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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended June 30, 2024
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period _______________
Commission
File Number: 001-36689
INSPIRED
ENTERTAINMENT, INC.
(Exact
name of registrant as specified in its charter)
Delaware |
|
47-1025534 |
(State or other jurisdiction
of |
|
(I.R.S. Employer |
incorporation or organization) |
|
Identification Number) |
250 West
57th Street, Suite 415 |
|
|
New
York, NY |
|
10107 |
(Address of principal executive
offices) |
|
(Zip Code) |
Registrant’s
telephone number, including area code: (646) 565-3861
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated
filer ☐ |
|
Accelerated filer ☒ |
Non-accelerated filer ☐ |
|
Smaller reporting company ☒ |
|
|
Emerging growth company ☐ |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange on which registered |
Common stock, par value
$0.0001 per share |
|
INSE |
|
The NASDAQ Stock Market
LLC |
As
of August 6, 2024, there were 26,574,804 shares of the Company’s common stock issued and outstanding.
Explanatory
Note:
Although
on January 1, 2024, we ceased to qualify as a smaller reporting company, as defined in Rule 12b-2 promulgated under the Exchange Act,
we have requalified for such status commencing with this Quarterly Report on Form 10-Q, based on the aggregate market value of our common
stock held by non-affiliates as of June 30, 2024. Our status as a smaller reporting company allows us to provide scaled disclosure in
certain SEC filings, which may permit less disclosure than would apply to reporting companies that did not so qualify.
TABLE
OF CONTENTS
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
References
in this report to “we,” “us,” “our,” the “Company” and “Inspired” refer to
Inspired Entertainment, Inc. and its subsidiaries unless the context suggests otherwise.
Certain
statements and other information set forth in this report, including in Item 2, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and elsewhere herein, may relate to future events and expectations, and as such
constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”). Our forward-looking
statements include, but are not limited to, statements regarding our business strategy, plans and objectives and our expected or contemplated
future operations, results, financial condition, beliefs and intentions. In addition, any statements that refer to projections, forecasts
or other characterizations or predictions of future events or circumstances, including any underlying assumptions on which such statements
are expressly or implicitly based, are forward-looking statements. The words “anticipate,” “believe,” “continue,”
“can,” “could,” “estimate,” “expect,” “intend,” “may,” “might,”
“plan,” “possible,” “potential,” “predict,” “project,” “scheduled,”
“seek,” “should,” “would” and similar expressions, among others, and negatives expressions including
such words, may identify forward-looking statements.
Our
forward-looking statements reflect our current expectations about our future results, performance, liquidity, financial condition, prospects
and opportunities, and are based upon information currently available to us, our interpretation of what we believe to be significant
factors affecting our business and many assumptions regarding future events. Actual results, performance, liquidity, financial condition,
prospects and opportunities could differ materially from those expressed in, or implied by, our forward-looking statements. This could
occur as a result of various risks and uncertainties, including the following:
|
● |
government regulation of
our industries; |
|
|
|
|
● |
our ability to compete
effectively in our industries; |
|
|
|
|
● |
the effect of evolving
technology on our business; |
|
|
|
|
● |
our ability to renew long-term
contracts and retain customers, and secure new contracts and customers; |
|
|
|
|
● |
our ability to maintain
relationships with suppliers; |
|
|
|
|
● |
our ability to protect
our intellectual property; |
|
|
|
|
● |
our ability to protect
our business against cybersecurity threats; |
|
|
|
|
● |
our ability to successfully
grow by acquisition as well as organically; |
|
|
|
|
● |
fluctuations due to seasonality; |
|
|
|
|
● |
our ability to attract
and retain key members of our management team; |
|
|
|
|
● |
our need for working capital; |
|
|
|
|
● |
our ability to secure capital
for growth and expansion; |
|
|
|
|
● |
changing consumer, technology
and other trends in our industries; |
|
● |
our ability to successfully
operate across multiple jurisdictions and markets around the world; |
|
|
|
|
● |
changes in local, regional
and global economic and political conditions; and |
|
|
|
|
● |
other factors described
in the reports and documents we file from time to time with the U.S. Securities and Exchange Commission (the “SEC”). |
In
light of these risks and uncertainties, and others discussed in this report, there can be no assurance that any matters covered by our
forward-looking statements will develop as predicted, expected or implied. Readers should not place undue reliance on any forward-looking
statements. Except as expressly required by the federal securities laws, we undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason. We advise
you to carefully review the reports and documents we file from time to time with the SEC.
PART
I - FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
INSPIRED
ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(in
millions, except share data)
| |
June 30, 2024 | | |
December 31, 2023 | |
| |
| (Unaudited) | | |
| | |
Assets | |
| | | |
| | |
Cash | |
$ | 23.5 | | |
$ | 40.0 | |
Accounts receivable, net | |
| 41.9 | | |
| 40.6 | |
Inventory | |
| 30.4 | | |
| 32.3 | |
Prepaid expenses and other current assets | |
| 39.7 | | |
| 39.6 | |
Total current assets | |
| 135.5 | | |
| 152.5 | |
| |
| | | |
| | |
Property and equipment, net | |
| 61.4 | | |
| 62.8 | |
Software development costs, net | |
| 23.1 | | |
| 21.8 | |
Other acquired intangible assets subject to amortization, net | |
| 16.7 | | |
| 13.4 | |
Goodwill | |
| 58.3 | | |
| 58.8 | |
Operating lease right of use asset | |
| 15.3 | | |
| 14.2 | |
Costs of obtaining and fulfilling customer contracts, net | |
| 10.3 | | |
| 9.4 | |
Other assets | |
| 6.0 | | |
| 8.0 | |
Total assets | |
$ | 326.6 | | |
$ | 340.9 | |
| |
| | | |
| | |
Liabilities and Stockholders’ Deficit | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable and accrued expenses | |
$ | 47.7 | | |
$ | 60.8 | |
Corporate tax and other current taxes payable | |
| 4.5 | | |
| 6.3 | |
Deferred revenue, current | |
| 4.9 | | |
| 5.6 | |
Operating lease liabilities | |
| 5.2 | | |
| 4.7 | |
Current portion of long-term debt | |
| 19.0 | | |
| 19.1 | |
Other current liabilities | |
| 6.4 | | |
| 4.2 | |
Total current liabilities | |
| 87.7 | | |
| 100.7 | |
| |
| | | |
| | |
Long-term debt | |
| 294.0 | | |
| 295.6 | |
Finance lease liabilities, net of current portion | |
| 2.0 | | |
| 1.6 | |
Deferred revenue, net of current portion | |
| 7.2 | | |
| 7.1 | |
Operating lease liabilities | |
| 10.3 | | |
| 9.8 | |
Other long-term liabilities | |
| 2.8 | | |
| 4.1 | |
Total liabilities | |
| 404.0 | | |
| 418.9 | |
| |
| | | |
| | |
Commitments and contingencies | |
| - | | |
| - | |
| |
| | | |
| | |
Stockholders’ deficit | |
| | | |
| | |
Preferred stock; $0.0001 par value; 1,000,000 shares authorized, no shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively. | |
| — | | |
| — | |
Common stock; $0.0001 par value; 49,000,000 shares authorized; 26,571,308 shares and 26,219,021 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively | |
| — | | |
| — | |
Additional paid in capital | |
| 389.0 | | |
| 386.1 | |
Accumulated other comprehensive income | |
| 45.9 | | |
| 44.5 | |
Accumulated deficit | |
| (512.3 | ) | |
| (508.6 | ) |
Total stockholders’ deficit | |
| (77.4 | ) | |
| (78.0 | ) |
Total liabilities and stockholders’ deficit | |
$ | 326.6 | | |
$ | 340.9 | |
The
accompanying notes are an integral part of these condensed consolidated financial statements.
