Inspired Entertainment, Inc 10-Q for FY2023 Q1
Inspired Entertainment, Inc. (INSE)
About this 10-Q
Inspired Entertainment, Inc filed this 10-Q on May 10, 2023, covering the quarter ended March 31, 2023 (FY2023 Q1).
Headline figures
Quarter ended March 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $66M
- up 8.9% from $60.6M a year earlier
- Net loss
- $200K
- compared with net income of $1.5M a year earlier
- Diluted EPS
- -$0.01
- compared with $0.05 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
OR
For the transition period _______________
Commission
File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification Number) | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s
telephone number, including area code:
(Former name or former address, if changed since last report)
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.
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).
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 ☐ | ||
| 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 ☐
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The |
As of May 5, 2023, there were shares of the Company’s common stock issued and outstanding.
TABLE OF CONTENTS
| PART I. | FINANCIAL INFORMATION | 1 |
| ITEM 1. | FINANCIAL STATEMENTS | 1 |
| Condensed Consolidated Balance Sheets | 1 | |
| Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income | 2 | |
| Condensed Consolidated Statement of Stockholders’ Deficit | 3 | |
| Condensed Consolidated Statements of Cash Flows | 5 | |
| Notes to Condensed Consolidated Financial Statements | 6 | |
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 14 |
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 36 |
| ITEM 4. | CONTROLS AND PROCEDURES | 37 |
| PART II. | OTHER INFORMATION | 38 |
| ITEM 1. | LEGAL PROCEEDINGS | 38 |
| ITEM 1A. | RISK FACTORS | 38 |
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 38 |
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES | 38 |
| ITEM 4. | MINE SAFETY DISCLOSURES | 38 |
| ITEM 5. | OTHER INFORMATION | 38 |
| ITEM 6. | EXHIBITS | 39 |
| SIGNATURES | 40 | |
| i |
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.
| ii |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INSPIRED ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
March 31, 2023 | December 31, 2022 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Software development costs, net | ||||||||
| Other acquired intangible assets subject to amortization, net | ||||||||
| Goodwill | ||||||||
| Operating lease right of use asset | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Deficit | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Corporate tax and other current taxes payable | ||||||||
| Deferred revenue, current | ||||||||
| Operating lease liabilities | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term debt | ||||||||
| Finance lease liabilities, net of current portion | ||||||||
| Deferred revenue, net of current portion | ||||||||
| Operating lease liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ deficit | ||||||||
| Preferred stock; $ par value; shares authorized | ||||||||
| Common stock; $ par value; shares authorized; shares and shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated other comprehensive income | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 1 |
INSPIRED ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in millions, except share and per share data)
(Unaudited)
| 2023 | 2022 | |||||||
Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue: | ||||||||
| Service | $ | $ | ||||||
| Product sales | ||||||||
| Total revenue | ||||||||
| Cost of sales: | ||||||||
| Cost of service (1) | ( | ) | ( | ) | ||||
| Cost of product sales | ( | ) | ( | ) | ||||
| Selling, general and administrative expenses | ( | ) | ( | ) | ||||
| Acquisition and integration related transaction expenses | ( | ) | ||||||
| Depreciation and amortization | ( | ) | ( | ) | ||||
| Net operating income | ||||||||
| Other expense | ||||||||
| Interest expense, net | ( | ) | ( | ) | ||||
| Gain on disposal of business | ||||||||
| Other finance income | ||||||||
| Total other expense, net | ( | ) | ( | ) | ||||
| Net (loss) income before income taxes | ( | ) | ||||||
| Income tax expense | ( | ) | ( | ) | ||||
| Net (loss) income | ( | ) | ||||||
| Other comprehensive income: | ||||||||
| Foreign currency translation (loss) gain | ( | ) | ||||||
| Reclassification of loss on hedging instrument to comprehensive income | ||||||||
| Actuarial gains on pension plan | ||||||||
| Other comprehensive income | ||||||||
| Comprehensive income | $ | $ | ||||||
| Net income (loss) per common share – basic | $ | ( | ) | $ | ||||
| Net income (loss) per common share - diluted | $ | ( | ) | $ | ||||
| Weighted average number of shares outstanding during the period – basic | ||||||||
| Weighted average number of shares outstanding during the period – diluted | ||||||||
| Supplemental disclosure of stock-based compensation expense | ||||||||
| Stock-based compensation included in: | ||||||||
| Selling, general and administrative expenses | $ | ( | ) | $ | ( | ) | ||
| (1) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 2 |
INSPIRED ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
THREE MONTHS ENDED MARCH 31, 2023
(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 December 31, 2022 | | ( | ) | ( |
) | |||||||||||||||||||
| Foreign currency translation adjustments | — | ( | ) | ( |
) | |||||||||||||||||||
| Actuarial gains on pension plan | — | |||||||||||||||||||||||
| Reclassification of loss on hedging instrument to comprehensive income | — | |||||||||||||||||||||||
| Issuances under stock plans | ||||||||||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( |
) | |||||||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( |
) | |||||||||||||||
| Balance | $ | $ | $ | $ | ( | ) | $ | ( |
||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
INSPIRED ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
THREE MONTHS ENDED MARCH 31, 2022
(in millions, except share data)
(Unaudited)
| Common stock | Additional paid in | Accumulated other comprehensive | Accumulated | Total stockholders’ | ||||||||||||||||||||
| Shares | Amount | capital | income | deficit | deficit | |||||||||||||||||||
| Balance as of December 31, 2021 | ( | ) | ( | ) | ||||||||||||||||||||
| Balance | ( | ) | ( | ) | ||||||||||||||||||||
| Foreign currency translation adjustments | — | |||||||||||||||||||||||
| Actuarial gains on pension plan | — | |||||||||||||||||||||||
| Reclassification of loss on hedging instrument to comprehensive income | — | |||||||||||||||||||||||
| Issuances under stock plans | ||||||||||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||||||
| Net income | — | |||||||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Balance | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
INSPIRED ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
| 2023 | 2022 | |||||||
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of right of use asset | ||||||||
| Stock-based compensation expense | ||||||||
| Reclassification of loss on hedging instrument to comprehensive income | ||||||||
| Non-cash interest expense relating to senior debt | ||||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaid expenses and other assets | ||||||||
| Corporate tax and other current taxes payable | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Deferred revenues and customer prepayment | ( | ) | ( | ) | ||||
| Accrued expenses | ||||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Other long-term liabilities | ( | ) | ||||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Acquisition of subsidiary company assets | ( | ) | ||||||
| Acquisition of third-party company trade and assets | ( | ) | ||||||
| Purchases of capital software | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Repayments of finance leases | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Effect of exchange rate changes on cash | ( | ) | ||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental cash flow disclosures | ||||||||
| Cash paid during the period for interest | $ | $ | ||||||
| Cash paid during the period for income taxes | $ | $ | ||||||
| Cash paid during the period for operating leases | $ | $ | ||||||
| Supplemental disclosure of noncash investing and financing activities | ||||||||
| Lease liabilities arising from obtaining right of use assets | $ | ( | ) | $ | ||||
| Property and equipment transferred to inventory | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
1. Nature of Operations, Management’s Plans and Summary of Significant Accounting Policies
Company Description and Nature of Operations
We are a global gaming technology company, supplying content, platform, gaming terminals and other products and services to online and land-based regulated lottery, betting and gaming operators worldwide through a broad range of distribution channels, predominantly on a business-to-business basis. We provide end-to-end digital gaming solutions (i) on our own proprietary and secure network, which accommodates a wide range of devices, including land-based gaming machine terminals, mobile devices and online computer applications and (ii) through third party networks. Our content and other products can be found through the consumer-facing portals of our interactive customers and, through our land-based customers, in licensed betting offices, adult gaming centers, pubs, bingo halls, airports, motorway service areas and leisure parks.
Management Liquidity Plans
As
of March 31, 2023, the Company’s cash on hand was $
There have been no COVID-19 restrictions in the United Kingdom since July 2021 and social distancing measures throughout Greece and Italy are no longer in force as of the second quarter of 2022. There have been no COVID-19 restrictions in the United States and social distancing measures are no longer in force. While states have varying requirements based on occupation, no mandates related to, or would prohibit, our normal business operations.
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Certain information or footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is management’s opinion, however, that the accompanying unaudited interim condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the years ended December 31, 2022 and 2021. The financial information as of December 31, 2022 is derived from the audited consolidated financial statements presented in the Company’s Annual Report on Form 10-K filed with the SEC on March 16, 2023. The interim results for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any future interim periods.
Newly Adopted Accounting Standards
On January 1, 2023, the Company adopted Topic 326 Financial Instruments – Credit Losses (“ASC 326”). ASC 326 affects loans, debt securities, trade receivables, and any other financial assets that have the contractual right to receive cash. It requires an entity to recognize expected credit losses rather than incurred losses for financial assets and requires a modified retrospective transition approach through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption.
