ITEM
1. FINANCIAL STATEMENTS
INSPIRED
ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(in
millions, except share data)
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)
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, 2021 TO JUNE 30, 2021
(in
millions, except share data)
(Unaudited)
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
|
|
|
$
|
—
|
|
|
$
|
320.6
|
|
|
$
|
45.1
|
|
|
$
|
(425.0
|
)
|
|
$
|
(59.3
|
)
|
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
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(9.8
|
)
|
|
|
(9.8
|
)
|
Balance as of March 31, 2020
|
|
|
22,397,727
|
|
|
$
|
—
|
|
|
$
|
321.6
|
|
|
$
|
51.5
|
|
|
$
|
(434.8
|
)
|
|
$
|
(61.7
|
)
|
Foreign currency translation adjustments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.4
|
|
|
|
—
|
|
|
|
0.4
|
|
Actuarial losses 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
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(26.2
|
)
|
|
|
(26.2
|
)
|
Balance as of June 30, 2020
|
|
|
22,405,376
|
|
|
$
|
—
|
|
|
$
|
322.6
|
|
|
$
|
42.7
|
|
|
$
|
(461.0
|
)
|
|
$
|
(95.7
|
)
|
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,
|
|
|
|
2021
|
|
|
2020
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(60.5
|
)
|
|
$
|
(36.0
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
25.0
|
|
|
|
25.9
|
|
Amortization of right of use asset
|
|
|
1.2
|
|
|
|
2.0
|
|
Stock-based compensation expense
|
|
|
4.8
|
|
|
|
2.0
|
|
Change in fair value of warrant liability
|
|
|
13.5
|
|
|
|
(5.9
|
)
|
Impairment of investment in equity method investee
|
|
|
—
|
|
|
|
0.7
|
|
Foreign currency translation on senior bank debt
|
|
|
(4.6
|
)
|
|
|
6.6
|
|
Reclassification of loss on hedging instrument to comprehensive income
|
|
|
1.0
|
|
|
|
0.5
|
|
Non-cash interest expense relating to senior debt
|
|
|
16.3
|
|
|
|
1.2
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
5.5
|
|
|
|
3.7
|
|
Inventory
|
|
|
3.5
|
|
|
|
(1.4
|
)
|
Prepaid expenses and other assets
|
|
|
(4.1
|
)
|
|
|
5.7
|
|
Corporate tax and other current taxes payable
|
|
|
(6.7
|
)
|
|
|
0.1
|
|
Accounts payable
|
|
|
3.9
|
|
|
|
0.8
|
|
Deferred revenues and customer prepayment
|
|
|
(5.7
|
)
|
|
|
(3.8
|
)
|
Accrued expenses
|
|
|
(4.0
|
)
|
|
|
9.3
|
|
Operating lease liabilities
|
|
|
(1.2
|
)
|
|
|
(1.6
|
)
|
Other long-term liabilities
|
|
|
(0.7
|
)
|
|
|
0.4
|
|
Net cash (used in) provided by operating activities
|
|
|
(12.8
|
)
|
|
|
10.2
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(5.4
|
)
|
|
|
(8.8
|
)
|
Disposals of property and equipment
|
|
|
—
|
|
|
|
—
|
|
Purchases of capital software
|
|
|
(6.8
|
)
|
|
|
(6.7
|
)
|
Net cash used in investing activities
|
|
|
(12.2
|
)
|
|
|
(15.5
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
333.1
|
|
|
|
—
|
|
Proceeds from issuance of revolver
|
|
|
—
|
|
|
|
22.3
|
|
Repayments of long-term debt
|
|
|
(320.7
|
)
|
|
|
—
|
|
Cash paid in connection with terminated interest rate swaps
|
|
|
(2.1
|
)
|
|
|
—
|
|
Debt fees incurred
|
|
|
(9.1
|
)
|
|
|
(3.1
|
)
|
Repayments of finance leases
|
|
|
(0.2
|
)
|
|
|
(0.6
|
)
|
Net cash provided by financing activities
|
|
|
1.0
|
|
|
|
18.6
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
1.4
|
|
|
|
(2.5
|
)
|
Net (decrease) increase in cash
|
|
|
(22.6
|
)
|
|
|
10.8
|
|
Cash, beginning of period
|
|
|
47.1
|
|
|
|
29.1
|
|
Cash, end of period
|
|
$
|
24.5
|
|
|
$
|
39.9
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest
|
|
$
|
17.5
|
|
|
$
|
0.4
|
|
Cash paid during the period for income taxes
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
Cash paid during the period for operating leases
|
|
$
|
1.7
|
|
|
$
|
1.2
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
Property and equipment acquired through finance lease
|
|
$
|
1.3
|
|
|
$
|
1.5
|
|
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
|
|
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
We
are a global gaming technology company, supplying content, platform and other products and services to online and land-based regulated
lottery, betting and gaming operators worldwide through a broad range of distribution channels, predominantly on a business-to-business
basis. We provide end-to-end digital gaming solutions (i) on our own proprietary and secure network, which accommodates a wide range
of devices, including land-based gaming machine terminals, mobile devices and online computer applications and (ii) through third party
networks. Our content and other products can be found through the consumer-facing portals of our interactive customers and, through our
land-based customers, in licensed betting offices, adult gaming centers, pubs, bingo halls, airports, motorway service areas and leisure
parks.
Management
Liquidity Plans
As
of June 30, 2021, the Company’s cash on hand was $24.5
million, and the Company had working capital of ($17.7)
million. The Company recorded net losses of $60.5
million and $36.0
million for the six months ended June 30, 2021
and 2020, respectively. Net losses include non-cash debt fees expensed as part of the repayment of Prior Financing (see Note 4) of $14.4
million and $0.0
million for the six months ended June 30, 2021
and 2020, respectively, non-cash changes in fair value of warrant liability of $13.5
million loss and $5.9
million income for the six months ended June
30, 2021 and 2020, respectively, excess depreciation and amortization over capital expenditure of $12.8
million and $10.4
million for the six months ended June 30, 2021,
and 2020, respectively, and non-cash stock-based compensation of $4.8
million and $2.0
million for the six months ended June 30, 2021
and 2020, 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 used in operations amounted to $12.8
million and $10.2
million provided by operations for the six months
ended June 30, 2021 and 2020, respectively with the change year on year due to higher debt interest payments made in the six months ended
June 30, 2021, as there was an agreement in place to defer and capitalize such payments in the six months ended June 30, 2020. Working
capital of ($17.7)
million includes a non-cash settled item of $9.7
million of deferred income, and an item not expected to be
cash settled of $26.5 million
comprising a warrant liability. Management currently believes that, absent any unanticipated 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
2022.
Governments
in all of the major jurisdictions in which our land-based customers operate have now reopened land-based venues. No restrictions remain
in the United Kingdom. There remains an element of social distancing in venues in Greece and in Italy, there are restrictions in place
that state only fully vaccinated people can enter our venues. It remains uncertain as to whether and when further restrictions or closures
could happen in each jurisdiction and how long they may last. We continue to protect our existing available liquidity by pro-actively
managing capital expenditures and working capital as well as identifying both immediate and longer-term opportunities for cost savings.
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, 2020 and 2019. The financial information as of December 31, 2020
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 29, 2021 (“the Original 10-K”), and as amended and filed on Form 10-K/A with the SEC on May 10, 2021 (“the
10-K/A”). The interim results for the six months ended June 30, 2021 are not necessarily indicative of the results to be expected
for the year ending December 31, 2021 or for any future interim periods.
Restatement
of Previously Reported Information
On
May 7, 2021, after consultation with Marcum LLP, the Company’s independent registered public accounting firm, the Company’s
management and the audit committee of the Company’s Board of Directors concluded that it was appropriate to restate the Company’s
previously issued audited financial statements as of December 31, 2020, and December 31, 2019, and for the years ended December 31, 2020,
and December 31, 2019, which were included in the Original 10-K.
The
restatement related to the SEC’s public statement released on April 12, 2021, informing market participants that warrants issued
by special purpose acquisition companies may require classification as a liability of the entity measured at fair value, with changes
in fair value each period reported in earnings.
The
effect of the restatement on previously reported information for the three months ended June 30, 2020 is as follows:
Schedule of Restatement
|
|
As
Previously Reported
|
|
|
Adjustments
|
|
|
As
Restated
|
|
|
|
(in millions, except per share data)
|
|
Consolidated Statements of Stockholders’ Deficit as of April 1, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid in capital
|
|
$
|
347.6
|
|
|
$
|
(26.0
|
)
|
|
$
|
321.6
|
|
Accumulated deficit
|
|
|
(458.6
|
)
|
|
|
23.8
|
|
|
|
(434.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of Operations and Comprehensive Loss for the three months ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of warrant liability
|
|
$
|
—
|
|
|
$
|
(1.7
|
)
|
|
$
|
(1.7
|
)
|
Net loss
|
|
|
(24.5
|
)
|
|
|
(1.7
|
)
|
|
|
(26.2
|
)
|
Comprehensive loss
|
|
|
(33.3
|
)
|
|
|
(1.7
|
)
|
|
|
(35.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share – basic and diluted
|
|
$
|
(1.09
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(1.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Stockholders’ Deficit as of June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid in capital
|
|
$
|
348.6
|
|
|
$
|
(26.0
|
)
|
|
$
|
322.6
|
|
Accumulated deficit
|
|
|
(483.1
|
)
|
|
|
22.1
|
|
|
|
(461.0
|
)
|
The
effect of the restatement on previously reported information for the six months ended June 30, 2020 is as follows:
|
|
As
Previously Reported
|
|
|
Adjustments
|
|
|
As
Restated
|
|
|
|
(in millions, except per share data)
|
|
Consolidated Statements of Stockholders’ Deficit as of January 1, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid in capital
|
|
$
|
346.6
|
|
|
$
|
(26.0
|
)
|
|
$
|
320.6
|
|
Accumulated deficit
|
|
|
(441.2
|
)
|
|
|
16.2
|
|
|
|
(425.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of Operations and Comprehensive Loss for the six months ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of warrant liability
|
|
$
|
—
|
|
|
$
|
5.9
|
|
|
$
|
5.9
|
|
Net loss
|
|
|
(41.9
|
)
|
|
|
5.9
|
|
|
|
(36.0
|
)
|
Comprehensive loss
|
|
|
(44.3
|
)
|
|
|
5.9
|
|
|
|
(38.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share – basic and diluted
|
|
$
|
(1.87
|
)
|
|
$
|
0.26
|
|
|
$
|
(1.61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Stockholders’ Deficit as of June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid in capital
|
|
$
|
348.6
|
|
|
$
|
(26.0
|
)
|
|
$
|
322.6
|
|
Accumulated deficit
|
|
|
(483.1
|
)
|
|
|
22.1
|
|
|
|
(461.0
|
)
|
Recharacterization
of Previously Reported Information
In
prior periods, and up to and including the interim period nine months ended September 30, 2020, the Company operated its business along
three operating segments: Server Based Gaming, Virtual Sports (which included Interactive) and Acquired Businesses (which consisted of
the businesses acquired from the NTG Acquisition). During the period subsequent to September 30, 2020, the Company completed the process
of changing its internal structure, which has been ongoing since the NTG Acquisition, and as a result changed the composition of its
operating segments. The Company now operates its business along four operating segments, which are segregated on the basis of revenue
stream: Gaming, Virtual Sports, Interactive and Leisure. The Company believes this method of segment reporting reflects both the way
its business segments are now managed and the way the performance of each segment is now evaluated.
As
part of the recharacterization exercise, certain items of Revenue, Cost of Sales and Selling, General and Administrative Expenses have
been recharacterized to ensure consistency with similar items across the Group. The revenue recharacterizations are to ensure spares
and similar items are reflected with other items of hardware (Product Sales).
The
resulting impact on previously reported information for the three months ended June 30, 2020 is as follows: Service Revenue, previously
reported $15.2 million, now $15.3 million; Product Sales Revenue, previously reported $0.4 million, now $0.3 million; Cost of Service,
previously reported $3.1 million, now $2.5 million; Selling, General and Administrative Expenses (excluding Stock-based compensation),
previously reported $10.6 million, now $11.2 million.
The
resulting impact on previously reported information for the six months ended June 30, 2020 is as follows: Service Revenue, previously
reported $58.4 million, now $58.1 million; Product Sales Revenue, previously reported $9.5 million, now $9.8 million; Cost of Service,
previously reported $9.7 million, now $11.0 million; Cost of Product Sales, previously reported $7.3 million, now $6.5 million; Selling,
General and Administrative Expenses (excluding Stock-based compensation), previously reported $39.7 million, now $39.2 million.
The
recharacterization has no impact on the previously reported Net Operating Loss, Net Loss or Net Comprehensive Loss for the three and
six months ended June 30, 2020.
Inventory
consists of the following:
Schedule of Inventory
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
|
(in millions)
|
|
Component parts
|
|
$
|
11.2
|
|
|
$
|
12.1
|
|
Work in progress
|
|
|
0.8
|
|
|
|
1.7
|
|
Finished goods
|
|
|
2.3
|
|
|
|
3.8
|
|
Total inventories
|
|
$
|
14.3
|
|
|
$
|
17.6
|
|
Component
parts include parts for gaming terminals. Included in inventory are reserves for excess and slow-moving inventory of $1.3 million and
$1.5 million as of June 30, 2021 and December 31, 2020, 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:
Schedule of Contract Related Balances
|
|
Accounts
Receivable
|
|
|
Unbilled
Accounts
Receivable
|
|
|
Deferred
Income
|
|
|
Customer
Prepayments
and Deposits
|
|
|
|
(in millions)
|
|
At June 30, 2021
|
|
$
|
24.1
|
|
|
$
|
14.9
|
|
|
$
|
(17.2
|
)
|
|
$
|
(2.1
|
)
|
At December 31, 2020
|
|
$
|
30.4
|
|
|
$
|
8.2
|
|
|
$
|
(22.9
|
)
|
|
$
|
(1.6
|
)
|
At December 31, 2019
|
|
$
|
24.5
|
|
|
$
|
15.3
|
|
|
$
|
(27.8
|
)
|
|
$
|
(1.9
|
)
|
Revenue
recognized that was included in the deferred income balance at the beginning of the period amounted to $6.3 million and $10.3 million
for the six months ended June 30, 2021 and the year ended December 31, 2020, respectively.
4.
|
Long
Term and Other Debt
|
Senior
Secured Notes
On
May 20, 2021, Inspired Entertainment (Financing) PLC, a wholly owned subsidiary of the Company, issued £235.0
million ($324.7
million, as translated at June 30, 2021)
aggregate principal amount of its 7.875%
senior secured notes due 2026 (the “Senior Secured Notes”). The Senior Secured Notes bear interest at a rate of 7.875%
per annum and mature on June
1, 2026. Interest is payable on the Senior Secured
Notes on June 1 and December 1 of each year, commencing on December 1, 2021
The
Senior Secured Notes and related guarantees were issued under an indenture (the “Indenture”), among Inspired Entertainment
(Financing) PLC, as issuer, the Company and certain English and U.S. subsidiaries of the Company, as guarantors (collectively and together
with the Company, the “Guarantors”), GLAS Trustees Limited, as trustee, GLAS Trust Corporation Limited, as security agent
and GLAS Trust Company LLC as paying agent, transfer agent and registrar. The terms of the Senior Secured Notes and related guarantees
are governed by the Indenture.
The
Company used proceeds from the offering of the Senior Secured Notes to repay its £145.8 million ($201.5 million) senior secured
term loan facility and €93.1 million ($110.4 million) senior secured term loan facility and accrued interest thereon (the “Prior
Financing”), to close-out derivative contracts entered into in connection with the Prior Financing and to pay fees, commissions
and expenses incurred in connection with the refinancing.
The
Senior Secured Notes are fully and unconditionally guaranteed on a senior secured first-priority basis by the Guarantors on a joint and
several basis. The Senior Secured Notes and related guarantees are secured, subject to certain permitted collateral liens, on a first-priority
basis by substantially all assets of the Guarantors and all claims of the Inspired Entertainment (Financing) PLC under an intercompany
loan to Gaming Acquisitions Limited, a private limited liability company incorporated under the laws of England and Wales and an indirect
wholly-owned subsidiary of the Company (“GAL”), of the proceeds of the offering of the Senior Secured Notes.
The
Indenture contains incurrence covenants that limit the ability of the Company and the Company’s restricted subsidiaries to, among
other things, (i) incur or guarantee additional debt and issue certain preferred stock of restricted subsidiaries; (ii) create or incur
certain liens; (iii) make restricted payments, including dividends or distributions to the Company’s stockholders or repurchase
the Company’s stock; (iv) prepay or redeem subordinated debt; (v) make certain investments, including participating joint ventures;
(vi) create encumbrances or restrictions on the payment of dividends or other distributions by restricted subsidiaries; (vii) sell assets,
or consolidate or merge with or into other companies; (viii) sell or transfer all or substantially all of the Company’s assets
or those of the Company’s subsidiaries on a consolidated basis; (ix) engage in certain transactions with affiliates; and (x) create
unrestricted subsidiaries. Certain of these covenants will be suspended if and for so long as the Senior Secured Notes have investment
grade ratings from any two of Moody’s Investors Service, Inc., Standard & Poor’s Investors Ratings Services and Fitch
Ratings, Inc. These covenants are subject to exceptions and qualifications as set forth in the Indenture.
Inspired
Entertainment (Financing) PLC may redeem the Senior Secured Notes, in whole or in part, at any time and from time to time prior to June
1, 2023, at a redemption price equal to 100% of the principal amount thereof, plus a “make-whole” premium as set forth in
the Indenture and form of the Senior Secured Notes, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.
Inspired Entertainment (Financing) PLC may also redeem the Senior Secured Notes, in whole or in part, at any time and from time to time
on or after June 1, 2023, at the redemption prices set forth in the Indenture and form of the Senior Secured Notes, plus accrued and
unpaid interest, if any, to, but excluding, the redemption date. In addition, at any time prior to June 1, 2023, Inspired Entertainment
(Financing) PLC may redeem up to 40% of the original aggregate principal amount of the Senior Secured Notes with the net cash proceeds
of one or more equity offerings, as described in the Indenture, at a redemption price equal to 107.875% of the principal amount thereof,
plus accrued and unpaid interest, if any, to, but excluding, the redemption date. At any time prior to June 1, 2023, Inspired Entertainment
(Financing) PLC may redeem up to 10% of the aggregate principal amount of the Senior Secured Notes within each 12-month period at a redemption
price equal to 103.000% of the aggregate principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, to,
but excluding, the redemption date.
Revolving
Credit Facility
In
connection with the issuance of the Senior Secured Notes on May 20, 2021, the Company and certain of our direct and indirect wholly-owned
subsidiaries, entered into a Super Senior Revolving Credit Facility Agreement (the “RCF Agreement”) with Global Loan Agency
Services Limited, as agent, Barclays Bank plc (“Barclays”) and Macquarie Corporate Holdings Pty Limited (UK Branch) (“Macquarie
UK” and together with Barclays, the “Arrangers”) as arrangers and each lender party thereto (the “Lenders”),
pursuant to which the Lenders agreed to provide, subject to certain conditions, a secured revolving facility loan in an original principal
amount of £20 million ($27.6 million) under which certain of our subsidiaries are able to draw funds (the “RCF Loan”).
The RCF Loans will terminate on November 20, 2025.
The
funding of the RCF Loan is subject to customary conditions set forth in the RCF Agreement. The undrawn commitment of each Lender under
the RCF Loan will automatically terminate, unless previously terminated by the Company, on October 20, 2025.
The
RCF Loans will bear interest at a rate per annum equal to (i) SONIA for borrowings in sterling, (ii) LIBOR (or, on and after December
31, 2021, SOFR) for borrowings in dollars, or (iii) EURIBOR for borrowings in Euro, as applicable, plus, in each case, a margin (based
on the Company’s consolidated senior secured net leverage ratio) ranging from 4.25% to 4.75% per annum. With respect to the RCF
Loan, a commitment fee of 30% of the then applicable margin is payable at any time on any unutilized portion of the RCF Loan.
The
RCF Agreement contains various covenants (which include restrictions regarding the incurrence of liens, the incurrence of indebtedness
by the Company’s subsidiaries and fundamental changes, subject in each case to certain exceptions), representations, warranties,
limitations and events of default (which include non-payment, breach of obligations under the financing documents, cross-default, insolvency
and litigation) customary for similar facilities for similarly rated borrowers and subject to customary carve-outs and grace periods.