INSPIRED
ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in
millions, except share and per share data)
(Unaudited)
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
Revenue: | |
| | |
| | |
| | |
| |
Service | |
$ | 65.8 | | |
$ | 67.5 | | |
$ | 122.9 | | |
$ | 125.0 | |
Product sales | |
| 9.8 | | |
| 11.9 | | |
| 15.8 | | |
| 19.3 | |
Total revenue | |
| 75.6 | | |
| 79.4 | | |
| 138.7 | | |
| 144.3 | |
| |
| | | |
| | | |
| | | |
| | |
Cost of sales: | |
| | | |
| | | |
| | | |
| | |
Cost of service (1) | |
| (19.0 | ) | |
| (20.5 | ) | |
| (34.9 | ) | |
| (35.5 | ) |
Cost of product sales (1) | |
| (5.8 | ) | |
| (8.4 | ) | |
| (10.3 | ) | |
| (15.1 | ) |
Cost of
sales | |
| (5.8 | ) | |
| (8.4 | ) | |
| (10.3 | ) | |
| (15.1 | ) |
Selling, general and administrative expenses | |
| (30.8 | ) | |
| (26.6 | ) | |
| (65.0 | ) | |
| (55.8 | ) |
Depreciation and amortization | |
| (10.6 | ) | |
| (10.1 | ) | |
| (20.5 | ) | |
| (19.5 | ) |
Net operating income | |
| 9.4 | | |
| 13.8 | | |
| 8.0 | | |
| 18.4 | |
| |
| | | |
| | | |
| | | |
| | |
Other expense | |
| | | |
| | | |
| | | |
| | |
Interest expense, net | |
| (6.7 | ) | |
| (7.3 | ) | |
| (13.3 | ) | |
| (13.6 | ) |
Other finance income | |
| 0.1 | | |
| 0.1 | | |
| 0.2 | | |
| 0.2 | |
| |
| | | |
| | | |
| | | |
| | |
Total other expense, net | |
| (6.6 | ) | |
| (7.2 | ) | |
| (13.1 | ) | |
| (13.4 | ) |
| |
| | | |
| | | |
| | | |
| | |
Income tax (expense) benefit | |
| (0.8 | ) | |
| (1.0 | ) | |
| 1.4 | | |
| (0.8 | ) |
Net income (loss) | |
| 2.0 | | |
| 5.6 | | |
| (3.7 | ) | |
| 4.2 | |
| |
| | | |
| | | |
| | | |
| | |
Other comprehensive income: | |
| | | |
| | | |
| | | |
| | |
Foreign currency translation (loss) gain | |
| (0.2 | ) | |
| (2.7 | ) | |
| 0.8 | | |
| (5.6 | ) |
Reclassification of loss on hedging instrument to comprehensive income | |
| — | | |
| 0.1 | | |
| — | | |
| 0.3 | |
Actuarial gains on pension plan | |
| 0.3 | | |
| 0.3 | | |
| 0.6 | | |
| 0.5 | |
Other comprehensive income (loss) | |
| 0.1 | | |
| (2.3 | ) | |
| 1.4 | | |
| (4.8 | ) |
| |
| | | |
| | | |
| | | |
| | |
Comprehensive income (loss) | |
$ | 2.1 | | |
$ | 3.3 | | |
$ | (2.3 | ) | |
$ | (0.6 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net income (loss) per common share – basic | |
$ | 0.07 | | |
$ | 0.20 | | |
$ | (0.13 | ) | |
$ | 0.15 | |
Net income (loss) per common share - diluted | |
$ | 0.07 | | |
$ | 0.19 | | |
$ | (0.13 | ) | |
$ | 0.14 | |
| |
| | | |
| | | |
| | | |
| | |
Weighted average number of shares outstanding during the period – basic | |
| 28,474,059 | | |
| 28,186,725 | | |
| 28,538,897 | | |
| 28,081,041 | |
Weighted average number of shares outstanding during the period – diluted | |
| 29,046,281 | | |
| 29,073,078 | | |
| 28,538,897 | | |
| 29,023,288 | |
| |
| | | |
| | | |
| | | |
| | |
Supplemental disclosure of stock-based compensation expense | |
| | | |
| | | |
| | | |
| | |
Stock-based compensation included in: | |
| | | |
| | | |
| | | |
| | |
Selling, general and administrative expenses | |
$ | (1.6 | ) | |
$ | (3.1 | ) | |
$ | (3.9 | ) | |
$ | (6.0 | ) |
The
accompanying notes are an integral part of these condensed consolidated financial statements.
INSPIRED
ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR
THE PERIOD JANUARY 1, 2024 TO JUNE 30, 2024
(in
millions, except share data)
(Unaudited)
| |
Shares | | |
Amount | | |
capital | | |
income | | |
deficit | | |
deficit | |
| |
Common stock | | |
Additional paid in | | |
Accumulated other comprehensive | | |
Accumulated | | |
Total stockholders’ | |
| |
Shares | | |
Amount | | |
capital | | |
income | | |
deficit | | |
deficit | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Balance as of January 1, 2024 | |
| 26,219,021 | | |
$ | — | | |
$ | 386.1 | | |
$ | 44.5 | | |
$ | (508.6 | ) | |
$ | (78.0 | ) |
Foreign currency translation adjustments | |
| — | | |
| — | | |
| — | | |
| 1.0 | | |
| — | | |
| 1.0 | |
Reclassification of loss on pension plan to comprehensive income | |
| — | | |
| — | | |
| — | | |
| 0.3 | | |
| — | | |
| 0.3 | |
Issuances under stock plans | |
| 340,735 | | |
| — | | |
| (0.8 | ) | |
| — | | |
| — | | |
| (0.8 | ) |
Stock-based compensation expense | |
| — | | |
| — | | |
| 2.0 | | |
| — | | |
| — | | |
| 2.0 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| (5.7 | ) | |
| (5.7 | ) |
Balance as of March 31, 2024 | |
| 26,559,756 | | |
$ | — | | |
$ | 387.3 | | |
$ | 45.8 | | |
$ | (514.3 | ) | |
$ | (81.2 | ) |
Foreign currency translation adjustments | |
| — | | |
| — | | |
| — | | |
| (0.2 | ) | |
| — | | |
| (0.2 | ) |
Reclassification of loss on pension plan to comprehensive income | |
| — | | |
| — | | |
| — | | |
| 0.3 | | |
| — | | |
| 0.3 | |
Issuances under stock plans | |
| 11,552 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Stock-based compensation expense | |
| — | | |
| — | | |
| 1.7 | | |
| — | | |
| — | | |
| 1.7 | |
Net income | |
| — | | |
| — | | |
| — | | |
| — | | |
| 2.0 | | |
| 2.0 | |
Balance as of June 30, 2024 | |
| 26,571,308 | | |
$ | — | | |
$ | 389.0 | | |
$ | 45.9 | | |
$ | (512.3 | ) | |
$ | (77.4 | ) |
The
accompanying notes are an integral part of these condensed consolidated financial statements.
INSPIRED
ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR
THE PERIOD JANUARY 1, 2023 TO JUNE 30, 2023
(in
millions, except share data)
(Unaudited)
| |
Common stock | | |
Additional paid in | | |
Accumulated other comprehensive | | |
Accumulated | | |
Total stockholders’ | |
| |
Shares | | |
Amount | | |
capital | | |
income | | |
deficit | | |
deficit | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Balance as of January 1, 2023 | |
| 25,909,516 | | |
$ | — | | |
$ | 378.2 | | |
$ | 50.8 | | |
$ | (514.6 | ) | |
$ | (85.6 | ) |
Foreign currency translation adjustments | |
| — | | |
| — | | |
| — | | |
| (2.9 | ) | |
| — | | |
| (2.9 | ) |
Reclassification of loss on pension plan to comprehensive income | |
| — | | |
| — | | |
| — | | |
| 0.2 | | |
| — | | |
| 0.2 | |
Reclassification of loss on hedging instrument to comprehensive income | |
| — | | |
| — | | |
| — | | |
| 0.2 | | |
| — | | |
| 0.2 | |
Issuances under stock plans | |
| 353,554 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Stock-based compensation expense | |
| — | | |
| — | | |
| 3.0 | | |
| — | | |
| — | | |
| 3.0 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| (1.4 | ) | |
| (1.4 | ) |
Balance as of March 31, 2023 | |
| 26,263,070 | | |
$ | — | | |
$ | 381.2 | | |
$ | 48.3 | | |
$ | (516.0 | ) | |
$ | (86.5 | ) |
Balance | |
| 26,263,070 | | |
$ | — | | |
$ | 381.2 | | |
$ | 48.3 | | |
$ | (516.0 | ) | |
$ | (86.5 | ) |
Foreign currency translation adjustments | |
| — | | |
| — | | |
| — | | |
| (2.7 | ) | |
| — | | |
| (2.7 | ) |
Reclassification of loss on pension plan to comprehensive income | |
| — | | |
| — | | |
| — | | |
| 0.3 | | |
| — | | |
| 0.3 | |
Reclassification of loss on hedging instrument to comprehensive income | |
| — | | |
| — | | |
| — | | |
| 0.1 | | |
| — | | |
| 0.1 | |
Repurchase of common stock | |
| (3,931 | ) | |
| — | | |
| — | | |
| — | | |
| (0.1 | ) | |
| (0.1 | ) |
Issuances under stock plans | |
| 4,282 | | |
| — | | |
| (0.2 | ) | |
| — | | |
| — | | |
| (0.2 | ) |
Stock-based compensation expense | |
| — | | |
| — | | |
| 3.1 | | |
| — | | |
| — | | |
| 3.1 | |
Net income | |
| — | | |
| — | | |
| — | | |
| — | | |
| 5.6 | | |
| 5.6 | |
Net income (loss) | |
| — | | |
| — | | |
| — | | |
| — | | |
| 5.6 | | |
| 5.6 | |
Balance as of June 30, 2023 | |
| 26,263,421 | | |
$ | — | | |
$ | 384.1 | | |
$ | 46.0 | | |
$ | (510.5 | ) | |
$ | (80.4 | ) |
Balance | |
| 26,263,421 | | |
$ | — | | |
$ | 384.1 | | |
$ | 46.0 | | |
$ | (510.5 | ) | |
$ | (80.4 | ) |
The
accompanying notes are an integral part of these condensed consolidated financial statements.
