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 unaudited condensed consolidated financial statements.
INSPIRED
ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in
millions, except share and per share data)
(Unaudited)
(1) |
Excluding depreciation
and amortization |
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
INSPIRED
ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
THREE
MONTHS ENDED MARCH 31, 2023
(in
millions, except share data)
(Unaudited)
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
INSPIRED
ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
THREE
MONTHS ENDED MARCH 31, 2022
(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 December 31, 2021 | |
| 26,433,562 | | |
| — | | |
| 372.3 | | |
| 43.8 | | |
| (494.1 | ) | |
| (78.0 | ) |
Balance | |
| 26,433,562 | | |
| — | | |
| 372.3 | | |
| 43.8 | | |
| (494.1 | ) | |
| (78.0 | ) |
Foreign currency translation adjustments | |
| — | | |
| — | | |
| — | | |
| 2.4 | | |
| — | | |
| 2.4 | |
Actuarial gains on pension plan | |
| — | | |
| — | | |
| — | | |
| 0.7 | | |
| — | | |
| 0.7 | |
Reclassification of loss on hedging instrument to comprehensive income | |
| — | | |
| — | | |
| — | | |
| 0.2 | | |
| — | | |
| 0.2 | |
Issuances under stock plans | |
| 447,060 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Stock-based compensation expense | |
| — | | |
| — | | |
| 2.7 | | |
| — | | |
| — | | |
| 2.7 | |
Net income | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1.5 | | |
| 1.5 | |
Balance as of March 31, 2022 | |
| 26,880,622 | | |
$ | — | | |
$ | 375.0 | | |
$ | 47.1 | | |
$ | (492.6 | ) | |
$ | (70.5 | ) |
Balance | |
| 26,880,622 | | |
$ | — | | |
$ | 375.0 | | |
$ | 47.1 | | |
$ | (492.6 | ) | |
$ | (70.5 | ) |
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
INSPIRED
ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in
millions)
(Unaudited)
The
accompanying notes are an integral part of these unaudited 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, gaming terminals 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 March 31, 2023, the Company’s cash on hand was $27.8
million, and the Company had working capital in addition to cash of $27.4
million. The Company recorded a net loss of $0.2
million and net income of $1.5
million for the three months ended March 31, 2023 and 2022, respectively. Net income/losses include non-cash stock-based
compensation of $2.9
million and $2.8
million for the three months ended March 31, 2023 and 2022, respectively. Historically, the Company has generally had positive cash
flows from operating activities and has relied on a combination of cash flows provided by operations and the incurrence of debt
and/or the refinancing of existing debt to fund its obligations. Cash flows provided by operations amounted to $14.8
million and $5.1
million for the three months ended March 31, 2023 and 2022, respectively. The change year on year was due primarily to improved
working capital levels, with the three months ended March 31, 2023 benefitting from favorable receipts due to the timing of sales,
and the three months ended March 31, 2022 showing significant inventory increases after the Company made the strategic decision to
secure components and protect sales in a challenging global supply chain market. Working capital of $55.2
million includes a non-cash settled item of $5.1 million of deferred income. Management currently believes that, absent any long-term coronavirus (“COVID-19”)
impact (see below), the Company’s cash balances on hand, cash flows expected to be generated from operations, ability to
control and defer capital projects and amounts available from the Company’s external borrowings will be sufficient to fund the
Company’s net cash requirements through May 2024.
There
have been no COVID-19 restrictions in the United Kingdom since July 2021 and social distancing measures throughout Greece and Italy are
no longer in force as of the second quarter of 2022. There have been no COVID-19 restrictions in the United States and social distancing
measures are no longer in force. While states have varying requirements based on occupation, no mandates related to, or would prohibit,
our normal business operations.
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, 2022 and 2021. The financial information as of December 31, 2022
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 16, 2023. The interim results for the three months ended March 31, 2023 are not necessarily indicative of the results
to be expected for the year ending December 31, 2023 or for any future interim periods.
Newly
Adopted Accounting Standards
On
January 1, 2023, the Company adopted Topic 326 Financial Instruments – Credit Losses (“ASC 326”). ASC 326 affects loans,
debt securities, trade receivables, and any other financial assets that have the contractual right to receive cash. It requires an entity
to recognize expected credit losses rather than incurred losses for financial assets and requires a modified retrospective transition
approach through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption.
The
adoption of ASC 326 did not have a material impact. Disclosures with respect to allowances
for credit losses are given in footnote 3 to these financial statements.
2.
Acquisitions and Disposals
In
January 2022, the Company sold its Italian VLT business, including all terminal and other assets, staff costs and facilities and contracts
to a non-connected party for total proceeds of €1.1 million ($1.2 million), recognizing a profit on disposal of €0.8 million
($0.9 million). The Company continues to serve these Italian markets in the form of the provision of platform and games.
3. Allowance for Credit Losses
Changes
in the allowance for doubtful accounts are as follows:
Schedule
of Changes in Allowance for Doubtful accounts
| |
March 31, 2023 | | |
December 31, 2022 | |
| |
(in millions) | |
Beginning balance | |
$ | (1.3 | ) | |
$ | (1.7 | ) |
Additional provision for doubtful accounts | |
| (0.1 | ) | |
| (0.2 | ) |
Recoveries | |
| 0.1 | | |
| — | |
Write offs | |
| — | | |
| 0.4 | |
Foreign currency translation adjustments | |
| — | | |
| 0.2 | |
Ending balance | |
$ | (1.3 | ) | |
$ | (1.3 | ) |
4.
Inventory
Schedule
of Inventory
| |
March 31, 2023 | | |
December 31, 2022 | |
| |
(in millions) | |
Component parts | |
$ | 23.3 | | |
$ | 21.4 | |
Work in progress | |
| 2.9 | | |
| 3.6 | |
Finished goods | |
| 10.3 | | |
| 6.0 | |
Total inventories | |
$ | 36.5 | | |
$ | 31.0 | |
Component
parts include parts for gaming terminals. Our finished goods inventory primarily consists of gaming terminals which are ready for sale.
5.
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 March 31, 2023 | |
$ | 36.7 | | |
$ | 15.8 | | |
$ | (8.3 | ) | |
$ | (2.6 | ) |
At December 31, 2022 | |
$ | 44.6 | | |
$ | 18.2 | | |
$ | (8.5 | ) | |
$ | (2.4 | ) |
Revenue
recognized that was included in the deferred income balance at the beginning of the period amounted to $1.3 million and $2.8 million
for the three months ended March 31, 2023 and 2022, respectively.
6.
Stock-Based Compensation
A
summary of the Company’s RSU activity during the three months ended March 31, 2023 is as follows:
Schedule of Restricted Stock Unit Activity
| |
Number of Shares | |
| |
| |
Unvested Outstanding at January 1, 2023 | |
| 1,647,544 | |
Granted (1) | |
| 495,225 | |
Forfeited | |
| (6,266 | ) |
Vested | |
| (219,272 | ) |
Unvested Outstanding at March 31, 2023 | |
| 1,917,231 | |
(1) | The
amount shown as granted in the table includes 219,213 performance-based target RSUs as to
which the number that ultimately vests would range from 0% to 200% of the target amount of
RSUs (a maximum of 438,426 RSUs based on attainment of Adjusted EBITDA targets for 2023). |
The
Company issued a total of 353,554 shares during the three months ended March 31, 2023 which included an aggregate of 332,227 shares issued
in connection with the net settlement of RSUs that vested during the prior year (on December 30, 2022).
7.
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, 2023 | |
| (79.7 | ) | |
| 0.3 | | |
| 33.1 | | |
| (46.3 | ) |
Change during the period | |
| 1.7 | | |
| (0.2 | ) | |
| (2.0 | ) | |
| (0.5 | ) |
Balance at March 31, 2023 | |
$ | (78.0 | ) | |
$ | 0.1 | | |
$ | 31.1 | | |
$ | (46.8 | ) |
| |
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, 2022 | |
| (71.5 | ) | |
| 1.0 | | |
| 26.7 | | |
| (43.8 | ) |
Change during the period | |
| (2.4 | ) | |
| (0.2 | ) | |
| (0.7 | ) | |
| (3.3 | ) |
Balance at March 31, 2022 | |
$ | (73.9 | ) | |
$ | 0.8 | | |
$ | 26.0 | | |
$ | (47.1 | ) |
In
connection with the issuance of Senior Secured Notes and the entry into an RCF Agreement, on May 19, 2021, the Company terminated all
of its interest rate swaps. Accordingly, hedge accounting is no longer applicable. The amounts previously recorded in Accumulated Other
Comprehensive Income are amortized into Interest expense over the terms of the hedged forecasted interest payments. Losses reclassified
from Accumulated Other Comprehensive Income into Interest expense in the Consolidated Statements of Operations and Income for the three
months ended March 31, 2023 and March 31, 2022 amounted to $0.2 million and $0.2 million, respectively.
8.
Net Earnings (Loss) per Share
Basic
income/(loss) per share (“EPS”) is computed by dividing net income/(loss) attributable 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 RSUs, using the treasury stock
method, and convertible debt or convertible preferred stock, using the if-converted method, unless the inclusion would be anti-dilutive.
The
computation of diluted EPS excludes the common stock equivalents of the following potentially dilutive securities because they were either
contingently issuable shares or because their inclusion would be anti-dilutive:
Schedule of Anti-dilutive Securities Excluded from Computation of Earnings per Share
| |
2023 | | |
2022 | |
| |
Three
Months Ended
March 31, | |
| |
2023 | | |
2022 | |
RSUs | |
$ | 3,810,367 | | |
$ | 695,372 | |
9.
Other Finance Income (Expense)
Other
finance income (expense) consisted of the following:
Schedule of Other Finance Income (expense)
| |
2023 | | |
2022 | |
| |
Three Months Ended
March 31, | |
| |
2023 | | |
2022 | |
| |
(in millions) | |
Pension interest cost | |
$ | (0.8 | ) | |
$ | (0.6 | ) |
Expected return on pension plan assets | |
| 0.9 | | |
| 0.9 | |
Other finance income
(Costs) | |
$ | 0.1 | | |
$ | 0.3 | |
10.
Income Taxes
The
effective income tax rate for the three months ended March 31, 2023 and 2022 was (729.2)% and 5.5%, respectively, resulting in a $0.1
million and $0.1 million income tax expense, respectively. The Company’s effective tax rate in both periods was impacted by a net
discrete tax expense. Excluding the net discrete tax expense, our effective income tax rate for the three months ended March 31, 2023
and 2022 would have been 23.9% and 0.8%, respectively.
The
effective tax rate reported in any given year will continue to be influenced by a variety of factors including the level of pre-tax income
or loss, the income mix between jurisdictions, and any discrete items that may occur.