The adoption of ASC 326 did not have a material impact. Disclosures with respect to allowances for credit losses are given in footnote 3 to these financial statements.
| 6 |
2. Acquisitions and Disposals
In
January 2022, the Company sold its Italian VLT business, including all terminal and other assets, staff costs and facilities and contracts
to a non-connected party for total proceeds of €
3. Allowance for Credit Losses
Changes in the allowance for doubtful accounts are as follows:
Schedule of Changes in Allowance for Doubtful accounts
March 31, 2023 | December 31, 2022 | |||||||
| (in millions) | ||||||||
| Beginning balance | $ | ( | ) | $ | ( | ) | ||
| Additional provision for doubtful accounts | ( | ) | ( | ) | ||||
| Recoveries | ||||||||
| Write offs | ||||||||
| Foreign currency translation adjustments | ||||||||
| Ending balance | $ | ( | ) | $ | ( | ) | ||
4. Inventory
Schedule of Inventory
March 31, 2023 | December 31, 2022 | |||||||
| (in millions) | ||||||||
| Component parts | $ | $ | ||||||
| Work in progress | ||||||||
| Finished goods | ||||||||
| Total inventories | $ | $ | ||||||
Component parts include parts for gaming terminals. Our finished goods inventory primarily consists of gaming terminals which are ready for sale.
5. Contract Liabilities and Other Disclosures
The following table summarizes contract related balances:
Schedule of Contract Related Balances
Accounts Receivable | Unbilled Accounts Receivable | Deferred Income | Customer Prepayments and Deposits | |||||||||||||
| (in millions) | ||||||||||||||||
| At March 31, 2023 | $ | | $ | | $ | ( | ) | $ | ( | ) | ||||||
| At December 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
Revenue
recognized that was included in the deferred income balance at the beginning of the period amounted to $
| 7 |
Schedule of Restricted Stock Unit Activity
Number of Shares | ||||
| Unvested Outstanding at January 1, 2023 | ||||
| Granted (1) | ||||
| Forfeited | ( | ) | ||
| Vested | ( | ) | ||
| Unvested Outstanding at March 31, 2023 | ||||
| (1) |
The Company issued a total of shares during the three months ended March 31, 2023 which included an aggregate of shares issued in connection with the net settlement of RSUs that vested during the prior year (on December 30, 2022).
7. Accumulated Other Comprehensive Loss (Income)
The accumulated balances for each classification of comprehensive loss (income) are presented below:
Schedule of Accumulated Other Comprehensive Loss (Income)
Foreign Currency Translation Adjustments | Change in Fair Value of Hedging Instrument | Unrecognized Pension Benefit Costs | Accumulated Other Comprehensive (Income) | |||||||||||||
| (in millions) | ||||||||||||||||
| Balance at January 1, 2023 | ( | ) | ( | ) | ||||||||||||
| Change during the period | ( | ) | ( | ) | ( | ) | ||||||||||
| Balance at March 31, 2023 | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||
Foreign Currency Translation Adjustments | Change in Fair Value of Hedging Instrument | Unrecognized Pension Benefit Costs | Accumulated Other Comprehensive (Income) | |||||||||||||
| (in millions) | ||||||||||||||||
| Balance at January 1, 2022 | ( | ) | ( | ) | ||||||||||||
| Change during the period | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Balance at March 31, 2022 | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||
In
connection with the issuance of Senior Secured Notes and the entry into an RCF Agreement, on May 19, 2021, the Company terminated all
of its interest rate swaps. Accordingly, hedge accounting is no longer applicable. The amounts previously recorded in Accumulated Other
Comprehensive Income are amortized into Interest expense over the terms of the hedged forecasted interest payments. Losses reclassified
from Accumulated Other Comprehensive Income into Interest expense in the Consolidated Statements of Operations and Income for the three
months ended March 31, 2023 and March 31, 2022 amounted to $
| 8 |
Basic income/(loss) per share (“EPS”) is computed by dividing net income/(loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to all dilutive potential shares of common stock outstanding during the period, including RSUs, using the treasury stock method, and convertible debt or convertible preferred stock, using the if-converted method, unless the inclusion would be anti-dilutive.
Schedule of Anti-dilutive Securities Excluded from Computation of Earnings per Share
| 2023 | 2022 | |||||||
Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| RSUs | $ | $ | ||||||
9. Other Finance Income (Expense)
Other finance income (expense) consisted of the following:
Schedule of Other Finance Income (expense)
| 2023 | 2022 | |||||||
Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| (in millions) | ||||||||
| Pension interest cost | $ | ( | ) | $ | ( | ) | ||
| Expected return on pension plan assets | ||||||||
| Other finance income (Costs) | $ | $ | ||||||
10. Income Taxes
The
effective income tax rate for the three months ended March 31, 2023 and 2022 was (
The effective tax rate reported in any given year will continue to be influenced by a variety of factors including the level of pre-tax income or loss, the income mix between jurisdictions, and any discrete items that may occur.
The Company recorded a valuation allowance against all of our deferred tax assets as of both March 31, 2023 and 2022. We intend to continue maintaining a full valuation allowance on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. However, given our current earnings and anticipated future earnings, we believe that there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of the valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve.
11. Related Parties
Macquarie
Corporate Holdings Pty Limited (UK Branch) (“Macquarie UK”), (an arranger and lending party under our RCF Agreement) is an
affiliate of MIHI LLC, which beneficially owned approximately
On
December 31, 2021, the Company entered into a consultancy agreement with Richard Weil, the brother of A. Lorne Weil, our Executive Chairman,
under which he received a success fee in the amount of $
| 9 |
12. Leases
The Company is party to leases with third parties with respect to various gaming machines. Gaming machine leases typically include a lease (of the machine) and a non-lease (provision of software services) component, both of which are included in the amounts disclosed.
The components of lease income were as follows:
Schedule of Lease Income
| 2023 | 2022 | |||||||
Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| (in millions) | ||||||||
| Profit recognized at commencement date of sales type leases | $ | $ | ||||||
| Operating lease income | ||||||||
| Total | $ | $ | ||||||
13. Commitments and Contingencies
Employment Agreements
We are party to employment agreements with our executive officers and other employees of the Company and our subsidiaries which contain, among other terms, provisions relating to severance and notice requirements.
Arrangements with Daniel B. Silvers, former Executive Vice President and Chief Strategy Officer
Effective
January 10, 2023, Mr. Silvers stepped down from his position as Executive Vice President and Chief Strategy Officer of the Company. Pursuant
to Mr. Silvers’ employment agreement dated December 14, 2016, as amended, Mr. Silvers was entitled to receive a base salary at
a rate of $
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.
| 10 |
14. Pension Plan
We operate a defined contribution plan in the US, and both defined benefit and defined contribution pension schemes in the UK. The defined contribution scheme assets are held separately from those of the Company in independently administered funds.
Defined Benefit Pension Scheme
The defined benefit scheme has been closed to new entrants since April 1, 1999 and closed to future accruals for services rendered to the Company for the entire financial statement periods presented. The Actuarial Valuation of the scheme as at March 31, 2021, determined that the statutory funding objective was not met, i.e., there were insufficient assets to cover the scheme’s technical provisions and there was a funding shortfall.
In
June 2022, a recovery plan was put in place to eliminate the funding shortfall. The plan expects the shortfall to be eliminated by October
31, 2026. Deficit reduction contributions of
The
total amount of employer contributions paid during the three months ended March 31, 2023 amounted to $
The following table presents the components of our net periodic pension benefit:
Schedule of Defined Benefit Plans
| 2023 | 2022 | |||||||
Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| (in millions) | ||||||||
| Components of net periodic pension benefit: | ||||||||
| Interest cost | $ | $ | ||||||
| Expected return on plan assets | ( | ) | ( | ) | ||||
| Net periodic benefit | $ | ( | ) | $ | ( | ) | ||
The following table sets forth the estimate of the combined funded status of the pension plans and their reconciliation to the related amounts recognized in our consolidated financial statements at the respective measurement dates:
Schedule of Pension Plans and their Reconciliation
March 31, 2023 | December 31, 2022 | |||||||
| (in millions) | ||||||||
| Change in benefit obligation: | ||||||||
| Benefit obligation at beginning of period | $ | $ | ||||||
| Interest cost | ||||||||
| Actuarial loss (gain) | ( | ) | ||||||
| Benefits paid | ( | ) | ( | ) | ||||
| Foreign currency translation adjustments | ( | ) | ||||||
| Benefit obligation at end of period | $ | $ | ||||||
| Change in plan assets: | ||||||||
| Fair value of plan assets at beginning of period | $ | $ | ||||||
| Actual gain (loss) on plan assets | ( | ) | ||||||
| Employer contributions | ||||||||
| Benefits paid | ( | ) | ( | ) | ||||
| Foreign currency translation adjustments | ( | ) | ||||||
| Fair value of assets at end of period | $ | $ | ||||||
| Amount recognized in the consolidated balance sheets: | ||||||||
| Overfunded (Unfunded) status (non-current) | $ | $ | ( | ) | ||||
| Net amount recognized | $ | $ | ( | ) | ||||
| 11 |
15. Segment Reporting and Geographic Information
The Company operates its business along four operating segments, which are segregated on the basis of revenue stream: Gaming, Virtual Sports, Interactive and Leisure. The Company believes this method of segment reporting reflects both the way its business segments are managed and the way the performance of each segment is evaluated.