INSPIRED
ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in
millions)
(Unaudited)
| |
2024 | | |
2023 | |
| |
Six Months Ended June 30, | |
| |
2024 | | |
2023 | |
Cash flows from operating activities: | |
| | | |
| | |
Net (loss) income | |
$ | (3.7 | ) | |
$ | 4.2 | |
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 20.5 | | |
| 19.5 | |
Amortization of right of use asset | |
| 2.0 | | |
| 1.9 | |
Stock-based compensation expense | |
| 3.9 | | |
| 6.0 | |
Contract cost expense | |
| (5.7 | ) | |
| (5.2 | ) |
Reclassification of loss on hedging instrument to comprehensive income | |
| — | | |
| 0.3 | |
Non-cash interest expense relating to senior debt | |
| 0.6 | | |
| 1.0 | |
Changes in assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| (1.6 | ) | |
| 3.2 | |
Inventory | |
| 1.7 | | |
| (14.6 | ) |
Prepaid expenses and other assets | |
| 5.0 | | |
| 2.5 | |
Corporate tax and other current taxes payable | |
| (6.1 | ) | |
| (1.5 | ) |
Accounts payable and accrued expenses | |
| (17.6 | ) | |
| (7.6 | ) |
Deferred revenue and customer prepayment | |
| 1.7 | | |
| 24.7 | |
Operating lease liabilities | |
| (2.1 | ) | |
| (1.8 | ) |
Other long-term liabilities | |
| (0.7 | ) | |
| (0.1 | ) |
Net cash (used in) provided by operating activities | |
| (2.1 | ) | |
| 32.5 | |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Purchases of property and equipment | |
| (7.3 | ) | |
| (8.7 | ) |
Acquisition of third-party company trade and assets | |
| — | | |
| (0.6 | ) |
Purchases of capital software and internally developed costs | |
| (6.2 | ) | |
| (6.7 | ) |
Net cash used in investing activities | |
| (13.5 | ) | |
| (16.0 | ) |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Repurchase of common stock | |
| — | | |
| (0.1 | ) |
Repayments of finance leases | |
| (0.5 | ) | |
| (0.7 | ) |
Net cash used in financing activities | |
| (0.5 | ) | |
| (0.8 | ) |
| |
| | | |
| | |
Effect of exchange rate changes on cash | |
| (0.4 | ) | |
| 1.4 | |
Net (decrease) increase in cash | |
| (16.5 | ) | |
| 17.1 | |
Cash, beginning of period | |
| 40.0 | | |
| 25.0 | |
Cash, end of period | |
$ | 23.5 | | |
$ | 42.1 | |
| |
| | | |
| | |
Supplemental cash flow disclosures | |
| | | |
| | |
Cash paid during the period for interest | |
$ | 12.8 | | |
$ | 11.9 | |
Cash paid during the period for income taxes | |
$ | 1.4 | | |
$ | 4.5 | |
Cash paid during the period for operating leases | |
$ | 5.0 | | |
$ | 3.9 | |
| |
| | | |
| | |
Supplemental disclosure of non-cash investing and financing activities | |
| | | |
| | |
Lease liabilities arising from obtaining right of use assets | |
$ | (3.1 | ) | |
$ | (0.2 | ) |
Additional paid in capital from settlement of RSUs | |
$ | (0.8 | ) | |
$ | (0.2 | ) |
Property and equipment acquired through finance lease | |
$ | 1.3 | | |
$ | 1.2 | |
ARO assets arising during the period | |
$ | 0.1 | | |
$ | — | |
The
accompanying notes are an integral part of these condensed consolidated financial statements.
1.
Nature of Operations, Management’s Plans and Summary of Significant Accounting Policies, as restated
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 June 30, 2024, the Company’s cash on hand was $23.5 million, and the Company had working capital in addition to cash of $24.3
million. The Company recorded a net loss of $3.7 million and net income of $4.2 million for the six months ended June 30, 2024 and 2023,
respectively. Net income/losses included non-cash stock-based compensation of $3.9 million and $6.0 million for the six months ended June
30, 2024 and 2023, respectively. Historically, the Company has generally had positive cash flows from operating activities and has relied
on a combination of cash flows provided by operations and the incurrence of debt and/or the refinancing of existing debt to fund its
obligations. Cash flows used in operations amounted to $2.1 million and cash flows provided by operations amounted to $32.5 million for
the six months ended June 30, 2024 and 2023, respectively.
Management
currently believes that the Company’s cash balances on hand, cash flows expected to be generated from operations, ability to control
and defer capital projects and amounts available from the Company’s external borrowings will be sufficient to fund the Company’s
net cash requirements through August 2025.
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, 2023 and 2022. The financial information as of December 31, 2023
is derived from the audited consolidated financial statements presented in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2023 filed with the SEC on April 15, 2024. The financial information for the three and six months ended June 30, 2023
is derived from the unaudited consolidated financial statements presented in the Company’s Quarterly Report on Form 10-Q/A for
the three and six months ended June 30, 2023 filed with the SEC on February 27, 2024. The interim results for the three and six months
ended June 30, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024 or for any future
interim periods.
2.
Allowance for Credit Losses
Changes
in the allowance for credit losses are as follows:
Schedule
of Changes in Allowance for Credit Losses
| |
June 30, 2024 | | |
December 31, 2023 | |
| |
(in millions) | |
Beginning balance | |
$ | (1.1 | ) | |
$ | (1.4 | ) |
Additional allowance for credit losses | |
| (0.1 | ) | |
| (0.2 | ) |
Recoveries | |
| — | | |
| 0.2 | |
Write offs | |
| — | | |
| 0.4 | |
Foreign currency translation adjustments | |
| — | | |
| (0.1 | ) |
Ending balance | |
$ | (1.2 | ) | |
$ | (1.1 | ) |
3.
Inventory
Inventory
consists of the following:
Schedule
of Inventory
| |
June 30, 2024 | | |
December 31, 2023 | |
| |
(in millions) | |
Component parts | |
$ | 27.5 | | |
$ | 23.3 | |
Work in progress | |
| 0.3 | | |
| 0.4 | |
Finished goods | |
| 2.6 | | |
| 8.6 | |
Total inventories | |
$ | 30.4 | | |
$ | 32.3 | |
Component
parts include parts for gaming terminals. Our finished goods inventory primarily consists of gaming terminals which are ready for sale.
4.
Accounts Payable and Accrued Expenses
Accounts
payable and accrued expenses consist of the following:
Schedule
of Accounts
Payable and Accrued Expenses
| |
June 30, 2024 | | |
December 31, 2023 | |
| |
(in millions) | |
Accounts payable | |
$ | 26.7 | | |
$ | 41.9 | |
Payroll and related costs | |
| — | | |
| 5.5 | |
Cost of sales including inventory | |
| 11.0 | | |
| 6.4 | |
Other | |
| 10.0 | | |
| 7.0 | |
Total accounts payable and accrued expenses | |
$ | 47.7 | | |
$ | 60.8 | |
5.
Contract Related Disclosures
The
following table summarizes contract related balances:
Schedule of Contract Related Balances
| |
Accounts Receivable | | |
Unbilled Accounts Receivable | | |
Right to recover asset | | |
Deferred Income | | |
Customer Prepayments and Deposits | |
| |
(in millions) | |
At June 30, 2024 | |
$ | 40.6 | | |
$ | 20.9 | | |
$ | 0.6 | | |
$ | (12.1 | ) | |
$ | (4.9 | ) |
At December 31, 2023 | |
$ | 42.8 | | |
$ | 24.0 | | |
$ | 0.6 | | |
$ | (12.7 | ) | |
$ | (2.9 | ) |
Revenue
recognized that was included in the deferred income balance at the beginning of the period amounted to $1.2 million and $2.4 million
for the six months ended June 30, 2024 and 2023, respectively.