The
Company recorded a valuation allowance against all of our deferred tax assets as of both March 31, 2023 and 2022. We intend to continue
maintaining a full valuation allowance on our deferred tax assets until there is sufficient evidence to support the reversal of all or
some portion of these allowances. However, given our current earnings and anticipated future earnings, we believe that there is a reasonable
possibility that within the next 12 months, sufficient positive evidence may become available to allow us to reach a conclusion that
a significant portion of the valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition
of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing
and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually
achieve.
11.
Related Parties
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 11.51% of our common stock as of March 31, 2023. Macquarie UK did not hold
any of the Company’s aggregate senior debt at March 31, 2023 or December 31, 2022. Interest expense payable to Macquarie UK for
the three months ended March 31, 2023 and 2022 amounted to $0.0 million and $0.0 million, 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.
On
December 31, 2021, the Company entered into a consultancy agreement with Richard Weil, the brother of A. Lorne Weil, our Executive Chairman,
under which he received a success fee in the amount of $0.1 million for services he provided in connection with our acquisition of Sportech
Lotteries, LLC. The success fee was paid during the year ended December 31, 2022. Under the agreement, as extended in November 2022,
he will provide consulting services relating to the lottery in the Dominican Republic through to June 30, 2023 at a rate of $10,000 per
month and, with respect to such services, the aggregate amount incurred by the Company in consulting fees for each of the three months
ended March 31, 2023 and March 31, 2022 was $30,000.
12.
Leases
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, both of which are included in the amounts disclosed.
The
components of lease income were as follows:
Schedule
of Lease Income
| |
2023 | | |
2022 | |
| |
Three
Months Ended
March 31, | |
| |
2023 | | |
2022 | |
| |
(in millions) | |
| |
| |
Profit recognized at commencement date of sales type leases | |
$ | 0.3 | | |
$ | — | |
Operating lease income | |
| 2.4 | | |
| 1.6 | |
Total | |
$ | 2.7 | | |
$ | 1.6 | |
13.
Commitments and Contingencies
Employment
Agreements
We
are party to employment agreements with our executive officers and other employees of the Company and our subsidiaries which contain,
among other terms, provisions relating to severance and notice requirements.
Arrangements
with Daniel B. Silvers, former Executive Vice President and Chief Strategy Officer
Effective
January 10, 2023, Mr. Silvers stepped down from his position as Executive Vice President and Chief Strategy Officer of the Company. Pursuant
to Mr. Silvers’ employment agreement dated December 14, 2016, as amended, Mr. Silvers was entitled to receive a base salary at
a rate of $385,000
per year, a target annual bonus of not less than
100%
of his base salary and a maximum annual bonus of 200%
of his base salary. He was also entitled to reimbursement for private medical insurance and to certain severance benefits.
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.
14.
Pension Plan
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. The Actuarial Valuation of the scheme as at March 31, 2021, determined
that the statutory funding objective was not met, i.e., there were insufficient assets to cover the scheme’s technical provisions
and there was a funding shortfall.
In
June 2022, a recovery plan was put in place to eliminate the funding shortfall. The plan expects the shortfall to be eliminated by October
31, 2026. Deficit reduction contributions of 1.1 million and expense contributions of $0.3 million will be payable during the year ending
December 31, 2023.
The
total amount of employer contributions paid during the three months ended March 31, 2023 amounted to $0.3 million.
The
following table presents the components of our net periodic pension benefit:
Schedule of Defined Benefit Plans
| |
2023 | | |
2022 | |
| |
Three Months Ended
March 31, | |
| |
2023 | | |
2022 | |
| |
(in millions) | |
Components of net periodic pension benefit: | |
| | | |
| | |
Interest cost | |
$ | 0.8 | | |
$ | 0.6 | |
Expected return on plan assets | |
| (0.9 | ) | |
| (0.9 | ) |
Net periodic benefit | |
$ | (0.1 | ) | |
$ | (0.3 | ) |
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
| |
March 31, 2023 | | |
December 31, 2022 | |
| |
(in millions) | |
Change in benefit obligation: | |
| | | |
| | |
Benefit obligation at beginning of period | |
$ | 67.4 | | |
$ | 114.7 | |
Interest cost | |
| 0.8 | | |
| 2.1 | |
Actuarial loss (gain) | |
| 0.2 | | |
| (35.5 | ) |
Benefits paid | |
| (0.7 | ) | |
| (3.5 | ) |
Foreign currency translation adjustments | |
| 1.9 | | |
| (10.4 | ) |
Benefit obligation at end of period | |
$ | 69.6 | | |
$ | 67.4 | |
Change in plan assets: | |
| | | |
| | |
Fair value of plan assets at beginning of period | |
$ | 65.3 | | |
$ | 117.7 | |
Actual gain (loss) on plan assets | |
| 3.0 | | |
| (39.1 | ) |
Employer contributions | |
| 0.3 | | |
| 1.4 | |
Benefits paid | |
| (0.7 | ) | |
| (3.5 | ) |
Foreign currency translation adjustments | |
| 1.8 | | |
| (11.2 | ) |
Fair value of assets at end of period | |
$ | 69.7 | | |
$ | 65.3 | |
Amount recognized in the consolidated balance sheets: | |
| | | |
| | |
Overfunded (Unfunded) status (non-current) | |
$ | 0.1 | | |
$ | (2.1 | ) |
Net amount recognized | |
$ | 0.1 | | |
$ | (2.1 | ) |
15.
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.
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),
and total capital expenditures for the periods ended March 31, 2023 and March 31, 2022, 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.
Segment
Information
Schedule of Segment Reporting Information by Segment
Three
Months Ended March 31, 2023
| |
Gaming | | |
Virtual Sports | | |
Interactive | | |
Leisure | | |
Corporate Functions | | |
Total | |
| |
(in millions) | |
Revenue: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Service | |
$ | 20.2 | | |
$ | 14.9 | | |
$ | 6.6 | | |
$ | 16.6 | | |
$ | — | | |
$ | 58.3 | |
Product sales | |
| 7.2 | | |
| — | | |
| — | | |
| 0.5 | | |
| — | | |
| 7.7 | |
Total revenue | |
| 27.4 | | |
| 14.9 | | |
| 6.6 | | |
| 17.1 | | |
| — | | |
| 66.0 | |
Cost of sales, excluding depreciation and amortization: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cost of service | |
| (5.2 | ) | |
| (0.7 | ) | |
| (0.9 | ) | |
| (4.1 | ) | |
| — | | |
| (10.9 | ) |
Cost of product sales | |
| (5.4 | ) | |
| — | | |
| — | | |
| (0.4 | ) | |
| — | | |
| (5.8 | ) |
Selling, general and administrative expenses | |
| (7.3 | ) | |
| (1.3 | ) | |
| (2.4 | ) | |
| (11.1 | ) | |
| (9.3 | ) | |
| (31.4 | ) |
Stock-based compensation expense | |
| (0.3 | ) | |
| (0.2 | ) | |
| (0.2 | ) | |
| (0.1 | ) | |
| (2.1 | ) | |
| (2.9 | ) |
Acquisition and integration related transaction expenses | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Depreciation and amortization | |
| (3.8 | ) | |
| (0.7 | ) | |
| (0.8 | ) | |
| (3.1 | ) | |
| (0.5 | ) | |
| (8.9 | ) |
Segment operating income (loss) | |
| 5.4 | | |
| 12.0 | | |
| 2.3 | | |
| (1.7 | ) | |
| (11.9 | ) | |
| 6.1 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net operating income | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 6.1 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total capital expenditures for the three months ended March 31, 2023 | |
$ | 3.3 | | |
$ | 1.1 | | |
$ | 1.5 | | |
$ | 5.2 | | |
$ | 0.5 | | |
$ | 11.6 | |
Three
Months Ended March 31, 2022
| |
Gaming | | |
Virtual Sports | | |
Interactive | | |
Leisure | | |
Corporate Functions | | |
Total | |
| |
(in millions) | |
Revenue: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Service | |
$ | 21.1 | | |
$ | 11.6 | | |
$ | 5.3 | | |
$ | 19.0 | | |
$ | — | | |
$ | 57.0 | |
Product sales | |
| 3.0 | | |
| — | | |
| — | | |
| 0.6 | | |
| — | | |
| 3.6 | |
Total revenue | |
| 24.1 | | |
| 11.6 | | |
| 5.3 | | |
| 19.6 | | |
| — | | |
| 60.6 | |
Cost of sales, excluding depreciation and amortization: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cost of service | |
| (4.7 | ) | |
| (0.6 | ) | |
| (1.0 | ) | |
| (5.5 | ) | |
| — | | |
| (11.8 | ) |
Cost of product sales | |
| (1.8 | ) | |
| — | | |
| — | | |
| (0.3 | ) | |
| — | | |
| (2.1 | ) |
Selling, general and administrative expenses | |
| (6.8 | ) | |
| (1.6 | ) | |
| (1.4 | ) | |
| (11.3 | ) | |
| (5.7 | ) | |
| (26.8 | ) |
Stock-based compensation expense | |
| (0.3 | ) | |
| (0.1 | ) | |
| (0.1 | ) | |
| (0.2 | ) | |
| (2.1 | ) | |
| (2.8 | ) |
Acquisition and integration related transaction expenses | |
| (0.1 | ) | |
| — | | |
| — | | |
| — | | |
| — | | |
| (0.1 | ) |
Depreciation and amortization | |
| (4.6 | ) | |
| (0.6 | ) | |
| (0.7 | ) | |
| (3.7 | ) | |
| (0.5 | ) | |
| (10.1 | ) |
Segment operating income (loss) | |
| 5.8 | | |
| 8.7 | | |
| 2.1 | | |
| (1.4 | ) | |
| (8.3 | ) | |
| 6.9 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net operating income | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 6.9 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total capital expenditures for the three months ended March 31, 2022 | |
$ | 3.4 | | |
$ | 0.9 | | |
$ | 1.2 | | |
$ | 4.0 | | |
$ | 1.2 | | |
$ | 10.7 | |
Geographic
Information
Geographic
information for revenue is set forth below:
Schedule of Geographic Information
| |
2023 | | |
2022 | |
| |
Three Months Ended
March 31, | |
| |
2023 | | |
2022 | |
| |
(in millions) | |
Total revenue | |
| | | |
| | |
UK | |
$ | 49.4 | | |
$ | 45.6 | |
Greece | |
| 5.6 | | |
| 5.7 | |
Rest of world | |
| 11.0 | | |
| 9.3 | |
Total | |
$ | 66.0 | | |
$ | 60.6 | |
Total
revenue | |
$ | 66.0 | | |
$ | 60.6 | |
UK
revenue includes revenue from customers headquartered in the UK, but whose revenue is generated globally.