Following the occurrence of an event of default which has not been waived or remedied, the Lenders who represent more than 66.67% of
total commitments under the RCF may, subject to the terms of an intercreditor agreement (which governs the relationship between the Lenders
and the holders of the Senior Secured Notes), instruct the agent to (i) accelerate the RCF Loans, (ii) instruct the security agent to
enforce the transaction security and/or (iii) exercise any other remedies available to the Lenders.
The
RCF Agreement requires that the Company maintain a maximum consolidated senior secured net leverage ratio of 6.25x on the test date for
the relevant period ending June 30, 2021, stepping down to 6.0x on March 31, 2022, 5.75x on March 31, 2023 and 5.50x from March 31, 2024
and thereafter (the “RCF Financial Covenant”). The RCF Financial Covenant is calculated as the ratio of consolidated senior
secured net debt to consolidated pro forma EBITDA (defined as net loss excluding depreciation and amortization, interest expense, interest
income and income tax expense) for the 12-month period preceding the relevant quarterly testing date and is tested quarterly on a rolling
basis, subject to the Initial Facility (as defined in the RCF Agreement) being drawn on the relevant test date. The RCF Agreement does
not include a minimum interest coverage ratio or other financial covenants.
The
outstanding principal amount of each advance under the RCF Loans is payable on the last day of the interest period relating to such advance,
unless such advance is rolled over on a cashless basis in accordance with customary rollover provisions contained in the RCF Agreement,
with a final repayment on November 20, 2025.
Termination
of Prior Financing
The
Company’s previous debt consisted of two tranches of senior secured term loans in a principal amount of £145.8 million ($201.5
million) with a cash interest rate of 8.25% plus 3-month LIBOR and €93.1 million ($110.4 million) with a cash interest rate of 7.75%
plus 3-month EURIBOR, respectively and a secured revolving facility loan in a principal amount of £20.0 million ($27.6 million)
with a cash interest rate on any utilization of 6.50% plus 3-month LIBOR.
In
connection with the issuance of the Senior Secured Notes and the entry into the RCF Agreement, on May 20, 2021, the Prior Financing was
repaid in full and the senior facilities agreement (dated September 27, 2019, as amended and restated on June 25, 2020) relating to the
Prior Financing was terminated. No prepayment premium applied to the repayment (although customary break cost provisions applied). Debt
fees of $14.4 million were expensed to the Consolidated Statements of Operations and Consolidated Loss within Interest Expense as part
of the repayment. In addition, on May 19, 2021, we terminated the interest rate swaps relating to the Prior Financing and applicable
termination fees were settled on May 20, 2021 (see Note 5).
Outstanding
Debt and Finance Leases
The
following reflects outstanding debt and finance leases as of the dates indicated below:
Schedule of Outstanding Debt and Capital Leases
|
|
Principal
|
|
|
Unamortized
deferred
financing
charge
|
|
|
Book value,
June 30,
2021
|
|
|
|
(in millions)
|
|
Senior debt
|
|
$
|
324.7
|
|
|
$
|
(8.7
|
)
|
|
$
|
316.0
|
|
Finance lease liabilities
|
|
|
1.9
|
|
|
|
—
|
|
|
|
1.9
|
|
Total long-term debt outstanding
|
|
|
326.6
|
|
|
|
(8.7
|
)
|
|
|
317.9
|
|
Less: current portion of long-term debt
|
|
|
(0.9
|
)
|
|
|
—
|
|
|
|
(0.9
|
)
|
Long-term debt, excluding current portion
|
|
$
|
325.7
|
|
|
$
|
(8.7
|
)
|
|
$
|
317.0
|
|
|
|
Principal
|
|
|
Unamortized
deferred
financing charge
|
|
|
Book value,
December 31,
2020
|
|
|
|
(in millions)
|
|
Senior debt
|
|
$
|
313.3
|
|
|
$
|
(15.8
|
)
|
|
$
|
297.5
|
|
Finance lease liabilities
|
|
|
0.8
|
|
|
|
—
|
|
|
|
0.8
|
|
Total long-term debt outstanding
|
|
|
314.1
|
|
|
|
(15.8
|
)
|
|
|
298.3
|
|
Less: current portion of long-term debt
|
|
|
(0.6
|
)
|
|
|
—
|
|
|
|
(0.6
|
)
|
Long-term debt, excluding current portion
|
|
$
|
313.5
|
|
|
$
|
(15.8
|
)
|
|
$
|
297.7
|
|
The
Company is in compliance with all relevant financial covenants and the long-term debt portion is correctly classified as such in line
with the underlying agreements.
Long
term debt as of June 30, 2021 matures as follows:
Schedule of Maturities of Long-term Debt
Fiscal period:
|
|
Senior
bank
debt
|
|
|
Finance
leases
|
|
|
Total
|
|
|
|
(in millions)
|
|
2021
|
|
$
|
—
|
|
|
$
|
0.6
|
|
|
$
|
0.6
|
|
2022
|
|
|
—
|
|
|
|
0.5
|
|
|
|
0.5
|
|
2023
|
|
|
—
|
|
|
|
0.3
|
|
|
|
0.3
|
|
2024
|
|
|
—
|
|
|
|
0.5
|
|
|
|
0.5
|
|
2025
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
2026
|
|
|
324.7
|
|
|
|
—
|
|
|
|
324.7
|
|
Total
|
|
$
|
324.7
|
|
|
$
|
1.9
|
|
|
$
|
326.6
|
|
5.
|
Derivatives
and Hedging Activities
|
The
Company was party to 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 previous floating rate debt facilities. The swaps fixed the
variable interest rate of the debt facilities and provided protection over potential interest rate increases by providing a fixed rate
of interest payment in return. The interest rate swaps were for £95 million ($131.3 million) at a fixed rate of 0.9255% based on
the 6-month LIBOR rate and for €60 million ($71.2 million) at a fixed rate of 0.102% based on the 6-month EURIBOR rate.
In
connection with the issuance of the Senior Secured Notes and the entry into the RCF Agreement, on May 19, 2021, the Company terminated
its two interest rate swaps. The termination fees were settled on May 20, 2021, for £1.3 million ($1.9 million) and €0.1 million
($0.2 million), respectively.
Hedges
of Multiple Risks
The
Company’s objectives in using interest rate derivatives were to add stability to interest and to manage its exposure to interest
rate movements. To accomplish this objective, the Company primarily used 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 over the life of the original instruments. During the next twelve months, the Company estimates that an additional
$1.0 million will be reclassified as an increase to interest expense.
As
of June 30, 2021, the company did not have any derivatives. As of December 31, 2020, the Company had the following outstanding interest
rate derivatives that were designated as cash flow hedges of interest rate risk:
Schedule of Outstanding Derivatives Designated as Cash Flow Hedges
Interest Rate Derivative
|
|
Number of
Instruments
|
|
|
Notional
|
Interest rate swaps
|
|
|
2
|
|
|
£95 million ($131.3 million) at a fixed rate of 0.9255% based on the 6-month LIBOR rate and €60 million ($71.2 million) at a fixed rate of 0.102% based on the 6-month EURIBOR rate
|
The
Company did not have any derivative financial instruments as of June 30, 2021. 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 December 31, 2020.
Schedule of Fair Value of Derivative Financial Instruments
|
|
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
|
|
|
$
|
(2.6
|
)
|
Total derivatives designated as hedging instruments
|
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
$
|
(2.6
|
)
|
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, 2021.
Schedule of Accumulated Other Comprehensive Income
|
|
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 Products
|
|
$
|
0.3
|
|
|
|
Interest Expense
|
|
|
$
|
(1.0
|
)
|
Total
|
|
$
|
0.3
|
|
|
|
|
|
|
$
|
(1.0
|
)
|
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 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, 2021.
Schedule of Consolidated Income Statements
|
|
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
|
|
$
|
30.0
|
|
|
|
|
|
|
Gain/(loss) on cash flow hedging relationships in Subtopic 815-20
|
|
$
|
(1.0
|
)
|
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
December 31, 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 was documented using
the 2002 Form and the ISDA standard set-off provision in Section 6(f) of the ISDA Master Agreement applied to both parties and was only
modified to include Affiliates of the Payee. There was no CSA and thus there was no collateral posting.
Schedule of Offsetting of Derivative Assets and Liabilities
Offsetting
of Derivative Assets
|
December
31, 2020
|
|
|
Gross
Amounts
|
|
|
Gross
Amounts Offset in the Statement
|
|
|
Net
Amounts of Assets presented in the Statement
|
|
|
Gross
Amounts Not Offset in the Statement of Financial Position
|
|
|
|
of Recognized
Assets
|
|
|
of Financial
Position
|
|
|
of Financial
Position
|
|
|
Financial
Instruments
|
|
|
Cash
Collateral Received
|
|
|
Net
Amount
|
|
|
|
(in
millions)
|
|
Fair
value of hedging instrument
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Offsetting
of Derivative Liabilities
|
December
31, 2020
|
|
|
Gross
|
|
|
Gross
Amounts Offset in the Statement
|
|
|
Net
Amounts of Assets presented in the Statement
|
|
|
Gross
Amounts Not Offset in the Statement of Financial Position
|
|
|
|
Amounts
of Recognized Assets
|
|
|
of
Financial Position
|
|
|
of
Financial Position
|
|
|
Financial
Instruments
|
|
|
Cash
Collateral Received
|
|
|
Net
Amount
|
|
|
|
(in
millions)
|
|
Fair
value of hedging instrument
|
|
$
|
2.6
|
|
|
$
|
—
|
|
|
$
|
2.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
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.
Schedule of Derivative Financial Instrument Assets and Liabilities Measured at Fair Value on Recurring Basis
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
Level
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
(in millions)
|
|
Public Warrants (included in warrant liability)
|
|
|
1
|
|
|
$
|
(8.0
|
)
|
|
$
|
(3.2
|
)
|
Long term receivable (included in other assets)
|
|
|
2
|
|
|
$
|
1.2
|
|
|
$
|
1.4
|
|
Private Placement Warrants (included in warrant liability)
|
|
|
2
|
|
|
$
|
(18.5
|
)
|
|
$
|
(9.8
|
)
|
Derivative liability (see Note 5)
|
|
|
2
|
|
|
$
|
—
|
|
|
$
|
(2.6
|
)
|
The fair value of our long-term
senior debt as of June 30, 2021, was $332.9 million, based upon quoted prices in the marketplace, which are considered Level 2 inputs.
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, 2021 and December 31, 2020, 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. The Company’s 2021 Omnibus Incentive Plan (“2021 Plan”) was adopted by the Company’s Board
of Directors on April 12, 2021 and approved by our stockholders on May 11, 2021. The 2021 Plan succeeds the Company’s 2018 Omnibus
Incentive Plan (the “2018 Plan”) such that shares available for award under the 2018 Plan would instead be available under
the 2021 Plan. The Company has two other predecessor plans, the 2016 Long-Term Incentive Plan and the Second Long-Term Incentive Plan
(collectively, the “Prior Plans”), whose available balances were terminated in connection with approval of the 2018 Plan.
Although outstanding awards under the Prior Plans remain governed by the terms of the Prior Plans, no new awards may be granted or become
available for grant under the Prior Plans.
As
of June 30, 2021, there were (i) 1,408,020 shares subject to outstanding awards under the 2021 Plan, including 516,496 shares subject
to performance-based target awards, 232,500 shares subject to market-price vesting conditions and 165,000 shares subject to awards as
to which the applicable vesting conditions have been met which remain subject to deferred settlement; (ii) 1,479,954 shares subject to
outstanding awards under the 2018 Plan, including 75,000 shares subject to performance-based target awards, 257,879 shares subject to
awards that were previously subject to performance criteria that were determined to have been met for the applicable performance year
which awards continue to remain subject to a time-based vesting schedule and 75,264 shares subject to awards as to which the applicable
vesting conditions have been met which remain subject to deferred settlement; and (iii) 2,411,319 shares subject to outstanding awards
under the Prior Plans, including 1,092,633 shares subject to market-price vesting conditions that have a satisfaction deadline of December
23, 2021 and 1,318,686 shares subject to awards as to which the applicable vesting conditions have been met which remain subject to deferred
settlement. As of June 30, 2021, there were 1,726,367 shares available for new awards under the 2021 Plan (which includes shares rolled
over from 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. As of June 30, 2021, a total of 467,751 shares remain available for purchase under the ESPP.
A
summary of the Company’s RSU activity during the six months ended June 30, 2021 is as follows:
Schedule of Restricted Stock Unit Activity
|
|
Number of
Shares
|
|
|
|
|
|
Unvested Outstanding at January 1, 2021
|
|
|
2,149,118
|
|
Granted
|
|
|
1,467,486
|
|
Forfeited
|
|
|
(26,542
|
)
|
Vested
|
|
|
(473,835
|
)
|
Unvested Outstanding at June 30, 2021
|
|
|
3,116,227
|
|
The
Company issued a total of 163,732 shares during the six months ended June 30, 2021 (such shares were issued in connection with the net
settlement of RSUs that vested on December 31, 2020).
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. For market-based awards that are
contingent upon the Company’s stock achieving certain pre-determined price targets, compensation expense is calculated based upon
the determination of the fair value of the awards as derived through multiple running of the Monte Carlo valuation model, with the fair
value recognized on a straight-line basis over the requisite service period.
The
Company recognized stock-based compensation expense amounting to $3.4 million and $1.0 million for the three months ended June 30, 2021
and 2020, respectively, and $4.8 million and $2.0 million for the six months ended June 30, 2021 and 2020, respectively. Total unrecognized
compensation expense related to unvested stock awards and unvested RSUs at June 30, 2021 amounts to $15.7 million and is expected to
be recognized over a weighted average period of 1.9 years.
8.
|
Accumulated
Other Comprehensive Loss (Income)
|
The
accumulated balances for each classification of comprehensive loss (income) are presented below:
Schedule of Accumulated Other Comprehensive (Loss) Income
|
|
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, 2021
|
|
$
|
(71.1
|
)
|
|
$
|
2.8
|
|
|
$
|
37.2
|
|
|
$
|
(31.1
|
)
|
Change during the period
|
|
|
1.1
|
|
|
|
(1.1
|
)
|
|
|
(4.6
|
)
|
|
|
(4.6
|
)
|
Balance at March 31, 2021
|
|
|
(70.0
|
)
|
|
|
1.7
|
|
|
|
32.6
|
|
|
|
(35.7
|
)
|
Change during the period
|
|
|
(0.1
|
)
|
|
|
(0.2
|
)
|
|
|
(0.9
|
)
|
|
|
(1.2
|
)
|
Balance at June 30, 2021
|
|
$
|
(70.1
|
)
|
|
$
|
1.5
|
|
|
$
|
31.7
|
|
|
$
|
(36.9
|
)
|
|
|
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
|
)
|
Included
within accumulated other comprehensive income is an amount of $1.5
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 instruments, in
accordance with US GAAP.
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:
Schedule of Anti-dilutive Securities Excluded from Computation of Earnings per Share
|
|
Three and Six Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
RSUs
|
|
|
4,960,246
|
|
|
|
2,944,634
|
|
Unvested Restricted Stock
|
|
|
624,116
|
|
|
|
624,116
|
|
Stock Warrants
|
|
|
9,539,565
|
|
|
|
9,539,565
|
|
|
|
|
15,123,927
|
|
|
|
13,108,315
|
|
10.
|
Other
Finance (Expense) Income
|
Other
finance (expense) income consisted of the following for the three and six months ended June 30, 2021 and 2020:
Schedule of Other Finance Income (Costs)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
(in millions)
|
|
|
(in millions)
|
|
Pension interest cost
|
|
$
|
(0.4
|
)
|
|
$
|
(0.5
|
)
|
|
$
|
(0.8
|
)
|
|
$
|
(1.1
|
)
|
Expected return on pension plan assets
|
|
|
0.7
|
|
|
|
0.7
|
|
|
|
1.4
|
|
|
|
1.5
|
|
Foreign currency translation on senior debt
|
|
|
(1.5
|
)
|
|
|
(2.7
|
)
|
|
|
4.6
|
|
|
|
(6.6
|
)
|
Other finance income
(Costs)
|
|
$
|
(1.2
|
)
|
|
$
|
(2.5
|
)
|
|
$
|
5.2
|
|
|
$
|
(6.2
|
)
|
The
effective income tax rate for the three months ended June 30, 2021 and 2020 was 0.7% and 0.3%, respectively, resulting in a $0.3 million
and $0.1 million income tax expense, respectively. The effective income tax rate for the six months ended June 30, 2021 and 2020 was
(0.6%) and 0.8%, respectively, resulting in a $0.4 million income tax benefit and a $0.3 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, 2021 and 2020 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.
HG
Vora Special Opportunities Master Fund Limited (“HG Vora”) (a purchaser of our Senior Secured Notes issued on May 20, 2021)
is the beneficial owner of approximately 13.13%
of our common stock as of June 30, 2021, including
400,000
shares underlying warrants to purchase common
stock. The portion of the Company’s aggregate senior debt of $324.8
million at June 30, 2021, and $313.3
million at December 31, 2020, held by HG Vora
at June 30, 2021 and December 31, 2020 was $55.3
million and $0.0
million, respectively. Interest expense payable
to HG Vora for the three months ended June 30, 2021 and 2020 amounted to $0.5
million and $0.0
million, respectively, and for the six months
ended June 30, 2021 and 2020 amounted to $0.5
million and $0.0
million, respectively. In addition, $0.5
million and $0.0
million of accrued interest payable was due to
HG Vora at June 30, 2021 and December 31, 2020, respectively. HG Vora was also an investor in Leisure Acquisition Corp., a special purpose
acquisition company affiliated with two members of our management which completed its business combination on June 30, 2021.
Macquarie
Corporate Holdings Pty Limited (UK Branch) (“Macquarie UK”), (an arranger and lending party under our RCF Agreement) is
an affiliate of MIHI LLC, which beneficially owned approximately 16.61% of
our common stock as of June 30, 2021, including 1,000,000 shares
underlying warrants to purchase common stock. Macquarie UK was also one of the lending parties with respect to our previous senior
secured term loans and revolving credit facility under our prior senior facilities agreement. The portion of the Company’s
aggregate senior debt of $324.8 million
at June 30, 2021, and $313.3 million
at December 31, 2020 held by Macquarie UK at June 30, 2021 and December 31, 2020 was $0.0 million
and $30.7 million,
respectively. Interest expense payable to Macquarie UK for the three months ended June 30, 2021 and 2020 amounted to $0.3 million
and $0.6 million,
respectively, and for the six months ended June 30, 2021 and 2020 amounted to $0.9 million
and $1.1 million,
respectively. In addition, $0.0 million
and $0.6 million
of accrued interest payable was due to Macquarie UK at June 30, 2021 and December 31, 2020, respectively. 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.
We
incurred certain offering expenses in connection with an underwritten public offering of shares held by a significant stockholder, the
Landgame Trust, which closed on June 1, 2021, as to which our expenses were reimbursed by the stockholder. For the six months ended June
30, 2021, the aggregate amount invoiced for reimbursement was $0.2 million. The selling stockholder sold an aggregate of 6,217,628 shares
in the offering (including 810,995 shares subject to an over-allotment option that was exercised in full) at an offering price of $9.25
per share, less underwriting discounts and commissions of $0.4625 per share. One of the participating underwriters in the offering was
Macquarie Capital (USA) Inc., an affiliate of MIHI LLC (see paragraph above), pursuant to which it purchased 870,468 of the shares including
113,539 shares subject to the over-allotment option.
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:
Schedule of Lease Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
(in millions)
|
|
|
(in millions)
|
|
Interest receivable from sales type leases
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Operating lease income
|
|
|
0.5
|
|
|
|
—
|
|
|
|
0.5
|
|
|
|
1.0
|
|
Variable income from sales type leases
|
|
|
0.1
|
|
|
|
—
|
|
|
|
0.1
|
|
|
|
0.2
|
|
Total
|
|
$
|
0.6
|
|
|
$
|
—
|
|
|
$
|
0.6
|
|
|
$
|
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 a defined contribution plan in the US, and both defined benefit and defined contribution pension schemes in the UK. The defined
contribution scheme assets are held separately from those of the Company in independently administered funds.
Defined
Benefit Pension Scheme
The
defined benefit scheme 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
would 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.
In
January 2021, the funding level of the scheme was tested against the expected position at December 31, 2020 and it was determined that
further contingent contributions of $1.2 million and expense contributions of $0.4 million will be payable during the year ending December
31, 2021.
The
funding level of the scheme will next be tested against the expected position at December 31, 2021 to determine whether further contingent
contributions are payable during the year ending December 31, 2022.
The
total amount of employer contributions paid during the six months ended June 30, 2021 amounted to $0.6 million relating to the six months
ended June 30, 2021, and $0.4 million of contributions relating to the year ending December 31, 2020 agreed with the trustees of the
scheme to be deferred into the year ending December 31, 2021.
