluctuated primarily as a result of the income mix between jurisdictions.
The
income tax expense for the three and six months ended June 30, 2020 and 2019 differs from the amount that would be expected after
applying the statutory U.S. federal income tax rate primarily due to pre-tax losses for which no tax benefit can be recorded,
and foreign earnings being taxed at rates different than the US statutory rate.
Macquarie
Corporate Holdings Pty Limited (UK Branch) (“Macquarie UK”), is an affiliate of MIHI LLC, the beneficial owner of
approximately 16.75% of our common stock. Macquarie UK is one of the lending parties with respect to our senior secured term loans
and revolving credit facility under our senior facilities agreement dated September 27, 2019, as amended and restated on June
25, 2020 (the “SFA”) (see Note 4). The portion of the total loans of $309.5 million under these facilities held by
Macquarie UK at June 30, 2020 was $27.9 million. Interest expense payable to Macquarie UK for the three months ended June 30,
2020 and 2019 amounted to $0.6 million and $0.0 million, respectively, and for the six months ended June 30, 2020 and 2019 amounted
to $1.1 million and $0.0 million, respectively. In addition, $0.5 million of a total $6.0 million of accrued interest payable
was due to Macquarie UK at June 30, 2020, and Macquarie UK received $0.3 million of the total $3.1 million of SFA amendment fees
paid (see Note 4). MIHI LLC, is also a party to a stockholders agreement with the Company and other stockholders, dated December
23, 2016, pursuant to which, subject to certain conditions, MIHI LLC, jointly with Hydra Industries Sponsor LLC, are permitted
to designate two directors to be nominated for election as directors of the Company at any annual or special meeting of stockholders
at which directors are to be elected, until such time as MIHI LLC and Hydra Industries Sponsor LLC in the aggregate hold less
than 5% of the outstanding shares of the Company.
The
Company held a 40% non-controlling equity interest in Innov8 Gaming Limited (“Innov8”) from October 2019 until April
2020 when the Company disposed of its interest. Revenue earned from Innov8 while a related party for the six months ended June
30, 2020 and 2019 amounted to $0.6 million and $0.0 million, respectively and purchases from Innov8 while a related party for
the six months ended June 30, 2020 and 2019 amounted to $0.2 million and $0.0 million, respectively. The value of the investment
was impaired by $0.7 million to $Nil in March 2020 prior to disposal.
The
Company is party to leases with third parties with respect to various gaming machines. Gaming machine leases typically include
a lease (of the machine) and a non-lease (provision of software services) component.
The
components of lease income were as follows:
|
|
Three
Months Ended
June
30,
|
|
|
Six
Months Ended
June
30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(in millions)
|
|
|
(in millions)
|
|
Interest receivable from sales type leases
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Operating lease income
|
|
|
—
|
|
|
|
—
|
|
|
|
1.0
|
|
|
|
—
|
|
Variable income from sales type leases
|
|
|
—
|
|
|
|
—
|
|
|
|
0.2
|
|
|
|
—
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.2
|
|
|
$
|
—
|
|
14.
|
Commitments
and Contingencies
|
Legal
Matters
From
time to time, the Company may become involved in lawsuits and legal matters arising in the ordinary course of business. While
the Company believes that, currently, it has no such matters that are material, there can be no assurance that existing or new
matters arising in the ordinary course of business will not have a material adverse effect on the Company’s business, financial
condition or results of operations.
We
operate both defined benefit and defined contributions pension schemes in the UK. The defined contribution scheme assets are held
separately from those of the Company in an independently administered fund. The defined benefit section has been closed to new
entrants since April 1, 1999 and closed to future accruals for services rendered to the Company for the entire financial statement
periods presented. On March 15, 2019, it was agreed that no further deficit reduction contributions shall be made to the scheme,
except in the event that the scheme funding level does not progress as expected, in which case contingent contributions would
be made subject to an agreed maximum amount. It was determined that contingent contributions of $1.1 million and expense contributions
of $0.4 million would be payable during the year ended December 31, 2020, with agreement reached with the trustees of the scheme
to defer $0.4 million of the contingent contributions into the year to December 31, 2021 The funding level of the scheme will
next be tested against the expected position at December 31, 2020 to determine whether further contingent contributions are payable
over the year to December 31, 2021.
The
total amount of employer contributions paid during the six months ended June 30, 2020 amounted to $0.1 million.
The
following table presents the components of our net periodic pension benefit cost:
|
|
Six Months Ended
June
30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in millions)
|
|
Components of net periodic pension benefit cost:
|
|
|
|
|
|
|
Interest cost
|
|
$
|
1.1
|
|
|
$
|
1.4
|
|
Expected return on plan assets
|
|
|
(1.5
|
)
|
|
|
(1.8
|
)
|
Net periodic benefit
|
|
$
|
(0.4
|
)
|
|
$
|
(0.4
|
)
|
The
following table sets forth the estimate of the combined funded status of the pension plans and their reconciliation to the related
amounts recognized in our consolidated financial statements at the respective measurement dates:
|
|
June
30,
2020
|
|
|
December 31,
2019
|
|
|
|
(in millions)
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
Benefit obligation at beginning of period
|
|
$
|
110.4
|
|
|
$
|
94.1
|
|
Interest cost
|
|
|
1.1
|
|
|
|
2.7
|
|
Prior service cost
|
|
|
—
|
|
|
|
—
|
|
Actuarial loss
|
|
|
7.2
|
|
|
|
14.1
|
|
Benefits paid
|
|
|
(1.3
|
)
|
|
|
(4.2
|
)
|
Foreign currency translation adjustments
|
|
|
(6.9
|
)
|
|
|
3.7
|
|
Benefit obligation at end of period
|
|
$
|
110.5
|
|
|
$
|
110.4
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of period
|
|
$
|
107.3
|
|
|
$
|
97.4
|
|
Actual gain on plan assets
|
|
|
4.0
|
|
|
|
10.3
|
|
Employer contributions
|
|
|
0.1
|
|
|
|
0.2
|
|
Benefits paid
|
|
|
(1.3
|
)
|
|
|
(4.2
|
)
|
Foreign currency translation adjustments
|
|
|
(6.8
|
)
|
|
|
3.6
|
|
Fair value of assets at end of period
|
|
$
|
103.3
|
|
|
$
|
107.3
|
|
Amount recognized in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
Unfunded status (non-current)
|
|
$
|
(7.2
|
)
|
|
$
|
(3.1
|
)
|
Net amount recognized
|
|
$
|
(7.2
|
)
|
|
$
|
(3.1
|
)
|
16.
|
Segment
Reporting and Geographic Information
|
The
Company operates its business along three operating segments, which are segregated based on revenue stream: Service Based Gaming,
Virtual Sports (which includes Interactive) and Acquired Businesses. The Company believes this method of segment reporting reflects
both the way its business segments are managed and the way the performance of each segment is evaluated.
The
following tables present revenue, cost of sales, excluding depreciation and amortization, selling, general and administrative
expenses, depreciation and amortization, stock-based compensation expense and acquisition related transaction expenses, operating
profit/(loss), total assets and total capital expenditures for the periods ended June 30, 2020 and 2019, respectively, by business
segment. Certain unallocated corporate function costs have not been allocated to the Company’s reportable operating segments
because these costs are not allocable and to do so would not be practical. Corporate function costs consist primarily of selling,
general and administrative expenses, depreciation and amortization, capital expenditures, cash, prepaid expenses and property
and equipment and software development costs relating to corporate/shared functions.
Segment
Information
Three
Months Ended June 30, 2020
|
|
Server
Based
Gaming
|
|
|
Virtual
Sports
|
|
|
Acquired
Businesses
|
|
|
Intergroup
Eliminations
|
|
|
Corporate
Functions
|
|
|
Total
|
|
|
|
(in millions)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
$
|
3.6
|
|
|
$
|
9.8
|
|
|
$
|
1.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15.2
|
|
Hardware
|
|
|
0.4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.4
|
|
Total revenue
|
|
|
4.0
|
|
|
|
9.8
|
|
|
|
1.8
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15.6
|
|
Cost of sales, excluding depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service
|
|
|
(1.0
|
)
|
|
|
(1.2
|
)
|
|
|
(0.9
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(3.1
|
)
|
Cost of hardware
|
|
|
(0.3
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.3
|
)
|
Selling, general and administrative expenses
|
|
|
(2.0
|
)
|
|
|
(1.1
|
)
|
|
|
(3.6
|
)
|
|
|
—
|
|
|
|
(3.9
|
)
|
|
|
(10.6
|
)
|
Stock-based compensation expense
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.8
|
)
|
|
|
(1.0
|
)
|
Acquisition and integration related transaction expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1.2
|
)
|
|
|
(1.2
|
)
|
Depreciation and amortization
|
|
|
(6.0
|
)
|
|
|
(1.4
|
)
|
|
|
(5.6
|
)
|
|
|
—
|
|
|
|
(0.3
|
)
|
|
|
(13.3
|
)
|
Segment operating
income (loss)
|
|
|
(5.4
|
)
|
|
|
6.0
|
|
|
|
(8.3
|
)
|
|
|
—
|
|
|
|
(6.2
|
)
|
|
|
(13.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(13.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at June 30, 2020
|
|
$
|
64.2
|
|
|
$
|
64.7
|
|
|
$
|
135.7
|
|
|
$
|
—
|
|
|
$
|
38.7
|
|
|
$
|
303.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill at June 30, 2020
|
|
$
|
—
|
|
|
$
|
43.4
|
|
|
$
|
32.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
75.4
|
|
Total capital expenditures for the
three months ended June 30, 2020
|
|
$
|
0.5
|
|
|
$
|
2.0
|
|
|
$
|
0.5
|
|
|
$
|
—
|
|
|
$
|
0.6
|
|
|
$
|
3.6
|
|
Three
Months Ended June 30, 2019
|
|
Server
Based
Gaming
|
|
|
Virtual
Sports
|
|
|
Acquired
Businesses
|
|
|
Intergroup
Eliminations
|
|
|
Corporate
Functions
|
|
|
Total
|
|
|
|
(in millions)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
$
|
16.4
|
|
|
$
|
9.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
25.6
|
|
Hardware
|
|
|
1.1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.1
|
|
Total revenue
|
|
|
17.5
|
|
|
|
9.2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26.7
|
|
Cost of sales, excluding depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Cost of service
|
|
|
(4.4
|
)
|
|
|
(0.9
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5.3
|
)
|
Cost of hardware
|
|
|
(1.0
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1.0
|
)
|
Selling, general and administrative expenses
|
|
|
(6.0
|
)
|
|
|
(2.1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(4.7
|
)
|
|
|
(12.8
|
)
|
Stock-based compensation expense
|
|
|
(0.5
|
)
|
|
|
(0.3
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1.5
|
)
|
|
|
(2.3
|
)
|
Acquisition and integration related transaction expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.7
|
)
|
|
|
(0.7
|
)
|
Depreciation and amortization
|
|
|
(7.2
|
)
|
|
|
(1.4
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.5
|
)
|
|
|
(9.1
|
)
|
Segment operating
income (loss)
|
|
|
(1.6
|
)
|
|
|
4.5
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(7.4
|
)
|
|
|
(4.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(4.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at December 31, 2019
|
|
$
|
80.8
|
|
|
$
|
66.8
|
|
|
$
|
156.7
|
|
|
$
|
—
|
|
|
$
|
23.1
|
|
|
$
|
327.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill at December 31, 2019
|
|
$
|
—
|
|
|
$
|
46.4
|
|
|
$
|
34.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
80.9
|
|
Total capital expenditures for the
three months ended June 30, 2019
|
|
$
|
2.1
|
|
|
$
|
1.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.5
|
|
|
$
|
4.2
|
|
Six
Months Ended June 30, 2020
|
|
Server
Based
Gaming
|
|
|
Virtual
Sports
|
|
|
Acquired
Businesses
|
|
|
Intergroup
Eliminations
|
|
|
Corporate
Functions
|
|
|
Total
|
|
|
|
(in millions)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
$
|
17.0
|
|
|
$
|
18.8
|
|
|
$
|
23.2
|
|
|
$
|
(0.6
|
)
|
|
$
|
—
|
|
|
$
|
58.4
|
|
Hardware
|
|
|
3.7
|
|
|
|
—
|
|
|
|
6.0
|
|
|
|
(0.2
|
)
|
|
|
—
|
|
|
|
9.5
|
|
Total revenue
|
|
|
20.7
|
|
|
|
18.8
|
|
|
|
29.1
|
|
|
|
(0.8
|
)
|
|
|
—
|
|
|
|
67.9
|
|
Cost of sales, excluding depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service
|
|
|
(4.6
|
)
|
|
|
(2.1
|
)
|
|
|
(3.6
|
)
|
|
|
0.6
|
|
|
|
—
|
|
|
|
(9.7
|
)
|
Cost of hardware
|
|
|
(2.1
|
)
|
|
|
—
|
|
|
|
(5.2
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(7.3
|
)
|
Selling, general and administrative expenses
|
|
|
(7.0
|
)
|
|
|
(2.8
|
)
|
|
|
(20.5
|
)
|
|
|
—
|
|
|
|
(9.4
|
)
|
|
|
(39.7
|
)
|
Stock-based compensation expense
|
|
|
(0.3
|
)
|
|
|
(0.2
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1.5
|
)
|
|
|
(2.0
|
)
|
Acquisition and integration related transaction expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4.4
|
)
|
|
|
(4.4
|
)
|
Depreciation and amortization
|
|
|
(12.2
|
)
|
|
|
(2.8
|
)
|
|
|
(10.4
|
)
|
|
|
—
|
|
|
|
(0.5
|
)
|
|
|
(25.9
|
)
|
Segment operating
income (loss)
|
|
|
(5.5
|
)
|
|
|
10.9
|
|
|
|
(10.5
|
)
|
|
|
(0.2
|
)
|
|
|
(15.8
|
)
|
|
|
(21.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(21.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
for the six months ended June 30, 2020
|
|
$
|
1.6
|
|
|
$
|
3.6
|
|
|
$
|
7.3
|
|
|
$
|
—
|
|
|
$
|
2.9
|
|
|
$
|
15.4
|
|
Six
Months Ended June 30, 2019
|
|
Server
Based
Gaming
|
|
|
Virtual
Sports
|
|
|
Acquired
Businesses
|
|
|
Intergroup
Eliminations
|
|
|
Corporate
Functions
|
|
|
Total
|
|
|
|
(in millions)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
$
|
37.2
|
|
|
$
|
19.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
56.4
|
|
Hardware
|
|
|
4.0
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4.0
|
|
Total revenue
|
|
|
41.2
|
|
|
|
19.2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
60.4
|
|
Cost of sales, excluding depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service
|
|
|
(8.8
|
)
|
|
|
(1.9
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(10.7
|
)
|
Cost of hardware
|
|
|
(2.6
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2.6
|
)
|
Selling, general and administrative expenses
|
|
|
(12.6
|
)
|
|
|
(4.3
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(10.6
|
)
|
|
|
(27.5
|
)
|
Stock-based compensation expense
|
|
|
(0.9
|
)
|
|
|
(0.6
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(2.9
|
)
|
|
|
(4.4
|
)
|
Acquisition and integration related transaction expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1.6
|
)
|
|
|
(1.6
|
)
|
Depreciation and amortization
|
|
|
(14.9
|
)
|
|
|
(2.9
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1.0
|
)
|
|
|
(18.8
|
)
|
Segment operating
income (loss)
|
|
|
1.4
|
|
|
|
9.5
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(16.1
|
)
|
|
|
(5.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(5.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
for the six months ended June 30, 2019
|
|
$
|
5.0
|
|
|
$
|
3.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.7
|
|
|
$
|
8.7
|
|
Geographic
Information
Geographic
information for revenue is set forth below:
|
|
Three Months Ended
June
30,
|
|
|
Six
Months Ended
June
30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(in millions)
|
|
|
(in millions)
|
|
Total revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
UK
|
|
$
|
9.2
|
|
|
$
|
15.5
|
|
|
$
|
47.6
|
|
|
$
|
37.7
|
|
Greece
|
|
|
2.6
|
|
|
|
4.8
|
|
|
|
7.4
|
|
|
|
9.6
|
|
Italy
|
|
|
1.4
|
|
|
|
4.2
|
|
|
|
3.6
|
|
|
|
8.4
|
|
Rest of world
|
|
|
2.4
|
|
|
|
2.2
|
|
|
|
9.3
|
|
|
|
4.7
|
|
Total
|
|
$
|
15.6
|
|
|
$
|
26.7
|
|
|
$
|
67.9
|
|
|
$
|
60.4
|
|
Geographic
information of our non-current assets excluding goodwill is set forth below:
|
|
June
30,
2020
|
|
|
December 31,
2019
|
|
|
|
(in millions)
|
|
UK
|
|
$
|
101.9
|
|
|
$
|
116.1
|
|
Greece
|
|
|
21.4
|
|
|
|
26.5
|
|
Italy
|
|
|
2.2
|
|
|
|
2.3
|
|
Rest of world
|
|
|
7.9
|
|
|
|
6.3
|
|
Total
|
|
$
|
133.4
|
|
|
$
|
151.2
|
|
Software
development costs are included as attributable to the market in which they are utilized.
17.
|
Customer
Concentration
|
During
the three months ended June 30, 2020, two customers represented at least 10% of the Company’s revenues, accounting for 25%
and 18% of the Company’s revenues. The customer that accounted for 25% of the Company’s revenues was served by the
Virtual Sports segment, the customer that accounted for 10% of the Company’s revenues was served by both the Server Based
Gaming and Virtual Sports segments. During the three months ended June 30, 2019, three customers represented at least 10%
of revenues, accounting for 19%, 16% and 10% of the Company’s revenues. All three customers were served by both the Server
Based Gaming and Virtual Sports segments.
During
the six months ended June 30, 2020, one customer represented at least 10% of the Company’s revenues, accounting for 10%
of the Company’s revenues. During the six months ended June 30, 2019, three customers represented at least 10% of revenues,
accounting for 21%, 15% and 11% of the Company’s revenues. All these customers were served by both the Server Based Gaming
and Virtual Sports segments.
At
June 30, 2020 and December 31, 2019, there were no customers that represented at least 10% of accounts receivable.
The
Company evaluates subsequent events and transactions that occur after the balance sheet date up to the date that the financial
statements were issued. Based upon this review, the Company did not identify subsequent events that would have required adjustment
or disclosure in the consolidated financial statements.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis of our financial condition and results of operations should be read in conjunction with the
financial statements and related notes thereto included elsewhere in this report. This discussion contains forward-looking statements
that involve risks and uncertainties. Our actual future results could differ materially from the historical results discussed
below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and
those discussed in the section titled “Risk Factors” included herein and in our annual report on Form 10-K.
