Inspired Entertainment, Inc. (INSE) Q3 2026 Earnings Call Transcript

Hello, and welcome to the Inspired Entertainment third quarter 2026 conference call. All participant lines have been placed on mute to prevent any background noise. After the speaker's prepared remarks, we will open the call for a question and answer session. Please note that today's event is being recorded. Before we begin, please refer to the company's forward-looking statements that appear in the third quarter 2026 earnings press release and in the accompanying slide presentation, both of which are available in the investors section of the company's website at www.inseinc.com. These also apply to today's conference call. Management will be making forward-looking statements within the meaning of United States securities laws. These statements are based on management's current expectations and beliefs, and are subject to various risks, uncertainties, and other factors that may cause actual results to differ materially from those expressed or implied in such statements. For a discussion on these risks and uncertainties, please refer to the company's filings with the Securities and Exchange Commission. During today's call, the company will discuss both GAAP and non-GAAP financial measures. Reconciliation of these non-GAAP measures to the most directly comparable GAAP measures can be found in today's earnings release and slide presentation, which are both available on the website. With that, I would now like to turn the call over to Lorne Weill, the company's executive chairman. Mr. Weill, please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining our third quarter conference call. Per usual, CEO Brooks Pierce and I will be making prepared remarks, and CFO Craig Wilson and VP of Corporate Development Eric Carrera are available to assist with Q&A. As anyone who even casually follows us, either or the broader gaming industry knows, the news has been pretty well saturated with stories concerning regulatory changes in the U.K. and Brazil. In the U.K., the machine gaming duty was increased from 20% to 25% effectiveness next April, following the doubling of the remote gaming duty effective last April. And for now, at least, the online gaming industry in Brazil is shuttered and in limbo, which, by the way, was the primary reason our EBITDA in the quarter was a little below consensus. Fortunately, in parallel, our platform has been strengthening in pretty much every dimension. EBITDA margins continue to improve, having reached 46% in the third quarter, while both capital intensity and leverage are declining, with the growth of our digital business and overall growth momentum is building. At the same time, there have been so many moving parts, both internal to the company and within the regulatory environment, that it's difficult to appreciate the growth momentum. As you can see in slide 5, Trailing 12-month EBITDA at the end of the third quarter of 2026 was essentially flat to trailing 12 months at the end of full year 2025. However, in the interim, we divested the Holiday Park business and restructured the pub business, which together reduced our labor force by a third. And we absorbed a doubling of the UK remote gaming duty, as well as a short but meaningful period of Brazil shutdown, as I referenced a moment ago. Adjusting for these developments, as shown on the slide, yields a like-for-like EBITDA growth in trailing 12-month EBITDA of 12% over the nine-month period, or about 15% annualized. Which we feel is indicative of the growth momentum that's building in the company. In a few minutes, Brooks will go more deeply into the principal growth drivers, including interactive market share gains, new markets and customers for virtuals, and the resilience of our retail business. Comparing the third quarter of 26 to the third quarter of 25, We saw a 900 basis point increase in EBITDA margin despite the tax increases, and adjusting for the U.K. tax impact like-for-like revenue increase of 9%, and EBITDA grew at about twice that pace, more or less comparable to the 12-month figures we looked at a moment ago. Year-to-date free cash flow was $17.6 million, representing free cash flow conversion of about 22% of EBITDA. Lastly, because of the Brazil shutdown, we're reducing the low end of our full-year guidance to $109 million. Before I hand it over to Brooks, I think it's worth taking another look at the evolution of our EBITDA margins. Over the last six quarters, we've increased EBITDA margin by 1,100 basis points from 35% in the second quarter of 2025. To 46% in the third quarter of 2026. As noted in the slide, we achieved this increase through a combination of divestment and restructuring of our lowest margin businesses, together with above average growth in our highest margin digital business. And with that, I'll hand it over to Brooks to talk in more detail about the performance of the business.