The
following table presents the components of our net periodic pension benefit cost:
Schedule of Defined Benefit Plans
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(in millions)
|
|
Components of net periodic pension benefit cost:
|
|
|
|
|
|
|
|
|
Interest cost
|
|
$
|
0.8
|
|
|
$
|
1.1
|
|
Expected return on plan assets
|
|
|
(1.4
|
)
|
|
|
(1.5
|
)
|
Net periodic benefit
|
|
$
|
(0.6
|
)
|
|
$
|
(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:
Schedule of Pension Plans and their Reconciliation
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
|
(in millions)
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of period
|
|
$
|
127.8
|
|
|
$
|
110.4
|
|
Interest cost
|
|
|
0.8
|
|
|
|
2.2
|
|
Actuarial (gain)/loss
|
|
|
(7.1
|
)
|
|
|
14.5
|
|
Benefits paid
|
|
|
(1.3
|
)
|
|
|
(4.1
|
)
|
Foreign currency translation adjustments
|
|
|
1.6
|
|
|
|
4.8
|
|
Benefit obligation at end of period
|
|
$
|
121.8
|
|
|
$
|
127.8
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of period
|
|
$
|
118.7
|
|
|
$
|
107.3
|
|
Actual (loss)/gain on plan assets
|
|
|
(0.6
|
)
|
|
|
9.8
|
|
Employer contributions
|
|
|
0.6
|
|
|
|
1.6
|
|
Benefits paid
|
|
|
(1.3
|
)
|
|
|
(4.1
|
)
|
Foreign currency translation adjustments
|
|
|
1.4
|
|
|
|
4.1
|
|
Fair value of assets at end of period
|
|
$
|
118.8
|
|
|
$
|
118.7
|
|
Amount recognized in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
Unfunded status (non-current)
|
|
$
|
(3.0
|
)
|
|
$
|
(9.1
|
)
|
Net amount recognized
|
|
$
|
(3.0
|
)
|
|
$
|
(9.1
|
)
|
16.
|
Segment
Reporting and Geographic Information
|
The
Company operates its business along four operating segments, which are segregated on the basis of revenue stream: Gaming, Virtual Sports,
Interactive and Leisure. 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.
In
prior years, and up to and including the interim period nine months ended September 30, 2020, the Company operated its business along
three operating segments: Server Based Gaming, Virtual Sports (which included Interactive) and Acquired Businesses (which consisted of
the businesses acquired from the NTG Acquisition). During the period subsequent to September 30, 2020, the Company completed the process
of changing its internal structure, which has been ongoing since the NTG Acquisition, and as a result changed the composition of its
operating segments.
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, 2021 and June 30, 2020, 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, right of use assets, cash, prepaid expenses and property and equipment
and software development costs relating to corporate/shared functions. All acquisition and integration related transaction expenses are
allocated as corporate function costs. Amounts previously disclosed for the three and six months ended June 30, 2020 have been recharacterized
in line with the current operating segments and categories.
In
addition, as part of the recharacterization exercise, certain items of Revenue, Cost of Sales and Selling, General and Administrative
Expenses have been recharacterized to ensure consistency with similar items across the Group. The revenue recharacterizations are to
ensure spares and similar items are reflected with other items of hardware (Product Sales).
The
resulting impact on previously reported information for the three months ended June 30, 2020 is as follows: Service Revenue, previously
reported $15.2 million, now $15.3 million; Product Sales Revenue, previously reported $0.4 million, now $0.3 million; Cost of Service,
previously reported $3.1 million, now $2.5 million; Selling, General and Administrative Expenses (excluding Stock-based compensation),
previously reported $10.6 million, now $11.2 million.
The
resulting impact on previously reported information for the six months ended June 30, 2020 is as follows: Service Revenue, previously
reported $58.4 million, now $58.1 million; Product Sales Revenue, previously reported $9.5 million, now $9.8 million; Cost of Service,
previously reported $9.7 million, now $11.0 million; Cost of Product Sales, previously reported $7.3 million, now $6.5 million; Selling,
General and Administrative Expenses (excluding Stock-based compensation), previously reported $39.7 million, now $39.2 million.
The
recharacterization has no impact on the previously reported Net Operating Loss, Net Loss or Net Comprehensive Loss for the three and
six months ended June 30, 2020.
Segment
Information
Schedule of Segment Reporting Information By Segment
Three
Months Ended June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming
|
|
|
Virtual
Sports
|
|
|
Interactive
|
|
|
Leisure
|
|
|
Corporate
Functions
|
|
|
Total
|
|
|
|
(in millions)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
$
|
12.8
|
|
|
$
|
8.2
|
|
|
$
|
5.8
|
|
|
$
|
10.7
|
|
|
$
|
—
|
|
|
$
|
37.5
|
|
Product sales
|
|
|
3.4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.6
|
|
|
|
—
|
|
|
|
4.0
|
|
Total revenue
|
|
|
16.2
|
|
|
|
8.2
|
|
|
|
5.8
|
|
|
|
11.3
|
|
|
|
—
|
|
|
|
41.5
|
|
Cost of sales, excluding depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service
|
|
|
(3.6
|
)
|
|
|
(0.5
|
)
|
|
|
(0.9
|
)
|
|
|
(3.0
|
)
|
|
|
—
|
|
|
|
(8.0
|
)
|
Cost of product sales
|
|
|
(2.4
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.3
|
)
|
|
|
—
|
|
|
|
(2.7
|
)
|
Selling, general and administrative expenses
|
|
|
(6.7
|
)
|
|
|
(2.7
|
)
|
|
|
(1.3
|
)
|
|
|
(8.2
|
)
|
|
|
(6.2
|
)
|
|
|
(25.1
|
)
|
Stock-based compensation expense
|
|
|
(0.4
|
)
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
(2.7
|
)
|
|
|
(3.4
|
)
|
Acquisition and integration related transaction expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
Depreciation and amortization
|
|
|
(5.8
|
)
|
|
|
(0.7
|
)
|
|
|
(0.9
|
)
|
|
|
(4.1
|
)
|
|
|
(0.4
|
)
|
|
|
(11.9
|
)
|
Segment operating income (loss)
|
|
|
(2.7
|
)
|
|
|
4.2
|
|
|
|
2.6
|
|
|
|
(4.4
|
)
|
|
|
(9.4
|
)
|
|
|
(9.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(9.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at June 30, 2021
|
|
$
|
78.6
|
|
|
$
|
61.9
|
|
|
$
|
13.8
|
|
|
$
|
90.0
|
|
|
$
|
41.9
|
|
|
$
|
286.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill at June 30, 2021
|
|
$
|
1.4
|
|
|
$
|
48.6
|
|
|
$
|
0.4
|
|
|
$
|
34.4
|
|
|
$
|
—
|
|
|
$
|
84.8
|
|
Total capital expenditures for the three months ended June 30, 2021
|
|
$
|
3.0
|
|
|
$
|
1.1
|
|
|
$
|
0.9
|
|
|
$
|
1.7
|
|
|
$
|
0.6
|
|
|
$
|
7.3
|
|
Three
Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming
|
|
|
Virtual
Sports
|
|
|
Interactive
|
|
|
Leisure
|
|
|
Corporate
Functions
|
|
|
Total
|
|
|
|
(in millions)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
$
|
4.1
|
|
|
$
|
7.6
|
|
|
$
|
3.4
|
|
|
$
|
0.2
|
|
|
$
|
—
|
|
|
$
|
15.3
|
|
Product sales
|
|
|
0.1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.2
|
|
|
|
—
|
|
|
|
0.3
|
|
Total revenue
|
|
|
4.2
|
|
|
|
7.6
|
|
|
|
3.4
|
|
|
|
0.4
|
|
|
|
—
|
|
|
|
15.6
|
|
Cost of sales, excluding depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service
|
|
|
(1.0
|
)
|
|
|
(0.8
|
)
|
|
|
(0.4
|
)
|
|
|
(0.3
|
)
|
|
|
—
|
|
|
|
(2.5
|
)
|
Cost of product sales
|
|
|
(0.2
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.1
|
)
|
|
|
—
|
|
|
|
(0.3
|
)
|
Selling, general and administrative expenses
|
|
|
(3.0
|
)
|
|
|
(0.7
|
)
|
|
|
(0.6
|
)
|
|
|
(2.6
|
)
|
|
|
(4.3
|
)
|
|
|
(11.2
|
)
|
Stock-based compensation expense
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
—
|
|
|
|
(0.7
|
)
|
|
|
(1.0
|
)
|
Acquisition and integration related transaction expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1.2
|
)
|
|
|
(1.2
|
)
|
Depreciation and amortization
|
|
|
(7.0
|
)
|
|
|
(0.9
|
)
|
|
|
(0.6
|
)
|
|
|
(4.4
|
)
|
|
|
(0.4
|
)
|
|
|
(13.3
|
)
|
Segment operating income (loss)
|
|
|
(7.1
|
)
|
|
|
5.1
|
|
|
|
1.7
|
|
|
|
(7.0
|
)
|
|
|
(6.6
|
)
|
|
|
(13.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(13.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at December 31, 2020
|
|
$
|
93.9
|
|
|
$
|
64.4
|
|
|
$
|
8.5
|
|
|
$
|
87.0
|
|
|
$
|
70.3
|
|
|
$
|
324.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill at December 31, 2020
|
|
$
|
1.4
|
|
|
$
|
48.0
|
|
|
$
|
0.4
|
|
|
$
|
33.9
|
|
|
$
|
—
|
|
|
$
|
83.7
|
|
Total capital expenditures for the three months ended June 30, 2020
|
|
$
|
0.6
|
|
|
$
|
1.4
|
|
|
$
|
0.6
|
|
|
$
|
0.3
|
|
|
$
|
0.7
|
|
|
$
|
3.6
|
|
Six
Months Ended June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming
|
|
|
Virtual
Sports
|
|
|
Interactive
|
|
|
Leisure
|
|
|
Corporate
Functions
|
|
|
Total
|
|
|
|
(in millions)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
$
|
18.4
|
|
|
$
|
14.5
|
|
|
$
|
11.0
|
|
|
$
|
10.7
|
|
|
$
|
—
|
|
|
$
|
54.6
|
|
Product sales
|
|
|
8.6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.1
|
|
|
|
—
|
|
|
|
9.7
|
|
Total revenue
|
|
|
27.0
|
|
|
|
14.5
|
|
|
|
11.0
|
|
|
|
11.8
|
|
|
|
—
|
|
|
|
64.3
|
|
Cost of sales, excluding depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service
|
|
|
(4.2
|
)
|
|
|
(0.8
|
)
|
|
|
(1.7
|
)
|
|
|
(3.4
|
)
|
|
|
—
|
|
|
|
(10.1
|
)
|
Cost of product sales
|
|
|
(5.3
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.6
|
)
|
|
|
—
|
|
|
|
(5.9
|
)
|
Selling, general and administrative expenses
|
|
|
(10.8
|
)
|
|
|
(3.8
|
)
|
|
|
(2.3
|
)
|
|
|
(11.4
|
)
|
|
|
(10.6
|
)
|
|
|
(38.9
|
)
|
Stock-based compensation expense
|
|
|
(0.6
|
)
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
|
|
(3.6
|
)
|
|
|
(4.8
|
)
|
Acquisition and integration related transaction expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1.5
|
)
|
|
|
(1.5
|
)
|
Depreciation and amortization
|
|
|
(12.4
|
)
|
|
|
(1.8
|
)
|
|
|
(1.6
|
)
|
|
|
(8.3
|
)
|
|
|
(0.9
|
)
|
|
|
(25.0
|
)
|
Segment operating income (loss)
|
|
|
(6.3
|
)
|
|
|
7.9
|
|
|
|
5.2
|
|
|
|
(12.1
|
)
|
|
|
(16.6
|
)
|
|
|
(21.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(21.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures for the six months ended June 30, 2021
|
|
$
|
4.2
|
|
|
$
|
1.9
|
|
|
$
|
1.8
|
|
|
$
|
4.8
|
|
|
$
|
0.8
|
|
|
$
|
13.5
|
|
Six
Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming
|
|
|
Virtual
Sports
|
|
|
Interactive
|
|
|
Leisure
|
|
|
Corporate
Functions
|
|
|
Total
|
|
|
|
(in millions)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
$
|
20.7
|
|
|
$
|
15.4
|
|
|
$
|
5.5
|
|
|
$
|
16.5
|
|
|
$
|
—
|
|
|
$
|
58.1
|
|
Product sales
|
|
|
8.4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.4
|
|
|
|
—
|
|
|
|
9.8
|
|
Total revenue
|
|
|
29.1
|
|
|
|
15.4
|
|
|
|
5.5
|
|
|
|
17.9
|
|
|
|
—
|
|
|
|
67.9
|
|
Cost of sales, excluding depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service
|
|
|
(5.3
|
)
|
|
|
(1.5
|
)
|
|
|
(0.6
|
)
|
|
|
(3.6
|
)
|
|
|
—
|
|
|
|
(11.0
|
)
|
Cost of product sales
|
|
|
(5.6
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.9
|
)
|
|
|
—
|
|
|
|
(6.5
|
)
|
Selling, general and administrative expenses
|
|
|
(11.9
|
)
|
|
|
(1.9
|
)
|
|
|
(1.8
|
)
|
|
|
(13.6
|
)
|
|
|
(10.0
|
)
|
|
|
(39.2
|
)
|
Stock-based compensation expense
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
|
|
(0.1
|
)
|
|
|
—
|
|
|
|
(1.5
|
)
|
|
|
(2.0
|
)
|
Acquisition and integration related transaction expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4.4
|
)
|
|
|
(4.4
|
)
|
Depreciation and amortization
|
|
|
(14.4
|
)
|
|
|
(1.7
|
)
|
|
|
(1.2
|
)
|
|
|
(7.8
|
)
|
|
|
(0.8
|
)
|
|
|
(25.9
|
)
|
Segment operating income (loss)
|
|
|
(8.3
|
)
|
|
|
10.1
|
|
|
|
1.8
|
|
|
|
(8.0
|
)
|
|
|
(16.7
|
)
|
|
|
(21.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(21.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures for the six months ended June 30, 2020
|
|
$
|
3.3
|
|
|
$
|
2.4
|
|
|
$
|
1.2
|
|
|
$
|
5.5
|
|
|
$
|
3.0
|
|
|
$
|
15.4
|
|
Geographic
Information
Schedule of Geographic Information
Geographic
information for revenue is set forth below:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
(in millions)
|
|
|
(in millions)
|
|
Total revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK
|
|
$
|
29.9
|
|
|
$
|
9.2
|
|
|
$
|
40.8
|
|
|
$
|
47.6
|
|
Greece
|
|
|
3.9
|
|
|
|
2.6
|
|
|
|
6.2
|
|
|
|
7.4
|
|
Italy
|
|
|
0.9
|
|
|
|
1.4
|
|
|
|
2.2
|
|
|
|
3.6
|
|
Canada
|
|
|
0.3
|
|
|
|
—
|
|
|
|
2.1
|
|
|
|
—
|
|
Rest of world
|
|
|
6.5
|
|
|
|
2.4
|
|
|
|
13.0
|
|
|
|
9.3
|
|
Total
|
|
$
|
41.5
|
|
|
$
|
15.6
|
|
|
$
|
64.3
|
|
|
$
|
67.9
|
|
Geographic
information of our non-current assets excluding goodwill is set forth below:
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
|
(in millions)
|
|
UK
|
|
$
|
93.9
|
|
|
$
|
101.8
|
|
Greece
|
|
|
13.3
|
|
|
|
18.2
|
|
Italy
|
|
|
1.8
|
|
|
|
2.1
|
|
Rest of world
|
|
|
9.5
|
|
|
|
9.3
|
|
Total
|
|
$
|
118.5
|
|
|
$
|
131.4
|
|
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, 2021, no customers represented at least 10% of the Company’s revenues. During the three months
ended June 30, 2020, two customers represented at least 10% of revenues, accounting for 25% and 18% of the Company’s revenues.
The customers were served by the Gaming and Virtual Sports, and the Gaming, Virtual Sports and Interactive segments, respectively.
During
the six months ended June 30, 2021, one customer represented at least 10% of the Company’s revenues, accounting for 11%
of the Company’s revenues. This customer
was served by the Virtual Sports and Interactive segments. During the six months ended June 30, 2020, one customer represented at least
10% of revenues, accounting for 10%
of the Company’s revenues. This customer
was served by the Gaming and Virtual Sports segments.
At
June 30, 2021 and December 31, 2020, 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 for the fiscal year ended December 31, 2020.
Forward-Looking
Statements
We
make forward-looking statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
For definitions of the term Forward-Looking Statements, see the definitions provided in the Cautionary Note Regarding Forward-Looking
Statements at the start of the Quarterly Report on Form 10-Q for the period ended June 30, 2021.
COVID-19
Update
Governments in all of the major jurisdictions
in which our land-based customers operate have now reopened land-based venues. As of April 12, 2021, in the United Kingdom, licensed
betting offices in England and Wales have reopened with certain restrictions including operating two of four gaming machines per
venue, limited dwell time of 15 minutes, as well as a maximum of two visits per day per patron and an 8:00pm curfew. These restrictions
remained in place until May 17, 2021. Gaming machines
in pubs, holiday parks, motorway services, Scottish betting offices and adult gaming centers across the United Kingdom reopened on
May 17, 2021 with social distancing restrictions in place. All social distancing restrictions were removed in England as of July 19,
2021. As of August 9, 2021 no restrictions remain in the United Kingdom. There
remains an element of social distancing in venues in Greece and in Italy, there are restrictions in place that state only fully vaccinated
people can enter our venues. It remains uncertain as to whether and when further restrictions or closures could happen in each jurisdiction
and how long they may last.
Segment
Reporting Recharacterizations
For
full information on this, see Part IV, Item 15 of the Annual Report on Form 10-K for the year ended December 31, 2020, ‘Exhibits,
Financial Statement Schedules’ Note 26 ‘Segment Reporting and Geographic Information’.
Revenue
We
generate revenue in four principal ways: i) on a participation basis, ii) on a fixed rental fee basis, iii) through product sales and
iv) through software license fees. Participation revenue generally includes a right to receive a share of our customers’ gaming
revenue, typically as a share of net win but sometimes as a share of the handle or “coin in” which represents the total amount
wagered.
Geographic
Range
Geographically,
a majority of our revenue is derived from, and majority of our non-current assets are attributable to our UK operations. The remainder
of our revenue is derived from, and non-current assets attributable to, Greece, Canada, Italy and the rest of the world.
For
the three months ended June 30, 2021, we earned approximately 72% of our revenue in the UK, 9% in Greece, 2% in Italy and the remaining
17% across the rest of the world. During the three months ended June 30, 2020, we earned approximately 59%, 17%, 9% and 15% of our revenue
in those regions, respectively.
For
the six months ended June 30, 2021, we earned approximately 64% of our revenue in the UK, 10% in Greece, 3% in Italy and the remaining
23% across the rest of the world. During the three months ended June 30, 2020, we earned approximately 70%, 11%, 5% and 14% of our revenue
in those regions, respectively.
As
of June 30, 2021, our non-current assets (excluding goodwill) attribution approximately 79% in the UK, 11% in Greece, 2% in Italy, and
8% across the rest of the world.
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, 2021, we derived approximately 28% of our revenue from sales to customers outside the UK, compared to
41% during the three months ended June 30, 2020.
During
the six months ended June 30, 2021, we derived approximately 36% of our revenue from sales to customers outside the UK, compared to 30%
during the six months ended June 30, 2020.
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
Our
results are affected by changes in foreign currency exchange rates, primarily between our functional currency (GBP) and our reporting
currency (USD). During the three-month periods ended June 30, 2021 and June 30, 2020, the average GBP:USD rates were 1.40 and 1.24, respectively.
During the six-month periods ended June 30, 2021 and June 30, 2020, the average GBP:USD rates were 1.39 and 1.27, respectively.