For
the periods ended June 30, 2024 and 2023 respectively, there were no significant amounts of revenue recognized as a result of changes
in contract transaction price related to performance obligations that were satisfied in the respective prior periods.
Transaction
Price Allocated to Remaining Performance Obligations
At
June 30, 2024, the transaction price allocated to unsatisfied performance obligations for contracts expected to be greater than one year,
or performance obligations for which we do not have a right to consideration from the customer in the amount that corresponds to the
value to the customer for our performance completed to date, variable consideration which is not accounted for in accordance with the
sales-based or usage-based royalties guidance, or contracts which are not wholly unperformed, was approximately $95.2 million. Of this
amount, we expect to recognize as revenue approximately 23% through December 31, 2024, approximately 55% through December 31, 2026, and
the remaining 22% through December 31, 2029.
6. Long Term and Other Debt
Under our debt facilities in place as of June 30, 2024, we were not subject
to covenant testing on our senior secured notes (the “Senior Secured Notes”). We are, however, subject to covenant testing
at the level of Inspired Entertainment Inc., the ultimate holding company, on our Revolving Credit Facility Agreement (the “RCF
Agreement”) which required 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 June 30, 2024 showed covenant compliance with a net leverage of 3.1x.
The Indenture governing the Senior Secured Notes contains covenants and
certain reporting requirements including the requirement to provide the lender, within 60 days after the close of the quarter, unaudited
quarterly financial statements with footnote disclosures.
There were no covenant violations in the periods ended June 30, 2024 or
June 30, 2023.
7.
Stock-Based Compensation
A
summary of the Company’s Restricted Stock Unit (“RSU”) activity during the six months ended June 30, 2024 is as follows:
Schedule of Restricted Stock Unit Activity
| |
Number of Shares | |
| |
| |
Unvested Outstanding at January 1, 2024 (1) | |
| 1,242,175 | |
Granted (2) | |
| 611,434 | |
Forfeited | |
| (165,115 | ) |
Vested | |
| (100,477 | ) |
Unvested Outstanding at June 30, 2024 | |
| 1,588,017 | |
The
Company issued a total of 352,287 shares during the six months ended June 30, 2024, in connection with the Company’s equity-based
plans, which included an aggregate of 333,161 shares issued in connection with the net settlement of RSUs that vested during the prior
year (primarily on December 29, 2023).
8.
Accumulated Other Comprehensive Loss (Income)
The
accumulated balances for each classification of comprehensive loss (income) are presented below:
Schedule of Accumulated Other Comprehensive Loss (Income)
| |
Foreign Currency Translation Adjustments | | |
Change in Fair Value of Hedging Instrument | | |
Unrecognized Pension Benefit Costs | | |
Accumulated Other Comprehensive (Income) | |
| |
(in millions) | |
Balance at January 1, 2024 | |
$ | (78.3 | ) | |
$ | — | | |
$ | 33.8 | | |
$ | (44.5 | ) |
Change during the period | |
| (1.0 | ) | |
| — | | |
| (0.3 | ) | |
| (1.3 | ) |
Balance at March 31, 2024 | |
| (79.3 | ) | |
| — | | |
| 33.5 | | |
| (45.8 | ) |
Change during the period | |
| 0.2 | | |
| — | | |
| (0.3 | ) | |
| (0.1 | ) |
Balance at June 30, 2024 | |
$ | (79.1 | ) | |
$ | — | | |
$ | 33.2 | | |
$ | (45.9 | ) |
| |
Foreign Currency Translation Adjustments | | |
Change in Fair Value of Hedging Instrument | | |
Unrecognized Pension Benefit Costs | | |
Accumulated Other Comprehensive (Income) | |
| |
(in millions) | |
Balance at January 1, 2023 | |
$ | (84.2 | ) | |
$ | 0.3 | | |
$ | 33.1 | | |
$ | (50.8 | ) |
Change during the period | |
| 2.9 | | |
| (0.2 | ) | |
| (0.2 | ) | |
| 2.5 | |
Balance at March 31, 2023 | |
| (81.3 | ) | |
| 0.1 | | |
| 32.9 | | |
| (48.3 | ) |
Change during the period | |
| 2.7 | | |
| (0.1 | ) | |
| (0.3 | ) | |
| 2.3 | |
Balance at June 30, 2023 | |
$ | (78.6 | ) | |
$ | — | | |
$ | 32.6 | | |
$ | (46.0 | ) |
In
connection with the issuance of the Senior Secured Notes, and the entry into the
“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 were 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 six months ended June 30, 2024 and June 30, 2023 amounted to
$0.0 million and $0.3 million, respectively.
9.
Net Income (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 stock options and RSUs, 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
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
RSUs | |
| 580,361 | | |
| 809,510 | | |
| 1,588,017 | | |
| 809,510 | |
The
following tables reconcile the numerators and denominators of the basic and diluted EPS computations. There were no reconciling items
for the six months ended June 30, 2024:
Schedule of Numerators and Denominators of the Basic and Diluted EPS Computations
Three months ended June 30, 2024 | |
Income (Numerator) (in millions) | | |
Shares (Denominator) | | |
Per-Share Amount | |
Basic EPS | |
| | | |
| | | |
| | |
Income available to common stockholders | |
$ | 2.0 | | |
| 28,474,059 | | |
$ | 0.07 | |
Effect of Dilutive Securities | |
| | | |
| | | |
| | |
RSUs | |
| — | | |
| 572,222 | | |
$ | — | |
Diluted EPS | |
| | | |
| | | |
| | |
Income available to common stockholders | |
$ | 2.0 | | |
| 29,046,281 | | |
$ | 0.07 | |
Three months ended June 30, 2023 | |
Income (Numerator) (in millions) | | |
Shares (Denominator) | | |
Per-Share Amount | |
Basic EPS | |
| | | |
| | | |
| | |
Income available to common stockholders | |
$ | 5.6 | | |
| 28,186,725 | | |
$ | 0.20 | |
Effect of Dilutive Securities | |
| | | |
| | | |
| | |
RSUs | |
| — | | |
| 886,353 | | |
$ | (0.01 | ) |
Diluted EPS | |
| | | |
| | | |
| | |
Income available to common stockholders | |
$ | 5.6 | | |
| 29,073,078 | | |
$ | 0.19 | |
Six months ended June 30, 2023 | |
Income (Numerator) (in millions) | | |
Shares (Denominator) | | |
Per-Share Amount | |
Basic EPS | |
| | | |
| | | |
| | |
Income available to common stockholders | |
$ | 4.2 | | |
| 28,081,041 | | |
$ | 0.15 | |
Effect of Dilutive Securities | |
| | | |
| | | |
| | |
RSUs | |
| — | | |
| 942,247 | | |
$ | (0.01 | ) |
Diluted EPS | |
| | | |
| | | |
| | |
Income available to common stockholders | |
$ | 4.2 | | |
| 29,023,288 | | |
$ | 0.14 | |
The
calculation of Basic EPS includes the effects of 1,915,323 and 1,932,560 shares for the three and six months ended June 30, 2024 and
2023, respectively, with respect to RSU awards that have vested but have not yet been issued.
10.
Other Finance Income
Other finance income consisted of the following:
Schedule of Other Finance Income (Expense)
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
| |
(in millions) | | |
(in millions) | |
Pension interest cost | |
$ | (0.9 | ) | |
$ | (0.9 | ) | |
$ | (1.8 | ) | |
$ | (1.7 | ) |
Expected return on pension plan assets | |
| 1.0 | | |
| 1.0 | | |
| 2.0 | | |
| 1.9 | |
Other finance income
(expense) | |
$ | 0.1 | | |
$ | 0.1 | | |
$ | 0.2 | | |
$ | 0.2 | |
11.
Income Taxes
The
effective income tax rate for the three months ended June 30, 2024 and 2023 was 26.8% and 15.7%, respectively, resulting in a $0.8 million
and $1.0 million income tax expense, respectively. The effective income tax rate for the six months ended June 30, 2024 and 2023 was
27.7% and 16.6%, respectively, resulting in a $1.4 million income tax benefit and a $0.8 million income tax expense, 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 June 30, 2024 and 2023. 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 twelve 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.
12.