COVID-19
Update
Investors
and potential investors are advised to review this Form 10Q in light of ongoing events. As with other businesses worldwide, we
are experiencing severe disruption to our business as a result of the COVID-19 pandemic and the far-reaching actions of the governments
of various countries where we do, and hope to do, business, as well as countries sourcing our supply chain.
The World Health Organization declared COVID-19 to be a global pandemic.
There were a number of government-imposed emergency measures in many of the jurisdictions in which we operate in response to the
pandemic. Since the closure of all retail venues (including pubs, bookmakers, holiday parks, and adult gaming centers), restrictions
on all non-essential travel, social distancing, bans on public mobility and shelter in place measures, there has been some easing
of these measures during mid-May onwards but some retail venues remain closed, specifically in Scotland as well as bowling alleys
and casinos in the UK.
Our business is being and will continue to be adversely affected
by the rapidly expanding nature of the coronavirus (COVID-19) pandemic. Due to the speed and fluidity with which the situation
continues to develop and the uncertainty on whether a “second wave” of the COVID-19 pandemic will occur later in calendar
year 2020, we are not able at this time to estimate the extent of the impact of the COVID-19 pandemic on our financial results
and operations in future periods. The risk of there being a “second wave” or other additional periods of increases
or spikes in the number of COVID-19 cases in areas in which we operate which could see the government re-impose restrictions on
or changes to our operations up to and including complete or partial closures of retail venues and the long-term impacts of the
pandemic on the global economy, trade relations, consumer behavior, our industry and our business operation remains.
While
the situation is fluid, we have already experienced adverse effects on our business, which we are currently working to mitigate.
Since mid-March, we have drawn down the full amount of GBP20.0 million (equivalent to $24.8 million at current exchange rates)
on our revolving credit facility to provide additional near-term liquidity and cancelled or delayed material capital expenditures.
Reduced compensation levels remain in place and during the period of this Report, a number of staff remained on furlough.
Due
to the closure of land-based revenues we saw a significant increase in our online revenues from slots and virtual sports and following
the success of this area of the business and the successful re-opening of various revenue streams, the Company repaid GBP10.0
million (equivalent to $12.4 million at current exchange rates) of the revolving credit facility subsequent to the end of the
reporting period.
On
June 15, 2020, the British government re-opened betting shops and on July 4, 2020 re-opened pubs, arcades and holiday parks. Bowling
alleys and casinos remain closed. On June 15, 2020, the Italian government re-opened all bricks and mortar gaming halls. On June
8, 2020, the Greek government re-opened all bricks and mortar gaming halls following closures to prevent the spread of COVID-19.
Our ability to execute our strategy is necessarily affected by the
ongoing COVID-19 pandemic and it is as yet unknown effects on our business. We continue to be highly focused on managing our cash
flow and liquidity, as well as focusing on the phased opening up of our businesses.
However,
the dynamic nature of the pandemic and government restrictions, as well as evolving potential for relevant, government sponsored
business stimuli and creditor relief plans are neither quantifiable nor predictable as of this Report.
Forward-Looking
Statements
We
make forward-looking statements in this Quarterly Report on Form 10-Q. These forward-looking statements relate to expectations
for future financial performance, business strategies or expectations for our business, and the timing and ability for us to complete
currently contemplated or future acquisitions. Specifically, forward-looking statements may include statements relating to:
|
●
|
the
future financial performance of the Company;
|
|
●
|
restrictions
in our existing borrowings, including covenants set forth in our existing debt facilities (and the recent amendment thereto),
or any other indebtedness we may incur in the future, could adversely affect our business, financial condition, or results
of operations, and our ability to make distributions to stockholders and the value of our common stock;
|
|
●
|
the
market for the Company’s products and services;
|
|
●
|
expansion
plans and opportunities, including currently contemplated or future acquisitions or additional business combinations;
and
|
|
●
|
other
statements preceded by, followed by or that include words such as “anticipate”, “believe”, “can”,
“continue”, “could”, “estimate”, “expect”, “forecast”, “intend”,
“may”, “might”, “plan”, “possible”, “potential”, “predict”,
“project”, “proposed”, “scheduled”, “seek”, “should”, “target”,
“would” or similar expressions, among others.
|
These
forward-looking statements are based on information available as of the date hereof, and current expectations, forecasts and assumptions
that involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon
as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements
to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise,
except as may be required under applicable securities laws. As a result of a number of known and unknown risks and uncertainties,
our actual results or performance may be materially different from those expressed or implied by these forward-looking statements.
Some factors that could cause our actual results or performance to differ include:
|
●
|
the
effect and impact of the ongoing global coronavirus (COVID-19) pandemic on our business including whether there is a “second
wave” or other additional periods of increases or spikes in the number of COVID-19 cases in areas in which we operate;
the duration, degree and effectiveness of governmental, business or other actions in response to the pandemic, including but
not limited to quarantine, shelter-in-place and social distancing measures; restrictions on or changes to our operations up
to and including complete or partial closures of retail venues; the long-term impacts of the pandemic on the global economy,
trade relations, consumer behavior, our industry and our business operations;
|
|
●
|
our
ability to compete effectively in our industries;
|
|
●
|
the
effect of evolving technology on our business;
|
|
●
|
our
ability to renew long-term contracts and retain customers, and secure new contracts and customers;
|
|
●
|
our
ability to maintain relationships with suppliers;
|
|
●
|
our
ability to protect our intellectual property;
|
|
●
|
our
ability to protect our business against cybersecurity threats;
|
|
|
|
|
●
|
government
regulation of our industries;
|
|
●
|
our
ability to successfully grow by acquisition as well as organically;
|
|
●
|
fluctuations
due to seasonality;
|
|
●
|
our
ability to attract and retain key members of our management team;
|
|
●
|
our
need for working capital;
|
|
●
|
our
ability to secure capital for growth and expansion;
|
|
●
|
changing
consumer, technology and other trends in our industries;
|
|
●
|
our
ability to successfully operate across multiple jurisdictions and markets around the world;
|
|
●
|
changes
in local, regional and global economic and political conditions; and
|
Overview
We
are a global business-to-business gaming technology company, supplying Server Based Gaming (“SBG”) and Virtual Sports
(which includes Interactive) systems to regulated lottery, betting and gaming operators worldwide through an “omni-channel”
distribution strategy. We provide end-to-end digital gaming solutions on our proprietary and secure network, which accommodates
a wide range of devices, including land-based gaming machine terminals, mobile devices such as smartphones and tablets and online
computer and social applications. Our products can be found in licensed betting offices, adult gaming centers, bingo halls, and
through our Acquired Businesses, in UK pubs, airports, motorway service areas, and leisure parks.
Our
key strategic priorities are to:
|
●
|
Extend
our strong positions in each of Virtual Sports, Interactive and SBG by developing new omni-channel products;
|
|
●
|
Continue
to invest in games and technology in order to grow our existing customers’ revenues;
|
|
●
|
Add
new customers by expanding into underpenetrated markets and newly regulated jurisdictions; and
|
|
●
|
Pursue
targeted mergers and acquisitions to expand our product portfolio and/or distribution footprint.
|
On
October 1, 2019, the Company completed the acquisition of the Gaming Technology Group (“NTG”) of Novomatic UK Ltd.,
a division of Novomatic Group, a leading international supplier of gaming equipment and solutions, and heretofore denoted as “Acquired
Businesses.”
Business
Segments
We
report our operations in three business segments, SBG, Virtual Sports (which includes Interactive, an operating segment which
does not exceed the quantitative thresholds in Accounting Standards Committee (“ASC” 280-10-50-12), and Acquired Businesses
(which is comprised of the aforementioned NTG business, acquired on October 1, 2019), representing our different products and
services. We evaluate our business performance, resource allocation and capital spending on an operating segment level, where
possible. We use our operating results and identified assets of each of our operating segments in order to make prospective operating
decisions. Although our revenue and cost of sales (excluding depreciation and amortization) are reported exclusively by segment,
we do include unallocated items in our consolidated financial statements for certain expenses including depreciation and amortization
as well as selling, general and administrative expenses. Unallocated balance sheet line items include items that are a shared
resource and therefore not allocated between operating segments.
Our
SBG business segment designs, develops, markets and distributes a broad portfolio of games through our digital network architecture.
Our SBG customers include UK licensed betting offices (“LBOs”), casinos, gaming hall operators, bingo operators and
regulated operators of lotteries, as well as government-affiliated operators.
Our
Virtual Sports business segment designs, develops, markets and distributes ultra-high-definition games that create an always-on
sports wagering experience. Our Virtual Sports customers include virtual sports retail and digital operators, including regulated
betting operators, lotteries, casinos, online and social gaming operators and other gaming and lottery operators in the UK, continental
Europe, Africa, Asia and North America. Our Interactive business segment (reported as part of Virtual Sports) comprises the offering
of our SBG and Virtual Sports content via our remote gaming servers.
Our
Acquired Businesses designs, develops, markets and distributes a broad portfolio of games through our digital network architecture.
In addition, it operates analog gaming and amusement machines for certain customers, including UK pubs, adult gaming centers,
motorway service stations and holiday resorts.
Revenue
We
generate revenue in three principal ways: on a participation basis, on a fixed rental fee basis and through product sales and
software license fees. Participation revenue includes a right to receive a share of revenue generated from (i) our Virtual Sports
products placed with operators; (ii) our SBG terminals placed in gaming and lottery venues; (iii) licensing our game content and
intellectual property to third parties; and (iv) our games on third-party online gaming platforms that are interoperable with
our game servers.
Geographic
Range
Geographically,
more than half of our revenue is derived from, and more than half of our non-current assets are attributed to, our UK operations,
with the remainder of our revenue derived from, and non-current assets attributed to, Italy, Greece and the rest of the world.
For
the three months ended June 30, 2020, we earned approximately 59.0% of our revenue in the UK, 18.2% in Greece, 8.7% in Italy and
the remaining 14.0% across the rest of the world. During the three months ended June 30, 2019, we earned approximately 57.8%,
18.1%, 15.7% and 8.4% of our revenue in those regions, respectively.
For
the six months ended June 30, 2020, we earned approximately 70.1% of our revenue in the UK, 11.3% in Greece, 5.2% in Italy and
the remaining 13.7% across the rest of the world. During the six months ended June 30, 2019, we earned approximately 62.3%, 16.0%,
14.0% and 7.7% of our revenue in those regions, respectively.
Foreign
Exchange
Our
results are affected by changes in foreign currency exchange rates as a result of the translation of foreign functional currencies
into our reporting currency and the re-measurement of foreign currency transactions and balances. The impact of foreign currency
exchange rate fluctuations represents the difference between current rates and prior-period rates applied to current activity.
The largest geographic region in which we operate is the UK and the British pound (“GBP”) is considered to be our
functional currency. Our reporting currency is the U.S. dollar (“USD”). Our results are translated from our functional
currency of GBP into the reporting currency of USD using average rates for profit and loss transactions and applicable spot rates
for period-end balances. The effect of translating our functional currency into our reporting currency, as well as translating
the results of foreign subsidiaries that have a different functional currency into our functional currency, is reported separately
in Accumulated Other Comprehensive Income.
During
the three months ended June 30, 2020, we derived approximately 41% of our revenue from sales to customers outside the UK, compared
to 42% during the three months ended June 30, 2019.
During
the six months ended June 30, 2020, we derived approximately 30% of our revenue from sales to customers outside the UK, compared
to 38% during the six months ended June 30, 2019.
In
the section “Results of Operations” below, currency impacts shown have been calculated as the current-period average
GBP:USD rate less the equivalent average rate in the prior period, multiplied by the current period amount in our functional currency
(GBP). The remaining difference, referred to as functional currency at constant rate, is calculated as the difference in our functional
currency, multiplied by the prior-period average GBP:USD rate. This is not a U.S. GAAP measure, but is one which management believes
gives a clearer indication of results. In the tables below, variances in particular line items from period to period exclude currency
translation movements, and currency translation impacts are shown independently.
Non-GAAP
Financial Measures
We
use certain financial measures that are not compliant with U.S. GAAP (“Non-GAAP financial measures”), including EBITDA
and Adjusted EBITDA, to analyze our operating performance. In this discussion and analysis, we present certain non-GAAP financial
measures, define and explain these measures and provide reconciliations to the most comparable U.S. GAAP measures. See “Non-GAAP
Financial Measures” below.
Results
of Operations
The
following discussion and analysis of our results of operations has been organized in the following manner:
|
●
|
a
discussion and analysis of the Company’s results of operations for the three-month period ended June 30, 2020, compared
to the same period in 2019; and
|
|
●
|
a
discussion and analysis of the results of operations of our SBG and Virtual Sports business segments for the three-month period
ended June 30, 2020, compared to the same period in 2019, including KPI analysis; and
|
|
●
|
a
discussion and analysis of the results of operations of our Acquired Businesses segments for the three-month period ended
June 30, 2020, including KPI analysis; and
|
|
|
|
|
●
|
a
discussion and analysis of the Company’s results of operations for the six-month period ended June 30, 2020, compared to
the same period in 2019; and
|
|
|
|
|
●
|
a
discussion and analysis of the results of operations of our SBG and Virtual Sports business segments for the six-month period
ended June 30, 2020, compared to the same period in 2019, including KPI analysis; and
|
|
|
|
|
●
|
a
discussion and analysis of the results of operations of our Acquired Businesses segments for the six-month period ended June 30,
2020, including KPI analysis.
|
Our
fiscal year begins on January 1 and ends on December 31 of each calendar year. The results for the three months ended June 30,
2020 are unaudited.
Our
results are affected by changes in foreign currency exchange rates, primarily between our functional currency (GBP) and our reporting
currency (USD). In the three-month periods ended June 30, 2020 and June 30, 2019, the average GBP:USD rates were 1.24 and 1.29,
respectively. In the six-month periods ended June 30, 2020 and 2019, the average GBP:USD rates were 1.27 and 1.30, respectively.
Our
results for the quarter ended June 30, 2020 have been impacted by the temporary closure of most non-essential businesses around
the world due to the outbreak of COVID-19. The ongoing COVID-19 pandemic is expected to have far reaching impact on global commerce,
with governments discouraging non-essential movement and/or ordering social distancing and sheltering-in-place in an effort to
help control the transmission of COVID-19, which in some cases include the mandatory closure of spaces where the public congregates.
With respect to the jurisdictions in which the Company operates, the UK, Italy, Greece, and US (Illinois) each mandated the above
shutdown measures in response to COVID-19 on March 20, 2020, March 10, 2020, March 14, 2020, and March 21, 2020, respectively.
These jurisdictions reopened for business, with certain limitations, on June 15, 2020, June 15, 2020, June 8, 2020, and July 1,
2020, respectively. However, due to the changing nature of the COVID-19 pandemic, there continues to be the risk of shutdowns
in jurisdictions in which the Company operates. The financial results discussed herein reflect the impact of these shutdowns through
June 30, 2020.
In
the discussion and analysis below, certain data may vary from the amounts presented in our consolidated financial statements due
to rounding.
Three
Months ended June 30, 2020 compared to Three Months ended June 30, 2019
|
|
For the Three-Month
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period ended
|
|
|
|
|
|
Variance
|
|
|
|
Unaudited
|
|
|
Unaudited
|
|
|
|
|
|
Functional
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
Variance
|
|
|
Currency at
|
|
|
Functional
|
|
|
Currency
|
|
(In millions)
|
|
2020
|
|
|
2019
|
|
|
2020 vs 2019
|
|
|
Constant rate
|
|
|
Currency
|
|
|
Movement
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
$
|
15.2
|
|
|
$
|
25.6
|
|
|
$
|
(10.4
|
)
|
|
|
(40.6
|
)%
|
|
$
|
(9.9
|
)
|
|
|
(38.5
|
)%
|
|
$
|
(0.5
|
)
|
Hardware
|
|
|
0.4
|
|
|
|
1.1
|
|
|
|
(0.7
|
)
|
|
|
(67.5
|
)%
|
|
|
(0.7
|
)
|
|
|
(66.8
|
)%
|
|
|
(0.0
|
)
|
Total revenue
|
|
|
15.6
|
|
|
|
26.7
|
|
|
|
(11.1
|
)
|
|
|
(41.7
|
)%
|
|
|
(10.6
|
)
|
|
|
(39.6
|
)%
|
|
|
(0.5
|
)
|
Cost of sales, excluding depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service
|
|
|
(3.1
|
)
|
|
|
(5.3
|
)
|
|
|
2.3
|
|
|
|
(42.4
|
)%
|
|
|
2.1
|
|
|
|
(40.3
|
)%
|
|
|
0.1
|
|
Cost of hardware
|
|
|
(0.3
|
)
|
|
|
(1.0
|
)
|
|
|
0.6
|
|
|
|
(65.0
|
)%
|
|
|
0.6
|
|
|
|
(62.3
|
)%
|
|
|
0.0
|
|
Selling, general and administrative expenses
|
|
|
(10.6
|
)
|
|
|
(12.8
|
)
|
|
|
2.2
|
|
|
|
(17.3
|
)%
|
|
|
1.9
|
|
|
|
(14.5
|
)%
|
|
|
0.4
|
|
Stock-based compensation
|
|
|
(1.0
|
)
|
|
|
(2.3
|
)
|
|
|
1.3
|
|
|
|
(58.4
|
)%
|
|
|
1.3
|
|
|
|
(56.9
|
)%
|
|
|
0.0
|
|
Acquisition and integration related transaction expenses
|
|
|
(1.2
|
)
|
|
|
(0.7
|
)
|
|
|
(0.5
|
)
|
|
|
69.0
|
%
|
|
|
(0.6
|
)
|
|
|
74.0
|
%
|
|
|
0.0
|
|
Depreciation and amortization
|
|
|
(13.3
|
)
|
|
|
(9.1
|
)
|
|
|
(4.2
|
)
|
|
|
46.8
|
%
|
|
|
(4.7
|
)
|
|
|
52.3
|
%
|
|
|
0.5
|
|
Net operating Income (Loss)
|
|
|
(13.9
|
)
|
|
|
(4.5
|
)
|
|
|
(9.4
|
)
|
|
|
210.2
|
%
|
|
|
(9.9
|
)
|
|
|
221.8
|
%
|
|
|
0.5
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
(0.0
|
)
|
|
|
(11.6
|
)%
|
|
|
(0.0
|
)
|
|
|
(8.2
|
)%
|
|
|
(0.0
|
)
|
Interest expense
|
|
|
(8.1
|
)
|
|
|
(4.0
|
)
|
|
|
(4.1
|
)
|
|
|
100.6
|
%
|
|
|
(4.4
|
)
|
|
|
107.9
|
%
|
|
|
0.3
|
|
Change in fair value of derivative liability
|
|
|
-
|
|
|
|
(1.3
|
)
|
|
|
1.3
|
|
|
|
(100.0
|
)%
|
|
|
1.3
|
|
|
|
(100.0
|
)%
|
|
|
(0.0
|
)
|
Other finance income (expense)
|
|
|
(2.5
|
)
|
|
|
(0.9
|
)
|
|
|
(1.6
|
)
|
|
|
192.3
|
%
|
|
|
(1.8
|
)
|
|
|
203.5
|
%
|
|
|
0.1
|
|
Loss from equity method investee
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
N/A
|
|
|
|
-
|
|
|
|
N/A
|
|
|
|
-
|
|
Total other income (expense), net
|
|
|
(10.5
|
)
|
|
|
(6.1
|
)
|
|
|
(4.4
|
)
|
|
|
71.7
|
%
|
|
|
(4.8
|
)
|
|
|
76.9
|
%
|
|
|
0.4
|
|
Net loss from continuing operations before income
taxes
|
|
|
(24.4
|
)
|
|
|
(10.6
|
)
|
|
|
(13.8
|
)
|
|
|
130.1
|
%
|
|
|
(14.7
|
)
|
|
|
137.7
|
%
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
0.0
|
|
|
|
(31.6
|
)%
|
|
|
0.0
|
|
|
|
(31.4
|
)%
|
|
|
(0.0
|
)
|
Net loss
|
|
$
|
(24.5
|
)
|
|
$
|
(10.7
|
)
|
|
$
|
(13.8
|
)
|
|
|
128.7
|
%
|
|
$
|
(14.7
|
)
|
|
|
136.3
|
%
|
|
$
|
0.9
|
|
Exchange Rate - $ to £
|
|
|
1.24
|
|
|
|
1.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
Total
reported revenue for the three months ended June 30, 2020 decreased by $11.1 million, or 41.7%, to $15.6 million on a reported
basis. Revenue was significantly impacted by the shutdown of non-essential businesses most of the second quarter in all
of the jurisdictions in which the Company operates, due to the ongoing COVID-19 pandemic. Adverse currency movements accounted
for a $0.5 million impact. On a functional currency at constant rate basis, revenue decreased by $10.6 million, or 39.6%, with
service revenue decreasing by $9.9 million and hardware revenue decreasing by $0.7 million. The change in total reported revenue
was comprised of a decrease of $13.5 million in SBG revenue, offset by an increase of $0.6 million in Virtual Sports revenue and
an increase in revenue of $1.8 million from the Acquired Businesses segment.