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 and six-month period ended June 30,
2021, compared to the same periods in 2020;
|
|
|
|
|
●
|
a discussion and analysis of the results of operations of our Gaming business segment for the three-month period and six-month period ended June 30, 2021, compared to the same periods in 2020, including KPI analysis;
|
|
|
●
|
a
discussion and analysis of the results of operations of our Virtual Sports business segment for the three-month period and six-month
period ended June 30, 2021, compared to the same periods in 2020, including KPI analysis;
|
|
|
|
|
●
|
a
discussion and analysis of the results of operations of our Interactive business segment for the three-month period and six-month
period ended June 30, 2021, compared to the same periods in 2020, including KPI analysis; and
|
|
|
|
|
●
|
a
discussion and analysis of the results of operations of our Leisure business segment for the three-month period and six-month period
ended June 30, 2021, compared to the same periods in 2020, including KPI analysis.
|
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, 2021, compared to Three Months ended June 30, 2020
|
|
For
the Three-Month
Period ended
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Unaudited June 30,
|
|
|
Unaudited June 30,
|
|
|
Variance
|
|
|
Functional
Currency
|
|
|
Total Variance
|
|
(In millions)
|
|
2021
|
|
|
2020
|
|
|
2021 vs 2020
|
|
|
%
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
$
|
37.5
|
|
|
$
|
15.3
|
|
|
$
|
22.2
|
|
|
|
117.8
|
%
|
|
|
145.5
|
%
|
Product
|
|
|
4.0
|
|
|
|
0.3
|
|
|
|
3.7
|
|
|
|
1090.4
|
%
|
|
|
1249.6
|
%
|
Total revenue
|
|
|
41.5
|
|
|
|
15.6
|
|
|
|
25.9
|
|
|
|
136.3
|
%
|
|
|
166.4
|
%
|
Cost of Sales, excluding depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Service
|
|
|
(8.0
|
)
|
|
|
(2.5
|
)
|
|
|
(5.5
|
)
|
|
|
184.5
|
%
|
|
|
220.3
|
%
|
Cost of Product
|
|
|
(2.7
|
)
|
|
|
(0.3
|
)
|
|
|
(2.4
|
)
|
|
|
662.3
|
%
|
|
|
760.4
|
%
|
Selling, general and administrative expenses
|
|
|
(25.1
|
)
|
|
|
(11.2
|
)
|
|
|
(14.0
|
)
|
|
|
99.5
|
%
|
|
|
125.0
|
%
|
Stock-based compensation
|
|
|
(3.4
|
)
|
|
|
(1.0
|
)
|
|
|
(2.4
|
)
|
|
|
207.8
|
%
|
|
|
249.0
|
%
|
Acquisition and integration related transaction expenses
|
|
|
(0.1
|
)
|
|
|
(1.2
|
)
|
|
|
1.1
|
|
|
|
(91.5
|
)%
|
|
|
(90.4
|
)%
|
Depreciation and amortization
|
|
|
(11.9
|
)
|
|
|
(13.3
|
)
|
|
|
1.4
|
|
|
|
(20.7
|
)%
|
|
|
(10.7
|
)%
|
Net operating Income (Loss)
|
|
|
(9.7
|
)
|
|
|
(13.9
|
)
|
|
|
4.2
|
|
|
|
(38.2
|
)%
|
|
|
(30.1
|
)%
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.0
|
|
|
|
14.8
|
%
|
|
|
66.0
|
%
|
Interest expense
|
|
|
(22.2
|
)
|
|
|
(8.1
|
)
|
|
|
(14.1
|
)
|
|
|
142.4
|
%
|
|
|
173.7
|
%
|
Change in fair value of warrant liability
|
|
|
(10.5
|
)
|
|
|
(1.7
|
)
|
|
|
(8.8
|
)
|
|
|
444.9
|
%
|
|
|
517.4
|
%
|
Other finance income (expense)
|
|
|
(1.2
|
)
|
|
|
(2.5
|
)
|
|
|
1.3
|
|
|
|
(59.0
|
)%
|
|
|
(52.9
|
)%
|
Total other income (expense), net
|
|
|
(33.8
|
)
|
|
|
(12.2
|
)
|
|
|
(21.5
|
)
|
|
|
143.3
|
%
|
|
|
175.7
|
%
|
Net Income (loss) from continuing operations before income
taxes
|
|
|
(43.5
|
)
|
|
|
(26.1
|
)
|
|
|
(17.3
|
)
|
|
|
46.9
|
%
|
|
|
66.3
|
%
|
Income tax expense
|
|
|
(0.3
|
)
|
|
|
(0.1
|
)
|
|
|
(0.3
|
)
|
|
|
427.4
|
%
|
|
|
439.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
(43.8
|
)
|
|
$
|
(26.2
|
)
|
|
$
|
(17.6
|
)
|
|
|
47.8
|
%
|
|
|
67.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange Rate - $ to £
|
|
|
1.40
|
|
|
|
1.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
Total
reported revenue for the three months ended June 30, 2021, increased by $25.9 million, or 166%, to $41.5 million on a reported basis.
This included an increase from Gaming of $12.0 million, Leisure of $10.9 million, Interactive of $2.4 million and Virtual Sports of $0.6
million. Favorable currency movements accounted for a $4.7 million impact. On a functional currency (at constant rate) basis, revenue
increased by $21.2 million, or 136%, as detailed below:
|
●
|
Gaming
revenue increased by $10.2 million, comprised of an increase in Service revenue of $7.3 million and an increase in Product sales
of $2.9 million. The increase in Service revenue was primarily due to reopening of retail venues.
|
|
●
|
Virtual
Sports revenue decreased by $0.4 million, or 4.6%. This decrease included a $1.0 million decrease in Online Virtuals, $0.7 million
of which was due to a one-time sales in the prior period, which itself was driven by the lack of live sports. This
was partially offset by growth in Retail Virtuals of $0.6 million as retail venues reopened during the period.
|
|
|
|
|
●
|
Interactive
revenue increased by $1.7 million, or 50.0%. This growth was driven by the addition of new customers and territories and the consistent
launches of new high-quality content.
|
|
|
|
|
●
|
Leisure
revenue increased by $9.7 million, comprised of an increase in Service revenue of $9.3 million and an increase in Product sales of
$0.4 million. The increase in revenue was due to the reopening of venues during the period.
|
Cost
of Sales, excluding depreciation and amortization
Cost
of Sales, excluding depreciation and amortization, increased by $7.9 million, or 280%, on a reported basis, to $10.7 million, including
the impact of $1.2 million from unfavorable currency movements. Of this increase, $5.5 million was attributable to cost of Service and
$2.4 million was attributable to cost of Product sales. On a functional currency (at constant rate) basis, cost of sales increased by
$6.7 million, or 238%, as detailed below:
|
●
|
Gaming
cost of sales increased by $4.1 million, comprised of an increase in Service costs of $2.2 million and a $1.9 million increase in
Product costs. This increase was driven primarily by the reopening of retail venues.
|
|
|
|
|
●
|
Virtual
Sports cost of sales decreased by $0.4 million, or 45.0%, driven by a one-off sale in the prior period comparable.
|
|
|
|
|
●
|
Interactive
cost of sales increased by $0.4 million, or 112%. This increase was driven by the revenue growth in Interactive.
|
|
|
|
|
●
|
Leisure
cost of sales increased by $2.5 million, comprised of an increase in Service costs of $2.4 million and an increase in Product costs
of $0.2 million, which was driven primarily by the reopening of retail venues.
|
Selling,
general and administrative expenses
Selling, general and administrative (“SG&A”)
expenses increased by $14.0 million, or 125%, on a reported basis, to $25.1 million. This included $2.9 million of unfavorable currency
movements. On a functional currency (at constant rate basis), SG&A increased by $11.1 million, or 100%. This increase was driven
by staff returning from furlough as retail venues began to reopen ($6.6 million), additional fleet costs as staff returned to work ($0.7
million), additional distribution costs as markets started to reopen ($0.6 million), plus an increase in costs of $1.2 million
for the provision following settlement with the Italian Tax Authorities in respect of an audit of the Italian Branch of Inspired Gaming
(International) Limited for the period 2015-2017 in respect of the historic VAT treatment of supplies. The settlement includes an amount
of $1.5 million in relation to VAT (of which $0.9 million had previously been provided for) plus interest of $0.3 million and penalties
in the amount of $0.3 million which were levied at the lowest rate applicable under the relevant regime. As well as refinancing costs
of $0.6 million.
Stock-based
compensation
During
the three months ended June 30, 2021, the Company recorded an expense of $3.4 million with respect to outstanding awards. Of this expense,
$1.9 million related to awards made under the 2021 Plan (including $1.4 million of upfront recognition) and $1.5 million related
to awards made under the 2018 Plan. During the three months ended June 30, 2020, the charge for stock-based compensation was $1.0 million.
Of this expense, $0.9 million was related to awards made under the 2018 Plan and $0.1 million was related to costs from awards made under
a 2016 long term incentive plan.
Acquisition
and integration related transaction expenses
Acquisition
and integration related transaction expenses decreased by $1.1 million to $0.1 million, on a reported basis. Both the 2021 and 2020 expenses
were primarily integration costs in relation to the NTG acquisition.
Depreciation
and amortization
Depreciation
and amortization decreased by $1.4 million, or 10.7%, to $11.9 million on a reported basis. This included the impact of unfavorable currency
movements of $1.3 million. On a functional currency (at constant rate) basis, depreciation and amortization decreased by $2.7 million,
or 20.7%, driven primarily by a decrease of $1.9 million in Gaming and $0.8 million in Leisure.
Net
operating loss
During
the period, net operating loss was $9.7 million compared to a net operating loss of $13.9 million in the prior period. The net operating
loss improvement of $4.2 million was attributable to the increase in revenue due to the reopening of retail venues across the business
as well as growth in Interactive. This net operating loss variance also included a $1.1 million unfavorable impact from foreign currency
translation.
Interest
expense
Net
interest expense increased by $14.1 million in the three months ended June 30, 2021, to $22.2 million, on a reported basis
due to a $14.4 million write-off of previously capitalized debt fees following the refinancing in May 2021, a $0.7 million increase
in debt interest and a $0.3 million exchange rate impact. These were offset by a $1.0m write-off of debt fees in the three months
ended June 30, 2020 and a $0.4 million reduction in revolver interest.
Change
in fair value of warrant liability
Change
in fair value of warrant liability for the three months ended June 30, 2021, resulted in a $10.5 million charge. The charge was related
to changes in liability accounting pursuant to the statement made by the Office of Chief Accountant of the SEC, released on April 12,
2021, informing market participants that warrants issued by special purpose acquisition companies may require classification as a liability
of the entity measured at fair value, with changes in fair value each period reported in earnings. The $10.5 million charge reflects
the increase in the value of the warrants, driven by increases in the Company’s share price from $9.29 on March 31st,
2021 to $12.75 on June 30th, 2021.For the three months ended June 30, 2020, the change in fair value resulted in a $1.7 million
charge.
Other
finance income
Other
finance income for the three months ended June 30, 2021, resulted in a $1.2 million charge compared to a $2.5 million charge in
the three months ended June 30, 2020. This variance was driven by movements in the retranslation with respect to the principal balance
of our senior debt facilities.
Income
tax expense
Our
effective tax rate for the period ended June 30, 2021, was 0.8% and our effective tax rate for the period ended June 30, 2020, was 0.2%.
Net
loss
During
the period, net loss was $43.8 million compared to a net loss of $26.2 million in the prior period. On a functional currency (at constant
rate) basis, net loss increased by $12.6 million, primarily due to the increase in interest expense ($11.5 million) and
increase in change in fair value of warrant liability ($7.6 million), partly offset by the decrease in net operating loss
($5.3 million).
Three
Months ended June 30, 2021, compared to Three Months ended June 30, 2020 – Gaming Segment
We
generate revenue from our Gaming segment through the selling and rental of our gaming machines. We receive rental fees for machines,
typically on a long-term contract basis, on both a participation and 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 Gaming business 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.
Gaming
Segment, Key Performance Indicators
|
|
For the Three-Month Period ended
|
|
|
Variance
|
|
|
|
Unaudited
Jun 30,
|
|
|
Unaudited
Jun 30,
|
|
|
2021 vs 2020
|
|
Gaming
|
|
2021
|
|
|
2020
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period installed base (# of terminals)
|
|
|
32,203
|
|
|
|
32,325
|
|
|
|
(122
|
)
|
|
|
(0.4
|
)%
|
Total Gaming - Average installed base (# of terminals)
|
|
|
31,868
|
|
|
|
32,259
|
|
|
|
(391
|
)
|
|
|
(1.2
|
)%
|
Participation - Average installed base (# of terminals)
|
|
|
29,180
|
|
|
|
30,392
|
|
|
|
(1,212
|
)
|
|
|
(4.0
|
)%
|
Fixed Rental - Average installed base (# of terminals)
|
|
|
2,687
|
|
|
|
1,867
|
|
|
|
821
|
|
|
|
44.0
|
%
|
Service Only - Average installed base (# of terminals)
|
|
|
21,515
|
|
|
|
21,668
|
|
|
|
(153
|
)
|
|
|
(0.7
|
)%
|
Customer Gross Win per unit per day (1) (2)
|
|
£
|
47.2
|
|
|
£
|
12.2
|
|
|
£
|
35.1
|
|
|
|
288
|
%
|
Customer Net Win per unit per day (1) (2)
|
|
£
|
36.7
|
|
|
£
|
8.9
|
|
|
£
|
27.8
|
|
|
|
313
|
%
|
Inspired Blended Participation Rate
|
|
|
6.0
|
%
|
|
|
6.6
|
%
|
|
|
(0.6
|
)%
|
|
|
(9.3
|
)%
|
Inspired Fixed Rental Revenue per Gaming Machine per week
|
|
£
|
15.4
|
|
|
£
|
0.0
|
|
|
£
|
15
|
|
|
|
N/A
|
|
Inspired Service Rental Revenue per Gaming Machine per week
|
|
£
|
4.1
|
|
|
£
|
1.3
|
|
|
£
|
2.8
|
|
|
|
222
|
%
|
Gaming Long term license amortization (£’m)
|
|
£
|
1.2
|
|
|
£
|
1.3
|
|
|
(£
|
0.0
|
)
|
|
|
(2.7
|
)%
|
Number of Machine sales
|
|
|
396
|
|
|
|
13
|
|
|
|
383
|
|
|
|
2946
|
%
|
Average selling price per terminal
|
|
£
|
5,449
|
|
|
£
|
5,672
|
|
|
(£
|
223
|
)
|
|
|
(3.9
|
)%
|
(1)
|
Includes
all Gaming terminals in which the company takes a participation revenue share across all territories
|
(2)
|
Includes
all days of the period, including the days during which the Gaming terminals were not operating due to COVID-19, as many of our customers’
venues were closed during a portion of the period (the “COVID-19 closures”).
|
Please
refer to our Annual Report on Form 10-K for the year ended December 31, 2020, for definitions of terms used in the above table.
Gaming
Segment, Recurring Revenue
Set
forth below is a breakdown of our Gaming recurring revenue. Gaming recurring revenue consists principally of Gaming participation revenue
and fixed rental revenue.
|
|
For the Three-Month Period ended
|
|
|
Variance
|
|
|
|
Unaudited
June 30,
|
|
|
Unaudited
June 30,
|
|
|
2021 vs 2020
|
|
(In £ millions)
|
|
2021
|
|
|
2020
|
|
|
|
|
|
%
|
|
Gaming Recurring Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gaming Revenue
|
|
£
|
11.6
|
|
|
£
|
3.4
|
|
|
£
|
8.2
|
|
|
|
241.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming Participation Revenue
|
|
£
|
6.0
|
|
|
£
|
1.6
|
|
|
£
|
4.5
|
|
|
|
285.6
|
%
|
Gaming Other Fixed Fee Recurring Revenue
|
|
£
|
1.6
|
|
|
£
|
0.3
|
|
|
£
|
1.2
|
|
|
|
350.0
|
%
|
Gaming Long-term license amortization
|
|
£
|
1.2
|
|
|
£
|
1.3
|
|
|
(£
|
0.0
|
)
|
|
|
(2.7
|
)%
|
Total Gaming Recurring Revenue
|
|
£
|
8.8
|
|
|
£
|
3.2
|
|
|
£
|
5.6
|
|
|
|
176.5
|
%
|
Gaming Recurring Revenue as a % of Total Gaming Revenue
|
|
|
76.2
|
%
|
|
|
94.1
|
%
|
|
|
(17.9
|
)%
|
|
|
|
|
Note:-
There was no VAT-related income in the period
Please
refer to our Annual Report on Form 10-K for the year ended December 31, 2020, for definitions of terms used in the above table.
Gaming
Segment, Service Revenue by Region
Set
forth below is a breakdown of our Gaming service revenue by geographic region. Gaming Service revenue consists principally of Gaming
participation revenue, Gaming other fixed fee revenue, Gaming long-term license amortization and Gaming other non-recurring revenue.
See “Gaming Segment Revenue” below for a discussion of gaming service revenue between the periods under review.
Gaming
Service Revenue by Region
|
|
For the Three-Month Period ended
|
|
|
|
|
|
|
|
(In millions)
|
|
Unaudited June 30,
2021
|
|
|
Unaudited June 30,
2020
|
|
|
Variance 2021 vs 2020
|
|
|
Total Functional Currency %
|
|
|
Total Variance %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK LBO
|
|
$
|
8.2
|
|
|
$
|
1.4
|
|
|
$
|
6.8
|
|
|
|
405.6
|
%
|
|
|
466.8
|
%
|
UK Other
|
|
|
1.3
|
|
|
|
0.1
|
|
|
|
1.2
|
|
|
|
1458.0
|
%
|
|
|
1656.7
|
%
|
Italy
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
0.0
|
|
|
|
4.9
|
%
|
|
|
17.8
|
%
|
Greece
|
|
|
3.1
|
|
|
|
2.3
|
|
|
|
0.8
|
|
|
|
18.3
|
%
|
|
|
33.1
|
%
|
Rest of the World
|
|
|
0.0
|
|
|
|
0.1
|
|
|
|
(0.0
|
)
|
|
|
(98.4
|
)%
|
|
|
(98.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Service revenue
|
|
$
|
12.8
|
|
|
$
|
4.1
|
|
|
$
|
8.7
|
|
|
|
179.0
|
%
|
|
|
213.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange Rate - $ to £
|
|
|
1.40
|
|
|
|
1.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Gaming
Segment, key events that affected results for the Three Months ended June 30, 2021
Total
Gaming Customer Gross Win per unit per day (in our functional currency, GBP) increased by £35.08, or 288% which was due to the
impact of COVID-19. In the UK, retail venues were closed for the majority of the quarter ended June 30, 2020, as compared to the current
period when retail venues reopened in April and May 2021 (for further detail see segment revenue discussion below). In Greece, retail
venues reopened in late May 2021 while in Italy retail venues began reopening in June 2021. The participation rate decreased from 6.6%
to 6.0% primarily due to a higher proportion of UK venues operating in 2021 when compared to the same quarter in 2020 as UK share terms
are lower (due to the fact we have higher gross win levels in the UK) than the total blended Gaming average.
During
the period, Inspired sold 71 “Valor™” terminals to a number of customers in Illinois, increasing the total number of
North American unit sales since launch in December 2019 to 540.
In
the UK market, momentum was gained with our new “Community King” three-player product.
In
addition, we have been upgrading our UK Gaming estate with the installation of 134 “Flex” and 57 “Prismatic”
terminals on three-year lease agreements.
Three
Months ended June 30, 2021, compared to Three Months ended June 30, 2020 – Gaming Segment
|
|
For the Three-Month Period ended
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Unaudited June 30,
2021
|
|
|
Unaudited June 30,
2020
|
|
|
Variance
2021 vs 2020
|
|
|
Total Functional Currency %
|
|
|
Total Variance %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
$
|
12.8
|
|
|
$
|
4.1
|
|
|
$
|
8.7
|
|
|
|
179.0
|
%
|
|
|
213.6
|
%
|
Product
|
|
|
3.4
|
|
|
|
0.1
|
|
|
|
3.2
|
|
|
|
2141.8
|
%
|
|
|
2464.0
|
%
|
Total revenue
|
|
|
16.2
|
|
|
|
4.2
|
|
|
|
12.0
|
|
|
|
241.5
|
%
|
|
|
283.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales, excluding depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Service
|
|
|
(3.6
|
)
|
|
|
(1.0
|
)
|
|
|
(2.6
|
)
|
|
|
229.8
|
%
|
|
|
270.3
|
%
|
Cost of Product
|
|
|
(2.4
|
)
|
|
|
(0.2
|
)
|
|
|
(2.2
|
)
|
|
|
845.3
|
%
|
|
|
969.2
|
%
|
Total cost of sales
|
|
|
(6.0
|
)
|
|
|
(1.2
|
)
|
|
|
(4.8
|
)
|
|
|
345.5
|
%
|
|
|
400.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
(6.7
|
)
|
|
|
(3.0
|
)
|
|
|
(3.6
|
)
|
|
|
95.6
|
%
|
|
|
120.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
(0.4
|
)
|
|
|
(0.1
|
)
|
|
|
(0.3
|
)
|
|
|
67.4
|
%
|
|
|
300.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(5.8
|
)
|
|
|
(7.0
|
)
|
|
|
1.2
|
|
|
|
(27.1
|
)%
|
|
|
(17.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating Income (Loss)
|
|
$
|
(2.7
|
)
|
|
$
|
(7.1
|
)
|
|
$
|
4.4
|
|
|
|
(68.4
|
)%
|
|
|
(62.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange Rate - $ to £
|
|
|
1.40
|
|
|
|
1.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Gaming
Segment Revenue
During
the period, Gaming revenue increased by $12.0 million, or 284%, to $16.2 million on a reported basis. This increase included a favorable
currency impact of $1.8 million. On a functional currency (at constant rate) basis, Gaming revenue increased by $10.2 million, or 242%
as Gaming retail venues reopened during the period (see market information below for more detail) albeit with some restrictions for some
of the period.