The following tables present revenue, cost of sales, excluding depreciation and amortization, selling, general and administrative expenses, depreciation and amortization, stock-based compensation expense and acquisition related transaction expenses, operating profit/(loss), and total capital expenditures for the periods ended March 31, 2023 and March 31, 2022, respectively, by business segment. Certain unallocated corporate function costs have not been allocated to the Company’s reportable operating segments because these costs are not allocable and to do so would not be practical. Corporate function costs consist primarily of selling, general and administrative expenses, depreciation and amortization, capital expenditures, right of use assets, cash, prepaid expenses and property and equipment and software development costs relating to corporate/shared functions.
Segment Information
Schedule of Segment Reporting Information by Segment
Three Months Ended March 31, 2023
| Gaming | Virtual Sports | Interactive | Leisure | Corporate Functions | Total | |||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||
| Service | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Product sales | ||||||||||||||||||||||||
| Total revenue | ||||||||||||||||||||||||
| Cost of sales, excluding depreciation and amortization: | ||||||||||||||||||||||||
| Cost of service | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Cost of product sales | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Selling, general and administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Stock-based compensation expense | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Acquisition and integration related transaction expenses | ||||||||||||||||||||||||
| Depreciation and amortization | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Segment operating income (loss) | ( | ) | ( | ) | ||||||||||||||||||||
| Net operating income | $ | |||||||||||||||||||||||
| Total capital expenditures for the three months ended March 31, 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| 12 |
Three Months Ended March 31, 2022
| Gaming | Virtual Sports | Interactive | Leisure | Corporate Functions | Total | |||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||
| Service | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Product sales | ||||||||||||||||||||||||
| Total revenue | ||||||||||||||||||||||||
| Cost of sales, excluding depreciation and amortization: | ||||||||||||||||||||||||
| Cost of service | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Cost of product sales | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Selling, general and administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Stock-based compensation expense | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Acquisition and integration related transaction expenses | ( | ) | ( | ) | ||||||||||||||||||||
| Depreciation and amortization | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Segment operating income (loss) | ( | ) | ( | ) | ||||||||||||||||||||
| Net operating income | $ | |||||||||||||||||||||||
| Total capital expenditures for the three months ended March 31, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Geographic Information
Geographic information for revenue is set forth below:
Schedule of Geographic Information
| 2023 | 2022 | |||||||
Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| (in millions) | ||||||||
| Total revenue | ||||||||
| UK | $ | $ | ||||||
| Greece | ||||||||
| Rest of world | ||||||||
| Total | $ | $ | ||||||
| Total revenue | $ | $ | ||||||
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:
March 31, 2023 | December 31, 2022 | |||||||
| (in millions) | ||||||||
| UK | $ | $ | ||||||
| Greece | ||||||||
| Rest of world | ||||||||
| Total | $ | $ | ||||||
Software development costs are included as attributable to the market in which they are utilized.
16. Customer Concentration
During
the three months ended March 31, 2023, there was one customer that represented at least 10% of the Company’s revenues, accounting
for
At
March 31, 2023 no customers represented at least
17. Subsequent Events
The Company evaluates subsequent events and transactions that occur after the balance sheet date up to the date that the financial statements were issued. Other than as described below, the Company did not identify subsequent events that would have required adjustment or disclosure in the consolidated financial statements.
On April 10, 2023, the Company’s Board of Directors adopted the 2023 Omnibus Incentive Plan (the “2023 Plan”), subject to the approval of our stockholders, which was obtained at the Company’s annual meeting of stockholders held on May 9, 2023. The 2023 Plan authorizes a total of shares to be issued pursuant to awards and will also replace the Company’s predecessor plan (the 2021 Plan) such that shares available for grant under the 2021 Plan would instead be available for grant under the 2023 Plan. Upon approval of the 2023 Plan, the sign-on RSUs previously disclosed for Messrs. Weil and Pierce as part of amendments to their employment contracts in January 2023 were effective (comprising an aggregate of performance-based RSUs and stock price-based RSUs).
| 13 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes thereto included elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual future results could differ materially from the historical results discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those referenced in the section titled “Risk Factors” included elsewhere in this report.
Forward-Looking Statements
We make forward-looking statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations. For definitions of the term Forward-Looking Statements, see the definitions provided in the Cautionary Note Regarding Forward-Looking Statements at the start of this Quarterly Report on Form 10-Q for the period ended March 31, 2023.
Seasonality
Our results of operations can fluctuate due to seasonal trends and other factors. Sales of our gaming machines can vary quarter on quarter due to both supply and demand factors. Player activity for our holiday parks is generally higher in the second and third quarters of the year, particularly during the summer months and slower during the first and fourth quarters of the year. Historical seasonality has been impacted by COVID-19 business disruptions and could continue to be impacted in future periods.
Revenue
We generate revenue in four principal ways: i) on a participation basis, ii) on a fixed rental fee basis, iii) through product sales and iv) through software license fees. Participation revenue generally includes a right to receive a share of our customers’ gaming revenue, typically as a share of net win but sometimes as a share of the handle or “coin in” which represents the total amount wagered.
Geographic Range
Geographically, the majority of our revenue is derived from, and the majority of our non-current assets are attributable to, our UK operations. The remainder of our revenue is derived from, and non-current assets attributable to, Greece and the rest of the world (including North America).
For the three months ended March 31, 2023, we derived approximately 75% of our revenue from the UK (including customers headquartered in the UK but whose revenue is generated globally), 8% from Greece, and the remaining 17% across the rest of the world. During the three months ended March 31, 2022, we derived approximately 75%, 10% and 15% of our revenue from those regions, respectively.
As of March 31, 2023, our non-current assets (excluding goodwill) were attributable as follows: 80% to the UK, 5% to Greece and 15% across the rest of the world.
Foreign Exchange
Our results are affected by changes in foreign currency exchange rates as a result of the translation of foreign functional currencies into our reporting currency and the re-measurement of foreign currency transactions and balances. The impact of foreign currency exchange rate fluctuations represents the difference between current rates and prior-period rates applied to current activity. The geographic region in which the largest portion of our business is operated is the UK and the British pound (“GBP”) is considered to be our functional currency. Our reporting currency is the U.S. dollar (“USD”). Our results are translated from our functional currency of GBP into the reporting currency of USD using average rates for profit and loss transactions and applicable spot rates for period-end balances. The effect of translating our functional currency into our reporting currency, as well as translating the results of foreign subsidiaries that have a different functional currency into our functional currency, is reported separately in Accumulated Other Comprehensive Income.
During the three months ended March 31, 2023 and March 31, 2022, we derived approximately 25% of our revenue from sales to customers outside the UK.
In the section “Results of Operations” below, currency impacts shown have been calculated as the current-period average GBP:USD rate less the equivalent average rate in the prior period, multiplied by the current period amount in our functional currency (GBP). The remaining difference, referred to as functional currency at constant rate, is calculated as the difference in our functional currency, multiplied by the prior-period average GBP:USD rate. This is not a U.S. GAAP measure, but is one which management believes gives a clearer indication of results. In the tables below, variances in particular line items from period to period exclude currency translation movements, and currency translation impacts are shown independently.
Non-GAAP Financial Measures
We use certain financial measures that are not compliant with U.S. GAAP (“Non-GAAP financial measures”), including EBITDA and Adjusted EBITDA, to analyze our operating performance. In this discussion and analysis, we present certain non-GAAP financial measures, define and explain these measures and provide reconciliations to the most comparable U.S. GAAP measures. See “Non-GAAP Financial Measures” below.
Results of Operations
Our results are affected by changes in foreign currency exchange rates, primarily between our functional currency (GBP) and our reporting currency (USD). During the periods ended March 31, 2023 and March 31, 2022, the average GBP:USD rates were for the three-month period 1.21 and 1.34, respectively.
| 14 |
The following discussion and analysis of our results of operations has been organized in the following manner:
| ● | a discussion and analysis of the Company’s results of operations for the three-month period ended March 31, 2023, compared to the same period in 2022; and | |
| ● | a discussion and analysis of the results of operations for each of the Company’s segments (Gaming, Virtual Sports, Interactive and Leisure) for the three-month periods ended March 31, 2023, compared to the same period in 2022, including KPI analysis. |
In the discussion and analysis below, certain data may vary from the amounts presented in our consolidated financial statements due to rounding.
For all reported variances, refer to the overall company and segment tables shown below. All variances discussed in the overall company and segment results are on a functional currency (at constant rate) basis, which excludes the impact of any changes in foreign currency exchange rates.