Software
development costs are included as attributable to the market in which they are utilized.
16.
Customer Concentration
During
the three months ended March 31, 2023, there was one customer that represented at least 10% of the Company’s revenues, accounting
for 15% of the Company’s revenues. This customer was served by the Virtual Sports and Interactive segments. During the three months
ended March 31, 2022, there was one customer that represented at least 10% of the Company’s revenues, accounting for 12% of the
Company’s revenues. This customer was served by the Virtual Sports and Interactive segments.
At
March 31, 2023 no customers represented at least 10% of the Company’s accounts receivable. At December 31, 2022, there was one
customer that represented at least 10% of the Company’s accounts receivable, accounting for 24% of the Company’s accounts
receivable.
17.
Subsequent Events
The
Company evaluates subsequent events and transactions that occur after the balance sheet date up to the date that the financial statements
were issued. Other than as described below, the Company did not identify subsequent events that would have required adjustment or disclosure
in the consolidated financial statements.
On
April 10, 2023, the Company’s Board of Directors adopted the 2023 Omnibus Incentive Plan (the “2023 Plan”), subject
to the approval of our stockholders, which was obtained at the Company’s annual meeting of stockholders held on May 9, 2023. The
2023 Plan authorizes a total of 2,700,000 shares to be issued pursuant to awards and will also replace the Company’s predecessor
plan (the 2021 Plan) such that shares available for grant under the 2021 Plan would instead be available for grant under the 2023 Plan.
Upon approval of the 2023 Plan, the sign-on RSUs previously disclosed for Messrs. Weil and Pierce as part of amendments to their employment
contracts in January 2023 were effective (comprising an aggregate of 250,000 performance-based RSUs and 125,000 stock price-based RSUs).
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 referenced in the section
titled “Risk Factors” included elsewhere in this report.
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 this Quarterly Report on Form 10-Q for the period ended March 31, 2023.
Seasonality
Our
results of operations can fluctuate due to seasonal trends and other factors. Sales of our gaming machines can vary quarter on quarter
due to both supply and demand factors. Player activity for our holiday parks is generally higher in the second and third quarters of
the year, particularly during the summer months and slower during the first and fourth quarters of the year. Historical seasonality has
been impacted by COVID-19 business disruptions and could continue to be impacted in future periods.
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,
the majority of our revenue is derived from, and the 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 and the rest of the world (including North America).
For
the three months ended March 31, 2023, we derived approximately 75% of our revenue from the UK (including customers headquartered in
the UK but whose revenue is generated globally), 8% from Greece, and the remaining 17% across the rest of the world. During the three
months ended March 31, 2022, we derived approximately 75%, 10% and 15% of our revenue from those regions, respectively.
As
of March 31, 2023, our non-current assets (excluding goodwill) were attributable as follows: 80% to the UK, 5% to Greece and 15% 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 geographic
region in which the largest portion of our business is operated 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 March 31, 2023 and March 31, 2022, we derived approximately 25% of our revenue from sales to customers outside the UK.
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 periods ended March 31, 2023 and March 31, 2022, the average GBP:USD rates were for the three-month period
1.21 and 1.34, 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 ended March 31, 2023, compared to the same period in 2022;
and |
|
|
|
|
● |
a discussion and analysis
of the results of operations for each of the Company’s segments (Gaming, Virtual Sports, Interactive and Leisure) for the three-month
periods ended March 31, 2023, compared to the same period in 2022, 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.
For
all reported variances, refer to the overall company and segment tables shown below. All variances discussed in the overall company and
segment results are on a functional currency (at constant rate) basis, which excludes the impact of any changes in foreign currency exchange
rates.
Overall
Company Results
All amounts included herein have been rounded except
where otherwise stated. As figures are rounded, numbers presented throughout this document may not add up precisely to the totals we provide
and percentages may not precisely reflect the absolute figures.
Three
Months ended March 31, 2023, compared to Three Months ended March 31, 2022
| |
| | |
Variance | |
(In millions) | |
For the Three-Month Period ended | | |
2023 vs 2022 | |
| |
March 31, 2023 | | |
March 31, 2022 | | |
Variance Attributable to Currency Movement | | |
Variance on a Functional currency basis | | |
Total Functional Currency Variance % | | |
Total Reported Variance % | |
Revenue: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Service | |
$ | 58.3 | | |
$ | 57.0 | | |
$ | (6.1 | ) | |
$ | 7.4 | | |
| 12.9 | % | |
| 2.3 | % |
Product | |
| 7.7 | | |
| 3.6 | | |
| (0.8 | ) | |
| 4.9 | | |
| 135.2 | % | |
| 113.8 | % |
Total revenue | |
| 66.0 | | |
| 60.6 | | |
| (6.8 | ) | |
| 12.2 | | |
| 20.2 | % | |
| 8.9 | % |
Cost of Sales, excluding depreciation and amortization: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cost of Service | |
| (10.9 | ) | |
| (11.8 | ) | |
| 1.1 | | |
| (0.3 | ) | |
| 2.2 | % | |
| (7.3 | )% |
Cost of Product | |
| (5.8 | ) | |
| (2.1 | ) | |
| 0.6 | | |
| (4.3 | ) | |
| 203.8 | % | |
| 175.7 | % |
Selling, general and administrative expenses | |
| (31.4 | ) | |
| (26.8 | ) | |
| 3.3 | | |
| (7.8 | ) | |
| 29.4 | % | |
| 17.2 | % |
Stock-based compensation | |
| (2.9 | ) | |
| (2.8 | ) | |
| 0.3 | | |
| (0.5 | ) | |
| 16.3 | % | |
| 4.2 | % |
Acquisition and integration related transaction expenses | |
| - | | |
| (0.1 | ) | |
| - | | |
| 0.1 | | |
| (100.0 | )% | |
| (100.0 | )% |
Depreciation and amortization | |
| (8.9 | ) | |
| (10.1 | ) | |
| 0.9 | | |
| 0.4 | | |
| (3.7 | )% | |
| (12.3 | )% |
Net operating Income (Loss) | |
| 6.1 | | |
| 6.9 | | |
| (0.7 | ) | |
| (0.1 | ) | |
| (0.9 | )% | |
| (10.9 | )% |
Other income (expense) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest expense, net | |
| (6.3 | ) | |
| (6.5 | ) | |
| 0.7 | | |
| (0.5 | ) | |
| 7.0 | % | |
| (3.3 | )% |
Profit on disposal of trade & assets | |
| - | | |
| 0.9 | | |
| (0.0 | ) | |
| (0.9 | ) | |
| N/A | | |
| N/A | |
Other finance income (expense) | |
| 0.1 | | |
| 0.3 | | |
| (0.0 | ) | |
| (0.2 | ) | |
| (66.0 | )% | |
| (69.3 | )% |
Total other income (expense), net | |
| (6.2 | ) | |
| (5.3 | ) | |
| 0.7 | | |
| (1.6 | ) | |
| 29.4 | % | |
| 17.1 | % |
Net Income (loss) from continuing operations before income taxes | |
| (0.1 | ) | |
| 1.6 | | |
| (0.0 | ) | |
| (1.6 | ) | |
| (100.2 | )% | |
| (105.8 | )% |
Income tax expense | |
| (0.1 | ) | |
| (0.1 | ) | |
| (0.0 | ) | |
| 0.0 | | |
| (0.3 | )% | |
| 4.6 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net Income (Loss) | |
$ | (0.2 | ) | |
$ | 1.5 | | |
$ | (0.0 | ) | |
$ | (1.6 | ) | |
| (105.9 | )% | |
| (112.2 | )% |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Exchange Rate - $ to £ | |
| 1.21 | | |
| 1.34 | | |
| | | |
| | | |
| | | |
| | |
See
“Segments Results” below for a more detailed explanation of the significant changes in our components of revenue within the
individual segment results of operations.
Revenue
Consolidated
Reported Revenue by Segment
● |
There was no VAT-related
revenue for the three-months ended March 31, 2023. For the three-months ended March 31, 2022 VAT-related revenue was $0.9 million. |
“VAT-related
revenue” are payments from UK customers related to our contractual revenue share of their value-added tax rebate.
For
the three months ended March 31, 2023, revenue on a functional currency (at constant rate) basis increased by $12.2 million, or 20%.
For
the three-month period, Gaming service revenue grew by $1.3 million predominantly due to an increase in UK markets of $1.4 million. Gaming
Product revenue increased by $4.9 million predominately due to UK product sales. Virtual Sports and Interactive grew by $4.9 million
and $2.0 million, respectively, with $4.6 million of the Virtuals Sports increase from Online and $0.3 million from Retail. Interactive
growth was driven by revenue growth in the UK, US and Canada. These increases were offset by Leisure service revenue reduction of $0.8
million predominately driven by the reduction in the number of machines operated in the Pubs sector primarily due to the structured
withdrawal of non-core low-margin amusement and prize vend machines as recognized in the third quarter of 2022 as well as the reduction
in the number of gaming machines.
Cost
of Sales, excluding depreciation and amortization
Cost
of sales, excluding depreciation and amortization, for the three months ended March 31, 2023, increased by $4.6 million, or 33%. The
increase was driven a $4.3 million increase in cost of product, predominately driven by the increase in Product sales.
Selling,
general and administrative expenses
Selling,
general and administrative (“SG&A”) expenses for the three months ended March 31, 2023 increased by $7.8 million, or
29%.
The
increase was driven primarily by the costs of group restructure of $2.9 million (removed from Adjusted EBITDA), an increase in
non-staff costs of $3.0 million, of which the largest proportion was driven by exhibition costs of $0.8 million that were not
incurred in the prior period, and an increase in staff cost of $2.0 million, driven by an increase in heads predominantly from an
investment in the technology and commercial areas of our business.
Stock-based
compensation
During
the three months ended March 31, 2023, the Company recorded expenses of $2.9 million compared to expenses of $2.8 million for the three
months ended March 31, 2022. All expenses were related to outstanding awards. The three months ended March 31, 2023 included an expense
of $0.7 million relating to the group restructure.
Depreciation
and amortization
Depreciation
and amortization decreased for the three-month period by $0.4 million. This was driven by Gaming and Leisure with reductions of $0.4
million and $0.3 million, respectively due to assets being fully written down, partly offset by $0.2 million increases in both Virtual
Sports and Interactive depreciation and amortization expenses.
Net
operating income/(loss)
During
the three-month period, net operating income was $6.1 million, a decrease of $0.1 million compared to the prior year period. The
decrease was attributable primarily to the increase in Selling, general and administrative expenses and in Stock-based compensation
(including the cost of group restructure). This was partially offset by the increase in gross margin as well as the decrease in
depreciation and amortization expenses.