SBG revenue, which is included in total reported revenue above,
decreased by $13.5 million on a functional currency at constant rate basis, or 77.1%, comprised of a reduction in service revenue
of $12.6 million, and a $0.7 million decrease in hardware sales.
SBG service revenue decreased
by $12.7 million on a reported basis, of which $0.1 million was attributable to adverse currency movements. On a functional currency
at constant rate basis, SBG service revenue decreased by $12.6 million, or 77.1%, to $3.6 million.
SBG
hardware revenue decreased by $0.7 million to $0.4 million on a reported basis. On a functional currency at constant rate basis,
the revenue decrease was $0.7 million or 67.8% with a de minimis currency impact.
Virtual
Sports reported revenue increased by $0.6 million, or 6.4%, on a reported basis. This increase includes the impact of adverse
currency movements of $0.4 million. On a functional currency at constant rate basis, Virtual Sports revenue increased by $1.0
million, or 10.5%. This increase included a $3.6 million decline in retail recurring revenue from the COVID-19 national shutdowns,
predominantly driven by Italy which locked down earlier than other territories. Declines were offset by growth in Scheduled Online
Virtuals of $2.9 million and Interactive of $1.3 million.
Acquired
Businesses revenue accounted for $1.8 million in service revenue and nil hardware revenue. As with the Company’s other businesses
in the UK, the general shutdown due to COVID-19 resulted in a cessation of gaming operations for most of the second quarter.
Cost
of sales, excluding depreciation and amortization
Cost
of sales, excluding depreciation and amortization, decreased by $2.9 million, or 45.9%, on a reported basis, to $3.4 million,
including the impact of $0.1 million from favorable currency movements. On a functional currency at constant rate basis, cost
of sales decreased by $2.8 million, or 43.8%.
Of
this decrease, $4.1 million was attributable to decreased SBG service costs due to reduced consumable usage in line with the reduced
machine estate due to the Triennial, and COVID-19 impact. This was offset by $0.9 million of service costs attributable to the
acquisition of the Acquired Businesses.
Selling,
general and administrative expenses
SG&A
expenses decreased by $2.2 million, or 17.3%, on a reported basis, to $10.6 million. This included $0.4 million of favorable currency
movements. On a functional currency at constant rate basis, SG&A decreased by $1.9 million, or 14.5%. The reported decrease
was driven by incremental SG&A expenses of $3.6 million from the Acquired Businesses, offset by a $4.6 million decrease in
selling, general and administrative expenses in SBG and Virtual Sports due to staff furloughs attributable to the COVID-19 pandemic.
Stock-based
compensation
During
the three months ended June 30, 2020, the Company recorded an expense of $1.0 million with respect to outstanding awards. Of this
expense, $0.1 million related to costs from awards made under the 2016 Long Term Incentive Plan and $0.9 million from awards made
under the 2018 Plan. The entirety of this cost related to recurring costs. During the three months ended June 30, 2019, the charge
for stock-based compensation was $2.3 million. Of this expense, $1.5 million related to costs from awards made under the 2016
Long Term Incentive Plan and $0.8 million from awards made under the 2018 Plan with some of the 2018 Plan awards impacted by movements
in the stock price between the award granting date and May 14, 2019, the date the scheme was formally approved by stockholders.
Following approval, the cost was no longer impacted by stock price movements being charged by the same method as all other award
plans.
Acquisition
and integration related transaction expenses
Acquisition
related transaction expenses increased by $0.5 million to $1.2 million, on a reported basis. The entirety of the 2020 and 2019
period expenses were related to work in respect of potential acquisitions with the 2019 expenses relating to the acquisition and
third party integration fees linked exclusively to the acquisition and integration of Novomatic UK’s Gaming Technology Group
and the 2020 expenses relating to the group integration costs following the acquisition.
Depreciation
and amortization
Depreciation
and amortization increased by $4.2 million, or 46.8% to $13.3 million on a reported basis. This included the impact of favorable
currency movements of $0.5 million.
On
a functional currency at constant rate basis, depreciation and amortization increased by $4.7 million, or 52.3%. This increase
was driven by incremental depreciation and amortization of $5.6 million from the Acquired Businesses. This was partially offset
by a $1.0 million decrease of depreciation and amortization in SBG and Virtual Sports, due primarily to UK and Italy machine estates
reaching full depreciation status.
Net
operating loss
During
the period, net operating loss increased by $9.4 million from a loss of $4.5 million to a loss of $13.9 million on a reported
basis. On a functional currency at constant rate basis, net operating loss increased by $9.9 million, as the decline in revenue
related to COVID-19 was impacted by the addition of SG&A associated with the Acquired Businesses, only partially offset by
the declines in cost of sales, SG&A, and depreciation.
Interest
expense
Interest
expense increased by $4.1 million in the period, to $8.1 million, on a reported basis. Of this variance $0.3 million was due to
an adverse currency movement. On a functional currency at a constant rate basis, interest expense was $4.4 million (107.9%) higher
than the prior year due to an increase of $2.9 million of cash interest due to a higher debt balance amount after the acquisition
of Novomatic UK’s Gaming Technology Group in October 2019, a $1.0 million charge for debt fees relating to the debt restructure
and an increase of $0.4 million of cash interest due to a higher revolver draw as a result of the COVID-19 pandemic.
Change
in fair value of derivative liability
Following
the termination of the cross-currency swaps on October 1, 2019, there was no change in the fair values of derivative liabilities
in the three months ended June 30, 2020. For the three months ended June 30, 2019, the change in fair value of derivative liability
was a $1.3 million charge.
Other
finance income
Other
finance income for the three months ended June 30, 2020 was a charge of $2.5 million compared to a $0.9 million charge in the
three months ended June 30, 2019. The $2.5 million charge for the three months ended June 30, 2020 related to a $2.7m retranslation
of senior debt offset by a $0.2m pension credit. The $0.9 million charge in the prior year related to a $3.2m retranslation
of senior debt offset by a $0.2m pension credit and a $2.2 million benefit from the GBP:USD cross-currency swap which was terminated
on October 1, 2019.
Income
tax expense
Our
effective tax rate for the period ended June 30, 2020 was 0.3% and our effective tax rate for the period ended June 30, 2019 was
(0.8)%.
Net
loss
On
a reported basis, net loss increased by $13.8 million, from a loss of $10.7 million to a loss of $24.5 million in the three months
ended June 30, 2020. On a functional currency at constant rate basis, net loss increased by $14.7 million, mainly due to the shutdowns
associated with COVID-19, as well as increases in operating expenses attributable to the Acquired Businesses, in addition to increases
in interest expense and other finance costs, offset by a reduction in earnout liability.
Three
Months ended June 30, 2020 compared to Three Months ended June 30, 2019 – Server Based Gaming Segment
Revenue
growth for our SBG business is principally driven by the number of operator customers we have, the number of SBG machines in operation,
the net win performance of the machines and the net win percentage that we receive pursuant to our contracts with our customers.
SBG
Segment, Key Performance Indicators
|
|
For
the Three-Month
Period ended
|
|
|
|
|
|
|
Unaudited
|
|
|
Unaudited
|
|
|
|
|
|
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
Variance
|
|
SBG
|
|
2020
|
|
|
2019
|
|
|
2020
vs 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
End
of period installed base (# of terminals)
|
|
|
32,972
|
|
|
|
35,077
|
|
|
|
(2,105
|
)
|
|
|
(6.0
|
)%
|
Average
installed base (# of terminals)
|
|
|
32,961
|
|
|
|
35,241
|
|
|
|
(2,280
|
)
|
|
|
(6.5
|
)%
|
Customer
Gross Win per unit per day (1)(2)
|
|
£
|
11.18
|
|
|
£
|
72.57
|
|
|
£
|
(61.38
|
)
|
|
|
(84.6
|
)%
|
Customer
Net Win per unit per day (1)(2)
|
|
£
|
8.16
|
|
|
£
|
51.68
|
|
|
£
|
(43.52
|
)
|
|
|
(84.2
|
)%
|
Inspired
Blended Participation Rate
|
|
|
6.6
|
%
|
|
|
6.4
|
%
|
|
|
0.3
|
%
|
|
|
|
|
(1)
|
Includes
all SBG terminals in which the company takes a participation revenue share across all territories
|
|
|
(2)
|
Includes
all days of the quarter, including the days during which the SBG terminals were not operating due to COVID-19. As
a result, performance reflects this complete shutdown for the bulk of the period.
|
In
the table above:
“End
of Period Installed Base” is equal to the number of deployed SBG terminals at the end of each period that have been placed
on a participation basis. SBG participation revenue, which comprises the majority of SBG service revenue, is directly related
to the terminal installed base. This is the medium by which customers generate revenue and distribute a revenue share to the Company.
To the extent all other KPIs and certain other factors remain constant, the larger the installed base, the higher the Company’s
revenue will be for that period. Management gives careful consideration to this KPI in terms of driving growth across the segment.
Revenue
is derived from the performance of the installed base as described by the Gross and Net Win KPIs.
If
the End of Period Installed Base is materially different from the Average Installed Base (described below), we believe this gives
an indication as to potential future performance. The End of Period Installed Base is particularly useful for assessing new customers
or markets, to indicate the progress being made with respect to entering new territories or jurisdictions.
“Average
Installed Base” is the average number of deployed SBG terminals during the period. Therefore, it is more closely aligned
to revenue in the period. This measure is particularly useful for assessing existing customers or markets to provide comparisons
of historical size and performance.
“Customer
Gross Win per unit per day” is a KPI used by our internal decision makers to (i) assess impact on the Company’s revenue,
(ii) determine changes in the strength of the overall market and (iii) evaluate the impacts of regulatory change and our new content
releases on our customers. Customer Gross Win per unit per day is the average per unit cash generated across all SBG terminals
in which the Company takes a participation revenue share across all territories in the period, defined as the difference between
the amounts staked less winnings to players divided by the Average Installed Base in the period, then divided by the number of
days in the period.
SBG
revenue share income accrued in the period is derived from Customer Gross Win accrued in the period after deducting gaming taxes
(defined as a regulatory levy paid by the Customer to government bodies) and applying the Company’s contractual revenue
share percentage.
Our
internal decision makers believe Customer Gross Win measures are meaningful because they represent a view of customer operating
performance that is unaffected by our revenue share percentage and allow management to (1) readily view operating trends, (2)
perform analytical comparisons and benchmarking between customers and (3) identify strategies to improve operating performance
in the different markets in which we operate.
“Customer
Net Win per unit per day” is Customer Gross Win per unit per day after giving effect to the deduction of gaming taxes.
“Inspired
Blended Participation Rate” is the Company’s average revenue share percentage across all terminals where revenue is
earned on a participation basis, weighted by Customer Net Win per unit per day.
Our
overall SBG revenue from terminals placed on a participation basis can therefore be described as the product of the Average Installed
Base, the Customer Net Win per unit per day, the number of days in the period, and the Inspired Blended Participation Rate, to
give “participation revenue”.
SBG
Segment, key events that affected results for the Three Months ended June 30, 2020
During the period Customer Gross Win per unit per day in the total
UK market (including non-LBO markets) decreased by 84.1%. This was due mainly to the impact of COVID-19, with retail venues closed
through April, May, and approximately half of June 2020. A significant number of retail venues reopened on or around June 15, 2020,
with over 80% of shops (based on pre-COVID-19 shop count) open at the end of June 2020 and showing strong performance. Due to the
shutdown period in the second quarter of 2020, Triennial impact was minimal, with improved Customer Gross Win per unit per day
in 2020, versus the comparable period last year, being offset by 700 shop closures by a major customer.
In
Italy, Customer Net Win per unit per day (in EUR) decreased by 93.5% due mainly to the shutdown of retail venues throughout April,
May and part of June 2020 as a result of COVID-19. Approximately 50% of venues reopened on or around June 15, 2020.
Greece
Customer Gross Win per unit per day (in EUR) decreased by 73.2%, due solely to the closure of retail venues throughout April,
May and part of June 2020 due to COVID-19. All retail venues reopened on June 8, 2020 and performance through the end of the quarter
was strong.
Customer
Gross Win per unit per day (in our functional currency, GBP) decreased by £61 or 84.6% across the entire estate due to the
impact of COVID-19 (as described by market above). The blended participation rate increased from 6.4% to 6.6%.
SBG
Segment, Three Months ended June 30, 2020 compared to Three Months ended June 30, 2019
Server
Based Gaming
|
|
For the Three-Month
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period ended
|
|
|
|
|
|
Variance
|
|
|
|
Unaudited
|
|
|
Unaudited
|
|
|
|
|
|
Functional
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
Variance
|
|
|
Currency at
|
|
|
Functional
|
|
|
Currency
|
|
(In millions)
|
|
2020
|
|
|
2019
|
|
|
2020 vs 2019
|
|
|
Constant rate
|
|
|
Currency
|
|
|
Movement
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
$
|
3.6
|
|
|
$
|
16.4
|
|
|
$
|
(12.7
|
)
|
|
|
(77.8
|
)%
|
|
$
|
(12.6
|
)
|
|
|
(77.1
|
)%
|
|
$
|
(0.1
|
)
|
Hardware
|
|
|
0.4
|
|
|
|
1.1
|
|
|
|
(0.7
|
)
|
|
|
(66.7
|
)%
|
|
|
(0.7
|
)
|
|
|
(67.8
|
)%
|
|
|
(0.0
|
)
|
Total revenue
|
|
|
4.0
|
|
|
|
17.5
|
|
|
|
(13.5
|
)
|
|
|
(77.1
|
)%
|
|
|
(13.4
|
)
|
|
|
(76.5
|
)%
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales, excluding depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service
|
|
|
(1.0
|
)
|
|
|
(4.4
|
)
|
|
|
3.4
|
|
|
|
(76.8
|
)%
|
|
|
3.4
|
|
|
|
(76.1
|
)%
|
|
|
0.0
|
|
Cost of hardware
|
|
|
(0.3
|
)
|
|
|
(1.0
|
)
|
|
|
0.7
|
|
|
|
(71.2
|
)%
|
|
|
0.7
|
|
|
|
(70.0
|
)%
|
|
|
0.0
|
|
Total cost of sales
|
|
|
(1.3
|
)
|
|
|
(5.4
|
)
|
|
|
4.1
|
|
|
|
(75.8
|
)%
|
|
|
4.1
|
|
|
|
(75.0
|
)%
|
|
|
0.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
(2.0
|
)
|
|
|
(6.0
|
)
|
|
|
4.0
|
|
|
|
(67.5
|
)%
|
|
|
3.8
|
|
|
|
(65.4
|
)%
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
(0.1
|
)
|
|
|
(0.5
|
)
|
|
|
0.4
|
|
|
|
(70.1
|
)%
|
|
|
0.3
|
|
|
|
(61.8
|
)%
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(6.0
|
)
|
|
|
(7.2
|
)
|
|
|
1.2
|
|
|
|
(17.3
|
)%
|
|
|
1.1
|
|
|
|
(15.0
|
)%
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating Income (Loss)
|
|
$
|
(5.4
|
)
|
|
$
|
(1.6
|
)
|
|
$
|
(3.7
|
)
|
|
|
224.8
|
%
|
|
$
|
(4.1
|
)
|
|
|
278.3
|
%
|
|
$
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange Rate - $ to £
|
|
|
1.25
|
|
|
|
1.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: Exchange rate in the table is calculated by dividing
the USD total revenue by the GBP total revenue, therefore this could be slightly different from the average rate during the period
depending on timing of transactions.
SBG
Segment Revenue
In
the period revenue, decreased by $13.5 million, to $4.0 million, on a reported basis. A small part of this decrease was due to
adverse currency movements of $0.1 million. On a functional currency at constant rate basis, SBG revenue decreased by $13.4 million,
or 76.5%.