Overall Company Results
All amounts included herein have been rounded except where otherwise stated. As figures are rounded, numbers presented throughout this document may not add up precisely to the totals we provide and percentages may not precisely reflect the absolute figures.
Three Months ended March 31, 2023, compared to Three Months ended March 31, 2022
| Variance | ||||||||||||||||||||||||
| (In millions) | For the Three-Month Period ended | 2023 vs 2022 | ||||||||||||||||||||||
| March 31, 2023 | March 31, 2022 | Variance Attributable to Currency Movement | Variance on a Functional currency basis | Total Functional Currency Variance % | Total Reported Variance % | |||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||
| Service | $ | 58.3 | $ | 57.0 | $ | (6.1 | ) | $ | 7.4 | 12.9 | % | 2.3 | % | |||||||||||
| Product | 7.7 | 3.6 | (0.8 | ) | 4.9 | 135.2 | % | 113.8 | % | |||||||||||||||
| Total revenue | 66.0 | 60.6 | (6.8 | ) | 12.2 | 20.2 | % | 8.9 | % | |||||||||||||||
| Cost of Sales, excluding depreciation and amortization: | ||||||||||||||||||||||||
| Cost of Service | (10.9 | ) | (11.8 | ) | 1.1 | (0.3 | ) | 2.2 | % | (7.3 | )% | |||||||||||||
| Cost of Product | (5.8 | ) | (2.1 | ) | 0.6 | (4.3 | ) | 203.8 | % | 175.7 | % | |||||||||||||
| Selling, general and administrative expenses | (31.4 | ) | (26.8 | ) | 3.3 | (7.8 | ) | 29.4 | % | 17.2 | % | |||||||||||||
| Stock-based compensation | (2.9 | ) | (2.8 | ) | 0.3 | (0.5 | ) | 16.3 | % | 4.2 | % | |||||||||||||
| Acquisition and integration related transaction expenses | - | (0.1 | ) | - | 0.1 | (100.0 | )% | (100.0 | )% | |||||||||||||||
| Depreciation and amortization | (8.9 | ) | (10.1 | ) | 0.9 | 0.4 | (3.7 | )% | (12.3 | )% | ||||||||||||||
| Net operating Income (Loss) | 6.1 | 6.9 | (0.7 | ) | (0.1 | ) | (0.9 | )% | (10.9 | )% | ||||||||||||||
| Other income (expense) | ||||||||||||||||||||||||
| Interest expense, net | (6.3 | ) | (6.5 | ) | 0.7 | (0.5 | ) | 7.0 | % | (3.3 | )% | |||||||||||||
| Profit on disposal of trade & assets | - | 0.9 | (0.0 | ) | (0.9 | ) | N/A | N/A | ||||||||||||||||
| Other finance income (expense) | 0.1 | 0.3 | (0.0 | ) | (0.2 | ) | (66.0 | )% | (69.3 | )% | ||||||||||||||
| Total other income (expense), net | (6.2 | ) | (5.3 | ) | 0.7 | (1.6 | ) | 29.4 | % | 17.1 | % | |||||||||||||
| Net Income (loss) from continuing operations before income taxes | (0.1 | ) | 1.6 | (0.0 | ) | (1.6 | ) | (100.2 | )% | (105.8 | )% | |||||||||||||
| Income tax expense | (0.1 | ) | (0.1 | ) | (0.0 | ) | 0.0 | (0.3 | )% | 4.6 | % | |||||||||||||
| Net Income (Loss) | $ | (0.2 | ) | $ | 1.5 | $ | (0.0 | ) | $ | (1.6 | ) | (105.9 | )% | (112.2 | )% | |||||||||
| Exchange Rate - $ to £ | 1.21 | 1.34 | ||||||||||||||||||||||
See “Segments Results” below for a more detailed explanation of the significant changes in our components of revenue within the individual segment results of operations.
| 15 |
Revenue
Consolidated Reported Revenue by Segment
| ● | There was no VAT-related revenue for the three-months ended March 31, 2023. For the three-months ended March 31, 2022 VAT-related revenue was $0.9 million. |
“VAT-related revenue” are payments from UK customers related to our contractual revenue share of their value-added tax rebate.
For the three months ended March 31, 2023, revenue on a functional currency (at constant rate) basis increased by $12.2 million, or 20%.
For the three-month period, Gaming service revenue grew by $1.3 million predominantly due to an increase in UK markets of $1.4 million. Gaming Product revenue increased by $4.9 million predominately due to UK product sales. Virtual Sports and Interactive grew by $4.9 million and $2.0 million, respectively, with $4.6 million of the Virtuals Sports increase from Online and $0.3 million from Retail. Interactive growth was driven by revenue growth in the UK, US and Canada. These increases were offset by Leisure service revenue reduction of $0.8 million predominately driven by the reduction in the number of machines operated in the Pubs sector primarily due to the structured withdrawal of non-core low-margin amusement and prize vend machines as recognized in the third quarter of 2022 as well as the reduction in the number of gaming machines.
Cost of Sales, excluding depreciation and amortization
Cost of sales, excluding depreciation and amortization, for the three months ended March 31, 2023, increased by $4.6 million, or 33%. The increase was driven a $4.3 million increase in cost of product, predominately driven by the increase in Product sales.
Selling, general and administrative expenses
Selling, general and administrative (“SG&A”) expenses for the three months ended March 31, 2023 increased by $7.8 million, or 29%.
The increase was driven primarily by the costs of group restructure of $2.9 million (removed from Adjusted EBITDA), an increase in non-staff costs of $3.0 million, of which the largest proportion was driven by exhibition costs of $0.8 million that were not incurred in the prior period, and an increase in staff cost of $2.0 million, driven by an increase in heads predominantly from an investment in the technology and commercial areas of our business.
Stock-based compensation
During the three months ended March 31, 2023, the Company recorded expenses of $2.9 million compared to expenses of $2.8 million for the three months ended March 31, 2022. All expenses were related to outstanding awards. The three months ended March 31, 2023 included an expense of $0.7 million relating to the group restructure.
Depreciation and amortization
Depreciation and amortization decreased for the three-month period by $0.4 million. This was driven by Gaming and Leisure with reductions of $0.4 million and $0.3 million, respectively due to assets being fully written down, partly offset by $0.2 million increases in both Virtual Sports and Interactive depreciation and amortization expenses.
Net operating income/(loss)
During the three-month period, net operating income was $6.1 million, a decrease of $0.1 million compared to the prior year period. The decrease was attributable primarily to the increase in Selling, general and administrative expenses and in Stock-based compensation (including the cost of group restructure). This was partially offset by the increase in gross margin as well as the decrease in depreciation and amortization expenses.
Net Income/ (loss)
For the three-months ended March 31, 2023 net loss was $0.2 million, compared to a net income of $1.5 million in the prior period. The $1.6 million decline year-over-year, was primarily due to the cost of group restructure driving the decline in net operating income, an increase in interest expense, net of $0.5 million, due to $0.4 million increase in charges relating to a discounted unwind on provisions for dilapidations linked to various properties, as well as decreases in other finance income of $0.2 million and gain on disposal of trade and assets of $0.9 million compared to the prior year period.
| 16 |
Deferred Tax
We recorded a valuation allowance against all of our deferred tax assets as of both March 31, 2023, and March 31, 2022. We intend to continue maintaining a full valuation allowance on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. However, given our current earnings and anticipated future earnings, we believe that there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of the valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve.
Segment Results (for the three months ended March 31, 2023, compared to the three months ended March 31, 2022)
Gaming
We generate revenue from our Gaming segment through the sales and rentals of our gaming machines. We receive rental fees for machines, typically in conjunction with long-term contracts, on both a participation and fixed fee basis. Our participation contracts are typically structured to pay us a percentage of net win (defined as net revenue to our operator customers, after deducting player winnings, free bets or plays and any relevant regulatory levies) from gaming terminals placed in our customers’ facilities. Typically, we recognize revenue from these arrangements on a daily basis over the term of the contract.
Revenue growth for our Gaming business is principally driven by changes in (i) the number of operator customers we have, (ii) the number of Gaming machines in operation, (iii) the net win performance of the machines and (iv) the net win percentage that we receive pursuant to our contracts with our customers.