Net
Income/ (loss)
For
the three-months ended March 31, 2023 net loss was $0.2 million, compared to a net income of $1.5 million in the prior period. The $1.6
million decline year-over-year, was primarily due to the cost of group restructure driving the decline in net operating income, an increase
in interest expense, net of $0.5 million, due to $0.4 million increase in charges relating to a discounted unwind on provisions for dilapidations linked to
various properties, as well as decreases in other finance income of $0.2 million and gain on disposal of trade
and assets of $0.9 million compared to the prior year period.
Deferred
Tax
We
recorded a valuation allowance against all of our deferred tax assets as of both March 31, 2023, and March 31, 2022. We intend to continue
maintaining a full valuation allowance on our deferred tax assets until there is sufficient evidence to support the reversal of all or
some portion of these allowances. However, given our current earnings and anticipated future earnings, we believe that there is a reasonable
possibility that within the next 12 months, sufficient positive evidence may become available to allow us to reach a conclusion that
a significant portion of the valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition
of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing
and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually
achieve.
Segment
Results (for the three months ended March 31, 2023, compared to the three months ended March 31, 2022)
Gaming
We
generate revenue from our Gaming segment through the sales and rentals of our gaming machines. We receive rental fees for machines, typically
in conjunction with long-term contracts, 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 changes in (i) the number of operator customers we have, (ii) the number of Gaming
machines in operation, (iii) the net win performance of the machines and (iv) the net win percentage that we receive pursuant to our
contracts with our customers.
Gaming,
Key Performance Indicators
All amounts included herein have been rounded except
where otherwise stated. As figures are rounded, numbers presented throughout this document may not add up precisely to the totals we provide
and percentages may not precisely reflect the absolute figures.
| |
For the Three-Month Period ended | | |
Variance | |
| |
March 31, | | |
March 31, | | |
2023 vs 2022 | |
Gaming | |
2023 | | |
2022 | | |
| | |
% | |
| |
| | |
| | |
| | |
| |
End of period installed base (# of terminals) (2) | |
| 34,811 | | |
| 34,501 | | |
| 310 | | |
| 0.9 | % |
Total Gaming - Average installed base (# of terminals) (2) | |
| 34,878 | | |
| 34,693 | | |
| 185 | | |
| 0.5 | % |
Participation - Average installed base (# of terminals) (2) | |
| 30,793 | | |
| 31,420 | | |
| (627 | ) | |
| (2.0 | )% |
Fixed Rental - Average installed base (# of terminals) | |
| 4,085 | | |
| 3,273 | | |
| 812 | | |
| 24.8 | % |
Service Only - Average installed base (# of terminals) | |
| 14,160 | | |
| 17,915 | | |
| (3,754 | ) | |
| (21.0 | )% |
Customer Gross Win per unit per day (1) (2) | |
£ | 96.1 | | |
£ | 86.7 | | |
£ | 9.4 | | |
| 10.9 | % |
Customer Net Win per unit per day (1) (2) | |
£ | 70.0 | | |
£ | 63.2 | | |
£ | 6.8 | | |
| 10.8 | % |
Inspired Blended Participation Rate | |
| 5.8 | % | |
| 5.6 | % | |
| 0.2 | % | |
| 3.6 | % |
Inspired Fixed Rental Revenue per Gaming Machine per week | |
£ | 47.4 | | |
£ | 42.9 | | |
£ | 4.5 | | |
| 10.5 | % |
Inspired Service Rental Revenue per Gaming Machine per week | |
£ | 5.0 | | |
£ | 4.6 | | |
£ | 0.4 | | |
| 8.8 | % |
Gaming Long term license amortization (£’m) | |
£ | 0.8 | | |
£ | 1.2 | | |
£ | (0.4 | ) | |
| (34.4 | )% |
Number of Machine sales | |
| 688 | | |
| 319 | | |
| 369 | | |
| 115.7 | % |
Average selling price per terminal | |
£ | 7,880 | | |
£ | 6,775 | | |
£ | 1,105 | | |
| 16.3 | % |
(1) |
Includes all SBG terminals
in which the Company takes a participation revenue share across all territories. |
|
|
(2) |
Includes circa 2,500 of
lottery terminals where the share is on handle instead of net win. |
In
the table above:
“End
of Period Installed Base” is equal to the number of deployed Gaming terminals at the end of each period that have been placed on
a participation or fixed rental basis. Gaming participation revenue, which comprises the majority of Gaming Service revenue, is directly
related to the participation terminal installed base. This is the medium by which our customers generate revenue and distribute a revenue
share to the Company. To the extent all other KPIs and certain other factors remain constant, the larger the installed base, the higher
the Company’s revenue would be for a given period. Management gives careful consideration to this KPI in terms of driving growth
across the segment. This does not include Service Only terminals.
Revenue
is derived from the performance of the installed base as described by the Gross and Net Win KPIs.
If
the End of Period Installed Base is materially different from the Average Installed Base (described below), we believe this gives an
indication as to potential future performance. We believe the End of Period Installed Base is particularly useful for assessing new customers
or markets, to indicate the progress being made with respect to entering new territories or jurisdictions.
“Total
Gaming - Average Installed Base” is the average number of deployed Gaming terminals during the period split by Participation terminals
and Fixed Rental terminals. Therefore, it is more closely aligned to revenue in the period. We believe this measure is particularly useful
for assessing existing customers or markets to provide comparisons of historical size and performance. This does not include Service
Only terminals.
“Participation
- Average Installed Base” is the average number of deployed Gaming terminals that generated revenue on a participation basis.
“Fixed
Rental - Average Installed Base” is the average number of deployed Gaming terminals that generated revenue on a fixed rental basis.
“Service
Only - Average Installed Base” is the average number of terminals that generated revenue on a Service only basis.
“Customer
Gross Win per unit per day” is a KPI used by our management to (i) assess impact on the Company’s revenue, (ii) determine
changes in the performance of the overall market and (iii) evaluate the impacts of regulatory change and our new content releases on
our customers. Customer Gross Win per unit per day is the average per unit cash generated across all Gaming terminals in which the Company
takes a participation revenue share across all territories in the period, defined as the difference between the amounts staked less winnings
to players divided by the Average Installed Base in the period, then divided by the number of days in the period.
Gaming
revenue accrued in the period is derived from Customer Gross Win accrued in the period after deducting gaming taxes (defined as a regulatory
levy paid by the Customer to government bodies) and applying the Company’s contractual revenue share percentage.
Our
management believes Customer Gross Win measures are meaningful because they represent a view of customer operating performance that is
unaffected by our revenue share percentage and allow management to (1) readily view operating trends, (2) perform analytical comparisons
and benchmarking between customers and (3) identify strategies to improve operating performance in the different markets in which we
operate.
“Customer
Net Win per unit per day” is Customer Gross Win per unit per day after giving effect to the deduction of gaming taxes.
“Inspired
Blended Participation Rate” is the Company’s average revenue share percentage across all participation terminals where revenue
is earned on a participation basis, weighted by Customer Net Win per unit per day.
“Inspired
Fixed Rental Revenue per Gaming Machine per week” is the Company’s average fixed rental amount across all fixed rental terminals
where revenue is generated on a fixed fee basis, per unit per week.
“Inspired
Service Rental Revenue per Gaming Machine per week” is the Company’s average service rental amount across all service only
rental terminals where revenue is generated on a service only fixed fee basis, per unit per week.
“Gaming
Long term license amortization” is the upfront license fee per terminal which is typically spread over the life of the terminal.
Our
overall Gaming revenue from terminals placed on a participation basis can therefore be calculated as the product of the Participation
- Average Installed Base, the Customer Net Win per unit per day, the number of days in the period, and the Inspired Blended Participation
Rate, which is equal to “Participation Revenue”.
“Number
of Machine sales” is the number of terminals sold during the period.
“Average
selling price per terminal” is the total revenue in GBP of the Gaming terminals sold divided by the “number of Machine sales”.
Gaming,
Recurring Revenue
All amounts included herein have been rounded except
where otherwise stated. As figures are rounded, numbers presented throughout this document may not add up precisely to the totals we provide
and percentages may not precisely reflect the absolute figures.
| |
For the Three-Month Period ended | | |
Variance | |
| |
March 31, | | |
March 31, | | |
2023 vs 2022 | |
(In £ millions) | |
2023 | | |
2022 | | |
| | |
% | |
Gaming Recurring Revenue | |
| | | |
| | | |
| | | |
| | |
Total Gaming Revenue | |
£ | 22.6 | | |
£ | 18.0 | | |
£ | 4.6 | | |
| 25.7 | % |
| |
| | | |
| | | |
| | | |
| | |
Gaming Participation Revenue | |
£ | 11.5 | | |
£ | 10.3 | | |
£ | 1.2 | | |
| 11.7 | % |
Gaming Other Fixed Fee Recurring Revenue | |
£ | 3.6 | | |
£ | 3.0 | | |
£ | 0.6 | | |
| 19.9 | % |
Gaming Project Recurring Revenue | |
£ | 0.2 | | |
£ | 0.2 | | |
£ | 0.0 | | |
| 20.1 | % |
Gaming Long-term license amortization | |
£ | 0.8 | | |
£ | 1.2 | | |
£ | (0.4 | ) | |
| (34.4 | )% |
Total Gaming Recurring Revenue * | |
£ | 16.1 | | |
£ | 14.7 | | |
£ | 1.4 | | |
| 9.7 | % |
Gaming Recurring Revenue as a % of Total Gaming Revenue † | |
| 71.2 | % | |
| 81.6 | % | |
| (10.4 | )% | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Total Gaming excluding VAT-related revenue | |
£ | 22.6 | | |
£ | 17.3 | | |
| | | |
| | |
Gaming Recurring Revenue as a % of Total Gaming Revenue (excluding VAT-related revenue) | |
| 71.2 | % | |
| 84.9 | % | |
| | | |
| | |
Set
forth below is a breakdown of our Gaming recurring revenue. Gaming recurring revenue principally consists of Gaming participation revenue
and fixed rental revenue.
* |
Does
not reflect VAT-related revenue. |
|
|
† |
Total
Gaming Revenue for the three-month period ended March 31, 2023 has no VAT-related revenue, for the three-month period ended March
31, 2022, includes £0.7 million of VAT-related revenue, which is not reflected in Gaming Recurring Revenue for that period.
Excluding VAT-related revenue, Gaming Recurring Revenue was 69% and 85%, respectively of Total Gaming Revenue for such period. |
|
|
|
Note
– For the three-months ending March 31, 2022, there has been some recharacterization between Gaming Participation Revenue and
Other Fixed fee revenue to ensure consistency with similar items across the Group. |
In
the table above:
“Gaming
Participation Revenue” includes our share of revenue generated from (i) our Gaming terminals placed in gaming and lottery venues;
and (ii) licensing of our game content and intellectual property to third parties.