Service
revenue decreased by $12.7 million on a reported basis, and adverse currency movements accounted for $0.1 million of the decrease.
On a functional currency at constant rate basis, SBG service revenue decreased by $12.6 million, or 77.1%, to $3.6 million. This
was primarily due to the impact of COVID-19. The decrease by region showed $8.9 million in the UK, $1.7 million in Greece and
$1.6 million in Italy. Further adverse movements came in Italy from a one-off software license sale of $0.3 million during 2019.
Hardware
revenue decreased by $0.7 million to $0.4 million on a reported basis. On a functional currency at constant rate basis, the revenue
decrease was $0.7 million or 67.8% with a small amount accounting for adverse currency movements. The decrease was due to the
sale of 60 SSBTs (Self Service Betting Terminals) in the UK LBO market for $0.3 million and 90 “Flex Cabinets” in
the UK Leisure market for $0.7 million in 2019. These were partly offset by spares sales in Italy of $0.3 million during 2020.
SBG
Segment Operating Income
Cost
of sales (excluding depreciation and amortization) decreased by $4.1 million or 75% to $1.3 million, on both a reported and functional
currency at constant rate basis.
Service
cost of sales decreased by $3.4 million or 76.8% to $1.0 million on both a reported basis and functional currency basis. This
reduction was due mainly to the impact of retail venue closures attributable to COVID-19. UK LBO retail shops accounted for $2.0
million of the decrease with significant savings on consumable and third party content costs, a further $1.0 million was attributable
to Greece and $0.4 million from Italy on the same basis.
Hardware
cost of sales decreased by $0.7 million to $0.3 million on a reported basis and functional currency basis, decreasing on a similar
basis as hardware sales.
SBG SG&A expense declined by $4.0 million on a reported basis.
This decrease includes the impact of favorable currency movements of $0.2 million. On a functional currency at constant rate basis,
SG&A decreased by $3.8 million, reflecting ongoing restructuring, as well as synergies associated with the acquisition of the
Acquired Businesses. Of this reduction, $3.2 million is attributable to reduced staffing costs, of which $1.7 million is related
to furloughs arising from the COVID-19 pandemic.
Depreciation
declined by $1.2 million on a reported basis, or 17.3%. On a functional currency basis, depreciation declined by $1.1 million,
reflecting $0.2 million in favorable currency impact. The decrease in depreciation expense was due to the machines in the UK estate
becoming fully depreciated, offset by additional depreciation from new machines in the Greek estate.
Operating
income declined by $3.7 million year over year, from a $1.6 million reported operating loss to a $5.4 million operating loss year
over year, as the impact of COVID-19 significantly reduced gross profit beyond savings in SG&A and depreciation and amortization.
SBG
Segment, Recurring Revenue
Set
forth below is a breakdown of our SBG recurring revenue. SBG recurring revenue consists principally of SBG participation revenue.
|
|
For the Three-Month
Period ended
|
|
|
|
|
|
|
|
|
|
Unaudited
|
|
|
Unaudited
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
Variance
|
|
|
|
|
(In £ millions)
|
|
2020
|
|
|
2019
|
|
|
2020 vs
2019
|
|
|
%
|
|
SBG Recurring Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Total SBG Revenue
|
|
£
|
3.2
|
|
|
£
|
13.6
|
|
|
£
|
(10.4
|
)
|
|
|
(76.5
|
)%
|
SBG Participation Revenue
|
|
£
|
1.6
|
|
|
£
|
10.6
|
|
|
£
|
(9.0
|
)
|
|
|
(84.6
|
)%
|
SBG Other Fixed Fee Recurring Revenue
|
|
£
|
0.0
|
|
|
£
|
0.3
|
|
|
£
|
(0.1
|
)
|
|
|
(94.1
|
)%
|
Total SBG Recurring Revenue
|
|
£
|
1.6
|
|
|
£
|
10.9
|
|
|
£
|
(9.3
|
)
|
|
|
(84.9
|
)%
|
SBG Recurring Revenue as a % of Total SBG Revenue
|
|
|
51.7
|
%
|
|
|
80.4
|
%
|
|
|
(28.7
|
)%
|
|
|
|
|
In
the table above:
“SBG
Participation Revenue” includes our share of revenue generated from (i) our SBG terminals placed in gaming and lottery venues;
and (ii) licensing of our game content and intellectual property to third parties.
“SBG
Other Fixed Fee Recurring Revenue” includes service revenue in which the Company earns a periodic fixed fee on a contracted
basis.
“Total
SBG Recurring Revenue” is equal to SBG Participation Revenue plus SBG Other Fixed Fee Recurring Revenue.
SBG
Segment, Service Revenue by Region
Set
forth below is a breakdown of our SBG service revenue by geographic region. SBG service revenue consists principally of SBG participation
revenue.
Server Based Gaming
Service Revenue by Region
|
|
For the Three-Month
Period ended
|
|
|
|
|
|
Variance
|
|
|
|
Unaudited
|
|
|
Unaudited
|
|
|
|
|
|
Functional
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
Variance
|
|
|
Currency at
|
|
|
Functional
|
|
|
Currency
|
|
(In millions)
|
|
2020
|
|
|
2019
|
|
|
2020 vs 2019
|
|
|
Constant rate
|
|
|
Currency
|
|
|
Movement
|
|
Service Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK LBO
|
|
$
|
1.0
|
|
|
$
|
8.7
|
|
|
$
|
(7.6
|
)
|
|
|
(87.9
|
)%
|
|
$
|
(7.6
|
)
|
|
|
(87.6
|
)%
|
|
$
|
(0.0
|
)
|
UK Other
|
|
$
|
0.0
|
|
|
$
|
1.3
|
|
|
|
(1.3
|
)
|
|
|
(98.1
|
)%
|
|
|
(1.3
|
)
|
|
|
(98.1
|
)%
|
|
|
(0.0
|
)
|
Italy
|
|
$
|
0.2
|
|
|
$
|
2.3
|
|
|
|
(2.1
|
)
|
|
|
(92.1
|
)%
|
|
|
(2.1
|
)
|
|
|
(91.8
|
)%
|
|
|
(0.0
|
)
|
Greece
|
|
$
|
2.3
|
|
|
$
|
4.0
|
|
|
|
(1.7
|
)
|
|
|
(41.5
|
)%
|
|
|
(1.6
|
)
|
|
|
(39.6
|
)%
|
|
|
(0.0
|
)
|
Rest of the World
|
|
$
|
0.1
|
|
|
$
|
0.2
|
|
|
|
(0.1
|
)
|
|
|
(67.6
|
)%
|
|
|
(0.1
|
)
|
|
|
(66.5
|
)%
|
|
|
(0.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total service revenue
|
|
$
|
3.6
|
|
|
$
|
16.4
|
|
|
$
|
(12.7
|
)
|
|
|
(77.8
|
)%
|
|
$
|
(12.6
|
)
|
|
|
(77.1
|
)%
|
|
$
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange Rate - $ to £
|
|
|
1.24
|
|
|
|
1.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: Exchange rate in the table is calculated by dividing
the USD total service revenue by the GBP total service revenue, therefore this could be slightly different from the average rate
during the period depending on timing of transactions.
Virtual
Sports Segment, Three Months ended June 30, 2020 compared to Three Months ended June 30, 2019
Virtual
Sports Segment, Key Performance Indicators
|
|
For
the Three-Month
Period ended
|
|
|
|
|
|
|
Unaudited
|
|
|
Unaudited
|
|
|
|
|
|
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
Variance
|
|
Virtuals
|
|
2020
|
|
|
2019
|
|
|
2020
vs 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
No. of Live Customers at
the end of the period
|
|
|
125
|
|
|
|
105
|
|
|
|
20
|
|
|
|
19.0
|
%
|
Average No. of Live Customers
|
|
|
125
|
|
|
|
105
|
|
|
|
20
|
|
|
|
19.0
|
%
|
Total Revenue (£‘m)
|
|
£
|
8.0
|
|
|
£
|
7.2
|
|
|
£
|
0.8
|
|
|
|
10.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Virtual Sports Recurring Revenue
(£‘m)
|
|
£
|
7.0
|
|
|
£
|
6.5
|
|
|
£
|
0.5
|
|
|
|
7.6
|
%
|
Total Revenue £‘m - Retail
|
|
£
|
1.0
|
|
|
£
|
4.0
|
|
|
£
|
(3.1
|
)
|
|
|
(76.0
|
)%
|
Total Revenue £‘m - Scheduled
Online Virtuals
|
|
£
|
5.2
|
|
|
£
|
2.4
|
|
|
£
|
2.8
|
|
|
|
114.4
|
%
|
Total Revenue £‘m - Interactive
|
|
£
|
1.8
|
|
|
£
|
0.7
|
|
|
£
|
1.1
|
|
|
|
145.1
|
%
|
Average Revenue Per Customer per day (£)
|
|
£
|
699
|
|
|
£
|
753
|
|
|
£
|
(54
|
)
|
|
|
(7.2
|
)%
|
In
the table above:
“No.
of Live Customers at the end of the period” and “Average No. of Live Customers” represent the number of customers
from which there is Virtual Sports revenue at the end of the period and the average number of customers from which there is Virtual
Sports revenue during the period, respectively.
“Total
Revenue (£m)” represents total revenue for the Virtual Sports segment, including recurring and upfront service revenue.
Total revenue is also divided between “Total Revenue (£m) – Retail,” which consists of revenue earned
through players wagering at Virtual Sports venues, “Total Revenue (£m) – Scheduled Online Virtuals,” which
consists of revenue earned through players wagering on Virtual Sports online, and “Total Revenue (£m) – Interactive,”
which consists of revenue earned through our Interactive product.
“Recurring
Revenue” includes our share of revenue generated from (i) our Virtual Sports products placed with operators; (ii) licensing
our game content and intellectual property to third parties; and (iii) our games on third-party online gaming platforms that are
interoperable with our game servers.
“Average
Revenue per Customer per day” represents total revenue for the Virtual Sports segment in the period, divided by the Average
No. of Live Customers, divided by the number of days in the period.
Virtual
Sports Segment, Recurring Revenue
|
|
For
the Three-Month
Period ended
|
|
|
|
|
|
|
Unaudited
|
|
|
Unaudited
|
|
|
|
|
|
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
Variance
|
|
(In
£ millions)
|
|
2020
|
|
|
2019
|
|
|
2020
vs 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
Virtual
Sports Recurring Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Virtual Sports Revenue
|
|
£
|
8.0
|
|
|
£
|
7.2
|
|
|
£
|
0.8
|
|
|
|
10.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring
Revenue - Retail Virtuals
|
|
£
|
0.8
|
|
|
£
|
3.7
|
|
|
£
|
(2.9
|
)
|
|
|
(79.3
|
)%
|
Recurring
Revenue - Scheduled Online Virtuals
|
|
£
|
4.5
|
|
|
£
|
2.2
|
|
|
£
|
2.4
|
|
|
|
109.5
|
%
|
Recurring
Revenue - Interactive
|
|
£
|
1.7
|
|
|
£
|
0.7
|
|
|
£
|
1.0
|
|
|
|
152.7
|
%
|
Total
Virtual Sports Recurring Revenue
|
|
£
|
7.0
|
|
|
£
|
6.5
|
|
|
£
|
0.5
|
|
|
|
7.6
|
%
|
Virtual
Sports Recurring Revenue as a Percentage of Total
|
|
|
88.1
|
%
|
|
|
90.5
|
%
|
|
|
(2.4
|
)%
|
|
|
|
|
Virtual
Sports Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
definitions of the terms used in the table above, see the definitions provided above.
Virtual
Sports Segment, key events that affected results for the Three Months ended June 30, 2020
During
the quarter most retail territories were fully offline for April and May with a partial month return for part of June. The exceptions
to this were Greece, which reopened in mid-May and Ireland, which reopened at the beginning of July. As a result, Retail Virtuals
revenues have declined significantly but both Scheduled Online Virtuals and Interactive revenues have seen significant growth.
There was a $3.6 million decline in Retail recurring revenue in the quarter offset by $2.9 million growth in Online Scheduled
Virtuals and $1.3 million growth in Interactive revenues.
The
Virtual Grand National was broadcast on prime-time UK television to replace the live race due to the COVID-19 pandemic. Over four
million viewers tuned in to watch Potters Corner win the Virtual race. The event was run as a charity event, ultimately generating
over $3.0 million for the National Health Service (“NHS”) COVID-19 charity from various operators.
The
Virtual Kentucky Derby all-time winner race aired on the May 2, 2020 on NBC in the U.S. The race featured the 13 all-time great
Triple Crown winners, with Secretariat winning the virtual race. The event was held to raise money for the COVID-19 relief effort.
During
the period, OPAP in Greece launched with our brand-new proprietary V-Play soccer product with significantly improved graphics,
betting markets and overall design. Performance to date has been strong, with Greece revenues hitting pre-COVID-19 levels shortly
after lockdown was lifted.
Our
Virtual Interactive division launched V-Play Basketball and our NFL Alumni V-Play Football product with Bet365 New Jersey, both
of which have performed well to date. After the end of the period, we launched V-Play Plug & PlayTM, which provides
operators with end-to-end online and mobile sportsbook functionality, on social gaming platform FendOff Sports.
The Interactive division launched with eleven new customers in the
quarter including Boylesports, Lottoland, Casumo and Harrah’s New Jersey. There were also major new content releases, including
Reel King MegawaysTM and Centurion MegawaysTM. Both titles have seen strong performance since launch.
The
Average Number of Live Customers during the period increased by twenty, from 105 to 125. Including the launch of new Interactive
customers in the quarter, our Average Number of Live Interactive Customers for the period increased to 67.
Our
average revenue per customer declined during the quarter primarily due to the timing of the addition of several Interactive customers
that have not fully ramped up volume during the quarter.
Virtual
Sports Segment, Three Months ended June 30, 2020 compared to Three Months ended June 30, 2019
Virtual
Sports
|
|
For the Three-Month
Period ended
|
|
|
|
|
|
Variance
|
|
|
|
Unaudited
|
|
|
Unaudited
|
|
|
|
|
|
Functional
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
Variance
|
|
|
Currency at
|
|
|
Functional
|
|
|
Currency
|
|
(In millions)
|
|
2020
|
|
|
2019
|
|
|
2020 vs 2019
|
|
|
Constant rate
|
|
|
Currency
|
|
|
Movement
|
|
Service Revenue
|
|
$
|
9.8
|
|
|
$
|
9.2
|
|
|
$
|
0.6
|
|
|
|
6.7
|
%
|
|
$
|
1.0
|
|
|
|
10.5
|
%
|
|
$
|
(0.4
|
)
|
Cost of Service
|
|
|
(1.2
|
)
|
|
|
(0.9
|
)
|
|
|
(0.3
|
)
|
|
|
33.6
|
%
|
|
|
(0.3
|
)
|
|
|
38.5
|
%
|
|
|
0.0
|
|
Selling, general and administrative expenses
|
|
|
(1.1
|
)
|
|
|
(2.1
|
)
|
|
|
1.0
|
|
|
|
(48.3
|
)%
|
|
|
0.7
|
|
|
|
(39.2
|
)%
|
|
|
0.3
|
|
Stock-based compensation
|
|
|
(0.1
|
)
|
|
|
(0.3
|
)
|
|
|
0.2
|
|
|
|
(64.2
|
)%
|
|
|
0.2
|
|
|
|
(69.1
|
)%
|
|
|
0.1
|
|
Depreciation and amortization
|
|
|
(1.4
|
)
|
|
|
(1.4
|
)
|
|
|
0.0
|
|
|
|
2.9
|
%
|
|
|
(0.1
|
)
|
|
|
6.6
|
%
|
|
|
0.1
|
|
Net operating Income
|
|
$
|
6.0
|
|
|
$
|
4.5
|
|
|
$
|
1.5
|
|
|
|
32.6
|
%
|
|
$
|
1.5
|
|
|
|
31.8
|
%
|
|
$
|
(0.0
|
)
|
Exchange Rate - $ to £
|
|
|
1.24
|
|
|
|
1.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: Exchange rate in the table is calculated by dividing the USD
service revenue by the GBP service revenue, therefore this could be slightly different from the average rate during the period
depending on timing of transactions.
Virtual
Sports Segment revenue. In the period revenue increased by $0.6 million, or 6.7%, on a reported basis. This increase includes
the impact of adverse currency movements of $0.4 million. On a functional currency at constant rate basis, Virtual Sports revenue
increased by $1.0 million, or 10.5%. This increase included a $3.6 million decline in retail recurring revenue from the COVID-19
national shutdowns. Declines were offset by growth in Scheduled Online Virtuals of $2.9 million and Interactive of $1.3 million.
Virtual
Sports Segment operating income. Cost of service increased by $0.3 million to $1.2 million on a reported basis.
SG&A
expenses decreased by $1.0 million on a reported basis. This decrease includes the impact of favorable currency movements of $0.3
million. On a functional currency at constant rate basis, SG&A decreased by $0.7 million, driven by staff-related cost savings.
Depreciation
and amortization remained substantially unchanged on a reported basis. There was de minimis impact from currency movements.
Operating
profit increased by $1.5 million on a reported and functional currency at constant rate basis, to $6.0 million. This was primarily
due to an increase in revenues and reduced SG&A expenses.
Acquired
Businesses segment, key events that affected results for the Three Months ended June 30, 2020
We
generate revenue from our Acquired Businesses segment through the manufacturing, marketing, and rental of our gaming machines
and gaming software. We manufacture gaming machines for rental to UK pubs, adult gaming centers, bowling alleys, motorway service
stations, and leisure parks, as well as for sale. We receive rental fees for machines, typically on a long-term contract basis,
on both a participation and fixed fee basis, with our newer digital pub machines typically contracted on a fixed fee basis. Our
participation contracts are typically structured to pay us a percentage of net win (defined as net revenue to our operator customers,
after deducting player winnings, free bets or plays and any relevant regulatory levies) from gaming terminals placed in our customers’
facilities. Typically, we recognize revenue from these arrangements on a daily basis over the term of the contract.
Revenue
growth for our Acquired Businesses is principally driven by the number of operator customers we have, the number of gaming machines
in operation, the net win performance of the machines and the net win percentage that we receive pursuant to our contracts with
our customers.