Okay, thanks, Lorne. As usual, I'll take a slightly deeper dive into the key drivers and metrics in each reporting segment. I agree with Lorne that there are many moving parts, particularly on the regulatory front. We have clarity now on the machine gaming duty starting in April of 2027, but Brazil and the timing of any changes is still yet to be determined. Nevertheless, we're encouraged by the progress that we're seeing across the business. So, this slide illustrates the performance of our gaming machines in our three biggest markets, the UK, Greece, and North America. In the UK, shop closures have generally been concentrated among less profitable locations, so what you're seeing is per-machine performance has improved across our three biggest betting shop customers. The remaining shops are also improving, partly because play has been redistributed. We're particularly proud of our machines and our content in Greece where we've widened our lead over existing competitors. Our newest slant cabinet is performing so well that it's driving our overall numbers to their highest level in years. Almost one-third of our state still needs upgrading to the latest cabinets, so we expect this trend to continue. We're also encouraged by the improved performance in Illinois and with our Canadian customers, and we've recently installed cabinets on trial in Manitoba, which is our third province now, and we're confident our content will resonate with players there as it has in both Saskatchewan and Alberta. Moving over to slide 9, our interactive segment continues to perform well, even though the UK remote gaming community has doubled on April 1st of this year. As this slide shows, segment EBITDA grew 20 percent, excuse me, before the impact of the U.K. tax increase. Monthly results in the third quarter were slightly mixed. August was affected somewhat by the World Cup in prior months, but we were encouraged by the bounce back we saw in September. And October was the best month we've ever had on record, on record, even eclipsing any individual month in the first quarter, which was before the U.K. tax increase. We saw growth in key markets like North America, the U.K., and Greece. The largest contributor to overall growth was the U.S., where our GGR grew over 30 percent year over year in the third quarter, significantly outpacing broader U.S. iGaming market growth. And Italy was our fastest-growing market, with growth exceeding 50 percent year-to-date. We think this demonstrates the strength of our content and our ability to gain market share across major markets. We're also excited that the first game from our newest studio, Be Real, is already out now for regular, fully approved. Moving to slide 10, as we've mentioned previously, there's nothing that would drive this segment more than additional U.S. states approving iGaming. In the meantime, we continue to gain share in all of our key markets. Outside the UK, where our share is currently more than 11%, we're confident that we can grow our share from a combination of more bespoke games, more derivatives of our successful game-themed families, and a focus on player segments where we either don't participate or are under-indexed. On slide 11, we stress that, look, at our core, we're a content company, and that's how we will differentiate ourselves across all three segments. We develop teams for online players, for retail players, and for the crossover between the two, as well as independently for each segment. This gives us what I consider the most swings at the plate. We've also made our mark with seasonal games. October's results showed the power of Halloween-themed games, and we now move into the Thanksgiving games and Christmas themes, and this is historically our highest GGR quarter of the year. You know, variety matters, too. We showed some products at G2E in the virtual space. Our first archived soccer product, Real Place Football, goes live this year. And a golden horse race derivative of our successful virtual horse racing product should add appeal to a product that has been in the market for years. Moving to slide 12, one of our goals has always been to become a more global company and to rely less on the UK market, and as the chart shows, we've doubled the percentage of our non-UK revenue since 2023, and we expect this trend to continue as key growth markets like North America and Greece become bigger contributors. The pipeline of opportunities outside the UK continues to grow on a daily basis. So speaking of growth, we see many opportunities to grow the business despite the UK higher taxes and the uncertainty in Brazil. Our digital business remains a key driver with the highest margins, the biggest cash flow contribution, and the most opportunity. We still believe it's a matter of when, not if, additional states will be added for iGaming, and nothing would be more meaningful for us than for some of the larger states to approve it and deploy it. We also see a number of opportunities for our virtual sports business in the U.S. We're excited that we've gone live now in our fourth U.S. lottery market in Massachusetts with our horse racing product. And we launched our virtual product with FanDuel. FanDuel is the largest sports operator in the U.S., which obviously gives us the sense that this is the best chance for success for this product. Moving to some kind of new products, we expect to launch additional eInstant games in the iLottery space in 2027, a key opportunity for us to leverage our content development skills in another channel. We expect clarity in Illinois on the expansion of VLTs in the Chicago market. And I'm happy to say that we took actually our first order today, as a matter of fact, for an expansion into Chicago. So we're starting to see, you know, that opportunity manifest itself, certainly some in this quarter, but probably more so in 2027. The last thing is we're excited to move our content into the U.S. Class III market through a unique relationship with gaming arts. And we showed that product at G2E for many of you that were out there. We're also fielding a number of inquiries in the lottery systems market following the successful launch of our cloud-based system built from scratch in the Dominican Republic. We have plenty of opportunities to fill the gap created by the U.K. tax increase and the results. Between the U.K. tax and potential Brazil headwinds, we've basically pushed our targets out by a year. Even so, we continue to improve our EBITDA margins and cash flow, reduce our leverage ratio, and build a large pipeline of opportunities across our segments and markets. Most of our business, as you would know, is recurring revenue under long-term contracts, and we're making progress on our strategy to increase the share of revenue in EBITDA from our original segment. I'll hand it back over to Lauren.