Gaming, Key Performance Indicators
All amounts included herein have been rounded except where otherwise stated. As figures are rounded, numbers presented throughout this document may not add up precisely to the totals we provide and percentages may not precisely reflect the absolute figures.
| For the Three-Month Period ended | Variance | |||||||||||||||
| March 31, | March 31, | 2023 vs 2022 | ||||||||||||||
| Gaming | 2023 | 2022 | % | |||||||||||||
| End of period installed base (# of terminals) (2) | 34,811 | 34,501 | 310 | 0.9 | % | |||||||||||
| Total Gaming - Average installed base (# of terminals) (2) | 34,878 | 34,693 | 185 | 0.5 | % | |||||||||||
| Participation - Average installed base (# of terminals) (2) | 30,793 | 31,420 | (627 | ) | (2.0 | )% | ||||||||||
| Fixed Rental - Average installed base (# of terminals) | 4,085 | 3,273 | 812 | 24.8 | % | |||||||||||
| Service Only - Average installed base (# of terminals) | 14,160 | 17,915 | (3,754 | ) | (21.0 | )% | ||||||||||
| Customer Gross Win per unit per day (1) (2) | £ | 96.1 | £ | 86.7 | £ | 9.4 | 10.9 | % | ||||||||
| Customer Net Win per unit per day (1) (2) | £ | 70.0 | £ | 63.2 | £ | 6.8 | 10.8 | % | ||||||||
| Inspired Blended Participation Rate | 5.8 | % | 5.6 | % | 0.2 | % | 3.6 | % | ||||||||
| Inspired Fixed Rental Revenue per Gaming Machine per week | £ | 47.4 | £ | 42.9 | £ | 4.5 | 10.5 | % | ||||||||
| Inspired Service Rental Revenue per Gaming Machine per week | £ | 5.0 | £ | 4.6 | £ | 0.4 | 8.8 | % | ||||||||
| Gaming Long term license amortization (£’m) | £ | 0.8 | £ | 1.2 | £ | (0.4 | ) | (34.4 | )% | |||||||
| Number of Machine sales | 688 | 319 | 369 | 115.7 | % | |||||||||||
| Average selling price per terminal | £ | 7,880 | £ | 6,775 | £ | 1,105 | 16.3 | % | ||||||||
| (1) | Includes all SBG terminals in which the Company takes a participation revenue share across all territories. |
| (2) | Includes circa 2,500 of lottery terminals where the share is on handle instead of net win. |
| 17 |
In the table above:
“End of Period Installed Base” is equal to the number of deployed Gaming terminals at the end of each period that have been placed on a participation or fixed rental basis. Gaming participation revenue, which comprises the majority of Gaming Service revenue, is directly related to the participation terminal installed base. This is the medium by which our customers generate revenue and distribute a revenue share to the Company. To the extent all other KPIs and certain other factors remain constant, the larger the installed base, the higher the Company’s revenue would be for a given period. Management gives careful consideration to this KPI in terms of driving growth across the segment. This does not include Service Only terminals.
Revenue is derived from the performance of the installed base as described by the Gross and Net Win KPIs.
If the End of Period Installed Base is materially different from the Average Installed Base (described below), we believe this gives an indication as to potential future performance. We believe the End of Period Installed Base is particularly useful for assessing new customers or markets, to indicate the progress being made with respect to entering new territories or jurisdictions.
“Total Gaming - Average Installed Base” is the average number of deployed Gaming terminals during the period split by Participation terminals and Fixed Rental terminals. Therefore, it is more closely aligned to revenue in the period. We believe this measure is particularly useful for assessing existing customers or markets to provide comparisons of historical size and performance. This does not include Service Only terminals.
“Participation - Average Installed Base” is the average number of deployed Gaming terminals that generated revenue on a participation basis.
“Fixed Rental - Average Installed Base” is the average number of deployed Gaming terminals that generated revenue on a fixed rental basis.
“Service Only - Average Installed Base” is the average number of terminals that generated revenue on a Service only basis.
“Customer Gross Win per unit per day” is a KPI used by our management to (i) assess impact on the Company’s revenue, (ii) determine changes in the performance of the overall market and (iii) evaluate the impacts of regulatory change and our new content releases on our customers. Customer Gross Win per unit per day is the average per unit cash generated across all Gaming terminals in which the Company takes a participation revenue share across all territories in the period, defined as the difference between the amounts staked less winnings to players divided by the Average Installed Base in the period, then divided by the number of days in the period.
Gaming revenue accrued in the period is derived from Customer Gross Win accrued in the period after deducting gaming taxes (defined as a regulatory levy paid by the Customer to government bodies) and applying the Company’s contractual revenue share percentage.
Our management believes Customer Gross Win measures are meaningful because they represent a view of customer operating performance that is unaffected by our revenue share percentage and allow management to (1) readily view operating trends, (2) perform analytical comparisons and benchmarking between customers and (3) identify strategies to improve operating performance in the different markets in which we operate.
“Customer Net Win per unit per day” is Customer Gross Win per unit per day after giving effect to the deduction of gaming taxes.
“Inspired Blended Participation Rate” is the Company’s average revenue share percentage across all participation terminals where revenue is earned on a participation basis, weighted by Customer Net Win per unit per day.
| 18 |
“Inspired Fixed Rental Revenue per Gaming Machine per week” is the Company’s average fixed rental amount across all fixed rental terminals where revenue is generated on a fixed fee basis, per unit per week.
“Inspired Service Rental Revenue per Gaming Machine per week” is the Company’s average service rental amount across all service only rental terminals where revenue is generated on a service only fixed fee basis, per unit per week.
“Gaming Long term license amortization” is the upfront license fee per terminal which is typically spread over the life of the terminal.
Our overall Gaming revenue from terminals placed on a participation basis can therefore be calculated as the product of the Participation - Average Installed Base, the Customer Net Win per unit per day, the number of days in the period, and the Inspired Blended Participation Rate, which is equal to “Participation Revenue”.
“Number of Machine sales” is the number of terminals sold during the period.
“Average selling price per terminal” is the total revenue in GBP of the Gaming terminals sold divided by the “number of Machine sales”.
Gaming, Recurring Revenue
All amounts included herein have been rounded except where otherwise stated. As figures are rounded, numbers presented throughout this document may not add up precisely to the totals we provide and percentages may not precisely reflect the absolute figures.
| For the Three-Month Period ended | Variance | |||||||||||||||
| March 31, | March 31, | 2023 vs 2022 | ||||||||||||||
| (In £ millions) | 2023 | 2022 | % | |||||||||||||
| Gaming Recurring Revenue | ||||||||||||||||
| Total Gaming Revenue | £ | 22.6 | £ | 18.0 | £ | 4.6 | 25.7 | % | ||||||||
| Gaming Participation Revenue | £ | 11.5 | £ | 10.3 | £ | 1.2 | 11.7 | % | ||||||||
| Gaming Other Fixed Fee Recurring Revenue | £ | 3.6 | £ | 3.0 | £ | 0.6 | 19.9 | % | ||||||||
| Gaming Project Recurring Revenue | £ | 0.2 | £ | 0.2 | £ | 0.0 | 20.1 | % | ||||||||
| Gaming Long-term license amortization | £ | 0.8 | £ | 1.2 | £ | (0.4 | ) | (34.4 | )% | |||||||
| Total Gaming Recurring Revenue * | £ | 16.1 | £ | 14.7 | £ | 1.4 | 9.7 | % | ||||||||
| Gaming Recurring Revenue as a % of Total Gaming Revenue † | 71.2 | % | 81.6 | % | (10.4 | )% | ||||||||||
| Total Gaming excluding VAT-related revenue | £ | 22.6 | £ | 17.3 | ||||||||||||
| Gaming Recurring Revenue as a % of Total Gaming Revenue (excluding VAT-related revenue) | 71.2 | % | 84.9 | % | ||||||||||||
Set forth below is a breakdown of our Gaming recurring revenue. Gaming recurring revenue principally consists of Gaming participation revenue and fixed rental revenue.
| * | Does not reflect VAT-related revenue. |
| † | Total Gaming Revenue for the three-month period ended March 31, 2023 has no VAT-related revenue, for the three-month period ended March 31, 2022, includes £0.7 million of VAT-related revenue, which is not reflected in Gaming Recurring Revenue for that period. Excluding VAT-related revenue, Gaming Recurring Revenue was 69% and 85%, respectively of Total Gaming Revenue for such period. |
| Note – For the three-months ending March 31, 2022, there has been some recharacterization between Gaming Participation Revenue and Other Fixed fee revenue to ensure consistency with similar items across the Group. |
| 19 |
In the table above:
“Gaming Participation Revenue” includes our share of revenue generated from (i) our Gaming terminals placed in gaming and lottery venues; and (ii) licensing of our game content and intellectual property to third parties.
“Gaming Other Fixed Fee Recurring Revenue” includes service revenue in which the Company earns a periodic fixed fee on a contracted basis.
“Gaming Long term license amortization” – see the definition provided above.
“Total Gaming Recurring Revenue” is equal to Gaming Participation Revenue plus Gaming Other Fixed Fee Recurring Revenue.
Gaming, Service Revenue by Region
Set forth below is a breakdown of our Gaming service revenue by geographic region. Gaming Service revenue consists principally of Gaming participation revenue, Gaming other fixed fee revenue, Gaming long-term license amortization and Gaming other non-recurring revenue. See “Gaming Segment Revenue” below for a discussion of gaming service revenue between the periods under review.