Acquired
Businesses segment, Key Performance Indicators
|
|
For the Three-Month
Period ended
|
|
|
|
|
|
|
Unaudited
June 30,
|
|
|
Unaudited
June 30,
|
|
|
Variance
|
|
Acquired Businesses
|
|
2020
|
|
|
2019
|
|
|
2020 vs 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
Pub Digital Cat C Gaming Machines - Average installed base (# of terminals)
|
|
|
5,773
|
|
|
|
4,633
|
|
|
|
1,140
|
|
|
|
24.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inspired Pubs Revenue per Digital Cat C Gaming Machine per week
|
|
£
|
0.00
|
|
|
£
|
65.49
|
|
|
£
|
(65.49
|
)
|
|
|
(100.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pub Analogue Digital Cat C Gaming Machines - Average installed base (# of terminals)
|
|
|
2,690
|
|
|
|
3,744
|
|
|
|
(1,054
|
)
|
|
|
(28.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inspired Pubs Revenue per Analogue Cat C Gaming Machine per week
|
|
£
|
0.00
|
|
|
£
|
43.44
|
|
|
£
|
(43.44
|
)
|
|
|
(100.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of Period % of Digital Cat C Gaming Machines in Pub Market
|
|
|
68.2
|
%
|
|
|
57.2
|
%
|
|
|
11.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Leisure Parks Revenue (Gaming and Non Gaming) (£‘m)
|
|
£
|
0.0
|
|
|
£
|
8.2
|
|
|
£
|
(8.2
|
)
|
|
|
(100.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AGC and MSA Gaming Machines - Average installed base (# of terminals)(1)
|
|
|
5,170
|
|
|
|
5,773
|
|
|
|
(603
|
)
|
|
|
(10.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inspired AGC and MSA Revenue per Gaming Machine per week
|
|
£
|
0.00
|
|
|
£
|
66.39
|
|
|
£
|
66.39
|
|
|
|
(100.0
|
)%
|
|
(1)
|
Adult
Gaming Centers and Motorway Service Area machines
|
In
the table above:
End
of period installed base and Average installed base represent the number of gaming machines installed from which there is participation
or rental revenue at the end of the period or as an average over the period.
Revenue
per machine unit per week represents the average weekly participation or rental revenue recognized during the period.
The
% Digital Cat C represents the percentage of the Company’s UK pub gaming machine estate located with that is digital.
Acquired
Businesses segment, key events that affected results for the Three Months ended June 30, 2020
On
October 1, 2019, the Company completed the acquisition of the Gaming Technology Group (“NTG”) of Novomatic UK Ltd.,
a division of Novomatic Group, a leading international supplier of gaming equipment and solutions. As per ASC 280, the Company
reports the results of this acquisition as a business segment denoted as “Acquired Businesses.” Because the Company
completed the transaction on October 1, 2019, it can only report the results since that date.
Acquired
Businesses segment, Three Months ended June 30, 2020
Acquired Business
|
|
For the Three-
|
|
|
|
Month Period
|
|
|
|
ended
|
|
|
|
Unaudited
|
|
|
|
June 30,
|
|
(In millions)
|
|
2020
|
|
Revenue:
|
|
|
|
Service
|
|
$
|
1.8
|
|
Hardware
|
|
|
-
|
|
Total revenue
|
|
|
1.8
|
|
|
|
|
|
|
Cost of sales, excluding depreciation and amortization:
|
|
|
|
|
Cost of service
|
|
|
(0.9
|
)
|
Cost of hardware
|
|
|
-
|
|
Total cost of sales
|
|
|
(0.9
|
)
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
(3.6
|
)
|
Depreciation and amortization
|
|
|
(5.6
|
)
|
Net operating Income (Loss)
|
|
$
|
(8.3
|
)
|
|
|
|
|
|
Exchange Rate - $ to £
|
|
|
1.24
|
|
Note: Exchange rate in the table is calculated by dividing the USD
total revenue by the GBP total revenue, therefore this could be slightly different from the average rate during the period depending
on timing of transactions.
Acquired
Businesses Segment Revenue
Acquired Businesses service revenue was $1.8 million in the first
quarter. The shutdown of the UK market because of the COVID-19 pandemic led to revenues in the pub sector reducing to zero during
the period. As a result, revenue was comprised primarily of $1.2 million in online revenue and $0.2 million from servicing self-service
betting terminals (“SSBTs”).
The
Company’s average installed base within the Pub business included 8,463 Category C gaming machines. Digital gaming machines
accounted for 68.2% of the total Category C gaming machines at the end of the period, which was an increase from 57.2% at the
end of the comparable period in 2019.This represents a 24.6% increase over the prior year’s installed base of digital Category
C gaming machines.
In
addition, Acquired Businesses includes services to Leisure Parks, motorway service areas (“MSAs”), adult gaming centers
(“AGCs”) and bowling alleys as well as software license fees associated with one-time hardware sales. The shutdown
of the UK market because of the COVID-19 pandemic led to all leisure parks, MSAs, AGCs and bowling alleys being closed for the
whole period and associated revenue reducing to zero during the period.
Acquired
Businesses Segment Operating Income
Acquired
Businesses operating income reflects cost of sales of $0.9 million (comprised of manufacturing costs, content royalties, spare
parts, distribution costs, and certain gaming taxes), SG&A expenses of $3.6 million including service network costs, facilities,
and staffing, and depreciation and amortization of $5.6 million, reflecting capitalized game development and machine deployment
levels. SG&A expenses for the quarter were impacted by furloughs of all operations staff, effected to reflect the cessation
of revenue from gaming operations.
Six
Months ended June 30, 2020 compared to Six Months ended June 30, 2019
|
|
For the Six-Month
Period ended
|
|
|
|
|
|
Variance
|
|
|
|
Unaudited
|
|
|
Unaudited
|
|
|
|
|
|
Functional
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
Variance
|
|
|
Currency at
|
|
|
Functional
|
|
|
Currency
|
|
(In millions)
|
|
2020
|
|
|
2019
|
|
|
2020 vs 2019
|
|
|
Constant rate
|
|
|
Currency
|
|
|
Movement
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
$
|
58.4
|
|
|
$
|
56.4
|
|
|
$
|
2.0
|
|
|
|
3.5
|
%
|
|
$
|
3.0
|
|
|
|
5.3
|
%
|
|
$
|
(1.0
|
)
|
Hardware
|
|
|
9.5
|
|
|
|
4.0
|
|
|
|
5.5
|
|
|
|
139.8
|
%
|
|
|
5.7
|
|
|
|
146.0
|
%
|
|
|
(0.2
|
)
|
Total revenue
|
|
|
67.9
|
|
|
|
60.4
|
|
|
|
7.5
|
|
|
|
12.4
|
%
|
|
|
8.7
|
|
|
|
14.4
|
%
|
|
|
(1.2
|
)
|
Cost of sales, excluding depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service
|
|
|
(9.7
|
)
|
|
|
(10.7
|
)
|
|
|
1.0
|
|
|
|
(9.2
|
)%
|
|
|
0.8
|
|
|
|
(7.4
|
)%
|
|
|
0.2
|
|
Cost of hardware
|
|
|
(7.3
|
)
|
|
|
(2.6
|
)
|
|
|
(4.7
|
)
|
|
|
175.7
|
%
|
|
|
(4.8
|
)
|
|
|
183.1
|
%
|
|
|
0.2
|
|
Selling, general and administrative expenses
|
|
|
(39.7
|
)
|
|
|
(27.5
|
)
|
|
|
(12.2
|
)
|
|
|
44.2
|
%
|
|
|
(12.8
|
)
|
|
|
46.5
|
%
|
|
|
0.7
|
|
Stock-based compensation
|
|
|
(2.0
|
)
|
|
|
(4.4
|
)
|
|
|
2.4
|
|
|
|
(54.8
|
)%
|
|
|
2.4
|
|
|
|
(53.8
|
)%
|
|
|
0.0
|
|
Acquisition and integration related transaction expenses
|
|
|
(4.4
|
)
|
|
|
(1.6
|
)
|
|
|
(2.8
|
)
|
|
|
177.8
|
%
|
|
|
(3.0
|
)
|
|
|
189.6
|
%
|
|
|
0.2
|
|
Depreciation and amortization
|
|
|
(25.9
|
)
|
|
|
(18.8
|
)
|
|
|
(7.1
|
)
|
|
|
37.9
|
%
|
|
|
(7.9
|
)
|
|
|
41.9
|
%
|
|
|
0.8
|
|
Net operating Income (Loss)
|
|
|
(21.1
|
)
|
|
|
(5.2
|
)
|
|
|
(15.8
|
)
|
|
|
305.3
|
%
|
|
|
(16.6
|
)
|
|
|
319.1
|
%
|
|
|
0.8
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
0.4
|
|
|
|
0.1
|
|
|
|
0.3
|
|
|
|
477.8
|
%
|
|
|
0.3
|
|
|
|
500.4
|
%
|
|
|
0.0
|
|
Interest expense
|
|
|
(14.2
|
)
|
|
|
(8.5
|
)
|
|
|
(5.7
|
)
|
|
|
66.9
|
%
|
|
|
(6.1
|
)
|
|
|
71.6
|
%
|
|
|
0.4
|
|
Change in fair value of earnout liability
|
|
|
-
|
|
|
|
(2.3
|
)
|
|
|
2.3
|
|
|
|
(100.0
|
)%
|
|
|
2.3
|
|
|
|
(100.0
|
)%
|
|
|
(0.0
|
)
|
Change in fair value of derivative liability
|
|
|
-
|
|
|
|
(0.1
|
)
|
|
|
0.1
|
|
|
|
(100.0
|
)%
|
|
|
0.1
|
|
|
|
(100.0
|
)%
|
|
|
(0.0
|
)
|
Other finance income (expense)
|
|
|
(6.2
|
)
|
|
|
0.3
|
|
|
|
(6.5
|
)
|
|
|
(2120.4
|
)%
|
|
|
(6.8
|
)
|
|
|
(2132.7
|
)%
|
|
|
0.3
|
|
Loss from equity method investee
|
|
|
(0.5
|
)
|
|
|
-
|
|
|
|
(0.5
|
)
|
|
|
N/A
|
|
|
|
(0.5
|
)
|
|
|
N/A
|
|
|
|
0.0
|
|
Total other income (expense), net
|
|
|
(20.5
|
)
|
|
|
(10.5
|
)
|
|
|
(10.0
|
)
|
|
|
95.2
|
%
|
|
|
(10.7
|
)
|
|
|
100.6
|
%
|
|
|
0.6
|
|
Net loss from continuing operations before income taxes
|
|
|
(41.6
|
)
|
|
|
(15.7
|
)
|
|
|
(25.8
|
)
|
|
|
164.5
|
%
|
|
|
(27.3
|
)
|
|
|
172.7
|
%
|
|
|
1.4
|
|
Income tax expense
|
|
|
(0.3
|
)
|
|
|
0.0
|
|
|
|
(0.3
|
)
|
|
|
N/A
|
|
|
|
(0.3
|
)
|
|
|
N/A
|
|
|
|
0.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(41.9
|
)
|
|
$
|
(15.7
|
)
|
|
$
|
(26.1
|
)
|
|
|
166.3
|
%
|
|
$
|
(27.6
|
)
|
|
|
174.6
|
%
|
|
$
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange Rate - $ to £
|
|
|
1.27
|
|
|
|
1.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
Total
reported revenue for the six months ended June 30, 2020 increased by $7.5 million, or 12.4%, to $67.9 million on a reported basis.
Revenue was significantly impacted by the shutdown of non-essential businesses most of the second quarter in all of the jurisdictions
in which the Company operates, due to the ongoing COVID-19 pandemic. Adverse currency movements accounted for a $1.2 million impact.
On a functional currency at constant rate basis, revenue increased by $8.7 million, or 14.4%, with service revenue increasing
by $3.0 million and hardware revenue increasing by $5.7 million. The change in total reported revenue was comprised of a decrease
of $20.5 million in SBG revenue, a decrease of $0.4 million in Virtual Sports revenue, offset by an increase in revenue of $29.2
million from the Acquired Businesses segment. This was offset by $0.8 million in intercompany eliminations.
SBG revenue, which is included in total reported revenue, above,
decreased by $20.5 million, to $20.7 million, on a reported basis. A small part of this decrease was due to adverse currency movements
of $0.3 million. On a functional currency at constant rate basis, SBG revenue decreased by $20.2 million, or 49.0%.
SBG service
revenue decreased by $20.2 million on a reported basis, and adverse currency movements accounted for $0.2 million of the decrease.
On a functional currency at constant rate basis, SBG service revenue decreased by $20.0 million, or 53.7%, to $17.0 million. The
major driver for the decrease was the impact of COVID-19.
SBG hardware revenue decreased by $0.3 million to $3.7 million on a reported
basis. On a functional currency at constant rate basis, the revenue decrease was $0.2 million with adverse currency movements accounting
for decreased revenue of $0.1 million.
Virtual
Sports reported revenue decreased by $0.4 million, or 2.0%, on a reported basis. This decrease includes the impact of adverse
currency movements of $0.5 million. On a functional currency at constant rate basis, Virtual Sports revenue increased by $0.1
million, or 0.8%. This increase included a $4.6 million decline in retail recurring revenue from the COVID-19 national shutdowns.
Declines were offset by growth in Scheduled Online Virtuals of $2.8 million and Interactive of $1.7 million.
Acquired
Businesses revenue accounted for $23.2 million in service revenue and $6.0 million in hardware revenue. $9.7 million was generated
from UK Pub gaming machines and other rental products, including 8,483 Category C gaming machines. An additional $1.9 million
in revenue was generated through the UK leisure parks business, with $5.8 million generated from machine rentals to UK motorway
services and adult gaming centers. $2.1 million was generated from online gaming and $1.8 million from self-service betting terminals.
Cost
of sales, excluding depreciation and amortization
Cost
of sales, excluding depreciation and amortization, increased by $3.7 million, or 27.5%, to $17.0 million on a reported basis,
including the impact of $0.4 million from favorable currency movements. On a functional currency at constant rate basis, cost
of sales increased by $4.0 million, or 30.2%.
Of this increase, $8.8 million was attributable the Acquired Businesses,
comprised of $3.6 million in service costs and $5.2 million in hardware costs. This was offset by a $4.8 million decrease in SBG
costs of sales due to reduced consumable usage in line with reduced machine estate due to Triennial and COVID-19 impacts.
Selling,
general and administrative expenses
SG&A
expenses increased by $12.2 million, or 44.2%, on a reported basis, to $39.7 million. This included $0.7 million of favorable
currency movements. On a functional currency at constant rate basis, SG&A increased by $12.8 million, or 46.5%. The reported
increase was driven by incremental SG&A expenses of $20.5 million from the Acquired Businesses, offset by a $6.1 million decrease
in selling, general and administrative expenses in SBG and Virtual Sports, due to staff furloughs attributable to the COVID-19
pandemic.
Stock-based
compensation
During
the six months ended June 30, 2020, the Company recorded an expense of $2.0 million with respect to outstanding awards. Of this
expense, $0.2 million related to costs from awards made under the 2016 Long Term Incentive Plan and $1.8 million from awards made
under the 2018 Plan. The entirety of this cost related to recurring costs. During the six months ended June 30, 2019, the charge
for stock-based compensation was $4.4 million. Of this expense, $3.0 million related to costs from awards made under the 2016
Long Term Incentive Plan and $1.4 million from awards made under the 2018 Plan with some of the 2018 Plan awards impacted by movements
in the stock price between the award granting date and May 14, 2019, the date the scheme was formally approved by stockholders.
Following approval, the cost was no longer impacted by stock price movements being charged by the same method as all other award
plans.
Acquisition
and integration related transaction expenses
Acquisition
related transaction expenses increased by $2.8 million to $4.4 million, on a reported basis. The entirety of the 2020 and 2019
period expenses were related to work in respect of potential acquisitions with the 2019 expenses relating to the acquisition and
third party integration fees linked exclusively to the acquisition and integration of Novomatic UK’s Gaming Technology Group
and the 2020 expenses relating to the group reorganization and integration costs following the acquisition.
Depreciation
and amortization
Depreciation
and amortization increased by $7.1 million, or 37.9%, to $25.9 million on a reported basis. This included the impact of favorable
currency movements of $0.8 million.
On
a functional currency at constant rate basis, depreciation and amortization increased by $7.9 million, or 41.9%. This increase
was driven by incremental depreciation and amortization of $10.4 million from the Acquired Businesses. This was partially offset
by a $2.8 million decrease of depreciation and amortization in SBG and Virtual Sports, due primarily to UK and Italy machine estates
reaching full depreciation status.
Net
operating loss
During
the period on a reported basis, net operating loss increased by $15.8 million from a loss of $5.2 million to a loss of $21.1 million.
On a functional currency at constant rate basis, net operating loss increased by $16.6 million, mainly due to the impact of shutdowns
related to COVID-19, increased SG&A expenses attributable to the Acquired Businesses, as well as a $0.8 million adverse currency
movement, partly offset by higher revenues attributable to the Acquired Businesses.
Interest
expense
Interest
expense increased by $5.4 million in the period, to $13.9 million, on a reported basis. Of this variance $0.4 million was due
to an adverse currency movement. On a functional currency at a constant rate basis, interest expense was $5.8 million (68.3%)
higher than the prior year due to increases of $4.7 million of cash interest due to a higher debt balance amount after the acquisition
of Novomatic UK’s Gaming Technology Group in October 2019, $0.7 million being the corresponding increase in the amortization
of debt fees, $1.0 million relating to fees incurred for the debt restructure and $0.5 million due to a higher revolver draw as
a result of the COVID-19 pandemic. These were partly offset by higher levels of interest receivable of $0.5 million.
Change
in fair value of earnout liability
Due
solely to changes in the share price ($6.51 at March 25, 2019 and $4.80 at December 31, 2018) the charge in the six months ended
June 30, 2019 from a change in the fair value of earnout liability was $2.3 million. On March 25, 2019, the shares relating to
the earnout liability were issued. There were no such liabilities in the six months ended June 30, 2020.
Change
in fair value of derivative liability
Following
the termination of the cross-currency swaps on October 1, 2019, there was no change in the fair values of derivative liabilities
in the six months ended June 30, 2020. For the six months ended June 30, 2019, the change in fair value of derivative liability
was a $0.1 million charge.
Other
finance income
Other
finance income for the six months ended June 30, 2020 was a charge of $6.2 million compared to a $0.3 million credit in the six
months ended June 30, 2019. This was primarily due to an adverse foreign exchange impact of $6.2 million in retranslating the
debt balance and a $0.2 million gain in the six months ended June 30, 2019 from the GBP:USD cross-currency swap which was terminated
on October 1, 2019.