“Gaming
Other Fixed Fee Recurring Revenue” includes service revenue in which the Company earns a periodic fixed fee on a contracted basis.
“Gaming
Long term license amortization” – see the definition provided above.
“Total
Gaming Recurring Revenue” is equal to Gaming Participation Revenue plus Gaming Other Fixed Fee Recurring Revenue.
Gaming,
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.
All amounts included herein have been rounded except
where otherwise stated. As figures are rounded, numbers presented throughout this document may not add up precisely to the totals we provide
and percentages may not precisely reflect the absolute figures.
| |
For the Three-Month Period ended | | |
Variance | |
(In millions) | |
March 31,
2023 | | |
March 31,
2022 | | |
2023 vs 2022 | | |
Total Functional Currency % | |
| |
| | |
| | |
| | |
| | |
| |
Service Revenue: | |
| | | |
| | | |
| | | |
| | | |
| | |
UK LBO | |
$ | 9.7 | | |
$ | 10.2 | | |
$ | (0.4 | ) | |
| (4.4 | )% | |
| 5.7 | % |
UK VAT - Related Income | |
| - | | |
| 0.9 | | |
$ | (0.9 | ) | |
| (100.0 | )% | |
| (100.0 | )% |
UK Other | |
| 3.4 | | |
| 3.0 | | |
| 0.4 | | |
| 13.5 | % | |
| 25.6 | % |
Italy | |
| 0.8 | | |
| 0.7 | | |
| 0.2 | | |
| 23.1 | % | |
| 36.0 | % |
Greece | |
| 4.3 | | |
| 4.8 | | |
| (0.6 | ) | |
| (11.6 | )% | |
| (2.2 | )% |
Rest of the World | |
| 0.6 | | |
| 0.2 | | |
| 0.4 | | |
| 194.7 | % | |
| 228.1 | % |
Lotteries | |
| 1.4 | | |
| 1.3 | | |
| 0.1 | | |
| 8.9 | % | |
| 20.2 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total Service revenue | |
$ | 20.2 | | |
$ | 21.1 | | |
$ | (0.8 | ) | |
| (4.0 | )% | |
| 6.0 | % |
Exchange
Rate - $ to £ | |
| 1.21 | | |
| 1.34 | | |
| | | |
| | | |
| | |
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,
key events
Total
Gaming Customer Gross Win per unit per day (in our functional currency, GBP) for the three-months ended March 31, 2023, increased by
£9.4, or 11%, to £96.1. The increase was driven by a combination of new content in the UK LBO and Greek markets, removal
of all remaining COVID-19 restrictions in Greece, and some shop redistribution of revenue from low performing venue closures in the UK
LBO market.
The new “Vantage”
terminal, 200 of which have now been on trial for 45 weeks across two major customers, showed 13% growth compared to the current estate
terminals. The full rollout of 6,500 “Vantage” terminals into these two major customers is expected to be complete by the
end of 2023.
The
overall participation rate for our installed base increased to 5.8% for the three months ended March 31, 2023 from 5.6% for the
three months ended March 31, 2022. The increase was driven by a shift in customer mix.
In
the Non-LBO UK gaming estate, Inspired recorded outright sales of 200 “Flex” terminals to a major customer during the three-month
period, delivering revenue of $2.0 million. The new terminals were a combination of replacement and new venue installs. In addition to
the product sale component, these new terminals generate additional recurring rental fees. Inspired also delivered the first significant
sales volume of the “Community Cops & Robbers” triple player product.
During
the first quarter of 2023, Inspired agreed to refresh the Greek estate with 2,000 new “Valor” and 500 new “Vantage”
terminals. These terminals are expected to be delivered by the end of 2023 which are expected to be installed into venues during the early part of 2024.
In
the North American market, Inspired recorded service revenue in Illinois from 475 game pack sales, the first of this type. Each
game pack includes seven new titles, two of which were delivered in the first quarter of 2023 and the remainder by the end of 2023.
Gaming,
Results of Operations
All amounts included herein have been rounded except
where otherwise stated. As figures are rounded, numbers presented throughout this document may not add up precisely to the totals we provide
and percentages may not precisely reflect the absolute figures.
| |
| | |
Variance | |
(In millions) | |
For
the Three-Month Period ended | |
2023 vs 2022 | |
| |
March 31,
2023 | | |
March 31,
2022 | | |
Variance Attributable to Currency Movement | | |
Variance on a Functional currency basis | | |
Total Functional Currency Variance % | | |
Total Reported Variance % | |
Revenue: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Service | |
$ | 20.2 | | |
$ | 21.1 | | |
$ | (2.1 | ) | |
$ | 1.3 | | |
| 6.0 | % | |
| (4.0 | )% |
Product | |
| 7.2 | | |
| 3.0 | | |
$ | (0.7 | ) | |
$ | 4.9 | | |
| 163.7 | % | |
| 139.7 | % |
Total revenue | |
| 27.4 | | |
| 24.1 | | |
| (2.9 | ) | |
| 6.2 | | |
| 25.7 | % | |
| 13.8 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cost of Sales, excluding depreciation and amortization: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cost of Service | |
| (5.2 | ) | |
| (4.7 | ) | |
$ | 0.6 | | |
| (1.0 | ) | |
| 22.4 | % | |
| 9.6 | % |
Cost of Product | |
| (5.4 | ) | |
| (1.8 | ) | |
$ | 0.6 | | |
| (4.2 | ) | |
| 232.7 | % | |
| 202.5 | % |
Total cost of sales | |
| (10.6 | ) | |
| (6.5 | ) | |
| 1.1 | | |
| (5.2 | ) | |
| 81.0 | % | |
| 62.7 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Selling, general and administrative expenses | |
| (7.3 | ) | |
| (6.8 | ) | |
$ | 0.7 | | |
| (1.2 | ) | |
| 17.9 | % | |
| 7.1 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock-based compensation | |
| (0.3 | ) | |
| (0.3 | ) | |
$ | 0.0 | | |
| (0.0 | ) | |
| 10.4 | % | |
| 0.0 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Acquisition and integration related transaction expenses | |
| - | | |
| (0.1 | ) | |
| - | | |
| 0.1 | | |
| N/A | | |
| N/A | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Depreciation and amortization | |
| (3.8 | ) | |
| (4.6 | ) | |
$ | 0.4 | | |
| 0.4 | | |
| (8.8 | )% | |
| (17.4 | )% |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net operating Income (Loss) | |
$ | 5.4 | | |
$ | 5.8 | | |
$ | (0.7 | ) | |
$ | 0.3 | | |
| 1.6 | % | |
| (5.7 | )% |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Profit on disposal of trade & assets | |
| - | | |
| 0.9 | | |
| - | | |
| (0.9 | ) | |
| N/A | | |
| N/A | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net Income (Loss) | |
$ | 5.4 | | |
$ | 6.7 | | |
$ | (0.7 | ) | |
$ | (0.6 | ) | |
| (11.9 | )% | |
| (18.6 | )% |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Exchange Rate - $ to £ | |
| 1.21 | | |
| 1.34 | | |
| | | |
| | | |
| | | |
| | |
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.
All
variances discussed in the Gaming results below are on a functional currency (at constant rate) basis, which excludes the impact of any
changes in foreign currency exchange rates.
Gaming
Revenue
During
the three-month period, Gaming revenue increased by $6.2 million, or 26%. This was driven by a $1.3 million increase in Service revenue
and a $4.9 million increase in Product revenue.
The
increase in Gaming Service revenue was driven by $1.4 million from the UK market, $0.7 million from the rest of the world and $0.3
million from Lotteries. This was partially offset by lower VAT-related revenue of $0.9
million.
Product
revenue increase was primarily driven by higher Product sales of $4.5 million of UK sales and $0.5 million of mainland Europe
sales.
Gaming
Operating Income
Operating
income increased for the three-month period by $0.3 million. This increase was primarily due to the increase in revenues of $6.2 million
and decrease in depreciation of $0.4 million. This was offset by an increase in cost of sales of $5.2 million and increase of $1.2 million
in SG&A, driven by exhibition costs that were not incurred in the prior year.
Gaming
Net Income
For
the three-month period, Net income decreased by $0.6 million. This was due to the increase in Operating income, offset by the $0.9 million
profit from the disposal of trade and assets from the sale of part of the Italian VLT operations in prior year.
Virtual
Sports
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, Key Performance Indicators
All amounts included herein have been rounded except
where otherwise stated. As figures are rounded, numbers presented throughout this document may not add up precisely to the totals we provide
and percentages may not precisely reflect the absolute figures.
| |
For the Three-Month Period ended | | |
Variance | |
| |
March 31, | | |
March 31, | | |
2023 vs 2022 | |
Virtuals | |
2023 | | |
2022 | | |
| | |
% | |
| |
| | |
| | |
| | |
| |
No. of Live Customers at the end of the period | |
| 58 | | |
| 62 | | |
| (4 | ) | |
| (6.5 | )% |
Average No. of Live Customers | |
| 58 | | |
| 62 | | |
| (4 | ) | |
| (5.9 | )% |
Total Revenue (£’m) | |
£ | 12.3 | | |
£ | 8.7 | | |
£ | 3.6 | | |
| 41.5 | % |
Total Revenue £’m - Retail | |
£ | 2.6 | | |
£ | 2.4 | | |
£ | 0.2 | | |
| 10.0 | % |
Total Revenue £’m - Online Virtuals | |
£ | 9.7 | | |
£ | 6.3 | | |
£ | 3.4 | | |
| 53.5 | % |
In
the table above:
“No.
of Live Customers at the end of the period” and “Average No. of Live Customers” represent the number of customers from
which there is Virtual Sports revenue at the end of the period and the average number of customers from which there is Virtual Sports
revenue during the period, respectively.
“Total
Revenue (£m)” represents total revenue for the Virtual Sports segment, including recurring and upfront service revenue. Total
revenue is also divided between “Total Revenue (£m) – Retail,” which consists of revenue earned through players
wagering at Virtual Sports venues, “Total Revenue (£m) – Online Virtuals,” which consists of revenue earned through
players wagering on Virtual Sports online.
Virtual
Sports, 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.