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 11.4% of our common stock as of June 30, 2024. Macquarie UK held $2.1 million
of the total $19.0 million of RCF drawn at June 30, 2024, and $2.1 million of the total $19.1 million of RCF drawn at December 31, 2023,
respectively. Interest expense payable to Macquarie UK for the RCF for the three months ended June 30, 2024 and 2023 amounted to $0.0
million and $0.0 million, respectively, and for the six months ended June 30, 2024 and 2023 (including non-utilization fees) amounted
to $0.1 million and $0.0 million, respectively. Macquarie UK did not hold any of the Company’s senior notes at June 30, 2024 or
December 31, 2023. 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.
Richard
Weil, the brother of A. Lorne Weil, our Executive Chairman, provides consulting services to the Company relating to our lottery operations
in the Dominican Republic under a consultancy agreement dated December 31, 2021, as amended. The aggregate amount incurred by the Company
in consulting fees was $37,500 and $30,000 for the three months ended June 30, 2024 and 2023, respectively, and $75,000 and $60,000 for
the six months ended June 30, 2024 and 2023, respectively
13.
Leases
Certain
of our arrangements include leases for equipment installed at customer locations. As the lessor, we combine lease and non-lease components
for all classes of underlying assets in arrangements that involve operating leases. The single combined component is accounted for under
ASC 606, Revenue from Contracts with Customers based on the consideration that the non-lease components are the predominant items
in the arrangements. If a component cannot be combined, the consideration is allocated between the lease component and the non-lease
component based on relative standalone selling price. The lease component is accounted for under ASC 842, Leases and the non-lease
component is accounted for under ASC 606.
Lease
income from operating leases is not material for any of the periods presented. Lease income from sales type leases is as follows:
Schedule
of Lease Income from Sales
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
| |
(in millions) | | |
(in millions) | |
Interest receivable | |
$ | 0.1 | | |
| — | | |
$ | 0.3 | | |
| — | |
Profit recognized at commencement date of sales type leases | |
| 0.8 | | |
| — | | |
| 1.3 | | |
| — | |
Total | |
$ | 0.9 | | |
$ | — | | |
$ | 1.6 | | |
$ | — | |
14.
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.
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.
15.
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 latest actuarial valuation of the scheme (as at March 31, 2021), which
was finalized in June 2022, 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.
The
following table presents the components of our net periodic pension cost:
Schedule of Net Periodic Pension Cost
| |
2024 | | |
2023 | |
| |
Six Months Ended June 30, | |
| |
2024 | | |
2023 | |
| |
(in millions) | |
Components of net periodic pension cost: | |
| | |
| |
Interest cost | |
$ | 1.8 | | |
$ | 1.7 | |
Expected return on plan assets | |
| (2.0 | ) | |
| (1.9 | ) |
Amortization of net loss | |
| 0.6 | | |
| 0.5 | |
Net periodic cost | |
$ | 0.4 | | |
$ | 0.3 | |
16.
Segment Reporting and Geographic Information
The
Company operates its business along four operating segments, which are segregated on the basis of revenue stream: Gaming, Virtual Sports,
Interactive and Leisure. The Company believes this method of segment reporting reflects both the way its business segments are managed
and the way the performance of each segment is evaluated.
The
following tables present revenue, cost of sales, excluding depreciation and amortization, selling, general and administrative expenses,
stock-based compensation expense and depreciation and amortization, operating income (loss)
and total capital expenditures for the periods ended June 30, 2024 and June 30, 2023, 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 and capital expenditures relating to corporate/shared functions.
Segment
Information
Schedule of Segment Reporting Information by Segment
Three
Months Ended June 30, 2024
| |
Gaming | | |
Virtual Sports | | |
Interactive | | |
Leisure | | |
Corporate Functions | | |
Total | |
| |
(in millions) | |
Revenue: | |
| | |
| | |
| | |
| | |
| | |
| |
Service | |
$ | 17.9 | | |
$ | 11.7 | | |
$ | 9.4 | | |
$ | 26.8 | | |
$ | — | | |
$ | 65.8 | |
Product sales | |
| 9.2 | | |
| — | | |
| — | | |
| 0.6 | | |
| — | | |
| 9.8 | |
Total revenue | |
| 27.1 | | |
| 11.7 | | |
| 9.4 | | |
| 27.4 | | |
| — | | |
| 75.6 | |
Cost of sales, excluding depreciation and amortization: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cost of service | |
| (5.1 | ) | |
| (0.1 | ) | |
| (0.5 | ) | |
| (13.3 | ) | |
| — | | |
| (19.0 | ) |
Cost of product sales | |
| (5.6 | ) | |
| — | | |
| — | | |
| (0.2 | ) | |
| — | | |
| (5.8 | ) |
Cost of sales | |
| (5.6 | ) | |
| — | | |
| — | | |
| (0.2 | ) | |
| — | | |
| (5.8 | ) |
Selling, general and administrative expenses | |
| (6.4 | ) | |
| (2.0 | ) | |
| (2.8 | ) | |
| (7.8 | ) | |
| (10.2 | ) | |
| (29.2 | ) |
Stock-based compensation expense | |
| (0.2 | ) | |
| (0.1 | ) | |
| (0.1 | ) | |
| (0.1 | ) | |
| (1.1 | ) | |
| (1.6 | ) |
Depreciation and amortization | |
| (3.4 | ) | |
| (2.5 | ) | |
| (1.2 | ) | |
| (3.0 | ) | |
| (0.5 | ) | |
| (10.6 | ) |
Segment operating income (loss) | |
| 6.4 | | |
| 7.0 | | |
| 4.8 | | |
| 3.0 | | |
| (11.8 | ) | |
| 9.4 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net operating income | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 9.4 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total capital expenditures for the three months ended June 30, 2024 | |
$ | 2.2 | | |
$ | 4.8 | | |
$ | 0.4 | | |
$ | 2.6 | | |
$ | 1.2 | | |
$ | 11.2 | |
Three
Months Ended June 30, 2023
| |
Gaming | | |
Virtual Sports | | |
Interactive | | |
Leisure | | |
Corporate Functions | | |
Total | |
| |
(in millions) | |
Revenue: | |
| | |
| | |
| | |
| | |
| | |
| |
Service | |
$ | 19.8 | | |
$ | 15.1 | | |
$ | 6.7 | | |
$ | 25.9 | | |
$ | — | | |
$ | 67.5 | |
Product sales | |
| 11.3 | | |
| — | | |
| — | | |
| 0.6 | | |
| — | | |
| 11.9 | |
Total revenue | |
| 31.1 | | |
| 15.1 | | |
| 6.7 | | |
| 26.5 | | |
| — | | |
| 79.4 | |
Cost of sales, excluding depreciation and amortization: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cost of service | |
| (6.5 | ) | |
| (0.4 | ) | |
| (0.4 | ) | |
| (13.2 | ) | |
| — | | |
| (20.5 | ) |
Cost of product sales | |
| (8.4 | ) | |
| — | | |
| — | | |
| — | | |
| — | | |
| (8.4 | ) |
Cost of sales | |
| (8.4 | ) | |
| — | | |
| — | | |
| — | | |
| — | | |
| (8.4 | ) |
Selling, general and administrative expenses | |
| (5.0 | ) | |
| (1.6 | ) | |
| (2.7 | ) | |
| (6.8 | ) | |
| (7.4 | ) | |
| (23.5 | ) |
Stock-based compensation expense | |
| (0.4 | ) | |
| (0.2 | ) | |
| (0.1 | ) | |
| (0.4 | ) | |
| (2.0 | ) | |
| (3.1 | ) |
Depreciation and amortization | |
| (4.6 | ) | |
| (0.8 | ) | |
| (1.0 | ) | |
| (3.0 | ) | |
| (0.7 | ) | |
| (10.1 | ) |
Segment operating income (loss) | |
| 6.2 | | |
| 12.1 | | |
| 2.5 | | |
| 3.1 | | |
| (10.1 | ) | |
| 13.8 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net operating income | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 13.8 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total capital expenditures for the three months ended June 30, 2023 | |
$ | 2.1 | | |
$ | 1.2 | | |
$ | 0.5 | | |
$ | 3.8 | | |
$ | 1.0 | | |
$ | 8.6 | |
Six
Months Ended June 30, 2024
| |
Gaming | | |
Virtual Sports | | |
Interactive | | |
Leisure | | |
Corporate Functions | | |
Total | |
| |
(in millions) | |
Revenue: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Service | |
$ | 36.5 | | |
$ | 24.1 | | |
$ | 17.5 | | |
$ | 44.8 | | |
$ | — | | |
$ | 122.9 | |
Product sales | |
| 14.6 | | |
| — | | |
| — | | |
| 1.2 | | |
| — | | |
| 15.8 | |
Total revenue | |
| 51.1 | | |
| 24.1 | | |