Income
tax expense
Our
effective tax rate for the period ended June 30, 2020 was 0.7% and our effective tax rate for the period ended March 31, 2019
was 0.0%.
Net
loss
On
a reported basis, net loss increased by $26.1 million, from a loss of $15.7 million to a loss of $41.9 million in the six months
ended June 30, 2020. On a functional currency at constant rate basis, net loss increased by $27.6 million, mainly due to the impact
of the Triennial Implementation and the shutdowns associated with COVID-19, as well as increases in operating expenses attributable
to the Acquired Businesses, in addition to increases in interest expense and other finance costs, offset by a reduction in earnout
liability.
Six
Months ended June 30, 2020 compared to Six Months ended June 30, 2019 – Server Based Gaming Segment
Revenue
growth for our SBG business is principally driven by the number of operator customers we have, the number of SBG machines in operation,
the net win performance of the machines and the net win percentage that we receive pursuant to our contracts with our customers.
SBG
Segment, Key Performance Indicators
|
|
For the Six-Month
Period ended
|
|
|
|
|
|
|
Unaudited
|
|
|
Unaudited
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
Variance
|
|
SBG
|
|
2020
|
|
|
2019
|
|
|
2020 vs 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
End of period installed base (# of terminals)
|
|
|
32,972
|
|
|
|
35,077
|
|
|
|
(2,105
|
)
|
|
|
(6.0
|
)%
|
Average installed base (# of terminals)
|
|
|
32,971
|
|
|
|
35.099
|
|
|
|
(2,128
|
)
|
|
|
(6.1
|
)%
|
Customer Gross Win per unit per day (1)
|
|
£
|
37.97
|
|
|
£
|
88.61
|
|
|
£
|
(50.64
|
)
|
|
|
(57.1
|
)%
|
Customer Net Win per unit per day (1)
|
|
£
|
28.17
|
|
|
£
|
62.36
|
|
|
£
|
(34.18
|
)
|
|
|
(54.8
|
)%
|
Inspired Blended Participation Rate
|
|
|
6.1
|
%
|
|
|
6.2
|
%
|
|
|
(0.1
|
)%
|
|
|
|
|
|
(1)
|
Includes
all SBG terminals in which the company takes a participation revenue share across all territories
|
SBG
Segment, key events that affected results for the Six Months ended June 30, 2020
During the period Customer Gross Win per unit per day in the total
UK market (including non-LBO markets) decreased by 50.0%. This was due to both the Triennial Implementation outcome in the UK and
COVID-19 impact, with retail venues closing from March 21, 2020 through to June 15, 2020, with over 80% of venues reopened at June
30, 2020.
During
the period, an additional 94 SSBTs (Self Service Betting Terminals) were sold and deployed in the UK LBO market. These are part
of a confirmed 170 terminal order due to be completed in July and August 2020 now that retail venues have reopened. In addition
to hardware sale margin, these terminals also generate a recurring service fee.
During
the period, new market sales continued in North America, which we entered in December 2019. Hardware sales of a further 161 “Valor”
terminals were sold to multiple customers in Illinois.
In
Italy, Customer Net Win per unit per day decreased by 77.1% (in EUR), due to the closure of retail venues due to COVID-19 from
March 9, 2020 through to June 15, 2020, when 50% of venues reopened, as well as an increase in the average revenue tax of 0.9%
from 8.4% in 2019 to 9.3% in 2020, and the impact of card reader implementation on January 1, 2020.
Greece
Customer Gross Win per unit per day (in EUR) decreased by 73.2%, due solely to the closure of retail venues as a result of COVID-19,
from March 14 through to June 8, 2020 when all venues reopened.
Customer
Gross Win per unit per day (in our functional currency, GBP) decreased by £51 or 57.1% across the entire estate, driven
mainly by the impact of COVID-19 with the mandated shutdown of retail venues during March, April, May and part of June 2020. The
overall decrease was further effected by the reduction in maximum permitted bets on B2 gaming machines in the UK in accordance
with the Triennial Implementation, These impacts, along with the reduced tax in the UK LBO market post Triennial, partly offset
by a 0.9% average increase in the Italy tax rate, resulted in a Net Win per unit per day decrease on total SBG of £34 or
54.8%. Our blended participation rate reduced by 0.1% to 6.1%.
SBG
Segment, Six Months ended June 30, 2020 compared to Six Months ended June 30, 2019
Server Based Gaming
|
|
For the Six-Month
Period ended
|
|
|
|
|
|
Variance
|
|
|
|
Unaudited
|
|
|
Unaudited
|
|
|
|
|
|
Functional
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
Variance
|
|
|
Currency at
|
|
|
Functional
|
|
|
Currency
|
|
(In millions)
|
|
2020
|
|
|
2019
|
|
|
2020 vs 2019
|
|
|
Constant rate
|
|
|
Currency
|
|
|
Movement
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
$
|
17.0
|
|
|
$
|
37.2
|
|
|
$
|
(20.2
|
)
|
|
|
(54.3
|
)%
|
|
$
|
(20.0
|
)
|
|
|
(53.7
|
)%
|
|
$
|
(0.2
|
)
|
Hardware
|
|
|
3.7
|
|
|
|
4.0
|
|
|
|
(0.3
|
)
|
|
|
(6.8
|
)%
|
|
|
(0.2
|
)
|
|
|
(4.5
|
)%
|
|
|
(0.1
|
)
|
Total revenue
|
|
|
20.7
|
|
|
|
41.2
|
|
|
|
(20.5
|
)
|
|
|
(49.7
|
)%
|
|
|
(20.2
|
)
|
|
|
(49.0
|
)%
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales, excluding depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service
|
|
|
(4.6
|
)
|
|
|
(8.8
|
)
|
|
|
4.1
|
|
|
|
(47.4
|
)%
|
|
|
4.2
|
|
|
|
(47.0
|
)%
|
|
|
(0.0
|
)
|
Cost of hardware
|
|
|
(2.1
|
)
|
|
|
(2.6
|
)
|
|
|
0.6
|
|
|
|
(21.8
|
)%
|
|
|
0.5
|
|
|
|
(20.2
|
)%
|
|
|
0.0
|
|
Total cost of sales
|
|
|
(6.7
|
)
|
|
|
(11.4
|
)
|
|
|
4.7
|
|
|
|
(41.4
|
)%
|
|
|
4.7
|
|
|
|
(40.9
|
)%
|
|
|
0.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
(7.0
|
)
|
|
|
(12.6
|
)
|
|
|
5.6
|
|
|
|
(44.7
|
)%
|
|
|
5.5
|
|
|
|
(43.6
|
)%
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
(0.3
|
)
|
|
|
(0.9
|
)
|
|
|
0.6
|
|
|
|
(64.2
|
)%
|
|
|
0.5
|
|
|
|
(60.7
|
)%
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(12.2
|
)
|
|
|
(14.9
|
)
|
|
|
2.7
|
|
|
|
(18.1
|
)%
|
|
|
2.4
|
|
|
|
(16.1
|
)%
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating Income (Loss)
|
|
$
|
(5.5
|
)
|
|
$
|
1.4
|
|
|
$
|
(6.8
|
)
|
|
|
(506.3
|
)%
|
|
$
|
(7.1
|
)
|
|
|
(546.7
|
)%
|
|
$
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange Rate - $ to £
|
|
|
1.28
|
|
|
|
1.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: Exchange rate in the table is calculated by dividing the USD
total revenue by the GBP total revenue, therefore this could be slightly different from the average rate during the period depending
on timing of transactions.
SBG
Segment Revenue
During
the period, revenue decreased by $20.5 million, to $20.7 million, on a reported basis. A small part of this decrease was due to
adverse currency movements of $0.3 million. On a functional currency at constant rate basis, SBG revenue decreased by $20.2 million,
or 49.0%.
The
major driver for the decrease was the impact of COVID-19. Retail shop closures during the period of March 2020 through to June
2020 drove a reduction in service revenue of $14.3 million, with revenue by region decreasing $10.0 million in the UK, $2.3 million
in Greece and $1.9 million in Italy. Further declines came from the UK LBO market with $4.4 million as a result of the Triennial
Implementation, increased Italy taxes of $0.4 million, the adverse impact of the introduction in Italy of player cards of $0.5
million, 2019 one-off Italy sales of $0.4 million and intercompany UK other revenue of $0.6 million. These negative impacts were
partly offset by growth in the Greek market of $0.8 million because of the continued rollout of contracted VLTs.
UK
LBO Customer Gross Win per unit per day decreased by approximately 50.0%. The impact of COVID-19 and the shutdown of retail venues
between March and June 2020 accounted for 46.5% of the decline, the remaining 3.5% stems from the Triennial Implementation, a
negative position in the first quarter 2020 due to the April 1, 2019 implementation from and a recovery in the second quarter
due to content releases and closure of low performing venues.
Hardware
revenue decreased by $0.3 million to $3.7 million on a reported basis. On a functional currency at constant rate basis, the revenue
decrease was $0.2 million with adverse currency movements accounting for decreased revenue of $0.1 million.
SBG
Segment Operating Income
Cost
of sales (excluding depreciation and amortization) decreased by $4.7 million, or 41.4%, to $6.7 million, on a reported basis.
There was de minimis impact from currency movements.
Service
cost of sales decreased by $4.1 million on both a reported and functional currency basis. This reduction was due mainly to the
impact of retail venue closures due to COVID-19. UK LBO retail shops accounted for $2.2 million with significant savings on consumable
and 3rd party content costs, a further $1.2 million came from Greece and $0.4 million from Italy for the same reasons.
The remaining $0.4 million decrease was mainly from lower consumables spend during the three months ended March 31, 2020 on the
UK LBO estate due to the Triennial Implementation.
Hardware
cost of sales decreased by $0.6 million to $2.1 million on a reported basis. On a functional currency at constant rate basis,
hardware cost of sales decreased by $0.5 million with some small favorable currency movements.
SBG SG&A expense declined by $5.6 million, reflecting significant
staff furloughs due to COVID-19, ongoing restructuring and synergies associated with the acquisition of the Acquired Businesses.
Of this reduction, $1.8 million was attributable to furloughs related to the COVID-19 pandemic and $1.9 million was related to
other staff savings.
Depreciation
and amortization declined by $2.7 million or 18.1%, on a reported basis. On a functional currency basis, depreciation declined
by $2.4 million, reflecting $0.3 million in favorable currency impact. The decrease in depreciation expense was due to the machines
in the UK estate becoming fully depreciated, offset by additional depreciation from new machines in the Greek estate.
Operating
income declined by $6.8 million, declining from a $1.4 million reported operating profit to a $5.5 million operating loss year
over year, as the decline in revenue related to COVID-19 was only partially offset by the declines in cost of sales, SG&A,
and depreciation.
SBG
Segment, Recurring Revenue
Set
forth below is a breakdown of our SBG recurring revenue. SBG recurring revenue consists principally of SBG participation revenue.
|
|
For the Six-Month
Period ended
|
|
|
|
|
|
|
|
|
|
Unaudited
|
|
|
Unaudited
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
Variance
|
|
|
|
|
(In £ millions)
|
|
2020
|
|
|
2019
|
|
|
2020 vs 2019
|
|
|
%
|
|
SBG Recurring Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Total SBG Revenue
|
|
£
|
16.2
|
|
|
£
|
31.7
|
|
|
£
|
(15.6
|
)
|
|
|
(49.0
|
)%
|
SBG Participation Revenue
|
|
£
|
10.3
|
|
|
£
|
24.6
|
|
|
£
|
(14.3
|
)
|
|
|
(58.2
|
)%
|
SBG Other Fixed Fee Recurring Revenue
|
|
£
|
0.2
|
|
|
£
|
0.7
|
|
|
£
|
(0.4
|
)
|
|
|
(67.4
|
)%
|
Total SBG Recurring Revenue
|
|
£
|
10.5
|
|
|
£
|
25.2
|
|
|
£
|
(14.7
|
)
|
|
|
(58.4
|
)%
|
SBG Recurring Revenue as a % of Total SBG Revenue
|
|
|
64.8
|
%
|
|
|
79.4
|
%
|
|
|
(14.6
|
)%
|
|
|
|
|
SBG
Segment, Service Revenue by Region
Set
forth below is a breakdown of our SBG service revenue by geographic region. SBG service revenue consists principally of SBG participation
revenue.
Server Based Gaming
Service Revenue by Region
|
|
For the Six-Month
Period ended
|
|
|
Variance
|
|
|
Variance
|
|
(In millions)
|
|
Unaudited
June 30,
2020
|
|
|
Unaudited
June 30,
2019
|
|
|
2020 vs 2019
|
|
|
Functional
Currency at
Constant rate
|
|
|
Functional
Currency
|
|
|
Currency
Movement
|
|
Service Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK LBO
|
|
$
|
8.4
|
|
|
$
|
21.9
|
|
|
$
|
(13.5
|
)
|
|
|
(61.6
|
)%
|
|
$
|
(13.4
|
)
|
|
|
(61.2
|
)%
|
|
$
|
(0.1
|
)
|
UK Other
|
|
$
|
1.0
|
|
|
$
|
2.6
|
|
|
|
(1.6
|
)
|
|
|
(61.6
|
)%
|
|
|
(1.6
|
)
|
|
|
(61.4
|
)%
|
|
|
(0.0
|
)
|
Italy
|
|
$
|
0.9
|
|
|
$
|
4.3
|
|
|
|
(3.4
|
)
|
|
|
(78.0
|
)%
|
|
|
(3.4
|
)
|
|
|
(77.9
|
)%
|
|
|
(0.0
|
)
|
Greece
|
|
$
|
6.5
|
|
|
$
|
8.0
|
|
|
|
(1.5
|
)
|
|
|
(19.1
|
)%
|
|
|
(1.4
|
)
|
|
|
(17.7
|
)%
|
|
|
(0.1
|
)
|
Rest of the World
|
|
$
|
0.2
|
|
|
$
|
0.4
|
|
|
|
(0.2
|
)
|
|
|
(54.1
|
)%
|
|
|
(0.2
|
)
|
|
|
(53.0
|
)%
|
|
|
(0.0
|
)
|
Total service revenue
|
|
$
|
17.0
|
|
|
$
|
37.2
|
|
|
$
|
(20.2
|
)
|
|
|
(54.3
|
)%
|
|
$
|
(20.0
|
)
|
|
|
(53.7
|
)%
|
|
$
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange Rate - $ to £
|
|
|
1.28
|
|
|
|
1.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: Exchange rate in the table is calculated by dividing
the USD total service revenue by the GBP total service revenue, therefore this could be slightly different from the average rate
during the period depending on timing of transactions.
Virtual
Sports Segment, Six Months ended June 30, 2020 compared to Six Months ended June 30, 2019
Virtual
Sports Segment, Key Performance Indicators
|
|
For the Six-Month
Period ended
|
|
|
Variance
|
|
Virtuals
|
|
Unaudited
June 30,
2020
|
|
|
Unaudited
June 30,
2019
|
|
|
2020 vs 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
No. of Live Customers at the end of the period
|
|
|
125
|
|
|
|
105
|
|
|
|
20
|
|
|
|
19.0
|
%
|
Average No. of Live Customers
|
|
|
121
|
|
|
|
102
|
|
|
|
19
|
|
|
|
18.9
|
%
|
Total Revenue (£‘m)
|
|
£
|
15.0
|
|
|
£
|
14.9
|
|
|
£
|
0.1
|
|
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Virtual Sports Recurring Revenue (£‘m)
|
|
£
|
13.5
|
|
|
£
|
13.6
|
|
|
£
|
(0.1
|
)
|
|
|
(0.8
|
)%
|
Total Revenue £‘m - Retail
|
|
£
|
4.3
|
|
|
£
|
8.2
|
|
|
£
|
(3.8
|
)
|
|
|
(47.1
|
)%
|
Total Revenue £‘m - Scheduled Online Virtuals
|
|
£
|
7.9
|
|
|
£
|
5.3
|
|
|
£
|
2.6
|
|
|
|
48.3
|
%
|
Total Revenue £‘m - Interactive
|
|
£
|
2.8
|
|
|
£
|
1.4
|
|
|
£
|
1.4
|
|
|
|
101.5
|
%
|
Average Revenue Per Customer per day (£)
|
|
£
|
679
|
|
|
£
|
797
|
|
|
£
|
(118
|
)
|
|
|
(14.8
|
)%
|
Virtual
Sports Segment, Recurring Revenue
|
|
For the Six-Month
Period ended
|
|
|
Variance
|
|
|
|
Unaudited
|
|
|
Unaudited
|
|
|
|
|
|
|
|
(In £ millions)
|
|
June 30,
2020
|
|
|
June 30,
2019
|
|
|
2020 vs 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
Virtual Sports Recurring Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Virtual Sports Revenue
|
|
£
|
15.0
|
|
|
£
|
14.9
|
|
|
£
|
0.1
|
|
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring Revenue - Retail Virtuals
|
|
£
|
3.7
|
|
|
£
|
7.4
|
|
|
£
|
(3.7
|
)
|
|
|
(50.3
|
)%
|
Recurring Revenue - Scheduled Online Virtuals
|
|
£
|
7.1
|
|
|
£
|
4.8
|
|
|
£
|
2.3
|
|
|
|
47.0
|
%
|
Recurring Revenue - Interactive
|
|
£
|
2.7
|
|
|
£
|
1.3
|
|
|
£
|
1.4
|
|
|
|
103.1
|
%
|
Total Virtual Sports Recurring Revenue
|
|
£
|
13.5
|
|
|
£
|
13.6
|
|
|
£
|
(0.1
|
)
|
|
|
(8.6
|
)%
|
Virtual Sports Recurring Revenue as a Percentage of Total
|
|
|
89.8
|
%
|
|
|
91.3
|
%
|
|
|
(1.4
|
)%
|
|
|
|
|
Virtual Sports Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
definitions of the terms used in the table above, see the definitions provided above.
Virtual
Sports Segment, key events that affected results for the Six Months ended June 30, 2020
The
COVID-19 pandemic significantly impacted retail recurring revenues, partially during the first quarter of 2020 and for the entirety
of the second quarter of 2020. As a result, Retail Virtuals recurring revenues have declined by $4.6 million but partially offset
by growth in both Scheduled Online Virtuals and Interactive revenues of $4.5 million
Bet365
launched with two streams of our new V-Play Basketball product and an additional stream of V-Play Cricket, both have proven to
be very successful.
The Interactive division launched with fifteen new customers including
888, BCLC, Resorts Casino New Jersey, Harrah’s New Jersey, Casumo, Lottoland and Boylesports during the period and added
the strong Sky Vegas brand to its portfolio in addition to Sky Bingo. There were also major new content releases, including Reel
King MegawaysTM and Centurion MegawaysTM. Both titles have seen strong performance since launch.