All amounts included herein have been rounded except where otherwise stated. As figures are rounded, numbers presented throughout this document may not add up precisely to the totals we provide and percentages may not precisely reflect the absolute figures.
| For the Three-Month Period ended | Variance | |||||||||||||||||||
| (In millions) | March 31, 2023 | March 31, 2022 | 2023 vs 2022 | Total Functional Currency % | ||||||||||||||||
| Service Revenue: | ||||||||||||||||||||
| UK LBO | $ | 9.7 | $ | 10.2 | $ | (0.4 | ) | (4.4 | )% | 5.7 | % | |||||||||
| UK VAT - Related Income | - | 0.9 | $ | (0.9 | ) | (100.0 | )% | (100.0 | )% | |||||||||||
| UK Other | 3.4 | 3.0 | 0.4 | 13.5 | % | 25.6 | % | |||||||||||||
| Italy | 0.8 | 0.7 | 0.2 | 23.1 | % | 36.0 | % | |||||||||||||
| Greece | 4.3 | 4.8 | (0.6 | ) | (11.6 | )% | (2.2 | )% | ||||||||||||
| Rest of the World | 0.6 | 0.2 | 0.4 | 194.7 | % | 228.1 | % | |||||||||||||
| Lotteries | 1.4 | 1.3 | 0.1 | 8.9 | % | 20.2 | % | |||||||||||||
| Total Service revenue | $ | 20.2 | $ | 21.1 | $ | (0.8 | ) | (4.0 | )% | 6.0 | % | |||||||||
| Exchange Rate - $ to £ | 1.21 | 1.34 | ||||||||||||||||||
Note: Exchange rate in the table is calculated by dividing the USD total service revenue by the GBP total service revenue, therefore this could be slightly different from the average rate during the period depending on timing of transactions.
Gaming, key events
Total Gaming Customer Gross Win per unit per day (in our functional currency, GBP) for the three-months ended March 31, 2023, increased by £9.4, or 11%, to £96.1. The increase was driven by a combination of new content in the UK LBO and Greek markets, removal of all remaining COVID-19 restrictions in Greece, and some shop redistribution of revenue from low performing venue closures in the UK LBO market.
The new “Vantage” terminal, 200 of which have now been on trial for 45 weeks across two major customers, showed 13% growth compared to the current estate terminals. The full rollout of 6,500 “Vantage” terminals into these two major customers is expected to be complete by the end of 2023.
The overall participation rate for our installed base increased to 5.8% for the three months ended March 31, 2023 from 5.6% for the three months ended March 31, 2022. The increase was driven by a shift in customer mix.
In the Non-LBO UK gaming estate, Inspired recorded outright sales of 200 “Flex” terminals to a major customer during the three-month period, delivering revenue of $2.0 million. The new terminals were a combination of replacement and new venue installs. In addition to the product sale component, these new terminals generate additional recurring rental fees. Inspired also delivered the first significant sales volume of the “Community Cops & Robbers” triple player product.
During the first quarter of 2023, Inspired agreed to refresh the Greek estate with 2,000 new “Valor” and 500 new “Vantage” terminals. These terminals are expected to be delivered by the end of 2023 which are expected to be installed into venues during the early part of 2024.
In the North American market, Inspired recorded service revenue in Illinois from 475 game pack sales, the first of this type. Each game pack includes seven new titles, two of which were delivered in the first quarter of 2023 and the remainder by the end of 2023.
| 20 |
Gaming, Results of Operations
All amounts included herein have been rounded except where otherwise stated. As figures are rounded, numbers presented throughout this document may not add up precisely to the totals we provide and percentages may not precisely reflect the absolute figures.
| Variance | ||||||||||||||||||||||||
| (In millions) | For the Three-Month Period ended | 2023 vs 2022 | ||||||||||||||||||||||
| March 31, 2023 | March 31, 2022 | Variance Attributable to Currency Movement | Variance on a Functional currency basis | Total Functional Currency Variance % | Total Reported Variance % | |||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||
| Service | $ | 20.2 | $ | 21.1 | $ | (2.1 | ) | $ | 1.3 | 6.0 | % | (4.0 | )% | |||||||||||
| Product | 7.2 | 3.0 | $ | (0.7 | ) | $ | 4.9 | 163.7 | % | 139.7 | % | |||||||||||||
| Total revenue | 27.4 | 24.1 | (2.9 | ) | 6.2 | 25.7 | % | 13.8 | % | |||||||||||||||
| Cost of Sales, excluding depreciation and amortization: | ||||||||||||||||||||||||
| Cost of Service | (5.2 | ) | (4.7 | ) | $ | 0.6 | (1.0 | ) | 22.4 | % | 9.6 | % | ||||||||||||
| Cost of Product | (5.4 | ) | (1.8 | ) | $ | 0.6 | (4.2 | ) | 232.7 | % | 202.5 | % | ||||||||||||
| Total cost of sales | (10.6 | ) | (6.5 | ) | 1.1 | (5.2 | ) | 81.0 | % | 62.7 | % | |||||||||||||
| Selling, general and administrative expenses | (7.3 | ) | (6.8 | ) | $ | 0.7 | (1.2 | ) | 17.9 | % | 7.1 | % | ||||||||||||
| Stock-based compensation | (0.3 | ) | (0.3 | ) | $ | 0.0 | (0.0 | ) | 10.4 | % | 0.0 | % | ||||||||||||
| Acquisition and integration related transaction expenses | - | (0.1 | ) | - | 0.1 | N/A | N/A | |||||||||||||||||
| Depreciation and amortization | (3.8 | ) | (4.6 | ) | $ | 0.4 | 0.4 | (8.8 | )% | (17.4 | )% | |||||||||||||
| Net operating Income (Loss) | $ | 5.4 | $ | 5.8 | $ | (0.7 | ) | $ | 0.3 | 1.6 | % | (5.7 | )% | |||||||||||
| Profit on disposal of trade & assets | - | 0.9 | - | (0.9 | ) | N/A | N/A | |||||||||||||||||
| Net Income (Loss) | $ | 5.4 | $ | 6.7 | $ | (0.7 | ) | $ | (0.6 | ) | (11.9 | )% | (18.6 | )% | ||||||||||
| Exchange Rate - $ to £ | 1.21 | 1.34 | ||||||||||||||||||||||
Note: Exchange rate in the table is calculated by dividing the USD total revenue by the GBP total revenue, therefore this could be slightly different from the average rate during the period depending on timing of transactions.
All variances discussed in the Gaming results below are on a functional currency (at constant rate) basis, which excludes the impact of any changes in foreign currency exchange rates.
Gaming Revenue
During the three-month period, Gaming revenue increased by $6.2 million, or 26%. This was driven by a $1.3 million increase in Service revenue and a $4.9 million increase in Product revenue.
The increase in Gaming Service revenue was driven by $1.4 million from the UK market, $0.7 million from the rest of the world and $0.3 million from Lotteries. This was partially offset by lower VAT-related revenue of $0.9 million.
Product revenue increase was primarily driven by higher Product sales of $4.5 million of UK sales and $0.5 million of mainland Europe sales.
Gaming Operating Income
Operating income increased for the three-month period by $0.3 million. This increase was primarily due to the increase in revenues of $6.2 million and decrease in depreciation of $0.4 million. This was offset by an increase in cost of sales of $5.2 million and increase of $1.2 million in SG&A, driven by exhibition costs that were not incurred in the prior year.
| 21 |
Gaming Net Income
For the three-month period, Net income decreased by $0.6 million. This was due to the increase in Operating income, offset by the $0.9 million profit from the disposal of trade and assets from the sale of part of the Italian VLT operations in prior year.
Virtual Sports
We generate revenue from our Virtual Sports segment through the licensing of our products. We receive fees in exchange for the licensing of our products, typically on a long-term contract basis, on a participation basis. Our participation contracts are typically structured to pay us a percentage of net win (defined as net revenue to our operator customers, after deducting player winnings, free bets or plays and other promotional costs and any relevant regulatory levies) from Virtual Sports content placed on our customers’ websites or in our customers’ facilities. Typically, we recognize revenue from these arrangements on a daily basis over the term of the contract.
Revenue growth for our Virtual Sports segment is principally driven by the number of customers we have, the net win performance of the games and the net win percentage that we receive pursuant to our contracts with our customers.
Virtual Sports, Key Performance Indicators
All amounts included herein have been rounded except where otherwise stated. As figures are rounded, numbers presented throughout this document may not add up precisely to the totals we provide and percentages may not precisely reflect the absolute figures.
| For the Three-Month Period ended | Variance | |||||||||||||||
| March 31, | March 31, | 2023 vs 2022 | ||||||||||||||
| Virtuals | 2023 | 2022 | % | |||||||||||||
| No. of Live Customers at the end of the period | 58 | 62 | (4 | ) | (6.5 | )% | ||||||||||
| Average No. of Live Customers | 58 | 62 | (4 | ) | (5.9 | )% | ||||||||||
| Total Revenue (£’m) | £ | 12.3 | £ | 8.7 | £ | 3.6 | 41.5 | % | ||||||||
| Total Revenue £’m - Retail | £ | 2.6 | £ | 2.4 | £ | 0.2 | 10.0 | % | ||||||||
| Total Revenue £’m - Online Virtuals | £ | 9.7 | £ | 6.3 | £ | 3.4 | 53.5 | % | ||||||||
In the table above:
“No. of Live Customers at the end of the period” and “Average No. of Live Customers” represent the number of customers from which there is Virtual Sports revenue at the end of the period and the average number of customers from which there is Virtual Sports revenue during the period, respectively.