Service
revenue increased by $8.7 million to $12.8 million on a reported basis. This increased included favorable currency movements of $1.4
million. On a functional currency (at constant rate) basis, Gaming Service revenue increased by $7.3 million, or 179%. This was driven
by an increase in UK sales (including Licensed Betting Offices (“LBO”) and UK other) of $6.9 million primarily driven by
the reopening of retail venues. UK LBO had additional two months trading verses quarter two 2020, albeit with one of these months at
fifty percent capacity and UK other venues had an additional one month trading verses quarter two 2020. Greece revenue increased by $0.4
million, driven by the reopening of retail venues, Greece trading for an additional two weeks verses last period. Italy service revenue
was unchanged as COVID-19 restrictions mostly remained in place during the period.
Product
revenue increased by $3.2 million to $3.4 million on a reported basis. On a functional currency (at constant rate) basis, revenue increased
by $2.9 million. This was driven by Product sales of $1.7 million in the UK markets, $1.1 million of Valor terminal sales in North America
and $0.6 million of spare part sales.
Gaming
Segment Operating Income
Cost
of sales (excluding depreciation and amortization) increased by $4.8 million to $6.0 million on a reported basis, which included adverse
currency movements of $0.7 million. On a functional currency (at constant rate) basis, Gaming cost of sales increased by $4.1 million,
or 346%. Cost of Service increased by $2.2 million driven by the reopening of retail venues. Cost of Product increased by $1.9 million
driven by the increase in Product revenue.
SG&A
expense increased by $3.6 million on a reported basis. This increase included the impact of unfavorable currency movements of $0.7 million.
On a functional currency (at constant rate) basis, Gaming SG&A increased by $2.9 million, or 95.6%. This was driven by staff returning
from furlough as retail venues and markets reopened.
Depreciation
and amortization declined by $1.2 million on a reported basis, or 17.1%. This included the impact of unfavorable currency movements of
$0.7 million. On a functional currency (at constant rate basis), Gaming depreciation and amortization decreased by $1.9 million, or 27.1%.
This was driven by a decrease in depreciation in the UK LBO and Greece markets.
Operating
Loss improved by $4.4 million on a reported basis, from a loss of $7.1 million to a loss of $2.7 million. This was primarily due to the
increase in revenue as retail venues reopened, partly offset by increased costs as staff returned from furlough as well as unfavorable
currency movements of $0.5 million.
Three
Months ended June 30, 2021, compared to Three Months ended June 30, 2020 – Virtual Sports Segment
We
generate revenue from our Virtual Sports segment through the licensing of our products. We receive fees in exchange for the licensing
of our products, typically on a long-term contract basis, on a participation 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 other promotional costs and any relevant regulatory levies) from Virtual Sports content placed on our customers’ websites or
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 Virtual Sports segment is principally driven by the number of customers we have, the net win performance of the games
and the net win percentage that we receive pursuant to our contracts with our customers.
Virtual
Sports Segment, Key Performance Indicators
|
|
For the Three-Month Period ended
|
|
|
Variance
|
|
|
|
Unaudited
Jun 30,
|
|
|
Unaudited
Jun 30,
|
|
|
2021 vs 2020
|
|
Virtuals
|
|
2021
|
|
|
2020
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No. of Live Customers at the end of the period
|
|
|
60
|
|
|
|
57
|
|
|
|
3
|
|
|
|
5.3
|
%
|
Average No. of Live Customers
|
|
|
59
|
|
|
|
58
|
|
|
|
1
|
|
|
|
1.7
|
%
|
Total Revenue (£’m)
|
|
£
|
5.9
|
|
|
£
|
6.1
|
|
|
(£
|
0.3
|
)
|
|
|
(4.6
|
)%
|
Total Revenue £’m - Retail
|
|
£
|
1.5
|
|
|
£
|
1.0
|
|
|
£
|
0.5
|
|
|
|
54.5
|
%
|
Total Revenue £’m - Online Virtuals
|
|
£
|
4.3
|
|
|
£
|
5.2
|
|
|
(£
|
0.8
|
)
|
|
|
(15.8
|
)%
|
Please
refer to our Annual Report on Form 10-K for the year ended December 31, 2020, for definitions of terms used in the above table.
Virtual
Sports Segment, Recurring Revenue
Set
forth below is a breakdown of our Virtual Sports recurring revenue, which consists of Retail Virtuals and Online Virtuals recurring revenue
as well as long-term license amortization. See “Virtual Sports Segment Revenue” below for a discussion of Virtual Sports
Service revenue between the periods under review.
|
|
For the Three-Month Period ended
|
|
|
Variance
|
|
|
|
Unaudited
June 30,
|
|
|
Unaudited
June 30,
|
|
|
2021 vs 2020
|
|
(In £ millions)
|
|
2021
|
|
|
2020
|
|
|
|
|
|
%
|
|
Virtual Sports Recurring Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Virtual Sports Revenue
|
|
£
|
5.9
|
|
|
£
|
6.1
|
|
|
(£
|
0.3
|
)
|
|
|
(4.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring Revenue - Retail Virtuals
|
|
£
|
1.4
|
|
|
£
|
0.8
|
|
|
£
|
0.6
|
|
|
|
81.0
|
%
|
Recurring Revenue - Online Virtuals
|
|
£
|
4.2
|
|
|
£
|
4.5
|
|
|
(£
|
0.3
|
)
|
|
|
(6.3
|
)%
|
Total Virtual Sports Long-term license amortization
|
|
£
|
0.2
|
|
|
£
|
0.2
|
|
|
(£
|
0.1
|
)
|
|
|
(29.7
|
)%
|
Total Virtual Sports Recurring Revenue
|
|
£
|
5.8
|
|
|
£
|
5.5
|
|
|
£
|
0.3
|
|
|
|
4.9
|
%
|
Virtual Sports Recurring Revenue as a Percentage of Total Virtual Sports Revenue
|
|
|
99.0
|
%
|
|
|
90.0
|
%
|
|
|
9.0
|
%
|
|
|
|
|
Please
refer to our Annual Report on Form 10-K for the year ended December 31, 2020, for definitions of terms used in the above table.
Virtual
Sports Segment, key events that affected results for the Three Months ended June 30, 2021
During
the three months ended June 30, 2021, our key retail territories in the UK, Ireland, Italy and Greece reopened at different stages in
the quarter. In the prior year period, only Greece and Italy had reopened during June of 2020. As a result, retail recurring revenues
increased by $0.9 million.
During
the three months ended June 30, 2021, we launched three channels of our V-Play Soccer 3.0 product with Stoiximan, the largest online
operator in Greece, using our cloud streaming solution.
In
Turkey we launched our new Euro Soccer Marbles product alongside a new Parlay Boost feature with Misli via our proprietary Virtual Plug
& PlayTM (“VPP”) platform.
A
suite of new products including Marbles, Matchday Soccer Ultra and the new Penalty shootout soccer product were launched in Italy on
both retail and online channels.
We
signed an extension to our existing agreement with Entain enabling betMGM, Borgata and PartyCasino to launch VPP into multiple U.S. states.
Updates
to V-Play Soccer 3.0 and V-Play Matchday Soccer were launched in OPAP venues in Greece along with a new Euro Tournament product enabling
bets to be placed on a Virtual Soccer tournament which was launched alongside the European soccer tournament in June.
A
contract extension was signed with Boylesports covering the continued provision of Virtual Sports across retail betting shops in the
UK and Ireland.
Three
Months ended June 30, 2021, compared to Three Months ended June 30, 2020 – Virtual Sports Segment
|
|
For the Three-Month Period ended
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Unaudited June 30,
2021
|
|
|
Unaudited June 30,
2020
|
|
|
Variance
2021 vs 2020
|
|
|
Total Functional Currency %
|
|
|
Total Variance %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Revenue
|
|
$
|
8.2
|
|
|
$
|
7.6
|
|
|
$
|
0.6
|
|
|
|
(4.6
|
)%
|
|
|
7.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Service
|
|
|
(0.5
|
)
|
|
|
(0.8
|
)
|
|
|
0.3
|
|
|
|
(45.0
|
)%
|
|
|
(38.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
(2.7
|
)
|
|
|
(0.7
|
)
|
|
|
(1.9
|
)
|
|
|
222.8
|
%
|
|
|
264.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
-
|
|
|
|
68.0
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(0.7
|
)
|
|
|
(0.9
|
)
|
|
|
0.2
|
|
|
|
(28.0
|
)%
|
|
|
(22.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating Income (Loss)
|
|
$
|
4.2
|
|
|
$
|
5.1
|
|
|
$
|
(0.9
|
)
|
|
|
(28.0
|
)%
|
|
|
(17.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange Rate - $ to £
|
|
|
1.40
|
|
|
|
1.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
During
the period, revenue increased by $0.6 million, or 7.5%, on a reported basis. This increase included the impact of favorable currency
movements of $0.9 million. On a functional currency (at constant rate) basis, revenue decreased by $0.4 million, or 4.6%. This decrease
was driven by a $1.0 million decline in Online Virtuals of which $0.7 million stemmed from one-time sales of Virtual Sports events in
the prior year period and a $0.4 million decline in Online recurring revenue resulting from the high activity on Online Virtuals in the
prior year period, both of which were due to the limited live sports betting available during COVID-19 lockdowns. Despite
the decline in the quarter, Online revenues remain significantly higher than pre-COVID-19 levels. This was partially offset by growth
in recurring Retail Virtuals of $0.9 million as retail venues reopened during the period.
Virtual
Sports Segment operating income
Cost
of Service decreased by $0.3 million to $0.5 million on a reported basis. This decrease included the impact of $0.1 million from adverse
currency movements. On a functional currency (at constant rate) basis, cost of Service decreased by $0.4 million, or 45.0%, driven by
the decrease in Online Virtuals revenue.
SG&A
expenses increased by $1.9 million on a reported basis. On a functional currency (at constant rate) basis, SG&A expenses increased
by $1.6 million, or 223%. This was driven by a $1.2 million increase for the provision following settlement with the Italian Tax Authorities
in respect of an audit of the Italian Branch of Inspired Gaming (International) Limited for the period 2015-2017 in respect of the historic
VAT treatment of supplies, as well as increase in costs as staff returning from furlough as retail venues.
Depreciation
and amortization decreased by $0.2 million on a reported and functional currency (at constant rate) basis.
Operating
profit decreased by $0.9 million on a reported basis which included the impact of favorable currency movements of $0.6
million. On a functional currency (at constant rate) basis, operating profit decreased by $1.4 million. This was primarily due
to the $1.6 million increase in SG&A following the settlement with the Italian Tax Authorities.
Three
Months ended June 30, 2021, compared to Three Months ended June 30, 2020 – Interactive Segment
We
generate revenue from our Interactive segment through the licensing of our products. We receive fees in exchange for the licensing of
our products, typically on a long-term contract basis, on a participation 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 other promotional costs and any relevant regulatory levies) from Interactive content placed on our customers’ websites. Typically,
we recognize revenue from these arrangements on a daily basis over the term of the contract.
Revenue
growth for our Interactive segment is principally driven by the number of customers we have, the number of live games, the net win performance
of the games and the net win percentage that we receive pursuant to our contracts with our customers.
Interactive
Segment, Key Performance Indicators
|
|
For the Three-Month Period ended
|
|
|
Variance
|
|
|
|
Unaudited
Jun 30,
|
|
|
Unaudited
Jun 30,
|
|
|
2021 vs 2020
|
|
Interactive
|
|
2021
|
|
|
2020
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No. of Live Customers at the end of the period
|
|
|
100
|
|
|
|
70
|
|
|
|
30
|
|
|
|
42.9
|
%
|
Average No. of Live Customers
|
|
|
99
|
|
|
|
70
|
|
|
|
30
|
|
|
|
42.6
|
%
|
No. of Live Games at the end of the period
|
|
|
218
|
|
|
|
189
|
|
|
|
29
|
|
|
|
15.3
|
%
|
Average No. of Live Games
|
|
|
216
|
|
|
|
187
|
|
|
|
28
|
|
|
|
15.1
|
%
|
Total Revenue (£’m)
|
|
£
|
4.2
|
|
|
£
|
2.8
|
|
|
£
|
1.4
|
|
|
|
50.1
|
%
|
Please
refer to our Annual Report on Form 10-K for the year ended December 31, 2020, for definitions of terms used in the above table.
Interactive
Segment, Recurring Revenue
Set
forth below is a breakdown of our Interactive recurring revenue which consists principally of Interactive participation revenue. See
“Interactive Segment Revenue” below for a discussion of Interactive service revenue between the periods under review.
|
|
For the Three-Month Period ended
|
|
|
Variance
|
|
|
|
Unaudited
June 30,
|
|
|
Unaudited
June 30,
|
|
|
2021 vs 2020
|
|
(In £ millions)
|
|
2021
|
|
|
2020
|
|
|
|
|
|
%
|
|
Interactive Recurring Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interactive Revenue
|
|
£
|
4.2
|
|
|
£
|
2.8
|
|
|
£
|
1.4
|
|
|
|
50.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Recurring Revenue - Interactive
|
|
£
|
4.2
|
|
|
£
|
2.7
|
|
|
£
|
1.4
|
|
|
|
51.4
|
%
|
Interactive Recurring Revenue as a Percentage of Total Interactive Revenue
|
|
|
100.0
|
%
|
|
|
99.1
|
%
|
|
|
0.9
|
%
|
|
|
|
|
Interactive
Segment, key events that affected results for the Three Months ended June 30, 2021
During
the period, the North American market has grown 265% or $0.4 million in the quarter. There were seven new brand launches including BetMGM
and Golden Nugget in Michigan.
We
deployed seven new games in the quarter across the estate including “Big Spin Bonus” and “Cops and Robbers Megaways”.
Big Spin Bonus is the biggest launch in Inspired’s history and is the first game to generate 20 million plays in a week. The product
is expected to launch in all markets.
Three
Months ended June 30, 2021, compared to Three Months ended June 30, 2020 – Interactive Segment
|
|
For the Three-Month
Period ended
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Unaudited June 30,
2021
|
|
|
Unaudited June 30,
2020
|
|
|
Variance
2021 vs 2020
|
|
|
Total Functional Currency %
|
|
|
Total Variance
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Revenue
|
|
$
|
5.8
|
|
|
$
|
3.4
|
|
|
$
|
2.4
|
|
|
|
50.0
|
%
|
|
|
69.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Service
|
|
|
(0.9
|
)
|
|
|
(0.4
|
)
|
|
|
(0.5
|
)
|
|
|
111.6
|
%
|
|
|
133.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
expenses
|
|
|
(1.3
|
)
|
|
|
(0.6
|
)
|
|
|
(0.7
|
)
|
|
|
100.2
|
%
|
|
|
125.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
-
|
|
|
|
177.7
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(0.9
|
)
|
|
|
(0.6
|
)
|
|
|
(0.3
|
)
|
|
|
40.4
|
%
|
|
|
47.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating Income (Loss)
|
|
$
|
2.6
|
|
|
$
|
1.7
|
|
|
$
|
0.8
|
|
|
|
21.4
|
%
|
|
|
46.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange Rate - $ to £
|
|
|
1.40
|
|
|
|
1.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Interactive
Segment revenue
During
the period, revenue increased by $2.4 million, or 69.0%, on a reported basis. On a functional currency (at constant rate) basis, revenue
increased by $1.7 million, or 50.0%. This was driven by recurring revenue growth due to the consistent launch of new content across the
estate, growth in the customer base in new, emerging and core markets and increased promotional activity through exclusive deals with
tier-one customers.
Interactive
Segment operating income
Cost
of Service increased by $0.5 million to $0.9 million on a reported basis. On a functional currency (at constant rate) basis, cost of
Service increased by $0.4 million due to increased third party platform provider costs, in line with the revenue increase for the period.
SG&A
expenses increased by $0.7 million on a reported basis. This increase included the impact of unfavorable currency movements of $0.1 million.
On a functional currency (at constant rate) basis, SG&A increased by $0.6 million driven by the investment in the segment to help
drive the increasing revenues.
Depreciation
and amortization increased by $0.3 million on a reported basis. On a functional currency (at constant rate) basis, depreciation and amortization
increased by $0.2 million.
Operating
profit increased by $0.8 million on a reported basis. On a functional currency (at constant rate) basis operating profit increased by
$0.4 million. This was primarily due to the increase in revenue, partly offset by the increase in cost of sales and SG&A.
Three
Months ended June 30, 2021, compared to Three Months ended June 30, 2020 – Leisure Segment
We
generate revenue from our Leisure segment through the rental of our gaming and amusement machines. 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 Leisure segment is principally driven by the number of 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.
Leisure
segment, Key Performance Indicators
|
|
For the Three-Month Period ended
|
|
|
Variance
|
|
|
|
Unaudited
Jun 30,
|
|
|
Unaudited
Jun 30,
|
|
|
2021 vs 2020
|
|
Leisure
|
|
2021
|
|
|
2020
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period installed base Gaming machines (# of terminals)
|
|
|
11,723
|
|
|
|
12,262
|
|
|
|
(539
|
)
|
|
|
(4.4
|
)%
|
Average installed base Gaming machines (# of terminals)
|
|
|
11,679
|
|
|
|
12,267
|
|
|
|
(588
|
)
|
|
|
(4.8
|
)%
|
End of period installed base Other (# of terminals)
|
|
|
7,244
|
|
|
|
8,224
|
|
|
|
(980
|
)
|
|
|
(11.9
|
)%
|
Average installed base Other (# of terminals)
|
|
|
7,188
|
|
|
|
8,231
|
|
|
|
(1,043
|
)
|
|
|
(12.7
|
)%
|
Pub Digital Gaming Machines - Average installed base (# of terminals)
|
|
|
5,895
|
|
|
|
5,773
|
|
|
|
122
|
|
|
|
2.1
|
%
|
Pub Analogue Gaming Machines - Average installed base (# of terminals)
|
|
|
2,233
|
|
|
|
2,690
|
|
|
|
(458
|
)
|
|
|
(17.0
|
)%
|
MSA and Bingo Gaming Machines - Average installed base (# of terminals)(1)
|
|
|
3,293
|
|
|
|
3,517
|
|
|
|
(224
|
)
|
|
|
(6.4
|
)%
|
Inspired Leisure Revenue per Gaming Machine per week
|
|
£
|
24.4
|
|
|
|
NM
|
|
|
|
NM
|
|
|
|
NM
|
|
Inspired Pub Digital Revenue per Gaming Machine per week
|
|
£
|
26.0
|
|
|
|
NM
|
|
|
|
NM
|
|
|
|
NM
|
|
Inspired Pub Analogue Revenue per Gaming Machine per week
|
|
£
|
13.2
|
|
|
|
NM
|
|
|
|
NM
|
|
|
|
NM
|
|
Inspired MSA and Bingo Revenue per Gaming Machine per week
|
|
£
|
30.0
|
|
|
£
|
0.2
|
|
|
£
|
29.8
|
|
|
|
15859
|
%
|
Inspired Other Revenue per Machine per week
|
|
£
|
4.7
|
|
|
|
NM
|
|
|
|
NM
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Leisure Parks Revenue (Gaming and Non Gaming) (£’m)
|
|
£
|
3.3
|
|
|
|
NM
|
|
|
|
NM
|
|
|
|
NM
|
|
(1)
|
Motorway
Service Area machines
|
Please
refer to our Annual Report on Form 10-K for the year ended December 31, 2020, for definitions of terms used in the above table.
Leisure
Segment, Recurring Revenue
Set
forth below is a breakdown of our Leisure recurring revenue which consists principally of Leisure participation revenue and Leisure other
fixed fee revenue. See “Leisure Segment Revenue” below for a discussion of leisure service revenue between the periods under
review.