The
Average Number of Live Customers during the period increased by nine, from 102 to 121. Our Average Number of Live Interactive
Customers for the period increased to 67.
Our
average revenue per customer declined during the quarter primarily due to the timing of the addition of several Interactive customers
that have not reached their revenue potential during the period.
Virtual
Sports Segment, Six Months ended June 30, 2020 compared to Six Months ended June 30, 2019
Virtual Sports
|
|
For the Six-Month
Period ended
|
|
|
Variance
|
|
|
Variance
|
|
(In millions)
|
|
Unaudited
June 30,
2020
|
|
|
Unaudited
June 30,
2019
|
|
|
2020 vs 2019
|
|
|
Functional
Currency at
Constant rate
|
|
|
Functional
Currency
|
|
|
Currency
Movement
|
|
Service Revenue
|
|
$
|
18.8
|
|
|
$
|
19.2
|
|
|
$
|
(0.4
|
)
|
|
|
(2.0
|
)%
|
|
$
|
0.1
|
|
|
|
0.8
|
%
|
|
$
|
(0.5
|
)
|
Cost of Service
|
|
|
(2.1
|
)
|
|
|
(1.9
|
)
|
|
|
(0.2
|
)
|
|
|
11.4
|
%
|
|
|
(0.3
|
)
|
|
|
14.5
|
%
|
|
|
0.1
|
|
Selling, general and administrative expenses
|
|
|
(2.8
|
)
|
|
|
(4.3
|
)
|
|
|
1.5
|
|
|
|
(34.7
|
)%
|
|
|
1.4
|
|
|
|
(33.3
|
)%
|
|
|
0.1
|
|
Stock-based compensation
|
|
|
(0.2
|
)
|
|
|
(0.6
|
)
|
|
|
0.4
|
|
|
|
(67.3
|
)%
|
|
|
0.5
|
|
|
|
(68.5
|
)%
|
|
|
(0.0
|
)
|
Depreciation and amortization
|
|
|
(2.8
|
)
|
|
|
(2.9
|
)
|
|
|
0.1
|
|
|
|
(2.3
|
)%
|
|
|
(0.0
|
)
|
|
|
0.5
|
%
|
|
|
0.1
|
|
Net operating Income (Loss)
|
|
$
|
10.9
|
|
|
$
|
9.5
|
|
|
$
|
1.4
|
|
|
|
14.8
|
%
|
|
$
|
1.8
|
|
|
|
18.9
|
%
|
|
$
|
(0.4
|
)
|
Exchange Rate - $ to £
|
|
|
1.26
|
|
|
|
1.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: Exchange rate in the table is calculated by dividing
the USD service revenue by the GBP service revenue, therefore this could be slightly different from the average rate during the
period depending on timing of transactions.
Virtual
Sports Segment revenue. In the period revenue decreased by $0.4 million, or 2.0%, on a reported basis. This decrease includes
the impact of adverse currency movements of $0.5 million. On a functional currency at constant rate basis, Virtual Sports revenue
increased by $0.1 million, or 0.8%. This decrease included a $4.6 million decline in retail recurring revenue from the COVID-19
national shutdowns. Declines were offset by growth in Scheduled Online Virtuals of $2.8 million and Interactive of $1.7 million.
Virtual
Sports Segment operating income. Cost of service increased by $0.2 million to $2.1 million, on a reported basis. This
increase includes the impact of favorable currency movements of $0.1 million.
SG&A
expenses decreased by $1.5 million on a reported basis. This decrease includes the impact of adverse currency movements of $0.1
million. On a functional currency at constant rate basis, SG&A decreased by $1.4 million, driven by staff-related cost savings
of $1.0 million.
Depreciation
and amortization decreased by $0.1 million, to $2.8 million, on a reported basis. There was de minimis impact from currency movements.
Operating profit decreased by $1.4 million to $10.9 million, on
a reported basis, which included an impact of $0.4 million from adverse currency movements. On a functional currency at constant
rate basis, this represented an increase of $1.8 million, or 18.9%. This was primarily due to lower SG&A expenses.
Acquired
Businesses segment, key events that affected results for the Six Months ended June 30, 2020
Acquired
Businesses segment, Key Performance Indicators
|
|
For the Six-Month
Period ended
|
|
|
Variance
|
|
|
|
Unaudited
June 30,
|
|
|
Unaudited
June 30,
|
|
|
|
|
Acquired Businesses
|
|
2020
|
|
|
2019
|
|
|
2020 vs 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
Pub Digital Cat C Gaming Machines - Average installed base (# of terminals)
|
|
|
5,760
|
|
|
|
4,400
|
|
|
|
1,360
|
|
|
|
30.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inspired Pubs Revenue per Digital Cat C Gaming Machine per week
|
|
£
|
30.08
|
|
|
£
|
63.30
|
|
|
£
|
(33.22
|
)
|
|
|
(52.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pub Analogue Digital Cat C Gaming Machines - Average installed base (# of terminals)
|
|
|
2,714
|
|
|
|
3,924
|
|
|
|
(1,210
|
)
|
|
|
(30.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inspired Pubs Revenue per Analogue Cat C Gaming Machine per week
|
|
£
|
19.10
|
|
|
£
|
43.69
|
|
|
£
|
(24.58
|
)
|
|
|
(56.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of Period % of Digital Cat C Gaming Machines in Pub Market
|
|
|
68.2
|
%
|
|
|
57.2
|
%
|
|
|
11.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Leisure Parks Revenue (Gaming and Non Gaming) (£‘m)
|
|
£
|
1.5
|
|
|
£
|
9.8
|
|
|
£
|
(8.3
|
)
|
|
|
(85.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AGC and MSA Gaming Machines - Average installed base (# of terminals)(1)
|
|
|
5,106
|
|
|
|
5,843
|
|
|
|
(737
|
)
|
|
|
(12.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inspired AGC and MSA Revenue per Gaming Machine per week
|
|
£
|
26.13
|
|
|
£
|
63.03
|
|
|
£
|
(36.90
|
)
|
|
|
(58.5
|
)%
|
|
(1)
|
Adult
Gaming Centers and Motorway Service Area machines
|
Acquired
Businesses segment, Six Months ended June 30, 2020
|
|
For the Six-
|
|
Acquired Business
|
|
Month Period
|
|
|
|
ended
|
|
|
|
Unaudited
|
|
|
|
June 30,
|
|
(In millions)
|
|
2020
|
|
Revenue:
|
|
|
|
Service
|
|
$
|
23.2
|
|
Hardware
|
|
|
6.0
|
|
Total revenue
|
|
|
29.2
|
|
|
|
|
|
|
Cost of sales, excluding depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
Cost of service
|
|
|
(3.6
|
)
|
Cost of hardware
|
|
|
(5.2
|
)
|
Total cost of sales
|
|
|
(8.8
|
)
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
(20.5
|
)
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(10.4
|
)
|
|
|
|
|
|
Net operating Income (Loss)
|
|
£
|
(10.5
|
)
|
|
|
|
|
|
Exchange Rate - $ to £
|
|
|
1.28
|
|
Note: Exchange rate in the table is calculated by dividing
the USD total revenue by the GBP total revenue, therefore this could be slightly different from the average rate during the period
depending on timing of transactions.
Acquired Businesses Segment Revenue
Acquired Businesses service revenue was $23.2 million for the
six months ended June 30, 2020, of which $9.7 million was generated from Pub customers for gaming machines and other rental products.
Online revenue was $2.6 million for the period. The Company’s average installed base within the Pub business included 8,474
Category C gaming machines. Digital gaming machines accounted for 68.2% of the total Category C gaming machines at the end of the
period, which was an increase from 57.2% at the end of the comparable period in 2019. This represents a 30.9% increase over the
prior year’s installed base of digital Category C gaming machines and reflects the continued conversion of Category C gaming
machines from analog to digital in the UK Pub estate. The increase in the Company’s digital machine base was continuing to
drive revenue per gaming machine per week until the shutdown of the UK market due to the COVID-19 pandemic, which led to revenues
reducing to zero beginning in mid-March, resulting in a reduction in revenue per digital terminal of 52.5% for the period.
In addition, Acquired Businesses includes services to Leisure
Parks, MSAs, AGCs and bowling alleys as well as software license fees associated with one-time hardware sales. Leisure parks contributed
$1.9 million in revenue, which was $10.3 million lower than the prior year, caused by the closure of all leisure parks from mid-March,
as described above. Revenue from MSAs and AGCs was $5.8 million in the quarter and included 5,106 machines on a rental basis, generating
an average of £26.13 per week, which was a reduction of 58.5% to the prior year.
Acquired Businesses hardware revenue was $6.0 million and includes
the sale of 963 machines as well as spare parts and repairs.
Acquired Businesses Segment Operating Income
Acquired Businesses operating income reflects cost of sales
of $8.8 million (comprised of manufacturing costs, content royalties, spare parts, distribution costs, and certain gaming taxes),
SG&A expenses of $20.5 million including service network costs, facilities, and staffing, and depreciation and amortization
of $10.4 million, reflecting capitalized game development and machine deployment levels. SG&A expenses for the period were
impacted by furloughs of all operations staff, effected to reflect the cessation of revenue from gaming operations due to the shutdown
from March through June attributable to the COVID-19 pandemic.
Non-GAAP Financial Measures
We use certain non-GAAP financial measures, including EBITDA
and Adjusted EBITDA, to analyze our operating performance. We use these financial measures to manage our business on a day-to-day
basis. We believe that these measures are also commonly used in our industry to measure performance. For these reasons, we believe
that these non-GAAP financial measures provide expanded insight into our business, in addition to standard U.S. GAAP financial
measures. There are no specific rules or regulations for defining and using non-GAAP financial measures, and as a result the measures
we use may not be comparable to measures used by other companies, even if they have similar labels. The presentation of non-GAAP
financial information should not be considered in isolation from, or as a substitute for, or superior to, financial information
prepared and presented in accordance with U.S. GAAP. You should consider our non-GAAP financial measures in conjunction with our
U.S. GAAP financial measures.
We define our non-GAAP financial measures as follows:
EBITDA is defined as net loss excluding depreciation
and amortization, interest expense, interest income and income tax expense.
Adjusted EBITDA is defined as net loss excluding depreciation
and amortization, interest expense, interest income and income tax expense, and other additional exclusions and adjustments.
Such additional excluded amounts include stock-based compensation U.S. GAAP charges where the associated liability is expected
to be settled in stock, and changes in the value of earnout liabilities and income and expenditure in relation to legacy portions
of the business (being those portions where trading no longer occurs) including closed defined benefit pension schemes. Additional
adjustments are made for items considered outside the normal course of business, including (1) restructuring costs, which include
charges attributable to employee severance, management changes, restructuring, dual running costs, costs related to facility closures
and integration costs, (2) merger and acquisition costs and (3) gains or losses not in the ordinary course of business. This does
not include any adjustments related to COVID-19.
We believe Adjusted EBITDA, when considered along with other
performance measures, is a particularly useful performance measure, because it focuses on certain operating drivers of the business,
including sales growth, operating costs, selling and administrative expense and other operating income and expense. We believe
Adjusted EBITDA can provide a more complete understanding of our operating results and the trends to which we are subject, and
an enhanced overall understanding of our financial performance and prospects for the future. Adjusted EBITDA is not intended to
be a measure of liquidity or cash flows from operations or a measure comparable to net income or loss, because it does not take
into account certain aspects of our operating performance (for example, it excludes non-recurring gains and losses which are not
deemed to be a normal part of underlying business activities). Our use of Adjusted EBITDA may not be comparable to the use
by other companies of similarly termed measures. Management compensates for these limitations by using Adjusted EBITDA as only
one of several measures for evaluating our operating performance. In addition, capital expenditures, which affect depreciation
and amortization, interest expense, and income tax benefit (expense), are evaluated separately by management.
Functional Currency at Constant rate. Currency
impacts shown have been calculated as the current-period average GBP: USD rate less the equivalent average rate in the prior period,
multiplied by the current period amount in our functional currency (GBP). The remaining difference, referred to as functional currency
at constant rate, is calculated as the difference in our functional currency, multiplied by the prior-period average GBP: USD rate,
as a proxy for functional currency at constant rate movement.
Currency Movement represents the difference between
the results in our reporting currency (USD) and the results on a functional currency at constant rate basis.
Reconciliations from net loss, as shown in our Consolidated
Statements of Operations and Comprehensive Loss, to Adjusted EBITDA are shown below. The 2019/2020 EBITDA comparison does not include
the Acquired Businesses in the 2019 results.
Reconciliation to Adjusted EBITDA
|
|
For the Three-Month
Period ended
|
|
|
|
Unaudited
|
|
|
Unaudited
|
|
|
|
June 30,
|
|
|
June 30,
|
|
(In millions)
|
|
2020
|
|
|
2019
|
|
Net loss
|
|
$
|
(24.5
|
)
|
|
$
|
(10.7
|
)
|
|
|
|
|
|
|
|
|
|
Items Relating to Discontinued Activities:
|
|
|
|
|
|
|
|
|
Pension charges (1)
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
Items outside the normal course of business:
|
|
|
|
|
|
|
|
|
Costs of group restructure (2)
|
|
|
0.3
|
|
|
|
1.1
|
|
Acquisition and integration related transaction expenses (3)
|
|
|
1.2
|
|
|
|
0.7
|
|
Stock-based compensation expense
|
|
|
1.0
|
|
|
|
2.3
|
|
Depreciation and amortization
|
|
|
13.3
|
|
|
|
9.1
|
|
Total other expense, net
|
|
|
10.5
|
|
|
|
6.1
|
|
Income tax
|
|
|
0.1
|
|
|
|
0.1
|
|
Adjusted EBITDA
|
|
$
|
2.1
|
|
|
$
|
8.9
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
£
|
1.7
|
|
|
£
|
6.9
|
|
|
|
|
|
|
|
|
|
|
Exchange Rate - $ to £ (6)
|
|
|
1.26
|
|
|
|
1.29
|
|
|
|
For the Six-Month
Period ended
|
|
|
|
Unaudited
|
|
|
Unaudited
|
|
|
|
June 30,
|
|
|
June 30,
|
|
(In millions)
|
|
2020
|
|
|
2019
|
|
Net loss
|
|
$
|
(41.9
|
)
|
|
$
|
(15.7
|
)
|
|
|
|
|
|
|
|
|
|
Items Relating to Discontinued Activities:
|
|
|
|
|
|
|
|
|
Pension charges (1)
|
|
|
0.4
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
Items outside the normal course of business:
|
|
|
|
|
|
|
|
|
Costs of group restructure (2)
|
|
|
0.4
|
|
|
|
2.7
|
|
Acquisition and integration related transaction expenses (3)
|
|
|
4.4
|
|
|
|
1.6
|
|
Impairment on interest in equity method investee(4)
|
|
|
0.7
|
|
|
|
-
|
|
Stock-based compensation expense
|
|
|
2.0
|
|
|
|
4.4
|
|
Depreciation and amortization
|
|
|
25.9
|
|
|
|
18.8
|
|
Total other expense, net(5)
|
|
|
20.0
|
|
|
|
10.5
|
|
Income tax
|
|
|
0.3
|
|
|
|
(0.0
|
)
|
Adjusted EBITDA
|
|
$
|
12.1
|
|
|
$
|
22.5
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
£
|
9.5
|
|
|
£
|
17.4
|
|
|
|
|
|
|
|
|
|
|
Exchange Rate - $ to £ (6)
|
|
|
1.27
|
|
|
|
1.30
|
|
Notes to table:
|
(1)
|
“Pension
charges” are profit and loss charges included within selling, general and administrative expenses, relating to a
defined benefit scheme which was closed to new entrants in 1999 and to future accrual in 2010. As well as the amortization of
net loss, the figure also includes charges relating to the Pension Protection Fund (which were historically borne by the
pension scheme) and a small amount of associated professional services expenses. These costs are included within Corporate
Functions.
|
|
(2)
|
“Costs
of group restructure” include redundancy costs, Payments In Lieu of Notice costs, any associated employer taxes and costs
associated with onerous property leases. To qualify as being an adjusting item, costs must be part of a large restructuring project,
which will net save ongoing future costs. These costs were primarily incurred in connection with the property consolidation.
|
|
(3)
|
Acquisition
and integration related transaction expenses, Stock-based compensation expense, Depreciation and amortization, Total other expense,
net and Income tax are as described above in the Results of Operations line item discussions. Total expense, net includes interest
income, interest expense, change in fair value of earnout liability, change in fair value of derivative liability and other finance
income.
|
|
(4)
|
In
April 2020, the Company disposed of its 40% non-controlling equity interest in Innov8 Gaming Limited which resulted in the investment
of $0.7 million being written off.
|
|
(5)
|
Excludes loss from equity method investee of $0.5 million.
|
|
(6)
|
Exchange
rate in the table is calculated by dividing the USD Adjusted EBITDA by the GBP Adjusted EBITDA, therefore this could be slightly
different from the average rate during the period depending on timing of transactions.
|
Liquidity and Capital Resources
Six Months ended June 30, 2020 compared to Six Months
ended June 30, 2019
|
|
6 Months ended
|
|
|
Variance
|
|
|
|
Jun 30,
|
|
|
Jun 30,
|
|
|
2020
|
|
(in millions)
|
|
2020
|
|
|
2019
|
|
|
to 2019
|
|
Net loss
|
|
$
|
(41.9
|
)
|
|
$
|
(15.7
|
)
|
|
$
|
(26.2
|
)
|
Non-cash interest expense including amortization of fees
|
|
|
1.2
|
|
|
|
0.9
|
|
|
|
0.3
|
|
Change in fair value of derivative and earnout liabilities and stock-based compensation expense
|
|
|
2.5
|
|
|
|
6.8
|
|
|
|
(4.3
|
)
|
Impairment expense
|
|
|
0.7
|
|
|
|
0.0
|
|
|
|
0.7
|
|
Foreign currency translation on senior bank debt and cross currency swaps
|
|
|
6.6
|
|
|
|
(0.3
|
)
|
|
|
6.9
|
|
Depreciation and amortization (incl RoU assets)
|
|
|
27.9
|
|
|
|
18.8
|
|
|
|
9.1
|
|
Other net cash generated/(utilized) by operating activities
|
|
|
13.2
|
|
|
|
9.2
|
|
|
|
4.0
|
|
Net cash provided by operating activities
|
|
|
10.2
|
|
|
|
19.7
|
|
|
|
(9.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activites
|
|
|
(15.5
|
)
|
|
|
(9.8
|
)
|
|
|
(5.7
|
)
|
Net cash generated by financing activities
|
|
|
18.6
|
|
|
|
9.0
|
|
|
|
9.6
|
|
Effect of exchange rates on cash
|
|
|
(2.5
|
)
|
|
|
(1.2
|
)
|
|
|
(1.3
|
)
|
Net increase in cash and cash equivalents
|
|
$
|
10.8
|
|
|
$
|
17.7
|
|
|
$
|
(6.9
|
)
|
Net cash provided by operating activities. In
the six months ended June 30, 2020, net cash inflow provided by operating activities was $10.2 million, compared to a $19.7 million
inflow in the prior year’s six-month period, representing an $9.5 million decrease in cash generation.