“Total Revenue (£m)” represents total revenue for the Virtual Sports segment, including recurring and upfront service revenue. Total revenue is also divided between “Total Revenue (£m) – Retail,” which consists of revenue earned through players wagering at Virtual Sports venues, “Total Revenue (£m) – Online Virtuals,” which consists of revenue earned through players wagering on Virtual Sports online.
Virtual Sports, Recurring Revenue
Set forth below is a breakdown of our Virtual Sports recurring revenue, which consists of Retail Virtuals and Online Virtuals recurring revenue as well as long-term license amortization. See “Virtual Sports Segment Revenue” below for a discussion of Virtual Sports Service revenue between the periods under review.
| 22 |
All amounts included herein have been rounded except where otherwise stated. As figures are rounded, numbers presented throughout this document may not add up precisely to the totals we provide and percentages may not precisely reflect the absolute figures.
| For the Three-Month Period ended | Variance | |||||||||||||||
| March 31, | March 31, | 2023 vs 2022 | ||||||||||||||
| (In £ millions) | 2023 | 2022 | % | |||||||||||||
| Virtual Sports Recurring Revenue | ||||||||||||||||
| Total Virtual Sports Revenue | £ | 12.3 | £ | 8.7 | £ | 3.6 | 42.0 | % | ||||||||
| Recurring Revenue - Retail Virtuals | £ | 2.6 | £ | 2.2 | £ | 0.3 | 14.9 | % | ||||||||
| Recurring Revenue - Online Virtuals | £ | 9.6 | £ | 6.1 | £ | 3.4 | 56.0 | % | ||||||||
| Total Virtual Sports Long-term license amortization | £ | 0.1 | £ | 0.2 | £ | (0.1 | ) | (65.1 | )% | |||||||
| Total Virtual Sports Recurring Revenue | £ | 12.2 | £ | 8.5 | £ | 3.7 | 43.0 | % | ||||||||
| Virtual Sports Recurring Revenue as a Percentage of Total Virtual Sports Revenue | 98.9 | % | 98.3 | % | 0.7 | % | ||||||||||
“Recurring Revenue” includes our share of revenue generated from (i) our Virtual Sports products placed with operators; (ii) licensing our game content and intellectual property to third parties; and (iii) our games on third-party online gaming platforms that are interoperable with our game servers.
“Virtual Sports Long term license amortization” is the upfront license fee which is typically spread over the life of the contract.
Virtual Sports, key events
During the period, we launched a full suite of games including V-Play Soccer™ and V-Play Basketball™ in Ontario with multiple operators and V-Play Tie-Break Tennis™ with bet365. We launched Online Virtuals via the VPP platform in Turkey with Milli Piyango, in partnership with leading operator SisalSans.
We signed a new contract and went live with Mozzarbet for V-Play Plug & Play™ in three new African territories.
We launched two new products, Virtual Motor Racing and U.S Horses into Entain’s U.K. retail estate. We also launched V-Play Horses™ with Eurobet in Italy.
We have also announced a new partnership with Aristocrat Gaming™ to bring a new virtual sports experience to football fans worldwide through their global licensing agreement with the National Football League (NFL).
| 23 |
Virtual Sports, Results of Operations
All amounts included herein have been rounded except where otherwise stated. As figures are rounded, numbers presented throughout this document may not add up precisely to the totals we provide and percentages may not precisely reflect the absolute figures.
| Variance | ||||||||||||||||||||||||
| (In millions) | For the Three-Month Period ended | 2023 vs 2022 | ||||||||||||||||||||||
| March 31, 2023 | March 31, 2022 | Variance Attributable to Currency Movement | Variance on a Functional currency basis | Total Functional Currency Variance % | Total Reported Variance % | |||||||||||||||||||
| Service Revenue | $ | 14.9 | $ | 11.6 | $ | (1.6 | ) | $ | 4.9 | 42.0 | % | 28.7 | % | |||||||||||
| Cost of Service | (0.7 | ) | (0.6 | ) | 0.1 | (0.2 | ) | 38.2 | % | 22.3 | % | |||||||||||||
| Selling, general and administrative expenses | (1.3 | ) | (1.6 | ) | 0.2 | 0.1 | (7.1 | )% | (17.5 | )% | ||||||||||||||
| Stock-based compensation | (0.2 | ) | (0.1 | ) | 0.0 | (0.1 | ) | 120.7 | % | 100.0 | % | |||||||||||||
| Depreciation and amortization | (0.7 | ) | (0.6 | ) | 0.1 | (0.2 | ) | 28.8 | % | 16.7 | % | |||||||||||||
| Net operating Income (Loss) | $ | 12.0 | $ | 8.7 | $ | (1.2 | ) | $ | 4.5 | 51.4 | % | 37.7 | % | |||||||||||
| Exchange Rate - $ to £ | 1.21 | 1.34 | ||||||||||||||||||||||
Note: Exchange rate in the table is calculated by dividing the USD service revenue by the GBP service revenue, therefore this could be slightly different from the average rate during the period depending on timing of transactions.
All variances discussed in the Virtual Sports results below are on a functional currency (at constant rate) basis, which excludes the impact of any changes in foreign currency exchange rates.
Virtual Sports revenue
During the three-month period, revenue increased by $4.9 million, or 42%. This increase was driven by a $4.6 million increase in Online Virtuals, primarily driven by the growth from our existing online customers along with expanding jurisdictions, as well as increases in Retail Virtuals of $0.3 million.
Virtual Sports operating income
Operating income increased by $4.5 million in the three-month period. This increase was primarily due to the increase in revenue of $4.9 million, partly offset by an increase of $0.2 million in cost of sales and an increase in depreciation and amortization of $0.2 million.
Interactive
We generate revenue from our Interactive segment through the licensing of our products. Typically, we receive fees in exchange for the licensing of our products, on a long-term contract basis, on a participation basis. Our participation contracts are usually structured to pay us a percentage of net win (defined as net revenue to our operator customers, after deducting player winnings, free bets or plays and other promotional costs and any relevant regulatory levies) from Interactive content placed on our customers’ websites. Typically, we recognize revenue from these arrangements on a daily basis over the term of the contract.
Revenue growth for our Interactive segment is principally driven by the number of customers we have, the number of live games, the net win performance of the games and the net win percentage that we receive pursuant to our contracts with our customers.
| 24 |
Interactive, Key Performance Indicators
All amounts included herein have been rounded except where otherwise stated. As figures are rounded, numbers presented throughout this document may not add up precisely to the totals we provide and percentages may not precisely reflect the absolute figures.
| For the Three-Month Period ended | Variance | |||||||||||||||
| March 31, | March 31, | 2023 vs 2022 | ||||||||||||||
| Interactive | 2023 | 2022 | % | |||||||||||||
| No. of Live Customers at the end of the period | 138 | 112 | 26 | 23.2 | % | |||||||||||
| Average No. of Live Customers | 135 | 111 | 25 | 22.3 | % | |||||||||||
| No. of Games available at the end of the period | 271 | 242 | 29 | 12.0 | % | |||||||||||
| Average No. of Games available | 270 | 239 | 31 | 13.0 | % | |||||||||||
| No. of Live Games at the end of the period | 247 | 242 | 5 | 2.1 | % | |||||||||||
| Average No. of Live Games | 246 | 239 | 7 | 2.9 | % | |||||||||||
| Total Revenue (£’m) | £ | 5.4 | £ | 3.9 | £ | 1.5 | 38.2 | % | ||||||||
In the table above:
“No. of Live Customers at the end of the period” and “Average No. of Live Customers” represent the number of customers from which there is Interactive revenue at the end of the period and the average number of customers from which there is Interactive revenue during the period, respectively.
“No. of Games available at the end of the period” and “Average No. of Games available” represents the number of games that are available for operators to deploy at the end of the period (including inactive legacy games still available and inactive new games that are available but have not yet gone live with any operators) and the average number of games that are available for operators to deploy during the period, respectively. This incorporates both live games and inactive games.
“No. of Live Games at the end of the period” and “Average No. of Live Games” represents the number of games from which there is Interactive revenue at the end of the period and the average number of games from which there is Interactive revenue during the period, respectively.
“Total Revenue (£m)” represents total revenue for the Interactive segment, including recurring and upfront service revenue.
Interactive, key events
During the period ended March 2023, we went live with seven new operators, including 32Red, AGLC and theScore. In addition, we entered new markets with five operators, including The Stars Group in Italy and bet365 in Spain.