All
amounts included herein have been rounded except where otherwise stated. As figures are rounded, numbers presented throughout this document
may not add up precisely to the totals we provide and percentages may not precisely reflect the absolute figures.
| |
For the Three-Month Period ended | | |
Variance | |
| |
March 31, | | |
March 31, | | |
2023 vs 2022 | |
(In £ millions) | |
2023 | | |
2022 | | |
| | |
% | |
Virtual Sports Recurring Revenue | |
| | | |
| | | |
| | | |
| | |
Total Virtual Sports Revenue | |
£ | 12.3 | | |
£ | 8.7 | | |
£ | 3.6 | | |
| 42.0 | % |
| |
| | | |
| | | |
| | | |
| | |
Recurring Revenue - Retail Virtuals | |
£ | 2.6 | | |
£ | 2.2 | | |
£ | 0.3 | | |
| 14.9 | % |
Recurring Revenue - Online Virtuals | |
£ | 9.6 | | |
£ | 6.1 | | |
£ | 3.4 | | |
| 56.0 | % |
Total Virtual Sports Long-term license amortization | |
£ | 0.1 | | |
£ | 0.2 | | |
£ | (0.1 | ) | |
| (65.1 | )% |
Total Virtual Sports Recurring Revenue | |
£ | 12.2 | | |
£ | 8.5 | | |
£ | 3.7 | | |
| 43.0 | % |
Virtual Sports Recurring Revenue as a Percentage of Total Virtual Sports Revenue | |
| 98.9 | % | |
| 98.3 | % | |
| 0.7 | % | |
| | |
“Recurring
Revenue” includes our share of revenue generated from (i) our Virtual Sports products placed with operators; (ii) licensing our
game content and intellectual property to third parties; and (iii) our games on third-party online gaming platforms that are interoperable
with our game servers.
“Virtual
Sports Long term license amortization” is the upfront license fee which is typically spread over the life of the contract.
Virtual
Sports, key events
During
the period, we launched a full suite of games including V-Play Soccer™ and V-Play Basketball™ in Ontario with multiple operators
and V-Play Tie-Break Tennis™ with bet365. We launched Online Virtuals via the VPP platform in Turkey with Milli Piyango, in partnership
with leading operator SisalSans.
We
signed a new contract and went live with Mozzarbet for V-Play Plug & Play™ in three new African territories.
We
launched two new products, Virtual Motor Racing and U.S Horses into Entain’s U.K. retail estate. We also launched V-Play
Horses™ with Eurobet in Italy.
We
have also announced a new partnership with Aristocrat Gaming™ to bring a new virtual sports experience to football fans worldwide
through their global licensing agreement with the National Football League (NFL).
Virtual
Sports, Results of Operations
All amounts included herein have been rounded
except where otherwise stated. As figures are rounded, numbers presented throughout this document may not add up precisely to the totals
we provide and percentages may not precisely reflect the absolute figures.
| |
| | |
Variance | |
(In millions) | |
For the Three-Month Period ended | | |
2023 vs 2022 | |
| |
March 31, 2023 | | |
March 31, 2022 | | |
Variance Attributable to Currency Movement | | |
Variance on a Functional currency basis | | |
Total Functional Currency Variance % | | |
Total Reported Variance % | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Service Revenue | |
$ | 14.9 | | |
$ | 11.6 | | |
$ | (1.6 | ) | |
$ | 4.9 | | |
| 42.0 | % | |
| 28.7 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cost of Service | |
| (0.7 | ) | |
| (0.6 | ) | |
| 0.1 | | |
| (0.2 | ) | |
| 38.2 | % | |
| 22.3 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Selling, general and administrative expenses | |
| (1.3 | ) | |
| (1.6 | ) | |
| 0.2 | | |
| 0.1 | | |
| (7.1 | )% | |
| (17.5 | )% |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock-based compensation | |
| (0.2 | ) | |
| (0.1 | ) | |
| 0.0 | | |
| (0.1 | ) | |
| 120.7 | % | |
| 100.0 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Depreciation and amortization | |
| (0.7 | ) | |
| (0.6 | ) | |
| 0.1 | | |
| (0.2 | ) | |
| 28.8 | % | |
| 16.7 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net operating Income (Loss) | |
$ | 12.0 | | |
$ | 8.7 | | |
$ | (1.2 | ) | |
$ | 4.5 | | |
| 51.4 | % | |
| 37.7 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Exchange Rate - $ to £ | |
| 1.21 | | |
| 1.34 | | |
| | | |
| | | |
| | | |
| | |
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.
All
variances discussed in the Virtual Sports results below are on a functional currency (at constant rate) basis, which excludes the impact
of any changes in foreign currency exchange rates.
Virtual
Sports revenue
During
the three-month period, revenue increased by $4.9 million, or 42%. This increase was driven by a $4.6 million increase in Online Virtuals,
primarily driven by the growth from our existing online customers along with expanding jurisdictions, as well as increases in Retail
Virtuals of $0.3 million.
Virtual
Sports operating income
Operating
income increased by $4.5 million in the three-month period. This increase was primarily due to the increase in revenue of $4.9 million,
partly offset by an increase of $0.2 million in cost of sales and an increase in depreciation and amortization of $0.2 million.
Interactive
We
generate revenue from our Interactive segment through the licensing of our products. Typically, we receive fees in exchange for the licensing
of our products, on a long-term contract basis, on a participation basis. Our participation contracts are usually 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,
Key Performance Indicators
All amounts included herein have been rounded except
where otherwise stated. As figures are rounded, numbers presented throughout this document may not add up precisely to the totals we provide
and percentages may not precisely reflect the absolute figures.
| |
For the Three-Month Period ended | | |
Variance | |
| |
March 31, | | |
March 31, | | |
2023 vs 2022 | |
Interactive | |
2023 | | |
2022 | | |
| | |
% | |
| |
| | |
| | |
| | |
| |
No. of Live Customers at the end of the period | |
| 138 | | |
| 112 | | |
| 26 | | |
| 23.2 | % |
Average No. of Live Customers | |
| 135 | | |
| 111 | | |
| 25 | | |
| 22.3 | % |
No. of Games available at the end of the period | |
| 271 | | |
| 242 | | |
| 29 | | |
| 12.0 | % |
Average No. of Games available | |
| 270 | | |
| 239 | | |
| 31 | | |
| 13.0 | % |
No. of Live Games at the end of the period | |
| 247 | | |
| 242 | | |
| 5 | | |
| 2.1 | % |
Average No. of Live Games | |
| 246 | | |
| 239 | | |
| 7 | | |
| 2.9 | % |
Total Revenue (£’m) | |
£ | 5.4 | | |
£ | 3.9 | | |
£ | 1.5 | | |
| 38.2 | % |
In
the table above:
“No.
of Live Customers at the end of the period” and “Average No. of Live Customers” represent the number of customers from
which there is Interactive revenue at the end of the period and the average number of customers from which there is Interactive revenue
during the period, respectively.
“No. of Games available at the end of the period” and “Average No. of Games available” represents
the number of games that are available for operators to deploy at the end of the period (including inactive legacy games still available
and inactive new games that are available but have not yet gone live with any operators) and the average number of games that are available
for operators to deploy during the period, respectively. This incorporates both live games and inactive games.
“No.
of Live Games at the end of the period” and “Average No. of Live Games” represents the number of games from which there
is Interactive revenue at the end of the period and the average number of games from which there is Interactive revenue during the period,
respectively.
“Total
Revenue (£m)” represents total revenue for the Interactive segment, including recurring and upfront service revenue.
Interactive,
key events
During
the period ended March 2023, we went live with seven new operators, including 32Red, AGLC and theScore. In addition, we entered new markets
with five operators, including The Stars Group in Italy and bet365 in Spain.
During
the period we deployed five new games, including a new online game with the Terminator™ licensed brand. Our B2B Game software
permit was approved in Sweden, permitting us to continue to deploy iGaming and Virtual Sports software in the country. We also
signed a contract with Alchemybet to build a new Slingo Gold Cash Free Spins.
Subsequent
to the period end, we launched iGaming content with Fanduel in Michigan.
Interactive,
Results of Operations
All amounts included herein have been rounded except
where otherwise stated. As figures are rounded, numbers presented throughout this document may not add up precisely to the totals we provide
and percentages may not precisely reflect the absolute figures.
| |
| | |
Variance | |
(In millions) | |
For the Three-Month Period ended | | |
2023 vs 2022 | |
| |
March 31, 2023 | | |
March 31, 2022 | | |
Variance Attributable to Currency Movement | | |
Variance on a Functional currency basis | | |
Total Functional Currency Variance % | | |
Total Reported Variance % | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Service Revenue | |
$ | 6.6 | | |
$ | 5.3 | | |
$ | (0.7 | ) | |
$ | 2.0 | | |
| 38.2 | % | |
| 24.5 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cost of Service | |
| (0.9 | ) | |
| (1.0 | ) | |
| 0.1 | | |
| 0.0 | | |
| (1.9 | )% | |
| (11.1 | )% |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Selling, general and administrative expenses | |
| (2.4 | ) | |
| (1.4 | ) | |
| 0.2 | | |
| (1.2 | ) | |
| 87.7 | % | |
| 69.5 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock-based compensation | |
| (0.2 | ) | |
| (0.1 | ) | |
| 0.0 | | |
| (0.1 | ) | |
| 122.1 | % | |
| 100.0 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Depreciation and amortization | |
| (0.8 | ) | |
| (0.7 | ) | |
| 0.1 | | |
| (0.2 | ) | |
| 26.9 | % | |
| 14.3 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net operating Income (Loss) | |
$ | 2.3 | | |
$ | 2.1 | | |
$ | (0.3 | ) | |
$ | 0.5 | | |
| 24.3 | % | |
| 11.4 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Exchange Rate - $ to £ | |
| 1.21 | | |
| 1.35 | | |
| | | |
| | | |
| | | |
| | |
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.
All
variances discussed in the Interactive results below are on a functional currency (at constant rate) basis, which excludes the impact
of any changes in foreign currency exchange rates.
Interactive
revenue
During
three-month period, revenue increased by $2.0 million, or 38%, primarily driven by revenue growth in the UK, US and Canada due to the
consistent launch of new content across the estate and increased promotional
activity through exclusive deals with tier-one customers.
Interactive
operating income
Operating
income for the three-month period increased by $0.5 million. This increase was driven by the increase in revenue, partially offset by
a $1.2 million increase in SG&A expenses driven by exhibition costs that were not incurred during the prior year period as well and
increase in staff costs due to an investment in new technology and commercial heads.