Non-cash interest expense increased by $0.3 million to $1.2
million. The current period’s non-cash interest expense related to amortization of debt fees incurred in relation to the
business refinancing in October 2019. The prior year’s expense related to the amortization of debt fees incurred in relation
to the business refinancing in August 2018.
Change in fair value of derivative and earnout liabilities and
stock-based compensation expense reduced by $4.3 million, from an inflow of $6.8 million to an inflow of $2.5 million. Movements
in the market value of the stock price resulted in a $2.3 million higher earnout inflow in the six months ended June 30, 2019 and
a $1.8 million higher inflow relating to stock-based compensation expense also in the prior year. On March 25, 2019, the shares
relating to the earnout liability were issued resulting in no further inflows or outflows after this date.
Foreign currency translation on senior bank debt and cross currency
swaps following the refinancing on October 1, 2019 resulted in a gain in the six months ended June 30, 2020 of $6.6 million as
a result of the movement in exchange rates during the period, compared to a loss of $0.3 million in the corresponding six months
of the prior year.
Depreciation, amortization and impairment increased by $9.1 million
to a charge of $27.9 million with increases of $5.2 million in machine asset charges and $1.7 million in development costs and
licenses following the acquisition of the Acquired Businesses on October 1, 2019. In addition, a $2.0 million charge has been incurred
in the six months to June 30, 2020 relating to the amortization of Right of Use assets under ASC842. This standard was not applied
to the prior periods.
Non-cash finance lease addition in the six months ended June
30, 2020 represented the capitalization of the new Station Street UK head office property as a finance lease.
Other net cash generated by operating activities increased by $4.0
million, to a $13.2 million inflow despite the significant impact in the most recent four months of the COVID-19 pandemic. Strong
receipt generation resulted in a $2.9 million favorable movement in accounts receivable and there was a $1.1 million benefit from
other current asset levels. Further favorable movements were in accruals, $6.9 million, driven by timing of interest payments.
These were partly offset by an outflow relating to accounts payable of $5.9 million as a direct consequence of the COVID-19 pandemic
and a $1.6 million outflow relating to operating lease liabilities under ASC842, a standard not applied to the results for the
prior period.
Included within net cash provided by operating activities were
$5.0 million of payments relating to transaction and integration expenses and $0.4 million of payments relating to restructuring
costs. This compares to $0.5 million relating to transaction expenses and $1.4 million relating to restructuring costs in the prior
year.
Net cash used in investing activities. Net cash
used in investing activities increased by $5.7 million to $15.5 million in the six months ended June 30, 2020. The increase was
due to a $6.7 million higher spend on property and equipment following the acquisition of Novomatic UK’s Gaming Technology
Group in October 2019, offset by a $1.1 million reduction in the spend on capitalized software as a direct consequence of the
COVID-19 pandemic.
Net cash generated by financing activities. In
the six months ended June 30, 2020, net cash generated by financing activities was $18.6 million, compared to a $9.0 million
inflow in the six months ended June 30, 2019. An increase in the level of revolver drawn resulted in a $22.3 million inflow
offset by a $3.1 million payment of lender fees associated with the changes made to the debt terms and covenant levels as a
result of the COVID-19 pandemic and $0.6 million of finance lease payments. The prior year’s inflow was due to a $9.3
million increase in the level of revolver drawn offset by $0.3 million of finance lease payments.
Funding Needs and Sources
To fund our obligations, we have historically relied on a combination
of cash flows provided by operations and the incurrence of additional debt or the refinancing of existing debt. As of June 30,
2020, we had liquidity of $39.9 million in cash and cash equivalents. This compares to $33.7 million of cash and cash equivalents
as at June 30, 2019. We had a working capital inflow of $13.2 million for the six months ended June 30, 2020, compared to a $9.2
million inflow for the six months ended June 30, 2019. The level of our working capital surplus or deficit varies with the level
of machine production we are undertaking and our capitalization and also with the seasonality evident in some of the companies
purchased as part of the acquisition of Novomatic UK’s Gaming Technology Group in October 2019. In periods with minimal machine
volumes and capital spend, our working capital is more stable. In periods where significant numbers of machines are being produced,
the levels of inventory and creditors are higher than typical and there is a natural timing difference between converting the stock
into sellable or capitalized plant and settling payments to suppliers. These factors, along with movements in trading activity
levels, can result in significant working capital volatility. In periods of low activity, our working capital volatility is reduced.
Working capital is reviewed and managed with the aim of ensuring that current liabilities are covered by the level of cash held
and the expected level of short-term receipts.
Some of our business operations require cash to be held within
the machines. As of June 30, 2020, $2.6 million of our $39.9 million of cash and cash equivalents were held as operational floats
within the machines. In addition a further $2.4 million of cash was held within a restricted bank account. This amount is expected
to be released into an unrestricted account before the end of the next quarter.
Management currently believes that despite the reduced trading
levels caused by the COVID-19 pandemic, the Company’s cash balances on hand, cash flows expected to be generated from operations,
the refinancing of the business following the acquisition of the Novomatic UK’s Gaming Technology Group in October 2019 and
the ability to control and defer capital projects will be sufficient to fund the Company’s net cash requirements through
August 2021.
Long Term and Other Debt
(In millions)
|
|
June 30,
2020
|
|
|
June 30,
2019
|
|
Cash held
|
|
£
|
32.3
|
|
|
$
|
39.9
|
|
|
£
|
26.5
|
|
|
$
|
33.7
|
|
Revolver drawn
|
|
|
(20.0
|
)
|
|
|
(24.7
|
)
|
|
|
(7.3
|
)
|
|
|
(9.3
|
)
|
Original principal senior debt
|
|
|
(230.5
|
)
|
|
|
(284.8
|
)
|
|
|
(110.0
|
)
|
|
|
(140.0
|
)
|
Cash interest accrued
|
|
|
(4.8
|
)
|
|
|
(6.0
|
)
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
Finance lease creditors
|
|
|
(0.8
|
)
|
|
|
(1.1
|
)
|
|
|
(0.1
|
)
|
|
|
(0.2
|
)
|
Total
|
|
£
|
(223.8
|
)
|
|
$
|
(276.8
|
)
|
|
£
|
(91.0
|
)
|
|
$
|
(115.9
|
)
|
On October 1, 2019, pursuant to the Share Purchase Agreement,
dated as of June 11, 2019 (the “SPA”), by and between Inspired Gaming (UK) Limited, a subsidiary of the Company (the
“Buyer”), and Novomatic UK Ltd., (the “Seller”), the Buyer completed its acquisition from the Seller of
(i) all of the outstanding equity interests of each of (a) Astra Games Ltd, (b) Bell-Fruit Group Limited, (c) Gamestec Leisure
Limited, (d) Harlequin Gaming Limited, and (e) Playnation Limited, and (ii) 40% of the outstanding equity interests of Innov8 Gaming
Limited (“Innov8”, and the entities described in clauses (i) and (ii), together with certain of their subsidiaries,
the “Acquired Companies” and the transactions contemplated by the SPA, the “Acquisition”). The Acquired
Companies comprised the Seller’s Gaming Technology Group. The consideration for the Acquisition totaled approximately
€104.6 million (USD $120.0 million) in cash.
In connection with the Acquisition, on September 27, 2019, Gaming
Acquisitions Limited, together with Inspired Entertainment, Inc. (“Inspired”), and certain other direct and indirect
wholly-owned subsidiaries of Inspired, entered into a Senior Facilities Agreement with Lucid Agency Services Limited, as agent,
Nomura International plc and Macquarie Corporate Holdings Pty Limited (UK Branch) as arrangers and/or bookrunners and each lender
party thereto (the “Lenders”), pursuant to which the Lenders agreed to provide, subject to certain conditions, two
tranches of senior secured term loans (the “Term Loans”), in an original principal amount of £140.0 million and
€90.0 million, respectively and a secured revolving facility loan in an original principal amount of £20.0 million.
Proceeds from the Term Loans were used, among other things, to pay the purchase price of the Acquisition and to refinance existing
indebtedness of the Company.
The new term loans have a five-year duration and are repayable
in full on October 1, 2024. The £140.0 million loan carries a cash interest rate of 7.25% plus 3-month LIBOR, the €90.0
million loan carries a cash interest rate of 6.75% plus a 3-month EUROLIBOR. The £20.0 million revolving credit facility
is available until September 1, 2024 and carries a cash interest rate on any utilization at 5.50% plus 3-month LIBOR, with any
unutilized amount carrying a cash interest cost at 30% of the applicable margin on the revolving credit facility loan. On April
6, 2020, the Company entered into an Extended Grace Period Letter Agreement amendment to the Senior Facilities Agreement that provided
for, among other things, an increase in the applicable margin on the term loans and revolving credit facility of 100 bps, as described
in the notes to the financial statements – Note 17 Subsequent Events. On June 25, 2020, the Extended Grace Period Letter
Agreement amendment became effective with the increase in the applicable margin on the terms loans and revolving credit facility
being backdated to April 1, 2020. In addition, the cash interest due on the term loans at this date was capitalized and also attracted
interest at the increased margin levels.
In connection with the refinancing on October 1, 2019, the existing
three-year, fixed-rate, cross-currency swaps were terminated and the remaining capitalized debt fees totaling $7.3 million expensed.
Debt fees of approximately $16.1 million were incurred and capitalized as part of the refinancing as relating to the costs incurred
in obtaining the new term loan facilities. These fees will be amortized over the length of the new term loans. On June 25, 2020
as part of the Extended Grace Period Letter Agreement becoming effective a further $3.1 million of debt fees were incurred and
capitalized. These fees will also be amortized over the term loan length.
During August 2018, the Company and certain of its subsidiaries
entered into a series of transactions that refinanced the Company’s external borrowings, replacing the Company’s senior
term and revolving facilities, originally entered into in 2014, with senior notes of $140.0 million and a revolving credit facility
of £7.5 million (equivalent to approximately $9.3 million). The senior notes had a five-year duration and carried a cash
interest rate of 9% plus 3-month LIBOR, and the revolving credit facility had a three-year duration and carried a cash interest
rate on any utilization at 4% plus 3-month LIBOR, any unutilized amount carried a 1.4% cash interest cost. In connection with this
refinancing, the Company entered into a three-year, fixed-rate, cross-currency swap. For further information regarding the new
external borrowings and the swap, see Note 12 to the Consolidated Financial Statements, “Long Term and Other Debt”.
As of June 30, 2020, and following the capitalization of the
cash interest on April 1, 2020, the Company had bank facilities of £165.8 million and €93.1 million (equivalent to approximately
$309.5 million), consisting of senior term loan facilities of £145.8 million and €93.1 million (equivalent to $180.2
million and $104.6 million respectively) and a revolving credit facility of £20.0 million (equivalent to approximately $24.7
million). As of June 30, 2020, the £145.8 million term loan facility had a cash interest rate on outstanding borrowings equal
to the base rate margin of 8.25% per annum, plus 3-month LIBOR which at June 30, 2020 was the equivalent of 8.97% per annum. The
€93.1 million term loan facility had a cash interest rate on outstanding borrowings equal to the base rate margin of 7.75%
per annum, plus 3-month EUROLIBOR which at June 30, 2020 was the equivalent of 7.75% per annum. Both term loan facilities are scheduled
to mature on October 1, 2024.
As of June 30, 2019, the Company had bank facilities of £117.5
million (equivalent to approximately $149.5 million), consisting of a senior term loan facility of £110.0 million (equivalent
to $140.0 million) and a revolving credit facility of £7.5 million (equivalent to approximately $9.5 million). As of June
30, 2019, the term loan facility imposed a cash interest rate on outstanding borrowings equal to the base rate margin of 9.00%
per annum, plus 3-month LIBOR which at June 30, 2019 was the equivalent of 11.33% per annum which under the cross-currency swaps
executed was reduced to a rate of 10.87%.
As of June 30, 2020, the Company had aggregate borrowings under
the revolving credit facility of £20.0 million (equivalent to $24.7 million). As of June 30, 2020, the revolving credit facility
imposed a cash interest rate on outstanding borrowings equal to the base rate margin of 6.50% per annum, plus LIBOR, and the current
rate at which cash interest accrued was 6.59% per annum. In addition, a commitment fee was payable with respect to unutilized borrowing
capacity at a rate of 1.65% per annum. The revolving credit facility is scheduled to mature on September 1, 2024.
As of June 30, 2019, the Company had aggregate borrowings under
the revolving credit facility of £7.3 million (equivalent to $9.3 million). As of June 30, 2019, the revolving credit facility
imposed a cash interest rate on outstanding borrowings equal to the base rate margin of 4.00% per annum, plus LIBOR, and the current
rate at which cash interest accrued was 4.72% per annum. In addition, a commitment fee was payable with respect to unutilized borrowing
capacity at a rate of 1.40% per annum. This facility was terminated at the time of the refinancing on October 1, 2019.
Debt issuance fees were capitalized at the time the debt was
issued, with further lender debt fees capitalized on June 25, 2020 as part of the Extended Grace Period Letter Agreement becoming
effective. As of June 30, 2020, the amount of debt issuance fees capitalized was $18.7 million, including $11.7 million of original
issue discount and $2.2 million of structuring fees with the remainder being professional fees incurred from the refinancing. Of
the total debt issuance fees capitalized, $2.4 million had been charged by June 30, 2020.
Debt Covenants
Under our debt facilities in place as of June 30, 2020 we are
subject to covenant testing at quarterly intervals. The covenant testing is set at the level of Inspired Entertainment Inc., the
ultimate holding company, and consists of a test on Leverage (Consolidated Total Net Debt/Consolidated Pro Forma EBITDA) and a
test on the level of capital expenditure. These are measured under U.S. GAAP. Leverage is to be tested at quarterly intervals commencing
for the period ending June 30, 2020 and capital expenditure is tested annually commencing on December 31, 2019.
Prior to reaching our first leverage covenant test on June 30,
2020, the covenants were reset as a direct result of the Covid19 pandemic and subsequent loss of trading through the last few months
as a result of government lockdowns in many key trading countries around the world. Formal agreement of the revised covenants was
achieved on June 25, 2020.
Under our debt facilities in place as of June 30, 2019, we were
subject to covenant testing at quarterly intervals. The covenant testing is set at the level of Inspired Entertainment Inc., the
ultimate holding company, and consists of a test on Leverage (Consolidated Total Debt/Consolidated Adjusted EBITDA) and a test
of the Fixed Charge Coverage Ratio (Net Cash Provided by Operating Activities/Calculation of Consolidated Fixed Charges). These
are measured under U.S. GAAP. In addition to the quarterly tests, there was the requirement that the minimum liquidity not be less
than $5.0 million. With the refinancing of the Company on October 1, 2019, these tests were replaced by a revised set of covenant
tests.
There were no breaches of the debt covenants in the periods
ended June 30, 2020 and June 30, 2019.
Liens and Encumbrances
As of June 30, 2020, our senior bank debt was secured by the
imposition of a fixed and floating charge in favor of the lender over all the assets of the Company and certain of the Company’s
subsidiaries.
Contractual Obligations
As of June 30, 2020, our contractual obligations were as follows:
|
|
|
|
|
Less than
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|
|
|
|
|
|
|
|
More than
|
|
Contractual Obligations (in millions)
|
|
Total
|
|
|
1 yr
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
5 yrs
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on long term debt
|
|
$
|
109.6
|
|
|
$
|
24.1
|
|
|
$
|
48.8
|
|
|
$
|
36.7
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolver repayment
|
|
|
24.9
|
|
|
|
24.9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Senior bank debt - principal repayment
|
|
|
284.8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
284.8
|
|
|
|
-
|
|
Operating lease payments
|
|
|
12.6
|
|
|
|
3.2
|
|
|
|
4.4
|
|
|
|
2.4
|
|
|
|
2.6
|
|
Interest on non-utilisation fees
|
|
|
1.7
|
|
|
|
0.3
|
|
|
|
0.8
|
|
|
|
0.6
|
|
|
|
-
|
|
Total
|
|
$
|
434.6
|
|
|
$
|
53.0
|
|
|
$
|
54.4
|
|
|
$
|
324.6
|
|
|
$
|
2.6
|
|
Recent US Tax Law Changes
In light of the recent US tax reforms and specifically those
around GILTI (Global Intangible Low Taxed Income), we may be required to pay additional US corporate income tax beginning in the
year ending December 31, 2021 due to the location of assets and tax losses brought forward in the UK.
Off-Balance Sheet Arrangements
As of June 30, 2020, there were no off-balance sheet arrangements,
as defined in Item 303(a)(4)(ii) of Regulation S-K, promulgated by the U.S. Securities and Exchange Commission.
Critical Accounting Policies
The preparation of our unaudited condensed consolidated financial
statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires
management to make estimates and assumptions. We exercise considerable judgment with respect to establishing sound accounting policies
and in making estimates and assumptions that affect the reported amounts of our assets and liabilities, our recognition of revenue
and expenses, and our disclosure of commitments and contingencies at the date of the consolidated financial statements. On an on-going
basis, we evaluate our estimates and judgments. We base our estimates and judgments on a variety of factors, including our historical
experience, knowledge of our business and industry and current and expected economic conditions, that are believed to be reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. We periodically re-evaluate our estimates and assumptions with respect to these
judgments and modify our approach when circumstances indicate that modifications are necessary. While we believe that the factors
we evaluate provide us with a meaningful basis for establishing and applying sound accounting policies, we cannot guarantee that
the results will always be accurate. Since the determination of these estimates requires the exercise of judgment, actual results
could differ from such estimates.
For a discussion of other recently issued accounting standards,
and assessments as to their impacts on the Company, see Nature of Operations, Management’s Plans and Summary of Significant
Accounting Policies, Note 1 to the consolidated financial statements included elsewhere in this report.