Thanks, Brooks, for a great deep dive into each of the businesses. Slide 15 summarizes the three-year period, 2025 to 2027. This is a slide that we've been looking at now for the last several quarters, and in this case, it's assuming that the shutdown of Brazil stays in effect. Brazil, in and of itself, has not been a growth market the last couple of years, so we don't expect that the shutdown of Brazil will compromise the organic growth profile of the company per se, but what it does do is shift the growth curve one year to the right, in effect. So we expect 2027 will be up only modestly from 2026 because, again, we're assuming that. Brazil will stay shut down and we need to first make that up before we can generate any growth. And then 28 will look like 27 and had otherwise been projected to be and so forth. Notwithstanding the shift in the growth trajectory, free cash flow is projected to continue increasing along with the decline in leverage. With regards to free cash flow conversion, Our previous target of 20% for 2026 will be lowered a little bit because of the impact of Brazil. Finally, let me make a comment about debt and covenant issues in response to some questions that we've been getting. At the end of the third quarter, our senior secured net leverage was about 2.8 times, well below the covenant leverage of five. Giving us over $46 million of Covenant EBITDA headroom. As further noted on the slide, we can repay our private credit facility that matures in June 2030 without any prepayment penalty any time from June 2027. Since our EBITDA leverage ratio and cash flow have all improved meaningfully since we put this facility in place in 2025, the possibility of refinancing prior to maturity is something we will be looking at very carefully. I should also mention with respect to this facility that we expect sometime during the first half of 2027 that we will be. Achieving the first step down in our rate on this facility. And with that, operator, can we please turn the program over to Q&A?

We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Matthew Mauss with B. Riley Securities. Your line is open. Please go ahead.

Hi, thanks for taking my question. So William Hill and Greece, strong this quarter, gross one unit per day. We're both up double digits percentage-wise. So as UK operators absorb the higher machine duty, wondering how our revenue share conversation is going and does that performance help?

In terms of our revenue share, as in you mean like our contract rates? Is that what you mean by the question?

Yeah, just more in relation to, yeah, more in relation to how UK operators, you know, as they're absorbing the higher machine duty, how that changes things.

Yeah, look, I think it's, I think it's common knowledge. You've probably read plenty of press that nobody was happy about the fact that the tax increased at all. There was, you know, obviously a lot of conversation about why that shouldn't be the case. But I could say on the other the flip side of that, you know, there had been some discussion that it could increase as much as 20% and it actually only increased 5%. So I think it's, I don't think anybody's happy about it from an operator perspective, nor are we, but we do feel that it's manageable and we have plans to be able to hopefully mitigate as much of this as possible.

Yeah, so kind of as a follow-up to that, you know, with machine games duty going up, just wondering, like, how much do you think you can reasonably offset and what are the main levers there? I think back a few months ago, you said you could reasonably offset the increase in the duty. Just wondering what the levers there are and how much you think.

Yeah, so I think now that we know what the percentage is, you know, based on our estimates, we believe that it's going to be an impact to us of between $2 and $3 million starting in April, so not a full year next year. But we also believe, and we've had, you know, history of the changes in tax rates in the UK, that over the course of time between game development and other things, we'll find a way to mitigate it. So, we look at this as a short-term headwind starting in 2027, but we're obviously... I think that we'll be able to mitigate that over the course of time.

Great. Last one for me. It's great seeing FanDuel's virtual sports offerings live. Just wondering if you could get more color there. You know, how many states does it cover? How does early engagement compare with BetMGM's integrated sports books?

Yeah, unfortunately, it's too early in the process. They just went live within the last week or two, and it's really more in a proof mode, making sure the tech is all working. It'll migrate over to the sportsbook probably here in the next week or two, and then I think we probably need four or six weeks for it to bed down to have some sense. But, you know, we've seen nice progress with BetMGM, and we would expect because, you know, FanDuel's substantially bigger from a sports betting standpoint. And so we would hope that, you know, this will be a catalyst to get, you know, some good growth out of the virtual sports business. And FanDuel's going to launch with more sports. BetMGM right now only has three. FanDuel's launching with five. So we're obviously, it's taken a long time to get us there, but we're certainly hopeful and encouraged that we finally got it done.

Yeah, it was great to see that. Hoping to see it as a catalyst for 2027. Thanks for taking my questions.

Sure thing.

Your next question comes from the line of Ryan Sigdahl with Craig Hallam Capital Group. Your line is open. Please go ahead.

Hey, good afternoon. This is Will on for Ryan. Thanks for taking our questions. First wanted to ask on maybe guidance in Brazil. I know you guys called out a $3 million revenue impact there after the ban went into effect, and I know the flow through on EBITDA was a little bit higher there. So curious the revisions there, maybe if there's anything else included and, you know, which segment specifically that's impacting.

No, I think, look, as we talked about, Juan and I talked about, it's a very fluid situation. I think we're taking the most conservative posture here, assuming that the ban doesn't get lifted. But I think we have lots of reasons to think that, you know, that might not be the case. But in terms of the impact to us, it's predominantly our virtual sports business. Our iGaming business in Brazil was relatively small. And I think, you know, we talked a little bit about what the impact was, both on the revenue side and kind of the EBITDA flow through on the last call, and nothing's really changed from that.