Leisure
We
typically generate revenue from our Leisure segment through the supply 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. Our participation contracts are usually
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, any relevant regulatory levies and minimum fixed incomes where applicable) from machines placed in our customers’
facilities. We generally 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 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,
Key Performance Indicators
All amounts included herein have been rounded except
where otherwise stated. As figures are rounded, numbers presented throughout this document may not add up precisely to the totals we provide
and percentages may not precisely reflect the absolute figures.
| |
For the Three-Month Period ended | | |
Variance | |
| |
March 31, | | |
March 31, | | |
2023 vs 2022 | |
Leisure | |
2023 | | |
2022 | | |
| | |
% | |
| |
| | |
| | |
| | |
| |
End of period installed base Gaming machines (# of terminals) | |
| 10,811 | | |
| 11,060 | | |
| (249 | ) | |
| (2.3 | )% |
Average installed base Gaming machines (# of terminals) | |
| 10,821 | | |
| 11,248 | | |
| (426 | ) | |
| (3.8 | )% |
End of period installed base Other (# of terminals) | |
| 4,546 | | |
| 6,356 | | |
| (1,810 | ) | |
| (28.5 | )% |
Average installed base Other (# of terminals) | |
| 4,519 | | |
| 6,524 | | |
| (2,005 | ) | |
| (30.7 | )% |
Pub Digital Gaming Machines - Average installed base (# of terminals) | |
| 6,028 | | |
| 6,326 | | |
| (297 | ) | |
| (4.7 | )% |
Pub Analogue Gaming Machines - Average installed base (# of terminals) | |
| 499 | | |
| 1,720 | | |
| (1,221 | ) | |
| (71.0 | )% |
MSA and Bingo Gaming Machines - Average installed base (# of terminals)(1) | |
| 3,089 | | |
| 3,189 | | |
| (100 | ) | |
| (3.1 | )% |
Inspired Leisure Revenue per Gaming Machine per week | |
£ | 66.4 | | |
£ | 64.2 | | |
£ | 2.2 | | |
| 3.4 | % |
Inspired Pub Digital Revenue per Gaming Machine per week | |
£ | 70.3 | | |
£ | 66.1 | | |
£ | 4.2 | | |
| 6.4 | % |
Inspired Pub Analogue Revenue per Gaming Machine per week | |
£ | 36.8 | | |
£ | 39.2 | | |
£ | (2.4 | ) | |
| (6.1 | )% |
Inspired MSA and Bingo Revenue per Gaming Machine per week | |
£ | 89.4 | | |
£ | 87.3 | | |
£ | 2.1 | | |
| 2 | % |
Inspired Other Revenue per Machine per week | |
£ | 20.1 | | |
£ | 20.2 | | |
£ | (0.1 | ) | |
| (0.4 | )% |
| |
| | | |
| | | |
| | | |
| | |
Total Holiday Parks Revenue (Gaming and Non Gaming) (£’m) | |
£ | 2.9 | | |
£ | 2.5 | | |
£ | 0.4 | | |
| 14.9 | % |
(1) |
Motorway
Service Area machines |
In
the table above:
“End
of period installed base Gaming” and “Average installed base Gaming” represent the number of gaming machines installed
(excluding Holiday Park machines) that are Category B and Category C only, from which there is participation or rental revenue at the
end of the period or as an average over the period.
“End
of period installed base Other” and “Average installed base Other” represent the number of all other category machines
installed (excluding Holiday Park machines) from which there is participation or rental revenue at the end of the period or as an average
over the period.
“Revenue
per machine unit per week” represents the average weekly participation or rental revenue recognized during the period.
Leisure,
key events
During
the three months ended March 31, 2023 we successfully installed 370 machines (a mixture of Amusement and Gaming) and commenced operations
at holiday park operator Butlins in Bognor Regis with initial performance being strong. Holiday Parks performance across all other sites
has been strong in the quarter.
In
the Pubs business we signed a new 4-year agreement with Stonegate Group, one of the largest UK operators of Pubs in the managed, leased
and tenanted sectors.
Our
Prismatic Cat C estate saw the release of Bonus Fruits, Burning Hot Deluxe and Bullion Bars Pub edition. Our Prismatic performance is the number one cabinet and product across UK Pubs.
In
the Bingo sector we deployed sixty new Prismatic Fortune community machines to 15 Mecca Bingo sites nationwide in the UK as well as released
new content Clockwork Orange Fortune Community.
Performance
was strong in the quarter across our MSA estate, with successful launches of Anubis Gold and Super Bonus Joker Free Spins. One of our
largest customers, Moto completed major AGC refurbishments and new layouts at two of its highest revenue earning sites (Medway and Thurrock)
which included investment in Flex and Prismatic machines.
Leisure,
Results of Operations
All amounts included herein have been rounded except
where otherwise stated. As figures are rounded, numbers presented throughout this document may not add up precisely to the totals we provide
and percentages may not precisely reflect the absolute figures.
| |
| | |
Variance | |
(In millions) | |
For the Three-Month Period ended | | |
2023
vs 2022 | |
| |
March 31, 2023 | | |
March
31, 2022 | | |
Variance
Attributable to Currency Movement | | |
Variance
on a Functional currency basis | | |
Total
Functional Currency Variance % | | |
Total
Reported Variance % | |
Revenue: | |
| | |
| | |
| | |
| | |
| | |
| |
Service | |
$ | 16.6 | | |
$ | 19.0 | | |
$ | (1.6 | ) | |
$ | (0.8 | ) | |
| (4.0 | )% | |
| (12.9 | )% |
Product | |
| 0.5 | | |
| 0.6 | | |
| (0.1 | ) | |
| (0.0 | ) | |
| (3.1 | )% | |
| (12.2 | )% |
Total revenue | |
| 17.1 | | |
| 19.6 | | |
| (1.7 | ) | |
| (0.8 | ) | |
| (3.9 | )% | |
| (12.8 | )% |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cost of Sales, excluding depreciation and amortization: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cost of Service | |
| (4.1 | ) | |
| (5.5 | ) | |
| 0.4 | | |
| 1.0 | | |
| (18.3 | )% | |
| (25.3 | )% |
Cost of Product | |
| (0.4 | ) | |
| (0.3 | ) | |
| 0.0 | | |
| (0.1 | ) | |
| 24.1 | % | |
| 21.7 | % |
Total cost of sales | |
| (4.5 | ) | |
| (5.8 | ) | |
| 0.4 | | |
| 0.9 | | |
| (16.2 | )% | |
| (22.9 | )% |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Selling, general and administrative expenses | |
| (11.1 | ) | |
| (11.3 | ) | |
| 1.1 | | |
| (0.9 | ) | |
| 7.9 | % | |
| (2.2 | )% |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock-based compensation | |
| (0.1 | ) | |
| (0.2 | ) | |
| 0.0 | | |
| 0.1 | | |
| (44.9 | )% | |
| (50.0 | )% |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Depreciation and amortization | |
| (3.1 | ) | |
| (3.7 | ) | |
| 0.3 | | |
| 0.3 | | |
| (7.7 | )% | |
| (16.2 | )% |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net operating Income (Loss) | |
| (1.7 | ) | |
| (1.4 | ) | |
$ | 0.1 | | |
$ | (0.4 | ) | |
| 24.9 | % | |
| 16.3 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Exchange Rate - $ to £ | |
| 1.21 | | |
| 1.34 | | |
| | | |
| | | |
| | | |
| | |
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.
All
variances discussed in the Leisure results below are on a functional currency (at constant rate) basis, which excludes the impact of
any changes in foreign currency exchange rates.
Leisure
Revenue
For
the three-month period, revenue decreased by $0.8 million, primarily due to the structured withdrawal of non-core low-margin amusement and prize vend machines as recognized
in the third quarter of 2022 as well as the reduction in the number of gaming machines.
Service
revenue decreased by $0.8 million, driven by the decline in Pubs of $1.0 million and Bingo Halls of $0.3 million, partly offset by the
increase in Holiday parks of $0.5 million.
Leisure
Operating Income/ (Loss)
Operating
loss for the three-month period was a loss of $1.7 million compared to a loss of $1.4 million during the prior year period. This was
primarily due to the decrease in revenue driven by the decline in the Pubs business and the increase in SG&A expenses driven by
the increase in headcount from the investment in technology and service areas of the business as well as exhibitions costs that
were not incurred in the prior year period. This was partially offset by a decrease in cost of sales of $0.9 million and a decrease
in depreciation and amortization of $0.3 million.
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 income (loss) excluding depreciation and amortization, interest expense, interest income and income tax expense.
Adjusted
EBITDA is defined as net income (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 Income (Loss), to Adjusted EBITDA are shown below.
Reconciliation
to Adjusted EBITDA by segment for the Three Months ended March 31, 2023
All amounts included herein have been rounded except
where otherwise stated. As figures are rounded, numbers presented throughout this document may not add up precisely to the totals we provide
and percentages may not precisely reflect the absolute figures.
| |
For the Three-Month Period ended | |
| |
March 31, | |
(In millions) | |
2023 | |
| |
Total | | |
Gaming | | |
Virtual Sports | | |
Interactive | | |
Leisure | | |
Corporate | |
Net Income/ (loss) | |
$ | (0.2 | ) | |
$ | 5.4 | | |
$ | 12.0 | | |
$ | 2.3 | | |
$ | (1.7 | ) | |
$ | (18.2 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Items Relating to Legacy Activities: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Pension charges (1) | |
| 0.2 | | |
| | | |
| | | |
| | | |
| | | |
| 0.2 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Items outside the normal course of business: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Costs of group restructure (3) | |
| 3.0 | | |
| | | |
| | | |
| | | |
| | | |
| 3.0 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock-based compensation expense (4) | |
| 2.9 | | |
| 0.3 | | |
| 0.2 | | |
| 0.2 | | |
| 0.1 | | |
| 2.1 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Depreciation and amortization (4) | |
| 8.9 | | |
| 3.8 | | |
| 0.7 | | |
| 0.8 | | |
| 3.1 | | |
| 0.5 | |
Interest expense net (4) | |
| 6.3 | | |
| | | |
| | | |
| | | |
| | | |
| 6.3 | |
Other finance expenses / (income) (4) | |
| (0.1 | ) | |
| | | |
| | | |
| | | |
| | | |
| (0.1 | ) |
Income tax (4) | |
| 0.1 | | |
| | | |
| | | |
| | | |
| | | |
| 0.1 | |
Adjusted EBITDA | |
$ | 21.1 | | |
$ | 9.5 | | |
$ | 12.9 | | |
$ | 3.3 | | |
$ | 1.5 | | |
$ | (6.1 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Adjusted EBITDA | |
£ | 17.4 | | |
£ | 7.8 | | |
£ | 10.5 | | |
£ | 2.7 | | |
£ | 1.3 | | |
£ | (5.1 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Exchange Rate - $ to £ (5) | |
| 1.21 | | |
| | | |
| | | |
| | | |
| | | |
| | |
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 March 31, 2022
All amounts included herein have been rounded except
where otherwise stated. As figures are rounded, numbers presented throughout this document may not add up precisely to the totals we provide
and percentages may not precisely reflect the absolute figures.