| 17.5 | | |
| 46.0 | | |
| — | | |
| 138.7 | |
Cost of sales, excluding depreciation and amortization: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cost of service | |
| (10.9 | ) | |
| (0.5 | ) | |
| (1.1 | ) | |
| (22.4 | ) | |
| — | | |
| (34.9 | ) |
Cost of product sales | |
| (9.9 | ) | |
| — | | |
| — | | |
| (0.4 | ) | |
| — | | |
| (10.3 | ) |
Cost of sales | |
| (9.9 | ) | |
| — | | |
| — | | |
| (0.4 | ) | |
| — | | |
| (10.3 | ) |
Selling, general and administrative expenses | |
| (13.0 | ) | |
| (3.6 | ) | |
| (5.9 | ) | |
| (15.3 | ) | |
| (23.3 | ) | |
| (61.1 | ) |
Stock-based compensation expense | |
| (0.4 | ) | |
| (0.2 | ) | |
| (0.2 | ) | |
| (0.2 | ) | |
| (2.9 | ) | |
| (3.9 | ) |
Depreciation and amortization | |
| (7.7 | ) | |
| (3.4 | ) | |
| (2.4 | ) | |
| (6.0 | ) | |
| (1.0 | ) | |
| (20.5 | ) |
Segment operating income (loss) | |
| 9.2 | | |
| 16.4 | | |
| 7.9 | | |
| 1.7 | | |
| (27.2 | ) | |
| 8.0 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net operating income | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 8.0 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total capital expenditures for the six months ended June 30, 2024 | |
$ | 4.2 | | |
$ | 6.0 | | |
$ | 0.9 | | |
$ | 7.5 | | |
$ | 1.7 | | |
$ | 20.3 | |
Six
Months Ended June 30, 2023
| |
Gaming | | |
Virtual Sports | | |
Interactive | | |
Leisure | | |
Corporate Functions | | |
Total | |
| |
(in millions) | |
Revenue: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Service | |
$ | 40.0 | | |
$ | 29.9 | | |
$ | 12.6 | | |
$ | 42.5 | | |
$ | — | | |
$ | 125.0 | |
Product sales | |
| 18.2 | | |
| — | | |
| — | | |
| 1.1 | | |
| — | | |
| 19.3 | |
Total revenue | |
| 58.2 | | |
| 29.9 | | |
| 12.6 | | |
| 43.6 | | |
| — | | |
| 144.3 | |
Cost of sales, excluding depreciation and amortization: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cost of service | |
| (12.4 | ) | |
| (0.8 | ) | |
| (0.7 | ) | |
| (21.6 | ) | |
| — | | |
| (35.5 | ) |
Cost of product sales | |
| (14.2 | ) | |
| — | | |
| — | | |
| (0.9 | ) | |
| — | | |
| (15.1 | ) |
Cost of sales | |
| (14.2 | ) | |
| — | | |
| — | | |
| (0.9 | ) | |
| — | | |
| (15.1 | ) |
Selling, general and administrative expenses | |
| (10.7 | ) | |
| (3.3 | ) | |
| (5.2 | ) | |
| (13.7 | ) | |
| (16.9 | ) | |
| (49.8 | ) |
Stock-based compensation expense | |
| (0.7 | ) | |
| (0.4 | ) | |
| (0.3 | ) | |
| (0.5 | ) | |
| (4.1 | ) | |
| (6.0 | ) |
Depreciation and amortization | |
| (9.1 | ) | |
| (1.6 | ) | |
| (1.6 | ) | |
| (6.1 | ) | |
| (1.1 | ) | |
| (19.5 | ) |
Segment operating income (loss) | |
| 11.1 | | |
| 23.8 | | |
| 4.8 | | |
| 0.8 | | |
| (22.1 | ) | |
| 18.4 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net operating income | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 18.4 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total capital expenditures for the six months ended June 30, 2023 | |
$ | 4.5 | | |
$ | 1.6 | | |
$ | 1.6 | | |
$ | 9.0 | | |
$ | 1.5 | | |
$ | 18.2 | |
Geographic
Information
Geographic
information for revenue is set forth below:
Schedule of Geographic Information
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
| |
(in millions) | | |
(in millions) | |
Total revenue | |
| | | |
| | | |
| | | |
| | |
UK | |
$ | 56.8 | | |
$ | 61.8 | | |
$ | 104.0 | | |
$ | 110.8 | |
Greece | |
| 4.6 | | |
| 5.3 | | |
| 10.7 | | |
| 10.9 | |
Rest of world | |
| 14.2 | | |
| 12.3 | | |
| 24.0 | | |
| 22.6 | |
Total | |
$ | 75.6 | | |
$ | 79.4 | | |
$ | 138.7 | | |
$ | 144.3 | |
Total revenue | |
$ | 75.6 | | |
$ | 79.4 | | |
$ | 138.7 | | |
$ | 144.3 | |
UK
revenue includes revenue from customers headquartered in the UK, but whose revenue is generated globally.
Geographic
information of our non-current assets excluding goodwill is set forth below:
| |
June 30, 2024 | | |
December 31, 2023 | |
| |
(in millions) | |
UK | |
$ | 92.4 | | |
$ | 91.9 | |
Greece | |
| 13.9 | | |
| 15.3 | |
Rest of world | |
| 26.5 | | |
| 22.4 | |
Total | |
$ | 132.8 | | |
$ | 129.6 | |
Total non-current assets excluding goodwill | |
$ | 132.8 | | |
$ | 129.6 | |
Software
development costs are included as attributable to the market in which they are utilized.
17.
Customer Concentration
During
the three months ended June 30, 2024, no customers represented at least 10% of the Company’s revenue. During the three months
ended June 30, 2023, one customer represented at least 10% of the Company’s revenue, accounting for 13% of the Company’s
revenue. This customer was served by the Virtual Sports and Interactive segments.
During
the six months ended June 30, 2024, one customer represented at least 10% of the Company’s revenue, accounting for 10% of the
Company’s revenue. This customer was served by the Virtual Sports and Interactive segments. During the six months ended June 30,
2023, one customer represented at least 10% of the Company’s revenue, accounting for 14% of the Company’s revenue. This
customer was served by the Virtual Sports and Interactive segments.
At
June 30, 2024, no customers represented at least 10% of the Company’s accounts receivable. At December 31, 2023, one customer
represented at least 10% of the Company’s accounts receivable, accounting for approximately 24% of the Company’s accounts
receivable.
18.
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. Based upon this review, the Company did not identify subsequent events that would have required adjustment or disclosure
in the consolidated financial statements.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial
statements and related notes thereto included elsewhere in this report. This discussion contains forward-looking statements that involve
risks and uncertainties. Our actual future results could differ materially from the historical results discussed below. Factors that
could cause or contribute to such differences include, but are not limited to, those identified below and those referenced in the section
titled “Risk Factors” included in our annual report on Form 10-K for our fiscal year ended December 31, 2023, filed with the SEC on April 15, 2024.
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 forepart of this report
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.
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 and six months ended June 30, 2024, we derived approximately 75% (in both periods) of our revenue from the UK (including
customers headquartered in the UK but whose revenue is generated globally), respectively, 6% and 8% from Greece, respectively, and
the remaining 19% and 17% across the rest of the world. During the three and six months ended June 30, 2023, we derived
approximately 78% and 77% from the UK, 7% and 8% from Greece and 15% (in both periods) for the rest of world.
As
of June 30, 2024, our non-current assets (excluding goodwill) were attributable as follows: 70% to the UK, 10% to Greece and 20% across
the rest of the world. As of June 30, 2023, our non-current assets (excluding goodwill) were attributable as follows: 77% to the UK,
4% to Greece and 19% 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 and six months ended June 30, 2024, we derived approximately 25% (in both periods) of our revenue from sales to customers outside
the UK (see caveat above), compared to 22% and 23% during the three and six months ended June 30, 2023, respectively.
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 year period, multiplied by the current period amount in our functional currency (GBP).
The remaining difference, referred to as functional currency at constant rate, is calculated as the difference in our functional currency,
multiplied by the prior-period average GBP:USD rate. This is not a U.S. GAAP measure, but is one which management believes gives a clearer
indication of results. In the tables below, variances in particular line items from period to period exclude currency translation movements,
and currency translation impacts are shown independently.