And maybe as a quick follow-up there, 2027 guidance revised, too, we'd assume primarily for Brazil. Just curious maybe if there's a chance the market comes back online, maybe for sports betting like we've heard about, what uplift that might provide, and then maybe as another follow-up to that. If it is, you know. We're a few months from now, and it seems that the ban is going to stick. Do you have any cost-saving measures or anything you can undergo there? Thanks, guys.

Yeah. Look, we're obviously hopeful, and certainly we have people on the ground there every day kind of working on this, and so we're hopeful that it will return. I would say in terms of, you know, the impact, certainly if the ban... Stays. Yes, we do have ways to be able to mitigate some costs that we will do. So what we kind of guided to a million a month will obviously be mitigated if the ban doesn't get lifted. So, and in terms of, you know, there's obviously been conversation that it may be sports only and, you know, online casino would still stay banned, but they'd allow sports. I mean, you could certainly make an argument that that could potentially help us in terms of virtual sports. So, unfortunately for us, as you can imagine, you know, with this not being clear, we're just kind of forecasting what we can forecast, but I think it will come to a head. I think there'll be a decision, if not before the end of the year, certainly in the first quarter.

That's my view, at least.

Thanks, Brooks. Sure thing.

Your last question comes from the line of Chad Bainan with Macquarie Capital. Your line is open. Please go ahead.

Hi, afternoon. Thanks for taking my question. Brooks, wanted to ask about the Be Real studio. You've had a lot of nice success gaining market share. In the US, a lot of operators are talking about, you know, some decelerating growth, but because you're taking share, you know, I don't think a little of the overall TAM shrinking near term really matters for you guys. So as you continue to take share, how is this studio a part of that thesis? And are you being asked to do more exclusive games or, you know, anything around the number of titles or timing of releases would be helpful? Thanks.

Yeah, that's a good question. Yes, we certainly have as part of the plan for the studio to develop games for the North American market, but as I also said in my remarks, We're also looking at some of the areas from a kind of really from a player behavior aspect where we either don't serve them or are under indexed, and that could be in the U.S. or that could be in other markets. So, you know, what it really does is gives us we're assuming, you know, when it gets fully up to speed, this is going to be able to put an output of, you know, another gain per month, which will increase our capacity, you know, pretty nicely. So whether it ends up being more U.S. I think that's still kind of to be determined. First game is out at GLI. Second game's pretty much done. So, you know, we'll hope to hit the ground running with the studio. And, yeah, in terms of the second part or third part of your question about exclusive, yeah, I mean, look, we have a very good relationship with – here's a perfect example. Rush Street just told us in October we were their second biggest supplier, which is, you know, They're obviously great and gratifying for us. So we try to navigate, you know, exclusives across all the biggest operators in the best and fairest way possible. But as you know, Chad, I mean, there's tons of content out there, and it's really kind of gauged by how yours does relative to the competition. So we certainly, we have a lot of exclusives with DraftKings, FanDuel, BetMGM, Hard Rock, Fanatics, you know, you kind of name it. So it's kind of the confluence of all of that stuff.

Great. Thanks. And then with more certainty around some of these unknowns that we've talked about here this afternoon, how does that adjust your thinking in terms of capital allocation, share repurchases, or maybe expanding into M&A with leverage coming down under three times?

I was wondering. When you were going to ask that, Chad, I thought you were just about wrapped up with the other question. But thank you for asking it.

You know all your analysts way too well.

Well, particularly the ones we've known as long as we've known you, Chad. But had you not asked it, I was going to volunteer it anyway as a closing remark. So You know, in our minds, in theory, we're always thinking about share repurchase, debt repayment. We mentioned that we're going to be getting a step down anyway in our rate sometime in the first half and acquisitions, which, again, given our leverage right now. And general valuations, we're looking at a couple of things quite carefully. But I think it goes without saying that given where our shares are trading now, for at least the, you know, the immediate and intermediate future, our overwhelming emphasis is going to be on share repurchase. I think we're probably barely... You know, given where the EBITDA is going to be in 2026 and, you know, the minimum it will be in 2027 if we don't get some turnaround in Brazil, I don't even, we're barely trading at four times EBITDA, you know, compared to like seven as an average for suppliers in the gaming industry. We're going to be buying it as aggressively as we ever have, and we'll just see where we get as we move through the fourth quarter.

Great. Thank you very much, Lorne. Appreciate it.

There are no further questions at this time. I will now turn the call back to Lauren wheel executive chairman for closing remarks.

Thank you operator and thanks everyone for participating at this fairly late time in the afternoon. Um, I think we're, we're. Pretty happy with the 3rd quarter, taking all of the. You know, group of objectives that we're trying to achieve simultaneously, profitability, cash flow, leverage, growth, and so forth. We're excited about the rest of the year and next year, and we look forward to speaking to you all in a quarter or so. Thank you.

This concludes today's call. Thank you for attending. You may now disconnect.