| |
For the Three-Month Period ended | |
| |
March 31, | |
(In millions) | |
2022 | |
| |
Total | | |
Gaming | | |
Virtual Sports | | |
Interactive | | |
Leisure | | |
Corporate | |
Net Income/ (loss) | |
$ | 1.5 | | |
$ | 6.7 | | |
$ | 8.7 | | |
$ | 2.1 | | |
$ | (1.4 | ) | |
$ | (14.5 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Items Relating to Legacy Activities: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Pension charges (1) | |
| 0.1 | | |
| | | |
| | | |
| | | |
| | | |
| 0.1 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Items outside the normal course of business: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Acquisition and integration related transaction expenses (2) | |
| 0.1 | | |
| 0.1 | | |
| | | |
| | | |
| | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock-based compensation expense (4) | |
| 2.8 | | |
| 0.3 | | |
| 0.1 | | |
| 0.1 | | |
| 0.2 | | |
| 2.1 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Depreciation and amortization (4) | |
| 10.1 | | |
| 4.6 | | |
| 0.6 | | |
| 0.7 | | |
| 3.7 | | |
| 0.5 | |
Interest expense net (4) | |
| 6.5 | | |
| | | |
| | | |
| | | |
| | | |
| 6.5 | |
Profit on disposal of business (6) | |
| (0.9 | ) | |
| (0.9 | ) | |
| | | |
| | | |
| | | |
| - | |
Other finance expenses / (income) (4) | |
| (0.3 | ) | |
| | | |
| | | |
| | | |
| | | |
| (0.3 | ) |
Income tax (4) | |
| 0.1 | | |
| | | |
| | | |
| | | |
| | | |
| 0.1 | |
Adjusted EBITDA | |
$ | 20.1 | | |
$ | 10.8 | | |
$ | 9.4 | | |
$ | 2.9 | | |
$ | 2.5 | | |
$ | (5.5 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Adjusted EBITDA | |
£ | 15.0 | | |
£ | 8.1 | | |
£ | 7.1 | | |
£ | 2.1 | | |
£ | 1.8 | | |
£ | (4.1 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Exchange Rate - $ to £ (5) | |
| 1.34 | | |
| | | |
| | | |
| | | |
| | | |
| | |
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.
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) |
Acquisition
and integration related transaction expenses, are as described above in the Results of Operations line item discussions. |
|
|
(3) |
“Costs
of group restructure” include redundancy costs, Payments In Lieu of Notice costs and any associated employer taxes. To qualify
as being an adjusting item, costs must be part of a large restructuring project, which will net save ongoing future costs. |
|
|
(4) |
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. |
|
|
(5) |
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. |
(6) |
“Profit
on disposal of trade & assets” — In January 2022, the Company sold its Italian VLT business, including all terminals
and other assets, staff costs and facilities and contracts to a non-connected party, recognizing a profit on this disposal. |
Liquidity
and Capital Resources
Three
Months ended March 31, 2023, compared to Three Months ended March 31, 2022
All amounts included herein have been rounded except
where otherwise stated. As figures are rounded, numbers presented throughout this document may not add up precisely to the totals we provide
and percentages may not precisely reflect the absolute figures.
| |
Three Months ended | | |
Variance | |
(in millions) | |
Mar 31, | | |
Mar 31, | | |
| |
| |
2023 | | |
2022 | | |
2023 to 2022 | |
Net (loss)/profit | |
$ | (0.2 | ) | |
$ | 1.5 | | |
$ | (1.7 | ) |
Amortization of debt fees | |
| 0.3 | | |
| 0.4 | | |
| (0.1 | ) |
Change in fair value of derivative liabilities and stock-based compensation expense | |
| 3.1 | | |
| 3.0 | | |
| 0.1 | |
Depreciation and amortization (incl RoU assets) | |
| 9.4 | | |
| 10.8 | | |
| (1.4 | ) |
Other net cash generated/(utilized) by operating activities | |
| 2.2 | | |
| (10.6 | ) | |
| 12.8 | |
Net cash provided by operating activities | |
| 14.8 | | |
| 5.1 | | |
| 9.7 | |
| |
| | | |
| | | |
| | |
Net cash used in investing activities | |
| (11.5 | ) | |
| (10.9 | ) | |
| (0.6 | ) |
Net cash used by financing activities | |
| (0.5 | ) | |
| (0.1 | ) | |
| (0.4 | ) |
Effect of exchange rates on cash | |
| 0.0 | | |
| (1.1 | ) | |
| 1.1 | |
Net increase/(decrease) in cash and cash equivalents | |
$ | 2.8 | | |
$ | (7.0 | ) | |
$ | 9.8 | |
Net
cash provided by operating activities
For
the three months ended March 31, 2023, net cash inflow provided by operating activities was $14.8 million, compared to a $5.1 million
inflow for the three months ended March 31, 2022, representing a $9.7 million increase in cash generation from operating activities.
This increase was driven primarily through improved working capital levels with the three months ended March 31, 2023 benefitting from
favorable receipts due to the timing of sales and the three months ended March 31, 2022 showing significant inventory increases after
the Company made the strategic decision to secure components and protect sales in a challenging global supply chain market.
Depreciation
and amortization decreased by $1.4 million, to $9.4 million, with reductions of $1.0 million in machine depreciation and $0.2million
for both amortization of intangible assets and amortization of right of use assets.
Other
net cash generated/(utilized) by operating activities increased by $12.8 million, to a $2.2 million inflow. The relative movements
between the three months ended March 31, 2023 and the three months ended March 31, 2022 resulted in a $10.6 million increase from
receivables due to timing of sales, a $7.3 million inventory increase due to a smaller rise in inventory in the three months ended
March 31, 2023 compared to the prior year when the Company made the
strategic decision to secure components and protect sales in a challenging global supply chain market and a $3.4 million favorable
movement in payroll and trading taxes. This was partly offset by an $8.3 million adverse movement in accounts payable due to timing
and the prior year movement being impacted by the increase in inventory levels.
Net
cash used in investing activities
Net
cash utilized in investing activities increased by $0.6 million, to $11.5 million during the three months ended March 31, 2023. This
was driven by higher spend on plant, property and equipment (a $0.8 million increase compared to 2022 offset by a $0.4 million reduction
of spend on capitalized software.
Net
cash (used)/generated by financing activities
During
the three months ended March 31, 2023, net cash utilized by financing activities was $0.5 million relating to finance lease spend. During
the three months ended March 31, 2022, net cash utilized by financing activities was $0.1 million relating to finance lease spend.
Funding
Needs and Sources
To
fund our obligations, we have historically relied on a combination of cash flows provided by operations and the incurrence of additional
debt or the refinancing of existing debt. As of March 31, 2023, we had liquidity consisting of $27.8 million in cash and cash equivalents
and a further $24.7 million of undrawn revolver facility. This compares to $40.8 million of cash and cash equivalents as of March 31,
2022, with a further $26.3 million of revolver facilities undrawn. We had a working capital inflow of $2.2 million for the three months
ended March 31, 2023, compared to a $10.6 million outflow for the three months ended March 31, 2022.
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. In periods with minimal machine volumes and capital spend, our working
capital is typically more stable. In periods where significant numbers of machines are being produced, the levels of inventory and creditors
are typically higher and there is a natural timing difference between converting the stock into sellable or capitalized plant and settling
payments to suppliers. These factors, along with movements in trading activity levels can result in significant working capital volatility.
In periods of low activity, our working capital volatility is reduced. Working capital is reviewed and managed with the aim of ensuring
that current liabilities are covered by the level of cash held and the expected level of short-term receipts.
Some
of our business operations require cash to be held within the machines. As of March 31, 2023, $5.5 million of our $27.8 million of cash
and cash equivalents were held as operational floats within the machines. At March 31, 2022, $4.9 million of our $40.8 million of cash
and cash equivalents were held as operational floats within the machines
Management
currently believes that 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 May 2024.
Long
Term and Other Debt
All amounts included herein have been rounded except
where otherwise stated. As figures are rounded, numbers presented throughout this document may not add up precisely to the totals we provide
and percentages may not precisely reflect the absolute figures.
(In millions) | |
March 31, 2023 | | |
March 31, 2022 | |
Cash held | |
£ | 22.5 | | |
$ | 27.8 | | |
£ | 31.0 | | |
$ | 40.8 | |
Original principal senior debt | |
| (235.0 | ) | |
| (290.6 | ) | |
| (235.0 | ) | |
| (309.3 | ) |
Cash interest accrued | |
| (6.1 | ) | |
| (7.6 | ) | |
| (6.1 | ) | |
| (8.1 | ) |
Finance lease creditors | |
| (1.4 | ) | |
| (1.7 | ) | |
| (2.0 | ) | |
| (2.7 | ) |
Total | |
£ | (220.0 | ) | |
$ | (272.1 | ) | |
£ | (212.2 | ) | |
$ | (279.3 | ) |
Debt
Covenants
Under
our debt facilities in place as of March 31, 2023, 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 6.0x on March 31, 2022, stepping down to 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. Covenant testing at March 31, 2023
showed covenant compliance with a net leverage of 2.6x.
There
were no breaches of the debt covenants in the periods ended March 31, 2023 or March 31, 2022.
Liens
and Encumbrances
As
of March 31, 2023, 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.
Share
Repurchases
The
Board of Directors has authorized that the Company may use up to $25.0 million to repurchase Inspired shares of common stock, subject
to repurchases being effected on or before May 10, 2025. Management has discretion as to whether to repurchase shares of the Company.
There were no repurchases in the three months ended March 31, 2023 but at this point an aggregate of $10.5 million of our shares of common
stock had been repurchased.
Contractual
Obligations
As
of March 31, 2023, 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 | |
$ | 80.1 | | |
$ | 22.9 | | |
$ | 45.7 | | |
$ | 11.5 | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Financing activities | |
| | | |
| | | |
| | | |
| | | |
| | |
Senior bank debt - principal repayment | |
| 290.6 | | |
| - | | |
| - | | |
| 290.6 | | |
| - | |
Finance lease payments | |
| 1.7 | | |
| 0.5 | | |
| 1.2 | | |
| - | | |
| - | |
Operating lease payments | |
| 8.4 | | |
| 2.8 | | |
| 3.1 | | |
| 1.1 | | |
| 1.4 | |
Interest on non-utilization fees | |
| 0.9 | | |
| 0.3 | | |
| 0.6 | | |
| - | | |
| - | |
Total | |
$ | 381.7 | | |
$ | 26.5 | | |
$ | 50.6 | | |
$ | 303.2 | | |
$ | 1.4 | |
Off-Balance
Sheet Arrangements
As
of March 31, 2023, 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 and Accounting Estimates
The
preparation of our audited 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.