Set
forth below is a breakdown of our Leisure recurring revenue.
|
|
For the Three-Month Period ended
|
|
|
Variance
|
|
|
|
Unaudited
June 30,
|
|
|
Unaudited
June 30,
|
|
|
2021 vs 2020
|
|
(In £ millions)
|
|
2021
|
|
|
2020
|
|
|
|
|
|
%
|
|
Leisure Recurring Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Leisure Revenue
|
|
£
|
8.1
|
|
|
£
|
0.3
|
|
|
£
|
7.8
|
|
|
|
2691.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Leisure Recurring Revenue
|
|
£
|
7.6
|
|
|
£
|
0.1
|
|
|
£
|
7.5
|
|
|
|
6323.0
|
%
|
Leisure Recurring Revenue as a Percentage of Total Leisure Revenue
|
|
|
94.8
|
%
|
|
|
41.2
|
%
|
|
|
53.6
|
%
|
|
|
|
|
Leisure
Segment, key events that affected results for the Three Months ended June 30, 2021
During
the three months ended June 30, 2021, all major sectors of the Leisure segment (Pubs, Holiday Parks, Motorway Service Areas and Bingo
Halls) remained closed due to the COVID-19 closures in the UK until May 17th.
From
May 17, 2021, venues reopened with social distancing and other restrictions imposed due to COVID-19. These restrictions remained in place
for the rest of the period.
Three
Months ended June 30, 2021, compared to Three Months ended June 30, 2020 – Leisure Segment
|
|
For the Three-Month Period ended
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Unaudited June 30,
2021
|
|
|
Unaudited June 30,
2020
|
|
|
Variance
2021 vs 2020
|
|
|
Total Functional Currency %
|
|
|
Total Variance %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
$
|
10.7
|
|
|
$
|
0.2
|
|
|
$
|
10.5
|
|
|
|
4733.4
|
%
|
|
|
5334.6
|
%
|
Product
|
|
|
0.6
|
|
|
|
0.2
|
|
|
|
0.4
|
|
|
|
221.2
|
%
|
|
|
261.0
|
%
|
Total revenue
|
|
|
11.3
|
|
|
|
0.4
|
|
|
|
10.9
|
|
|
|
2691.7
|
%
|
|
|
3045.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales, excluding depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Service
|
|
|
(3.0
|
)
|
|
|
(0.3
|
)
|
|
|
(2.7
|
)
|
|
|
731.1
|
%
|
|
|
837.5
|
%
|
Cost of Product
|
|
|
(0.3
|
)
|
|
|
(0.1
|
)
|
|
|
(0.2
|
)
|
|
|
202.3
|
%
|
|
|
239.3
|
%
|
Total cost of sales
|
|
|
(3.3
|
)
|
|
|
(0.4
|
)
|
|
|
(2.9
|
)
|
|
|
614.4
|
%
|
|
|
705.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
(8.2
|
)
|
|
|
(2.6
|
)
|
|
|
(5.6
|
)
|
|
|
177.6
|
%
|
|
|
217.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
(0.1
|
)
|
|
|
(0.0
|
)
|
|
|
(0.1
|
)
|
|
|
251.3
|
%
|
|
|
352.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(4.1
|
)
|
|
|
(4.4
|
)
|
|
|
0.3
|
|
|
|
(17.3
|
)%
|
|
|
(6.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating Income (Loss)
|
|
|
(4.4
|
)
|
|
|
(7.0
|
)
|
|
$
|
2.7
|
|
|
|
(45.7
|
)%
|
|
|
(38.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange Rate - $ to £
|
|
|
1.40
|
|
|
|
1.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Leisure
Segment Revenue
During
the period, revenue increased by $10.9 million to $11.3 million on a reported basis, including a $1.3 million impact from favorable currency
movements. On a functional currency (at constant rate) basis revenue increased by $9.7 million.
Service
revenue increased by $10.5 million on a reported basis and $9.3 million on a functional currency (at constant rate) basis to $10.7 million.
This was driven by the reopening of venues in May although with some COVID-19 restriction remaining for the rest of the period.
Product
revenue increased by $0.4 million to $0.6 million on a reported and functional currency (at constant rate) basis. This increase was driven
by the reopening of venues.
Leisure
Segment Operating Income
Operating
loss improved by $2.7 million on a reported basis from a loss of $7.0 million to a loss of $4.4 million, which included the impact of
unfavorable currency movements of $0.5 million. On a functional currency (at constant rate) basis operating loss improved by $3.2 million.
This was primarily due to the increase in revenue as venues reopened.
Six
Months ended June 30, 2021, compared to Six Months ended June 30, 2020
|
|
For
the Six-Month
Period ended
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Unaudited June 30,
|
|
|
Unaudited June 30,
|
|
|
Variance
|
|
|
Functional Currency
|
|
|
Total Variance
|
|
(In millions)
|
|
2021
|
|
|
2020
|
|
|
2021 vs 2020
|
|
|
%
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
$
|
54.6
|
|
|
$
|
58.1
|
|
|
$
|
(3.5
|
)
|
|
|
(14.1
|
)%
|
|
|
(6.0
|
)%
|
Product
|
|
|
9.7
|
|
|
|
9.8
|
|
|
|
(0.1
|
)
|
|
|
(8.9
|
)%
|
|
|
(0.9
|
)%
|
Total revenue
|
|
|
64.3
|
|
|
|
67.9
|
|
|
|
(3.6
|
)
|
|
|
(13.3
|
)%
|
|
|
(5.3
|
)%
|
Cost of Sales, excluding depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Service
|
|
|
(10.1
|
)
|
|
|
(11.0
|
)
|
|
|
0.8
|
|
|
|
(15.3
|
)%
|
|
|
(7.6
|
)%
|
Cost of Product
|
|
|
(5.9
|
)
|
|
|
(6.5
|
)
|
|
|
0.6
|
|
|
|
(17.7
|
)%
|
|
|
(9.6
|
)%
|
Selling, general and administrative expenses
|
|
|
(38.9
|
)
|
|
|
(39.2
|
)
|
|
|
0.3
|
|
|
|
(9.3
|
)%
|
|
|
(0.7
|
)%
|
Stock-based compensation
|
|
|
(4.8
|
)
|
|
|
(2.0
|
)
|
|
|
(2.8
|
)
|
|
|
118.3
|
%
|
|
|
138.6
|
%
|
Acquisition and integration related transaction expenses
|
|
|
(1.5
|
)
|
|
|
(4.4
|
)
|
|
|
2.9
|
|
|
|
(69.7
|
)%
|
|
|
(66.3
|
)%
|
Depreciation and amortization
|
|
|
(25.0
|
)
|
|
|
(25.9
|
)
|
|
|
0.9
|
|
|
|
(12.4
|
)%
|
|
|
(3.5
|
)%
|
Net operating Income (Loss)
|
|
|
(21.9
|
)
|
|
|
(21.1
|
)
|
|
|
(0.8
|
)
|
|
|
(6.8
|
)%
|
|
|
3.7
|
%
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
0.1
|
|
|
|
0.4
|
|
|
|
(0.3
|
)
|
|
|
(86.7
|
)%
|
|
|
(86.0
|
)%
|
Interest expense
|
|
|
(30.8
|
)
|
|
|
(14.2
|
)
|
|
|
(16.6
|
)
|
|
|
95.3
|
%
|
|
|
117.1
|
%
|
Change in fair value of warrant liability
|
|
|
(13.5
|
)
|
|
|
5.9
|
|
|
|
(19.4
|
)
|
|
|
(301.4
|
)%
|
|
|
(328.1
|
)%
|
Other finance income (expense)
|
|
|
5.2
|
|
|
|
(6.2
|
)
|
|
|
11.4
|
|
|
|
(176.4
|
)%
|
|
|
(184.6
|
)%
|
Loss from equity method investee
|
|
|
-
|
|
|
|
(0.5
|
)
|
|
|
0.5
|
|
|
|
(100.0
|
)%
|
|
|
(100.0
|
)%
|
Total other income (expense), net
|
|
|
(39.0
|
)
|
|
|
(14.6
|
)
|
|
|
(24.4
|
)
|
|
|
139.6
|
%
|
|
|
166.7
|
%
|
Net Income (loss) from continuing operations before income
taxes
|
|
|
(60.9
|
)
|
|
|
(35.7
|
)
|
|
|
(25.1
|
)
|
|
|
52.9
|
%
|
|
|
70.4
|
%
|
Income tax expense
|
|
|
0.4
|
|
|
|
(0.3
|
)
|
|
|
0.7
|
|
|
|
(205.8
|
)%
|
|
|
(225.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
(60.5
|
)
|
|
$
|
(36.0
|
)
|
|
$
|
(24.5
|
)
|
|
|
50.9
|
%
|
|
|
67.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange Rate - $ to £
|
|
|
1.39
|
|
|
|
1.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
Total
reported revenue for the six months ended June 30, 2021, decreased by $3.6 million, or 5.3%, to $64.3 million on a reported basis. This
included an increase from Interactive of $5.5 million, offset by declines in Gaming of $2.2 million, Virtual Sports of $0.9 million,
and Leisure of $6.0 million. Favorable currency movements accounted for a $5.5 million impact. On a functional currency (at constant
rate) basis, revenue decreased by $9.1 million, or 13.3%, as detailed below:
|
●
|
Gaming
revenue decreased by $4.3 million, comprised of a decrease in Service revenue of $3.8 million and a decrease in Product sales of
$0.6 million. The decrease in Service revenue includes VAT-related revenue of $2.9 million generated in the current period (using
prior year exchange rate). Excluding the VAT-related revenue, Service revenue would have declined by $6.7 million. This was primarily
due to the COVID-19 closures, which effected a longer closure during the period than during the comparable prior period.
|
|
●
|
Virtual
Sports revenue decreased by $2.2 million, or 14.5%. This decrease included a $2.9 million decrease in retail revenue primarily as
a result of the COVID-19 closures, particularly in the first quarter of 2021. This was partially offset by growth in Online Virtuals
of $0.6 million.
|
|
|
|
|
●
|
Interactive
revenue increased by $4.3 million, or 78.2%. This growth was driven by the addition of new customers and territories and the consistent
launch of new high-quality content
|
|
●
|
Leisure
revenue decreased by $7.0 million, comprised of a decrease in Service revenue of $6.7 million and a decrease in Product sales of
$0.3 million. The decline in revenue was due to the impact of the COVID-19 closures, as venues were closed during a longer portion
of the period than in the prior comparable period.
|
Cost
of sales, excluding depreciation and amortization
Cost
of sales, excluding depreciation and amortization, decreased by $1.5 million, or 8.4%, on a reported basis, to $16.0 million, including
the impact of $1.4 million from unfavorable currency movements. Of this decrease, $0.8 million was attributable to cost of Service and
$0.6 million was attributable to cost of Product sales. On a functional currency (at constant rate) basis, cost of sales decreased by
$2.8 million, or 16.2%, reflecting the revenue reductions resulting from the COVID-19 closures.
Selling,
general and administrative expenses
Selling,
general and administrative (“SG&A”) expenses remained unchanged from the prior year on a reported basis at $38.9 million.
This included $3.4 million of unfavorable currency movements. On a functional currency (at constant rate basis), SG&A decreased by
$3.7 million, or 9.3%. This decrease was driven primarily by permanent synergy and other savings.
Stock-based
compensation
During
the six months ended June 30, 2021, the Company recorded an expense of $4.8 million with respect to outstanding awards. Of this expense,
$1.9 million related to awards made under the 2021 Plan (including $1.4 million of upfront recognition) and $2.9 million related
to awards made under the 2018 Plan. During the six months ended June 30, 2020, the charge for stock-based compensation was $2.0 million.
Of this expense, $1.8 million related to awards made under the 2018 Plan and $0.2 million related to costs from awards made under a 2016
long term incentive plan.
Acquisition
and integration related transaction expenses
Acquisition
and integration related transaction expenses decreased by $2.9 million to $1.5 million on a reported basis. Both the 2021 and 2020 expenses
were primarily integration costs in relation to the NTG acquisition.
Depreciation
and amortization
Depreciation
and amortization decreased by $0.9 million, or 3.5%, to $25.0 million on a reported basis. This included the impact of unfavorable currency
movements of $2.3 million. On a functional currency (at constant rate) basis, depreciation and amortization decreased by $3.2 million,
or 12.4%, driven primarily by a decrease of $3.2 million in Gaming due to certain assets being fully written down.
Net
operating loss
During
the period, net operating loss was $21.9 million compared to a net operating loss of $21.1 million in the prior period. The increase
of $0.8 million in operating loss on a reported basis was attributable to a $2.2 million unfavorable impact from foreign currency
translation. On a functional currency (at constant rate) basis, net operating loss improved by $1.5 million, or 6.8%. This was attributable
to the cost savings across our Gaming, Virtual Sports and Leisure segments as well as the decrease in acquisition and integration related
transaction expenses. This was partly offset by the decrease of revenue driven by the COVID-19 closures.
Interest
expense
Net
interest expense increased by $16.6 million in the six months ended June 30, 2021, to $30.8 million, on a reported basis,
due to a $14.4 million write-off of capitalized debt fees on refinancing, a $2.1 million increase in debt interest due
to capitalization of debt interest in 2020 increasing debt levels and debt margin and $0.9 million exchange rate impact.
Change
in fair value of warrant liability
Change
in fair value of warrant liability for the six months ended June 30, 2021, resulted in a $13.5 million charge. This charge reflects the
increase in the value of the warrants, driven by increases in the Company’s share price from $6.58 on December 31st,
2020 to $12.75 on June 30th, 2021.For the six months ended June 30, 2020, the change in fair value resulted in a $5.9 million
credit.
Other
finance income
Other
finance income for the six months ended June 30, 2021, resulted in a $5.2 million credit compared to a $6.2 million charge in
the six months ended June 30, 2020. This variance was driven by movements in the retranslation with respect to the principal balance
of the senior debt facilities.
Income
tax expense
Our
effective tax rate for the period ended June 30, 2021, was (0.6%) and our effective tax rate for the period ended June 30, 2020, was
0.8%.
Net
loss
During
the period, net loss was $60.5 million compared to a net loss of $36.0 million in the prior period. On a functional currency (at constant
rate) basis, net loss increased by $18.6 million, primarily due to the decline in revenue, increase in interest expense and the
increase in change in fair value of warrant liability.
Six
Months ended June 30, 2021, compared to Six Months ended June 30, 2020 – Gaming Segment
Gaming
Segment, Key Performance Indicators
|
|
For the Six-Month Period ended
|
|
|
Variance
|
|
|
|
Unaudited
Jun 30,
|
|
|
Unaudited
Jun 30,
|
|
|
2021 vs 2020
|
|
Gaming
|
|
2021
|
|
|
2020
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period installed base (# of terminals)
|
|
|
32,203
|
|
|
|
32,325
|
|
|
|
(122
|
)
|
|
|
(0.4
|
)%
|
Total Gaming - Average installed base (# of terminals)
|
|
|
31,688
|
|
|
|
32,218
|
|
|
|
(530
|
)
|
|
|
(1.6
|
)%
|
Participation - Average installed base (# of terminals)
|
|
|
29,372
|
|
|
|
30,387
|
|
|
|
(1,015
|
)
|
|
|
(3.3
|
)%
|
Fixed Rental - Average installed base (# of terminals)
|
|
|
2,316
|
|
|
|
1,831
|
|
|
|
485
|
|
|
|
26.5
|
%
|
Service Only - Average installed base (# of terminals)
|
|
|
21,626
|
|
|
|
20,607
|
|
|
|
1,020
|
|
|
|
4.9
|
%
|
Customer Gross Win per unit per day (1) (2)
|
|
£
|
23.9
|
|
|
£
|
38.3
|
|
|
£
|
(14.4
|
)
|
|
|
(37.6
|
)%
|
Customer Net Win per unit per day (1) (2)
|
|
£
|
18.5
|
|
|
£
|
28.2
|
|
|
£
|
(9.7
|
)
|
|
|
(34.3
|
)%
|
Inspired Blended Participation Rate
|
|
|
6.0
|
%
|
|
|
6.6
|
%
|
|
|
(0.5
|
)%
|
|
|
(8.3
|
)%
|
Inspired Fixed Rental Revenue per Gaming Machine per week
|
|
£
|
9.7
|
|
|
£
|
21.2
|
|
|
£
|
(11.5
|
)
|
|
|
(54.4
|
)%
|
Inspired Service Rental Revenue per Gaming Machine per week
|
|
£
|
2.4
|
|
|
£
|
2.5
|
|
|
£
|
(0.0
|
)
|
|
|
(1.8
|
)%
|
Gaming Long term license amortization (£’m)
|
|
£
|
2.5
|
|
|
£
|
2.5
|
|
|
£
|
0.0
|
|
|
|
0.8
|
%
|
Number of Machine sales
|
|
|
878
|
|
|
|
1,198
|
|
|
|
(320
|
)
|
|
|
(26.7
|
)%
|
Average selling price per terminal
|
|
£
|
6,270
|
|
|
£
|
4,375
|
|
|
£
|
1,895
|
|
|
|
43.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes all SBG terminals in which the company takes a participation revenue share across all territories
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes
all Gaming terminals in which the company takes a participation revenue share across all territories
|
(2)
|
Includes
all days of the period, including the days during which the Gaming terminals were not operating due to COVID-19 closures.
|
Please
refer to our Annual Report on Form 10-K for the year ended December 31, 2020, for definitions of terms used in the above table.
Gaming
Segment, Recurring Revenue
Set
forth below is a breakdown of our Gaming recurring revenue. Gaming recurring revenue consists principally of Gaming participation revenue
and fixed rental revenue.
|
|
For the Six-Month Period ended
|
|
|
Variance
|
|
|
|
Unaudited
June 30,
|
|
|
Unaudited
June 30,
|
|
|
2021 vs 2020
|
|
(In £ millions)
|
|
2021
|
|
|
2020
|
|
|
|
|
|
%
|
|
Gaming Recurring Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gaming Revenue
|
|
£
|
19.4
|
|
|
£
|
22.8
|
|
|
£
|
(3.4
|
)
|
|
|
(14.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming Participation Revenue
|
|
£
|
6.2
|
|
|
£
|
10.3
|
|
|
£
|
(4.1
|
)
|
|
|
(39.8
|
)%
|
Gaming Other Fixed Fee Recurring Revenue
|
|
£
|
1.8
|
|
|
£
|
2.8
|
|
|
£
|
(0.9
|
)
|
|
|
(34.1
|
)%
|
Gaming Long-term license amortization
|
|
£
|
2.5
|
|
|
£
|
2.5
|
|
|
£
|
0.0
|
|
|
|
0.5
|
%
|
Total Gaming Recurring Revenue *
|
|
£
|
10.5
|
|
|
£
|
15.5
|
|
|
£
|
(5.0
|
)
|
|
|
(32.2
|
)%
|
Gaming Recurring Revenue as a % of Total Gaming Revenue †
|
|
|
54.2
|
%
|
|
|
68.1
|
%
|
|
|
(13.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gaming excluding VAT
|
|
£
|
17.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming Recurring Revenue as a % of Total Gaming Revenue (excluding VAT)
|
|
|
61.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Does
not reflect VAT-related revenue
|
†
|
Total
Gaming Revenue for the six-month period ended June 30, 2021, includes the £2.3 million for VAT-related revenue, which is not
reflected in Gaming Recurring Revenue for that period. Excluding VAT-related revenue, Gaming Recurring Revenue was 61.5% of Total
Gaming Revenue for such period.
|
Please
refer to our Annual Report on Form 10-K for the year ended December 31, 2020, for definitions of terms used in the above table.
Gaming
Segment, Service Revenue by Region
Set
forth below is a breakdown of our Gaming service revenue by geographic region. Gaming service revenue consists principally of Gaming
participation revenue, Gaming other fixed fee revenue, Gaming long term license amortization and Gaming other non-recurring revenue.
See “Gaming Segment Revenue” below for a discussion of gaming service revenue between the periods under review.