Non-GAAP
Financial Measures
We
use certain financial measures that are not compliant with U.S. GAAP (“Non-GAAP financial measures”), including EBITDA and
Adjusted EBITDA, to analyze our operating performance. In this discussion and analysis, we present certain non-GAAP financial measures,
define and explain these measures and provide reconciliations to the most comparable U.S. GAAP measures. See “Non-GAAP Financial
Measures” below.
Results
of Operations
Our
results are affected by changes in foreign currency exchange rates, primarily between our functional currency (GBP) and our
reporting currency (USD). During the three month periods ended June 30, 2024 and June 30, 2023, the average GBP:USD rates were 1.26 and 1.25, respectively, and for the six-month period were 1.27 and 1.24, 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 and six-month periods ended June 30, 2024, compared to the same period
in 2023; 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
and six-month periods ended June 30, 2024, compared to the same period in 2023, including key performance indicator (“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.
Key
Events – Current Quarter
During
the three-month period ended June 30, 2024 in the Gaming segment, Alberta Gaming, Liquor and Cannabis (“AGLC”) in Canada
ordered 150 new Valor terminals which were deployed during the quarter following a successful six-month trial. In addition, William
Hill has committed to lease 5,000 new Vantage® terminals. Deployment of the new terminals will begin in the fourth quarter
of 2024, with expected completion in the first half of 2025.
During
the three-month period ended June 30, 2024 we partnered with the NBA to provide a Virtual Sports offering, which went live in the Greek
market during the period.
During
the three-month period ended June 30, 2024 the Interactive segment went live with fourteen new operators. The total number of
customers at the end of the period increased by nine due to changes with several smaller-scale customers. In addition, Inspired
licensed its remote gaming server (“RGS”) to an operator customer, allowing the customer to host its own instance of the
most recent version of our RGS.
Inspired also
announced an engagement with Tunley Environmental to conduct a thorough business carbon assessment, with the goal of reducing the
company’s carbon footprint aligning with the Company’s commitment to reduce its environmental footprint.
Key agreements made in
the ordinary course of business in the three-month period ended June 30, 2024 include a contract with Meadow Bay Villages to run the
family entertainment center at Billing Aquadrome, Northampton UK resulting in installations in May and July 2024.
Overall
Company Results
Three
and Six Months ended June 30, 2024, compared to Three and Six Months ended June 30, 2023
| |
For the Three-Month Period ended | | |
Variance | | |
For the Six-Month Period ended | | |
Variance | |
(In millions) | |
June 30, | | |
June 30, | | |
2024 vs 2023 | | |
June 30, | | |
June 30, | | |
2024 vs 2023 | |
| |
2024 | | |
2023 | | |
Variance Attributable to Currency Movement | | |
Variance on a Functional currency basis | | |
Total Functional Currency Variance % | | |
Total Reported Variance % | | |
2024 | | |
2023 | | |
Variance Attributable to Currency Movement | | |
Variance on a Functional currency basis | | |
Total Functional Currency Variance % | | |
Total Reported Variance % | |
Revenue: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Service | |
$ | 65.8 | | |
$ | 67.5 | | |
$ | 0.6 | | |
$ | (2.3 | ) | |
| (3 | )% | |
| (3 | )% | |
$ | 122.9 | | |
$ | 125.0 | | |
$ | 3.0 | | |
$ | (5.1 | ) | |
| (4 | )% | |
| (2 | )% |
Product | |
| 9.8 | | |
| 11.9 | | |
| 0.2 | | |
| (2.3 | ) | |
| (19 | )% | |
| (18 | )% | |
| 15.8 | | |
| 19.3 | | |
| 0.4 | | |
| (3.9 | ) | |
| (20 | )% | |
| (18 | )% |
Total revenue | |
| 75.6 | | |
| 79.4 | | |
| 0.8 | | |
| (4.6 | ) | |
| (6 | )% | |
| (5 | )% | |
| 138.7 | | |
| 144.3 | | |
| 3.4 | | |
| (9.0 | ) | |
| (6 | )% | |
| (4 | )% |
Cost of Sales, excluding depreciation and amortization: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cost of Service | |
| (19.0 | ) | |
| (20.5 | ) | |
| (0.1 | ) | |
| 1.6 | | |
| (8 | )% | |
| (7 | )% | |
| (34.9 | ) | |
| (35.5 | ) | |
| (0.7 | ) | |
| 1.3 | | |
| (4 | )% | |
| (2 | )% |
Cost of Product | |
| (5.8 | ) | |
| (8.4 | ) | |
| - | | |
| 2.6 | | |
| (31 | )% | |
| (31 | )% | |
| (10.3 | ) | |
| (15.1 | ) | |
| (0.3 | ) | |
| 5.1 | | |
| (34 | )% | |
| (32 | )% |
Selling, general and administrative expenses | |
| (29.2 | ) | |
| (23.5 | ) | |
| (0.3 | ) | |
| (5.4 | ) | |
| 23 | % | |
| 24 | % | |
| (61.1 | ) | |
| (49.8 | ) | |
| (1.7 | ) | |
| (9.6 | ) | |
| 19 | % | |
| 23 | % |
Stock-based compensation | |
| (1.6 | ) | |
| (3.1 | ) | |
| 0.2 | | |
| 1.3 | | |
| (42 | )% | |
| (48 | )% | |
| (3.9 | ) | |
| (6.0 | ) | |
| - | | |
| 2.1 | | |
| (35 | )% | |
| (35 | )% |
Depreciation and amortization | |
| (10.6 | ) | |
| (10.1 | ) | |
| (0.2 | ) | |
| (0.3 | ) | |
| 3 | % | |
| 5 | % | |
| (20.5 | ) | |
| (19.5 | ) | |
| (0.5 | ) | |
| (0.5 | ) | |
| 3 | % | |
| 5 | % |
Net operating Income | |
| 9.4 | | |
| 13.8 | | |
| 0.4 | | |
| (4.8 | ) | |
| (35 | )% | |
| (32 | )% | |
| 8.0 | | |
| 18.4 | | |
| 0.2 | | |
| (10.6 | ) | |
| (58 | )% | |
| (57 | )% |
Other income (expense) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest expense, net | |
| (6.7 | ) | |
| (7.3 | ) | |
| (0.1 | ) | |
| 0.7 | | |
| (10 | )% | |
| (8 | )% | |
| (13.3 | ) | |
| (13.6 | ) | |
| (0.4 | ) | |
| 0.7 | | |
| (5 | )% | |
| (2 | )% |
Other finance income (expense) | |
| 0.1 | | |
| 0.1 | | |
| - | | |
| - | | |
| 0 | % | |
| 0 | % | |
| 0.2 | | |
| 0.2 | | |
| - | | |
| - | | |
| 0 | % | |
| 0 | % |
Total other income (expense), net | |
| (6.6 | ) | |
| (7.2 | ) | |
| (0.1 | ) | |
| 0.7 | | |
| (10 | )% | |
| (8 | )% | |
| (13.1 | ) | |
| (13.4 | ) | |
| (0.4 | ) | |
| 0.7 | | |
| (5 | )% | |
| (2 | )% |
Net Income (loss) from continuing operations before income taxes | |
| 2.8 | | |
| 6.6 | | |
| 0.3 | | |
| (4.1 | ) | |
| (62 | )% | |
| (58 | )% | |
| (5.1 | ) | |
| 5.0 | | |
| (0.2 | ) | |
| (9.9 | ) | |
| (198 | )% | |
| (202 | )% |
Income tax expense | |
| (0.8 | ) | |
| (1.0 | ) | |
| (0.1 | ) | |
| 0.3 | | |
| (30 | )% | |
| (20 | )% | |
| 1.4 | | |
| (0.8 | ) | |
| - | | |
| 2.2 | | |
| (275 | )% | |
| (275 | )% |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net Income (Loss) | |
$ | 2.0 | | |
$ | 5.6 | | |
$ | 0.2 | | |
$ | (3.8 | ) | |
| (68 | )% | |
| (64 | )% | |
$ | (3.7 | ) | |
$ | 4.2 | | |
$ | (0.3 | ) | |
$ | (7.6 | ) | |
| (181 | )% | |
| (188 | )% |
Exchange Rate - $ to £ | |
| 1.26 | | |
| 1.25 | | |
| | | |
| | | |
| | | |
| | | |
| 1.27 | | |
| 1.23 | | |
| | | |
| | | |
| | | |
| | |
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
(for the three and six months ended June 30, 2024, compared to the three and six months ended June 30, 2023)
Consolidated
Reported Revenue by Segment
● |
There were no Low Margin-related
sales for the three and six-months ended June 30, 2024. For the three and six-months ended June 30, 2023 Low Margin-related sales
were $4.4 million (in both periods) |
For
the three and six months ended June 30, 2024, revenue on a functional currency (at constant rate) basis decreased by $4.6 million and
$9.0 million, respectively, or 6% (in both periods)
For
the three-month period ended June 30, 2024, Gaming revenue declined by $4.3 million. Gaming product sales declined $2.1 million due to a decrease in
the UK market, partially offset by growth in North America, Gaming service revenue declined $2.2 million, due to a decrease in the
UK and mainland European markets. Virtual Sports declined by $3.5 million due to reduced Online revenue. Interactive
grew by $2.7 million, driven by revenue growth in the UK, North America and mainland Europe: and Leisure grew by $0.7 million
predominately driven by the increased revenues in Holiday Parks due to the addition of a new site as well as growth in existing
sites.