Gaming
Service Revenue by Region
|
|
For the Six-Month Period ended
|
|
|
|
|
|
|
|
(In millions)
|
|
Unaudited June 30,
2021
|
|
|
Unaudited June 30,
2020
|
|
|
Variance
2021 vs 2020
|
|
|
Total Functional Currency %
|
|
|
Total Variance %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK LBO
|
|
$
|
8.8
|
|
|
$
|
8.8
|
|
|
$
|
0.0
|
|
|
|
(8.5
|
)%
|
|
|
0.0
|
%
|
UK VAT - Related Income
|
|
|
3.1
|
|
|
|
-
|
|
|
$
|
3.1
|
|
|
|
N/A
|
|
|
|
N/A
|
|
UK Other
|
|
|
1.4
|
|
|
$
|
4.3
|
|
|
|
(2.9
|
)
|
|
|
(70.8
|
)%
|
|
|
(68.2
|
)%
|
Italy
|
|
|
0.3
|
|
|
$
|
0.9
|
|
|
|
(0.6
|
)
|
|
|
(70.6
|
)%
|
|
|
(68.1
|
)%
|
Greece
|
|
|
4.8
|
|
|
$
|
6.5
|
|
|
|
(1.6
|
)
|
|
|
(31.9
|
)%
|
|
|
(25.4
|
)%
|
Rest of the World
|
|
|
0.0
|
|
|
$
|
0.2
|
|
|
|
(0.2
|
)
|
|
|
(89.9
|
)%
|
|
|
(88.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Service revenue
|
|
$
|
18.4
|
|
|
$
|
20.7
|
|
|
$
|
(2.3
|
)
|
|
|
(18.3
|
)%
|
|
|
(11.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange Rate - $ to £
|
|
|
1.39
|
|
|
|
1.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Gaming
Segment, key events that affected results for the Six Months ended June 30, 2021
Total
Gaming Customer Gross Win per unit per day (in our functional currency, GBP) decreased by £14.39, or 37.6%, which was due to the
impact of COVID-19. During the six month period ended June 30, retail venues were in operation for approximately 35% in 2021, compared
to approximately 50% in 2020. The participation rate decreased from 6.6% to 6.0% primarily due to a higher proportion of UK venues operating
in 2021 when compared to the same quarter in 2020 as UK share terms are lower than the total blended Gaming average.
Inspired
received VAT-related revenue of $3.1 million in January 2021 from a major UK customer. This payment has been recorded as revenue in our
results.
During
the period, Inspired sold 111 “Valor™” terminals to a number of customers in Illinois, increasing the total number
of North American unit sales since launch in December 2019 to 540. Retail venues in Illinois were shut down during January 2021, which
negatively impacted sales during this period. As of February 2021, all eleven regions in Illinois had reopened.
During
the period, Inspired delivered our first sales to Western Canada Lottery Corporation (“WCLC”), our second jurisdiction in
North America. Inspired recorded the sale of 100 “Valor™” terminals to WCLC during March 2021, generating revenue of
$1.6 million.
Inspired
furthered its relationship with a major customer in the Dutch market with the sale and delivery of an additional 222 “Analogue”
terminals during the period.
In
the UK market, Inspired continued to upgrade the UK Gaming estate with the installation of over 220 “Flex” and 140 “Prismatic”
terminals through a combination of outright sales and lease agreements. These sales also include content agreements which deliver recurring
revenues for the next four to five years.
Six
Months ended June 30, 2021, compared to Six Months ended June 30, 2020 – Gaming Segment
|
|
For the Six-Month Period ended
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Unaudited June 30,
2021
|
|
|
Unaudited June 30,
2020
|
|
|
Variance
2021 vs 2020
|
|
|
Total Functional Currency %
|
|
|
Total Variance %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
$
|
18.4
|
|
|
$
|
20.7
|
|
|
$
|
(2.3
|
)
|
|
|
(18.3
|
)%
|
|
|
(11.1
|
)%
|
Product
|
|
|
8.6
|
|
|
|
8.4
|
|
|
|
0.1
|
|
|
|
(6.6
|
)%
|
|
|
1.7
|
%
|
Total revenue
|
|
|
27.0
|
|
|
|
29.1
|
|
|
|
(2.2
|
)
|
|
|
(14.9
|
)%
|
|
|
(7.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales, excluding depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Service
|
|
|
(4.2
|
)
|
|
|
(5.3
|
)
|
|
|
1.0
|
|
|
|
(26.7
|
)%
|
|
|
(20.0
|
)%
|
Cost of Product
|
|
|
(5.3
|
)
|
|
|
(5.6
|
)
|
|
|
0.3
|
|
|
|
(13.3
|
)%
|
|
|
(5.1
|
)%
|
Total cost of sales
|
|
|
(9.5
|
)
|
|
|
(10.9
|
)
|
|
|
1.3
|
|
|
|
(19.7
|
)%
|
|
|
(12.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
(10.8
|
)
|
|
|
(11.9
|
)
|
|
|
1.1
|
|
|
|
(17.2
|
)%
|
|
|
(9.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
(0.6
|
)
|
|
|
(0.2
|
)
|
|
|
(0.4
|
)
|
|
|
60.1
|
%
|
|
|
172.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(12.4
|
)
|
|
|
(14.4
|
)
|
|
|
2.0
|
|
|
|
(22.0
|
)%
|
|
|
(13.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating Income (Loss)
|
|
$
|
(6.3
|
)
|
|
$
|
(8.3
|
)
|
|
$
|
1.9
|
|
|
|
(33.4
|
)%
|
|
|
(23.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange Rate - $ to £
|
|
|
1.39
|
|
|
|
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.
Gaming
Segment Revenue
During
the period, Gaming revenue decreased by $2.2 million, or 7.4%, to $27.0 million on a reported basis. On a functional currency (at constant
rate) basis, Gaming revenue decreased by $4.3 million, or 14.9%. This was partially offset by favorable currency movements of $2.2 million.
Service
revenue decreased by $2.3 million on a reported basis. On a functional currency (at constant rate) basis, Gaming Service revenue decreased
by $3.8 million, or 18.3%, to $18.4 million. This was driven by a decline in UK sales (including LBO and UK other) of $3.8 million primarily
driven by the COVID-19 closures, with UK LBO having an additional three weeks of lockdown and a further four weeks at 50% capacity versus
the prior period and UK other being closed for an additional two months in the current period. Greece and Italy experienced revenue declines
of $2.1 million and $0.7 million, respectively, driven by the COVID-19 closures as both markets experienced additional three months of
additional lockdowns compared to the prior period. This was partially offset by $2.9 million of VAT-related revenue and favorable currency
movements of $1.5 million.
Product
revenue increased by $0.1 million to $8.6 million on a reported basis. On a functional currency (at constant rate) basis, revenue decreased
by $0.6 million, or 6.6%.
Gaming
Segment Operating Income
Operating
loss improved by $1.9 million on a reported basis, from a loss of $8.3 million to a loss of $6.3 million, including unfavorable currency
movements of $0.9 million On a functional currency (at constant rate) basis, Gaming operating loss improved by $2.9 million. This was
primarily due to the decrease in revenue, cost of sales, SG&A expenses driven by the COVID-19 closures, as well as a reduction in
depreciation particularly in UK LBO as certain assets have been fully written down.
Six
Months ended June 30, 2021, compared to Six Months ended June 30, 2020 – Virtual Sports Segment
Virtual
Sports Segment, Key Performance Indicators
|
|
For the Six-Month Period ended
|
|
|
Variance
|
|
|
|
Unaudited
Jun 30,
|
|
|
Unaudited
Jun 30,
|
|
|
2021 vs 2020
|
|
Virtuals
|
|
2021
|
|
|
2020
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No. of Live Customers at the end of the period
|
|
|
60
|
|
|
|
57
|
|
|
|
3
|
|
|
|
5.3
|
%
|
Average No. of Live Customers
|
|
|
59
|
|
|
|
57
|
|
|
|
2
|
|
|
|
3.8
|
%
|
Total Revenue (£’m)
|
|
£
|
10.4
|
|
|
£
|
12.2
|
|
|
£
|
(1.8
|
)
|
|
|
(14.5
|
)%
|
Total Revenue £’m - Retail
|
|
£
|
2.1
|
|
|
£
|
4.3
|
|
|
£
|
(2.2
|
)
|
|
|
(51.3
|
)%
|
Total Revenue £’m - Online Virtuals
|
|
£
|
8.3
|
|
|
£
|
7.9
|
|
|
£
|
0.4
|
|
|
|
5.7
|
%
|
Please
refer to our Annual Report on Form 10-K for the year ended December 31, 2020, for definitions of terms used in the above table.
Virtual
Sports Segment, Recurring Revenue
Set
forth below is a breakdown of our Virtual Sports recurring revenue.
|
|
For the Six-Month Period ended
|
|
|
Variance
|
|
|
|
Unaudited
June 30,
|
|
|
Unaudited
June 30,
|
|
|
2021 vs 2020
|
|
(In £ millions)
|
|
2021
|
|
|
2020
|
|
|
|
|
|
%
|
|
Virtual Sports Recurring Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Virtual Sports Revenue
|
|
£
|
10.4
|
|
|
£
|
12.2
|
|
|
£
|
(1.8
|
)
|
|
|
(14.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring Revenue - Retail Virtuals
|
|
£
|
1.9
|
|
|
£
|
3.7
|
|
|
£
|
(1.8
|
)
|
|
|
(48.0
|
)%
|
Recurring Revenue - Online Virtuals
|
|
£
|
8.1
|
|
|
£
|
7.1
|
|
|
£
|
1.0
|
|
|
|
14.5
|
%
|
Total Virtual Sports Long-term license amortization
|
|
£
|
0.3
|
|
|
£
|
0.7
|
|
|
£
|
(0.3
|
)
|
|
|
(50.9
|
)%
|
Total Virtual Sports Recurring Revenue
|
|
£
|
10.4
|
|
|
£
|
11.4
|
|
|
£
|
(1.1
|
)
|
|
|
(9.3
|
)%
|
Virtual Sports Recurring Revenue as a Percentage of Total Virtual Sports Revenue
|
|
|
99.4
|
%
|
|
|
93.7
|
%
|
|
|
5.7
|
%
|
|
|
|
|
Please
refer to our Annual Report on Form 10-K for the year ended December 31, 2020, for definitions of terms used in the above table.
Virtual
Sports Segment, key events that affected results for the Six Months ended June 30, 2021
During
the six months ended June 30, 2021, our key retail territories in the United Kingdom, Ireland, Italy, Greece, and Belgium were in full
lockdown due to the COVID-19 closures for the first quarter, with Greece reopening mid-April, the UK and Ireland opening mid-May and
a staged reopening in Italy throughout June. In the same period in the prior year only half of March 2020 was impacted by land-based
closures in the first quarter with Greece and Italy reopening in June 2020. All periods were affected by closures during the six months
ended June 30, 2021 whereas only three and a half months were affected during the six months ended June 30, 2020. In addition,
the six months ended June 30, 2021 was in recovery from the previous lockdown period. As a result, retail recurring revenues declined
by $2.4 million.
Six
Months ended June 30, 2021, compared to Six Months ended June 30, 2020 – Virtual Sports Segment
|
|
For the Six-Month Period ended
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Unaudited June 30,
2021
|
|
|
Unaudited June 30,
2020
|
|
|
Variance
2021 vs 2020
|
|
|
Total Functional Currency %
|
|
|
Total Variance %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Revenue
|
|
$
|
14.5
|
|
|
$
|
15.4
|
|
|
$
|
0.9
|
)
|
|
|
(14.5
|
)%
|
|
|
(5.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Service
|
|
|
(0.8
|
)
|
|
|
(1.5
|
)
|
|
|
0.7
|
|
|
|
(51.6
|
)%
|
|
|
(46.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
(3.8
|
)
|
|
|
(1.9
|
)
|
|
|
(1.9
|
)
|
|
|
71.4
|
%
|
|
|
98.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
|
|
-
|
|
|
|
45.0
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(1.8
|
)
|
|
|
(1.7
|
)
|
|
|
(0.1
|
)
|
|
|
0.5
|
%
|
|
|
5.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating Income (Loss)
|
|
$
|
7.9
|
|
|
$
|
10.1
|
|
|
$
|
(2.2
|
)
|
|
|
(29.1
|
)%
|
|
|
(21.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange Rate - $ to £
|
|
|
1.39
|
|
|
|
1.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
During
the period, revenue decreased by $0.9 million, or 5.7%, on a reported basis. This decrease included the impact of favorable currency
movements of $1.4 million. On a functional currency (at constant rate) basis, revenue decreased by $2.2 million, or 14.5%. This decrease
was driven by a $2.9 million decrease in retail revenue due to the COVID-19 closures and a decline of $0.5 million from historical license
fee amortization contracts reaching their expiration. This decline was partially offset by growth in recurring Online Virtuals of $1.4
million. Online revenues continue to be significantly higher than pre Covid levels.
Virtual
Sports Segment operating income
Operating
profit decreased by $2.2 million on a reported basis which included the impact of favorable currency movements of $0.8 million.
On a functional currency (at constant rate) basis operating profit decreased by $3.0 million. This was primarily due to the decrease
in revenues and cost of sales resulting from COVID-19 closures and the increase in SG&A from the settlement with the Italian Tax
Authorities.
Six
Months ended June 30, 2021, compared to Six Months ended June 30, 2020 – Interactive Segment
Interactive
Segment, Key Performance Indicators
|
|
For the Six-Month Period ended
|
|
|
Variance
|
|
|
|
Unaudited
Jun 30,
|
|
|
Unaudited
Jun 30,
|
|
|
2021 vs 2020
|
|
Interactive
|
|
2021
|
|
|
2020
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No. of Live Customers at the end of the period
|
|
|
100
|
|
|
|
70
|
|
|
|
30
|
|
|
|
42.9
|
%
|
Average No. of Live Customers
|
|
|
96
|
|
|
|
67
|
|
|
|
29
|
|
|
|
43.3
|
%
|
No. of Live Games at the end of the period
|
|
|
218
|
|
|
|
189
|
|
|
|
29
|
|
|
|
15.3
|
%
|
Average No. of Live Games
|
|
|
211
|
|
|
|
186
|
|
|
|
25
|
|
|
|
13.4
|
%
|
Total Revenue (£’m)
|
|
£
|
7.9
|
|
|
£
|
4.4
|
|
|
£
|
3.5
|
|
|
|
78.2
|
%
|
Please
refer to our Annual Report on Form 10-K for the year ended December 31, 2020, for definitions of terms used in the above table.
Interactive
Segment, Recurring Revenue
Set
forth below is a breakdown of our Interactive recurring revenue which consists principally of Interactive participation revenue. See
“Interactive Segment Revenue” below for a discussion of Interactive service revenue between the periods under review.
|
|
For the Six-Month Period ended
|
|
|
Variance
|
|
|
|
Unaudited
June 30,
|
|
|
Unaudited
June 30,
|
|
|
2021 vs 2020
|
|
(In £ millions)
|
|
2021
|
|
|
2020
|
|
|
|
|
|
%
|
|
Interactive Recurring Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interactive Revenue
|
|
£
|
7.9
|
|
|
£
|
4.4
|
|
|
£
|
3.5
|
|
|
|
78.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Recurring Revenue - Interactive
|
|
£
|
7.9
|
|
|
£
|
4.4
|
|
|
£
|
3.5
|
|
|
|
79.2
|
%
|
Interactive Recurring Revenue as a Percentage of Total Interactive Revenue
|
|
|
100.0
|
%
|
|
|
99.4
|
%
|
|
|
0.6
|
%
|
|
|
|
|
Interactive
Segment, key events that affected results for the Six Months ended June 30, 2021
There
were sixteen new brand launches including BetMGM in New Jersey and Michigan, Golden Nugget in Michigan, Gamesys and Interwetten. We also
launched with our first new operators in Spain, Luckia and 888.
We
deployed twenty-nine new games in the period across the estate including Vegas Cash Spins, Fruity Bonanza Scatterdrops (both of
which were developed with brand new game mechanics), Big Spin Bonus and Cops and Robbers Megaways.
Six
Months ended June 30, 2021, compared to Six Months ended June 30, 2020 – Interactive Segment
|
|
For the Six-Month Period ended
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Unaudited June 30,
2021
|
|
|
Unaudited June 30,
2020
|
|
|
Variance
2021 vs 2020
|
|
|
Total Functional Currency %
|
|
|
Total Variance %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Revenue
|
|
$
|
11.0
|
|
|
$
|
5.5
|
|
|
$
|
5.5
|
|
|
|
78.2
|
%
|
|
|
98.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Service
|
|
|
(1.7
|
)
|
|
|
(0.6
|
)
|
|
|
(1.1
|
)
|
|
|
141.9
|
%
|
|
|
168.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
(2.3
|
)
|
|
|
(1.8
|
)
|
|
|
(0.5
|
)
|
|
|
23.7
|
%
|
|
|
28.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
(0.2
|
)
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
103.1
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(1.6
|
)
|
|
|
(1.2
|
)
|
|
|
(0.4
|
)
|
|
|
20.6
|
%
|
|
|
33.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating Income (Loss)
|
|
$
|
5.2
|
|
|
$
|
1.8
|
|
|
$
|
3.4
|
|
|
|
141.3
|
%
|
|
|
185.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange Rate - $ to £
|
|
|
1.39
|
|
|
|
1.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Interactive
Segment revenue
During
the period, revenue increased by $5.5 million, or 98.5%, on a reported basis. On a functional currency (at constant rate) basis, revenue
increased by $4.3 million, or 78.2%. This was driven by recurring revenue growth due to the increase in online demand attributable to
the addition of new customers and territories and the consistent launch of quality content.
Interactive
Segment operating income
Operating
profit increased by $3.4 million on a reported basis. On a functional currency (at constant rate) basis operating profit increased by
$2.7 million. This was primarily due to the increase in revenue, partly offset by the increase in cost of sales from third party royalty
costs and increase in SG&A expenses from driven by the investment in Interactive to help increase revenues.
Six
Months ended June 30, 2021, compared to Six Months ended June 30, 2020 – Leisure Segment
Leisure
segment, Key Performance Indicators
|
|
For the Six-Month Period ended
|
|
|
Variance
|
|
|
|
Unaudited
Jun 30,
|
|
|
Unaudited
Jun 30,
|
|
|
2021 vs 2020
|
|
Leisure
|
|
2021
|
|
|
2020
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period installed base Gaming machines (# of terminals)
|
|
|
11,723
|
|
|
|
12,262
|
|
|
|
(539
|
)
|
|
|
(4.4
|
)%
|
Average installed base Gaming machines (# of terminals)
|
|
|
11,655
|
|
|
|
12,271
|
|
|
|
(617
|
)
|
|
|
(5.0
|
)%
|
End of period installed base Other (# of terminals)
|
|
|
7,244
|
|
|
|
8,224
|
|
|
|
(980
|
)
|
|
|
(11.9
|
)%
|
Average installed base Other (# of terminals)
|
|
|
7,190
|
|
|
|
8,252
|
|
|
|
(1,062
|
)
|
|
|
(12.9
|
)%
|
Pub Digital Gaming Machines - Average installed base (# of terminals)
|
|
|
5,848
|
|
|
|
5,759
|
|
|
|
88
|
|
|
|
1.5
|
%
|
Pub Analogue Gaming Machines - Average installed base (# of terminals)
|
|
|
2,234
|
|
|
|
2,714
|
|
|
|
(480
|
)
|
|
|
(17.7
|
)%
|
MSA and Bingo Gaming Machines - Average installed base (# of terminals)(1)
|
|
|
3,316
|
|
|
|
3,514
|
|
|
|
(198
|
)
|
|
|
(5.6
|
)%
|
Inspired Leisure Revenue per Gaming Machine per week
|
|
£
|
12.2
|
|
|
£
|
26.8
|
|
|
£
|
(14.6
|
)
|
|
|
(54.5
|
)%
|
Inspired Pub Digital Revenue per Gaming Machine per week
|
|
£
|
13.1
|
|
|
£
|
30.1
|
|
|
£
|
(17.0
|
)
|
|
|
(56.6
|
)%
|
Inspired Pub Analogue Revenue per Gaming Machine per week
|
|
£
|
6.5
|
|
|
£
|
19.1
|
|
|
£
|
(12.6
|
)
|
|
|
(65.9
|
)%
|
Inspired MSA and Bingo Revenue per Gaming Machine per week
|
|
£
|
15.0
|
|
|
£
|
28.4
|
|
|
£
|
(13.4
|
)
|
|
|
(47.2
|
)%
|
Inspired Other Revenue per Machine per week
|
|
£
|
2.3
|
|
|
£
|
9.5
|
|
|
£
|
(7.1
|
)
|
|
|
(75.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Leisure Parks Revenue (Gaming and Non Gaming) (£’m)
|
|
£
|
3.3
|
|
|
£
|
0.9
|
|
|
£
|
2.4
|
|
|
|
285
|
%
|
(1)
|
Motorway
Service Area machines
|
Please
refer to our Annual Report on Form 10-K for the year ended December 31, 2020, for definitions of terms used in the above table.
Leisure
Segment, Recurring Revenue
Set
forth below is a breakdown of our Leisure recurring revenue which consists principally of Leisure participation revenue and Leisure other
fixed fee revenue. See “Leisure Segment Revenue” below for a discussion of leisure service revenue between the periods under
review.
Set
forth below is a breakdown of our Leisure recurring revenue.
|
|
For the Six-Month Period ended
|
|
|
Variance
|
|
|
|
Unaudited
June 30,
|
|
|
Unaudited
June 30,
|
|
|
2021 vs 2020
|
|
(In £ millions)
|
|
2021
|
|
|
2020
|
|
|
|
|
|
%
|
|
Leisure Recurring Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Leisure Revenue
|
|
£
|
8.4
|
|
|
£
|
13.8
|
|
|
£
|
(5.4
|
)
|
|
|
(39.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Leisure Recurring Revenue
|
|
£
|
7.6
|
|
|
£
|
12.8
|
|
|
£
|
(5.1
|
)
|
|
|
(40.2
|
)%
|
Leisure Recurring Revenue as a Percentage of Total Leisure Revenue
|
|
|
90.4
|
%
|
|
|
92.2
|
%
|
|
|
(1.8
|
%)
|
|
|
|
|
Leisure
Segment, key events that affected results for the Six Months ended June 30, 2021
From
Jan 1, 2021, to May 17, 2021, all major sectors of the Leisure segment (Pubs, Holiday Parks, Motorway Service Areas and Bingo Halls)
remained closed due to the COVID-19 closures in the UK.
From
May 17, 2021, venues reopened with social distancing and certain other restrictions imposed. These restrictions remained in place for
the remainder of the period.
Six
Months ended June 30, 2021, compared to Six Months ended June 30, 2020 – Leisure Segment
|
|
For the Six-Month Period ended
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Unaudited June 30,
2021
|
|
|
Unaudited June 30,
2020
|
|
|
Variance
2021 vs 2020
|
|
|
Total Functional Currency %
|
|
|
Total Variance %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
$
|
10.7
|
|
|
$
|
16.5
|
|
|
$
|
(5.7
|
)
|
|
|
(40.3
|
)%
|
|
|
(34.9
|
)%
|
Product
|
|
|
1.1
|
|
|
|
1.4
|
|
|
|
(0.3
|
)
|
|
|
(23.3
|
)%
|
|
|
(20.0
|
)%
|
Total revenue
|
|
|
11.8
|
|
|
|
17.9
|
|
|
|
(6.0
|
)
|
|
|
(39.0
|
)%
|
|
|
(33.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales, excluding depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Service
|
|
|
(3.4
|
)
|
|
|
(3.6
|
)
|
|
|
0.2
|
|
|
|
(12.5
|
)%
|
|
|
(4.4
|
)%
|
Cost of Product
|
|
|
(0.6
|
)
|
|
|
(0.9
|
)
|
|
|
0.4
|
|
|
|
(44.4
|
)%
|
|
|
(40.0
|
)%
|
Total cost of sales
|
|
|
(4.0
|
)
|
|
|
(4.5
|
)
|
|
|
0.5
|
|
|
|
(19.1
|
)%
|
|
|
(11.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
(11.4
|
)
|
|
|
(13.6
|
)
|
|
|
2.2
|
|
|
|
(24.0
|
)%
|
|
|
(16.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
(0.2
|
)
|
|
|
(0.0
|
)
|
|
|
(0.2
|
)
|
|
|
208.9
|
%
|
|
|
445.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(8.3
|
)
|
|
|
(7.8
|
)
|
|
|
(0.5
|
)
|
|
|
(3.4
|
)%
|
|
|
7.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating Income (Loss)
|
|
|
(12.1
|
)
|
|
|
(8.0
|
)
|
|
$
|
(4.1
|
)
|
|
|
30.6
|
%
|
|
|
50.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange Rate - $ to £
|
|
|
1.40
|
|
|
|
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.
Leisure
Segment Revenue
During
the period, revenue decreased by $6.0 million, or 33.7%, to $11.8 million on a reported basis. On a functional currency (at constant
rate) basis, revenue decreased by $7.0 million, or 39.0%.
Service
revenue decreased by $5.7 million on a reported basis to $10.7 million. This included an adverse currency impact of $0.9 million. On
a functional currency (at constant rate) basis service revenue decreased by $6.7 million. This was driven by the COVID-19 closures, with
all of the major sectors of the Leisure segment experiencing closures for a portion of the period as well as social distancing restrictions
once they had reopened.
Leisure
Segment Operating Income
Operating
loss increased by $4.1 million on a reported basis from a loss of $8.0 million to a loss of $12.1 million, which included
the impact of unfavorable currency movements of $1.4 million. On a functional currency (at constant rate) basis operating loss
increased by $2.6 million. This was primarily due to the decrease in revenue, offset by cost of sales and SG&A savings all
driven by COVID-19 closures.
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 discussed 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.
Reconciliation
to Adjusted EBITDA by segment for the Three Months ended June 30, 2021
|
|
For
the Three-Month Period ended
|
|
|
|
Unaudited
|
|
(In millions)
|
|
June
30, 2021
|
|
|
|
|
|
|
|
|
|
Virtual
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Gaming
|
|
|
Sports
|
|
|
Interactive
|
|
|
Leisure
|
|
|
Corporate
|
|
Net Income/ (loss)
|
|
$
|
(43.8
|
)
|
|
$
|
(2.7
|
)
|
|
$
|
4.2
|
|
|
$
|
2.6
|
|
|
$
|
(4.4
|
)
|
|
$
|
(43.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items Relating to Legacy Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension charges (1)
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items outside the normal course of business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of group restructure
(2)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Acquisition and integration related transaction expenses
(3)
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
Refinancing of Company Debt (4)
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.8
|
|
Italian tax related costs relating to prior years (5)
|
|
|
1.4
|
|
|
|
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
3.4
|
|
|
|
0.4
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
11.9
|
|
|
|
5.8
|
|
|
|
0.7
|
|
|
|
0.9
|
|
|
|
4.1
|
|
|
|
0.4
|
|
Interest Income
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
Interest Expense
|
|
|
22.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22.2
|
|
Change in fair value of warrant liability
|
|
|
10.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.5
|
|
Other finance expenses / (income)
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.2
|
|
Income tax
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
Adjusted EBITDA
|
|
$
|
8.0
|
|
|
$
|
3.5
|
|
|
$
|
6.4
|
|
|
$
|
3.6
|
|
|
$
|
(0.2
|
)
|
|
$
|
(5.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
£
|
5.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange Rate - $ to £ (5)
|
|
|
1.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note:
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, these are shown in the Corporate category.
Reconciliation
to Adjusted EBITDA by segment for the Three Months ended June 30, 2020
|
|
For
the Three-Month Period ended
|
|
(In
millions)
|
|
Unaudited
June 30, 2020
|
|
|
|
|
|
|
|
|
|
Virtual
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Gaming
|
|
|
Sports
|
|
|
Interactive
|
|
|
Leisure
|
|
|
Corporate
|
|
Net Income/ (loss)
|
|
$
|
(26.2
|
)
|
|
$
|
(7.1
|
)
|
|
$
|
5.1
|
|
|
$
|
1.7
|
|
|
$
|
(7.0
|
)
|
|
$
|
(18.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items Relating to Legacy Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension charges (1)
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items outside the normal course of business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of group restructure
(2)
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
Acquisition and integration related transaction
expenses (3)
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
1.0
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.0
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
13.3
|
|
|
|
7.0
|
|
|
|
0.9
|
|
|
|
0.6
|
|
|
|
4.4
|
|
|
|
0.4
|
|
Interest Income
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
Interest Expense
|
|
|
8.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.1
|
|
Change in fair value of warrant liability
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.7
|
|
Other finance expenses / (income)
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.5
|
|
Income tax
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
Adjusted EBITDA
|
|
$
|
2.1
|
|
|
$
|
(0.0
|
)
|
|
$
|
6.1
|
|
|
$
|
2.4
|
|
|
$
|
(2.6
|
)
|
|
$
|
(3.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
£
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange Rate - $ to £ (5)
|
|
|
1.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Adjusted EBITDA by segment for the Six Months ended June 30, 2021
|
|
For the Six-Month Period ended
|
|
(In millions)
|
|
Unaudited
June 30, 2021
|
|
|
|
|
|
|
|
|
|
Virtual
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Gaming
|
|
|
Sports
|
|
|
Interactive
|
|
|
Leisure
|
|
|
Corporate
|
|
Net Income/ (loss)
|
|
$
|
(60.5
|
)
|
|
$
|
(6.3
|
)
|
|
$
|
7.9
|
|
|
$
|
5.2
|
|
|
$
|
(12.1
|
)
|
|
$
|
(55.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items Relating to Legacy Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension charges (1)
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items outside the normal course of business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of group restructure (2)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Acquisition and integration related transaction expenses (3)
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.5
|
|
Refinancing of Company Debt (4)
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.8
|
|
Italian tax related costs relating to prior years (5)
|
|
|
1.4
|
|
|
|
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Impairment on interest in equity method investee(6)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
4.8
|
|
|
|
0.6
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
25.0
|
|
|
|
12.4
|
|
|
|
1.8
|
|
|
|
1.6
|
|
|
|
8.3
|
|
|
|
0.9
|
|
Interest Income
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
Interest Expense
|
|
|
30.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30.8
|
|
Change in fair value of warrant liability
|
|
|
13.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.5
|
|
Other finance expenses / (income)
|
|
|
(5.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5.2
|
)
|
Income tax
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.4
|
)
|
Adjusted EBITDA
|
|
$
|
11.9
|
|
|
$
|
6.7
|
|
|
$
|
11.3
|
|
|
$
|
7.0
|
|
|
$
|
(3.6
|
)
|
|
$
|
(9.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
£
|
8.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange Rate - $ to £ (5)
|
|
|
1.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note:
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, these are shown in the Corporate category.
Reconciliation
to Adjusted EBITDA by segment for the Six Months ended June 30, 2020
|
|
For the Six-Month Period ended
|
|
(In millions)
|
|
Unaudited
June 30, 2020
|
|
|
|
|
|
|
|
|
|
Virtual
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Gaming
|
|
|
Sports
|
|
|
Interactive
|
|
|
Leisure
|
|
|
Corporate
|
|
Net Income/ (loss)
|
|
$
|
(36.0
|
)
|
|
$
|
(8.3
|
)
|
|
$
|
10.1
|
|
|
$
|
1.8
|
|
|
$
|
(8.0
|
)
|
|
$
|
(31.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items Relating to Legacy Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension charges (1)
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items outside the normal course of business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of group restructure (2)
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
Acquisition and integration related transaction expenses (3)
|
|
|
4.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.4
|
|
Impairment on interest in equity method investee(6)
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
2.0
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
0.0
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
25.9
|
|
|
|
14.4
|
|
|
|
1.7
|
|
|
|
1.2
|
|
|
|
7.8
|
|
|
|
0.8
|
|
Interest Income
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.4
|
)
|
Interest Expense
|
|
|
14.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.2
|
|
Change in fair value of warrant liability
|
|
|
(5.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5.9
|
)
|
Other finance expenses / (income)
|
|
|
6.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.2
|
|
Income tax
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
Adjusted EBITDA
|
|
$
|
12.1
|
|
|
$
|
6.3
|
|
|
$
|
12.0
|
|
|
$
|
3.1
|
|
|
$
|
(0.2
|
)
|
|
$
|
(9.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
£
|
9.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange Rate - $ to £ (5)
|
|
|
1.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
to Adjusted EBITDA reconciliation tables above:
(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
May 2021, the Company refinanced its debt. These are the one-off fees as a result of the refinance.
|
|
|
(5)
|
“Italian
tax related costs relating to prior years invoicing” relate to a settlement with the Italian Tax Authorities in respect
of an audit of the Italian Branch of Inspired Gaming (International) Limited for the period 2015-2017 in respect of the historic
VAT treatment of supplies.
|
|
|
(6)
|
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.
|
(7)
|
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, 2021 compared to Six Months ended June 30, 2020
|
|
6 Months ended
|
|
Variance
|
(in millions)
|
|
Jun 30,
|
|
Jun 30,
|
|
|
|
|
2021
|
|
2020
|
|
2021 to 2020
|
Net loss
|
|
$
|
(60.5
|
)
|
|
$
|
(36.0
|
)
|
|
$
|
(24.5
|
)
|
Amortization of debt fees
|
|
|
16.3
|
|
|
|
1.2
|
|
|
|
15.1
|
|
Change in fair value of derivative and warrant liabilities and stock-based compensation expense
|
|
|
19.3
|
|
|
|
(3.4
|
)
|
|
|
22.7
|
|
Impairment expense
|
|
|
0.0
|
|
|
|
0.7
|
|
|
|
(0.7
|
)
|
Foreign currency translation on senior bank debt and cross currency swaps
|
|
|
(4.6
|
)
|
|
|
6.6
|
|
|
|
(11.2
|
)
|
Depreciation and amortization (incl RoU assets)
|
|
|
26.2
|
|
|
|
27.9
|
|
|
|
(1.7
|
)
|
Other net cash (utilized)/generated by operating activities
|
|
|
(9.5
|
)
|
|
|
13.2
|
|
|
|
(22.7
|
)
|
Net cash (used)/provided by operating activities
|
|
|
(12.8
|
)
|
|
|
10.2
|
|
|
|
(23.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(12.2
|
)
|
|
|
(15.5
|
)
|
|
|
3.3
|
|
Net cash generated/(used) by financing activities
|
|
|
1.0
|
|
|
|
18.6
|
|
|
|
(17.6
|
)
|
Effect of exchange rates on cash
|
|
|
1.4
|
|
|
|
(2.5
|
)
|
|
|
3.9
|
|
Net (decrease)/increase in cash and cash equivalents
|
|
$
|
(22.6
|
)
|
|
$
|
10.8
|
|
|
$
|
(33.4
|
)
|
Net
cash (used)/provided by operating activities
For
the six months ended June 30, 2021, net cash outflow used by operating activities was $12.8 million, compared to a $10.2 million
inflow for the six months ended June 30, 2020, representing a $23.0 million decrease in cash generation driven by COVID-19 related
closures and interest expense timing differences resulting in payments of $17.5 million compared to $0.4 million in the prior period.
In addition, a larger VAT payment made in the three months ended March 31, 2021 resulted in an $7.7 million higher outflow compared to
the prior period.
Amortization
of debt fees increased by $15.1 million to $16.3 million due to the write-off in May 2021 of capitalized debt fees totaling $14.4
million following the Company refinancing. The remainder of the current year’s non-cash interest expense related to amortization
of debt fees incurred in relation to the business refinancing in October 2019 up to the refinancing. Post refinancing the amortization
of debt fees related to those incurred and capitalized as part of the May 2021 refinancing. The prior year’s non-cash interest
expense related to amortization of debt fees incurred in relation to the business refinancing in October 2019.
Change
in fair value of derivative and warrant liabilities and stock-based compensation expense increased by $22.7 million, from an outflow
of $3.4 million to an inflow of $19.3 million. Movements in the fair valuation of warrant liabilities increased the inflow by $19.3 million,
$2.8 million related to stock-based compensation expense and $0.4 million related to the movement in cross-currency swaps.
Foreign
currency translation on senior bank debt and cross currency swaps resulted in a loss in the six months ended June 30, 2021 of $4.6
million as a result of the movement in exchange rates during the period, compared to a $6.6 million gain in the six months ended
June 30, 2020.
Depreciation
and amortization decreased by $1.7 million to $26.2 million with reductions of a $1.5 million in amortization of intangible assets, $0.5
million in machine depreciation and $0.7 million relating to the amortization of Right of Use assets under ASC 842 offset through an
increase of $1.0 million in development costs and licenses amortization.
Other
net cash utilized by operating activities decreased by $22.7 million, to a $9.5 million outflow following the significant impact of the
COVID-19 closures. Movements in other creditor levels resulted in a $13.2 million higher outflow in the six months ended June
30, 2021 which was largely due to the different timing of interest payments becoming payable following the refinancing in May 2021. A
high tax accrual level at the start of 2021 resulted in a net $6.8 million adverse movement in the six months ended June 30, 2021. Further
adverse movements were also seen on deferred revenue creditors ($3.2 million) and accounts receivable ($4.8 million), caused by the variability
of trading levels caused by COVID-19, partly offset by improved inventory ($4.8 million). Many of the operating activity movements were
impacted by the COVID-19 closures, however, throughout the period, management have actively managed cash levels to seek to optimize our
liquidity position.
Net
cash used in investing activities
Net
cash used in investing activities decreased by $3.3 million to $12.2 million in the six months ended June 30, 2021, with lower spend
on gaming machines as a result of the COVID-19 closures.
Net
cash generated by financing activities
During
the six months ended June 30, 2021, net cash generated by financing activities was an inflow of $1.0 million, compared to a $18.6
million inflow in the six months ended June 30, 2020. The inflow in the six months ended June 30, 2021 related to the net movement from
the May 2021 refinancing. During the six months ended June 30, 2020, an increase in the amount drawn on the revolver provided a $22.3
million inflow which was partly offset by $3.1 million of debt fees incurred.
Funding
Needs and Sources
To
fund our obligations we have relied historically 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, 2021, we had liquidity of $24.5 million in cash and cash equivalents
and a further $27.6 million of an undrawn revolver facility. This compares to $39.9 million of cash and cash equivalents as of
June 30, 2020 but $24.7 million drawn on the revolver facility. We had a working capital outflow of $9.5 million for the six months
ended June 30, 2021, compared to an $13.2 million inflow for the six months ended June 30, 2020. The level of our working capital surplus
or deficit varies with the level of machine production we are undertaking and our capitalization as well as the seasonality evident in
some of the businesses purchased as part of the NTG Acquisition. 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 which have been seen during 2020 and 2021 following
the COVID-19 closures, 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, 2021, $4.6 million of our $24.5 million
of cash and cash equivalents were held as operational floats within the machines.
Management
currently believes that despite the reduced trading levels caused by the COVID-19 closures, the Company’s cash balances on hand,
cash flows expected to be generated from operations, and the ability to control and defer capital projects will be sufficient to fund
the Company’s net cash requirements through August 2022.
Long
Term and Other Debt
See
Note 4 Long Term and Other Debt of the Financial Statements for detail of the debts held during 2020 and 2021.
Debt
Covenants
Under
our debt facilities in place as of June 30, 2021 we are not subject to covenant testing on the Senior Secured Notes. We are, however,
subject to covenant testing at the level of Inspired Entertainment Inc., the ultimate holding company, on our Super Senior Revolving
Credit Facility which requires the Company to maintain a maximum consolidated senior secured net leverage ratio of 6.25x on the test
date for the relevant period ending June 30, 2021, stepping down to 6.0x on March 31, 2022, 5.75x on March 31, 2023 and 5.50x from March
31, 2024 and thereafter (the “RCF Financial Covenant”). The RCF Financial Covenant is calculated as the ratio of consolidated
senior secured net debt to consolidated pro forma EBITDA (defined as net loss excluding depreciation and amortization, interest expense,
interest income and income tax expense) for the 12-month period preceding the relevant quarterly testing date and is tested quarterly
on a rolling basis, subject to the Initial Facility (as defined in the RCF Agreement) being drawn on the relevant test date. The RCF
Financial Covenant does not include a minimum interest coverage ratio or other financial covenants. As the RCF has never been drawn at
any point since being in place, no covenant testing was required at June 30, 2021.
Under
our debt facilities in place as of June 30, 2020 we are subject to covenant testing on the Senior Secured Notes. 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
was tested at quarterly intervals commencing for the period ending June 30, 2020 and capital expenditure was 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 COVID-19 closures and
subsequent loss of trading 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.
There
were no breaches of the debt covenants in the periods ended June 30, 2021 and June 30, 2020.
Liens
and Encumbrances
As
of June 30, 2021, 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, 2021, our contractual obligations were as follows:
|
|
|
|
Less than
|
|
|
|
|
|
More than
|
Contractual Obligations (in millions)
|
|
Total
|
|
1 yr
|
|
1-3 years
|
|
3-5 years
|
|
5 yrs
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on long term debt
|
|
$
|
128.8
|
|
|
$
|
26.3
|
|
|
$
|
51.2
|
|
|
$
|
51.2
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior bank debt - principal repayment
|
|
|
324.7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
324.7
|
|
|
|
-
|
|
Finance lease payments
|
|
|
1.9
|
|
|
|
0.9
|
|
|
|
0.6
|
|
|
|
0.4
|
|
|
|
-
|
|
Operating lease payments
|
|
|
11.6
|
|
|
|
3.6
|
|
|
|
3.8
|
|
|
|
2.1
|
|
|
|
2.2
|
|
Interest on non-utilization fees
|
|
|
1.8
|
|
|
|
0.4
|
|
|
|
0.8
|
|
|
|
0.6
|
|
|
|
-
|
|
Total
|
|
$
|
468.8
|
|
|
$
|
31.3
|
|
|
$
|
56.3
|
|
|
$
|
379.1
|
|
|
$
|
2.2
|
|
Off-Balance
Sheet Arrangements
As
of June 30, 2021, 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.