For
the six-month period ended June 30, 2024, Gaming revenue declined by $8.2 million. Gaming product sales declined $3.7 million due to a decrease in the
UK market for low margin sales in the prior year period not repeated in the current year, partially offset by growth in North
America, Gaming service revenue decreased by $4.5 million predominately due to revenue decline in the UK and mainland European
markets. Virtual Sports decreased by $6.4 million due to a decrease in Online revenue; Interactive grew by $4.6 million, driven by
revenue growth in the UK, mainland Europe and Latin America; and Leisure revenue increased by $1.4 million due to increases in Holiday
Parks and Pubs.
Cost
of Sales, excluding depreciation and amortization
Cost
of sales, excluding depreciation and amortization, for the three and six months ended June 30, 2024, decreased by $4.2 million and $6.4
million, or 15% and 13%, respectively. The decreases were driven by a $1.6 million and $1.3 million decrease in cost of service, respectively,
predominately driven by the decrease in service revenues and by a $2.6 million and $5.1 million decrease in cost of product, predominantly
driven by the decrease in product revenues, respectively.
Selling,
general and administrative expenses
Selling,
general and administrative (“SG&A”) expenses for the three and six months ended June 30, 2024 increased by $5.4 million
and $9.6 million, or 23% and 19%, respectively.
The
increase in the three-month period ended June 30, 2024, was primarily driven by an increase of $2.8 million due to cost of the
restatement of our prior financial statements (excluded from adjusted EBITDA), $0.7 million due to cost of restructuring (excluded
from adjusted EBITDA) and $0.9 million due to non-staff costs mainly for increased facility, travel, storage and distribution
costs.
The
increase in the six-month period ended June 30, 2024, was driven primarily by the $7.8 million costs of the restatement of our prior
financial statements (removed from Adjusted EBITDA), an increase in non-staff costs of $2.9 million, of which the largest proportion
was driven by increased facility, travel, external labor, IT, storage and distribution costs as well as an increase in staff cost of
$0.5 million driven by support staff costs and an increase in national living wage and salary increases. This was partially offset
by a reduction in the cost of group restructure of $2.1 million (removed from Adjusted EBITDA).
Stock-based
compensation
During
the three and six-month periods ended June 30, 2024, the Company recorded stock based compensation expenses of $1.6 million and $3.9
million, respectively, compared to stock based compensation expenses of $3.1 million and $6.0 million for the three and six months
ended June 30, 2023. All expenses related to outstanding awards but the three and six months ended June 30, 2023, included $0.4
million related to award units that were fully vested on the date of grant and therefore were expensed immediately. The six months
ended June 30, 2023 also included $0.7 million related to the group restructure.
Depreciation
and amortization
Depreciation
and amortization for the three-month period ended June 30, 2024, increased by $0.3 million. This increase was driven by increases in
Virtual Sports of $1.6 million and Interactive of $0.2 million, partially offset by a reduction in Gaming of $1.2 million, due to
assets being fully depreciated.
Depreciation
and amortization for the six-month period ended June 30, 2024, increased by $0.5 million. This increase was driven by increases in
Virtual Sports of $1.7 million and Interactive of $0.7 million, partially offset by a reduction in Gaming of $1.6 million and
Leisure of $0.3 million due to assets being fully depreciated.
Net
operating income / net income/(loss)
During
the three and six-month periods ended June 30, 2024, net operating income was $9.4 million and $8.0 million, respectively,
representing declines of $4.8 million and $10.6 million, respectively, compared to the prior year periods. The decreases were
primarily due to the increases in SG&A expenses, (including the cost of restating our prior financial statements in the three
and six-month periods).
For
the three and six-months ended June 30, 2024 net income / (loss) was $2.0 million and net loss was $3.7 million, respectively,
compared to a net income of $5.6 million and $4.2 million, respectively, in the prior periods.
For
the three-month period ended June 30, 2024 the $3.8 million decline compared to the prior year period, was primarily due to the increase in
SG&A expenses of $5.4 million. This was partially offset by a reduction in stock-based compensation of $1.3 million.
For
the six-month period ended June 30. 2024 the $7.6 million decline compared to the prior year period, was primarily due to the
increase in SG&A expenses of $9.6 million, primarily driven by the cost of the restatement of prior financial statements of $7.8
million. This was partially offset by a reduction in stock-based compensation of $2.1 million and in income tax expense of $2.2
million.
Deferred
Tax
The
Company recorded a valuation allowance against all of our deferred tax assets as of both June 30, 2024 and 2023. 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 six 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 and six months ended June 30, 2024, compared to the three and six months ended June 30, 2023)
Gaming
We
generate revenue from our Gaming segment through delivery of our gaming terminals preloaded with proprietary gaming software, server-based
content, as well as services such as terminal repairs, maintenance, software upgrades and upgrades on a when and if available basis and
content development. 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
| |
For the Three-Month Period ended | | |
Variance | | |
For the Six-Month Period ended | | |
Variance | |
| |
June 30, | | |
June 30, | | |
2024 vs 2023 | | |
June 30, | | |
June 30, | | |
2024 vs 2023 | |
Gaming | |
2024 | | |
2023 | | |
| | |
% | | |
2024 | | |
2023 | | |
| | |
% | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
End of period installed base (# of terminals) (2) | |
| 34,906 | | |
| 34,433 | | |
| 473 | | |
| 1.4 | % | |
| 34,906 | | |
| 34,433 | | |
| 473 | | |
| 1.4 | % |
Total Gaming - Average installed base (# of terminals) (2) | |
| 34,878 | | |
| 34,715 | | |
| 163 | | |
| 0.5 | % | |
| 34,831 | | |
| 34,746 | | |
| 85 | | |
| 0.2 | % |
Participation - Average installed base (# of terminals) (2) | |
| 29,917 | | |
| 30,522 | | |
| (605 | ) | |
| (2.0 | )% | |
| 29,875 | | |
| 30,658 | | |
| (783 | ) | |
| (2.6 | )% |
Fixed Rental - Average installed base (# of terminals) | |
| 4,962 | | |
| 4,193 | | |
| 769 | | |
| 18.3 | % | |
| 4,955 | | |
| 4,089 | | |
| 866 | | |
| 21.2 | % |
Service Only - Average installed base (# of terminals) | |
| 5,308 | | |
| 12,898 | | |
| (7,590 | ) | |
| (58.8 | )% | |
| 6,578 | | |
| 13,529 | | |
| (6,951 | ) | |
| (51.4 | )% |
Customer Gross Win per unit per day (1) (2) | |
£ | 96.0 | | |
£ | 94.4 | | |
£ | 1.6 | | |
| 1.7 | % | |
£ | 97.4 | | |
£ | 96.3 | | |
£ | 1.1 | | |
| 1.1 | % |
Customer Net Win per unit per day (1) (2) | |
£ | 70.8 | | |
£ | 69.0 | | |
£ | 1.8 | | |
| 2.6 | % | |
£ | 71.5 | | |
£ | 70.3 | | |
£ | 1.2 | | |
| 1.7 | % |
Inspired Blended Participation Rate | |
| 5.3 | % | |
| 5.7 | % | |
| (0.4 | )% | |
| (7.0 | )% | |
| 5.4 | % | |
| 5.7 | % | |
| (0.3 | )% | |
| (5.3 | )% |
Inspired Fixed Rental Revenue per Gaming Machine per week | |
£ | 39.6 | | |
£ | 48.3 | | |
£ | (8.7 | ) | |
| (18.0 | )% | |
£ | 40.5 | | |
£ | 49.0 | | |
|