During the period we deployed five new games, including a new online game with the Terminator™ licensed brand. Our B2B Game software permit was approved in Sweden, permitting us to continue to deploy iGaming and Virtual Sports software in the country. We also signed a contract with Alchemybet to build a new Slingo Gold Cash Free Spins.
| 25 |
Subsequent to the period end, we launched iGaming content with Fanduel in Michigan.
Interactive, Results of Operations
All amounts included herein have been rounded except where otherwise stated. As figures are rounded, numbers presented throughout this document may not add up precisely to the totals we provide and percentages may not precisely reflect the absolute figures.
| Variance | ||||||||||||||||||||||||
| (In millions) | For the Three-Month Period ended | 2023 vs 2022 | ||||||||||||||||||||||
| March 31, 2023 | March 31, 2022 | Variance Attributable to Currency Movement | Variance on a Functional currency basis | Total Functional Currency Variance % | Total Reported Variance % | |||||||||||||||||||
| Service Revenue | $ | 6.6 | $ | 5.3 | $ | (0.7 | ) | $ | 2.0 | 38.2 | % | 24.5 | % | |||||||||||
| Cost of Service | (0.9 | ) | (1.0 | ) | 0.1 | 0.0 | (1.9 | )% | (11.1 | )% | ||||||||||||||
| Selling, general and administrative expenses | (2.4 | ) | (1.4 | ) | 0.2 | (1.2 | ) | 87.7 | % | 69.5 | % | |||||||||||||
| Stock-based compensation | (0.2 | ) | (0.1 | ) | 0.0 | (0.1 | ) | 122.1 | % | 100.0 | % | |||||||||||||
| Depreciation and amortization | (0.8 | ) | (0.7 | ) | 0.1 | (0.2 | ) | 26.9 | % | 14.3 | % | |||||||||||||
| Net operating Income (Loss) | $ | 2.3 | $ | 2.1 | $ | (0.3 | ) | $ | 0.5 | 24.3 | % | 11.4 | % | |||||||||||
| Exchange Rate - $ to £ | 1.21 | 1.35 | ||||||||||||||||||||||
Note: Exchange rate in the table is calculated by dividing the USD service revenue by the GBP service revenue, therefore this could be slightly different from the average rate during the period depending on timing of transactions.
All variances discussed in the Interactive results below are on a functional currency (at constant rate) basis, which excludes the impact of any changes in foreign currency exchange rates.
Interactive revenue
During three-month period, revenue increased by $2.0 million, or 38%, primarily driven by revenue growth in the UK, US and Canada due to the consistent launch of new content across the estate and increased promotional activity through exclusive deals with tier-one customers.
Interactive operating income
Operating income for the three-month period increased by $0.5 million. This increase was driven by the increase in revenue, partially offset by a $1.2 million increase in SG&A expenses driven by exhibition costs that were not incurred during the prior year period as well and increase in staff costs due to an investment in new technology and commercial heads.
| 26 |
Leisure
We typically generate revenue from our Leisure segment through the supply of our gaming and amusement machines. We receive rental fees for machines, typically on a long-term contract basis, on both a participation and fixed fee basis. Our participation contracts are usually structured to pay us a percentage of net win (defined as net revenue to our operator customers, after deducting player winnings, free bets or plays, any relevant regulatory levies and minimum fixed incomes where applicable) from machines placed in our customers’ facilities. We generally recognize revenue from these arrangements on a daily basis over the term of the contract.
Revenue growth for our Leisure segment is principally driven by the number of customers we have, the number of machines in operation, the net win performance of the machines and the net win percentage that we receive pursuant to our contracts with our customers.
Leisure, Key Performance Indicators
All amounts included herein have been rounded except where otherwise stated. As figures are rounded, numbers presented throughout this document may not add up precisely to the totals we provide and percentages may not precisely reflect the absolute figures.
| For the Three-Month Period ended | Variance | |||||||||||||||
| March 31, | March 31, | 2023 vs 2022 | ||||||||||||||
| Leisure | 2023 | 2022 | % | |||||||||||||
| End of period installed base Gaming machines (# of terminals) | 10,811 | 11,060 | (249 | ) | (2.3 | )% | ||||||||||
| Average installed base Gaming machines (# of terminals) | 10,821 | 11,248 | (426 | ) | (3.8 | )% | ||||||||||
| End of period installed base Other (# of terminals) | 4,546 | 6,356 | (1,810 | ) | (28.5 | )% | ||||||||||
| Average installed base Other (# of terminals) | 4,519 | 6,524 | (2,005 | ) | (30.7 | )% | ||||||||||
| Pub Digital Gaming Machines - Average installed base (# of terminals) | 6,028 | 6,326 | (297 | ) | (4.7 | )% | ||||||||||
| Pub Analogue Gaming Machines - Average installed base (# of terminals) | 499 | 1,720 | (1,221 | ) | (71.0 | )% | ||||||||||
| MSA and Bingo Gaming Machines - Average installed base (# of terminals)(1) | 3,089 | 3,189 | (100 | ) | (3.1 | )% | ||||||||||
| Inspired Leisure Revenue per Gaming Machine per week | £ | 66.4 | £ | 64.2 | £ | 2.2 | 3.4 | % | ||||||||
| Inspired Pub Digital Revenue per Gaming Machine per week | £ | 70.3 | £ | 66.1 | £ | 4.2 | 6.4 | % | ||||||||
| Inspired Pub Analogue Revenue per Gaming Machine per week | £ | 36.8 | £ | 39.2 | £ | (2.4 | ) | (6.1 | )% | |||||||
| Inspired MSA and Bingo Revenue per Gaming Machine per week | £ | 89.4 | £ | 87.3 | £ | 2.1 | 2 | % | ||||||||
| Inspired Other Revenue per Machine per week | £ | 20.1 | £ | 20.2 | £ | (0.1 | ) | (0.4 | )% | |||||||
| Total Holiday Parks Revenue (Gaming and Non Gaming) (£’m) | £ | 2.9 | £ | 2.5 | £ | 0.4 | 14.9 | % | ||||||||
| (1) | Motorway Service Area machines |
In the table above:
“End of period installed base Gaming” and “Average installed base Gaming” represent the number of gaming machines installed (excluding Holiday Park machines) that are Category B and Category C only, from which there is participation or rental revenue at the end of the period or as an average over the period.
“End of period installed base Other” and “Average installed base Other” represent the number of all other category machines installed (excluding Holiday Park machines) from which there is participation or rental revenue at the end of the period or as an average over the period.
“Revenue per machine unit per week” represents the average weekly participation or rental revenue recognized during the period.
| 27 |
Leisure, key events
During the three months ended March 31, 2023 we successfully installed 370 machines (a mixture of Amusement and Gaming) and commenced operations at holiday park operator Butlins in Bognor Regis with initial performance being strong. Holiday Parks performance across all other sites has been strong in the quarter.
In the Pubs business we signed a new 4-year agreement with Stonegate Group, one of the largest UK operators of Pubs in the managed, leased and tenanted sectors.
Our Prismatic Cat C estate saw the release of Bonus Fruits, Burning Hot Deluxe and Bullion Bars Pub edition. Our Prismatic performance is the number one cabinet and product across UK Pubs.
In the Bingo sector we deployed sixty new Prismatic Fortune community machines to 15 Mecca Bingo sites nationwide in the UK as well as released new content Clockwork Orange Fortune Community.
Performance was strong in the quarter across our MSA estate, with successful launches of Anubis Gold and Super Bonus Joker Free Spins. One of our largest customers, Moto completed major AGC refurbishments and new layouts at two of its highest revenue earning sites (Medway and Thurrock) which included investment in Flex and Prismatic machines.
| 28 |
Leisure, Results of Operations
All amounts included herein have been rounded except where otherwise stated. As figures are rounded, numbers presented throughout this document may not add up precisely to the totals we provide and percentages may not precisely reflect the absolute figures.
| Variance | ||||||||||||||||||||||||
| (In millions) | For the Three-Month Period ended | 2023 vs 2022 | ||||||||||||||||||||||
| March 31, 2023 | March 31, 2022 | Variance Attributable to Currency Movement | Variance on a Functional currency basis | Total Functional Currency Variance % | Total Reported Variance % | |||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||
| Service | $ | 16.6 | $ | 19.0 | $ | (1.6 | ) | $ | (0.8 | ) | (4.0 | )% | (12.9 | )% | ||||||||||
| Product | 0.5 | 0.6 | (0.1 | ) | (0.0 | ) | (3.1 | )% | (12.2 | )% | ||||||||||||||
| Total revenue | 17.1 | 19.6 | (1.7 | ) | (0.8 | ) | (3.9 | )% | (12.8 | )% | ||||||||||||||
| Cost of Sales, excluding depreciation and amortization: | ||||||||||||||||||||||||
| Cost of Service | (4.1 | ) | (5.5 | ) | 0.4 | 1.0 | (18.3 | )% | (25.3 | )% | ||||||||||||||
| Cost of Product | (0.4 | ) | (0.3 | ) | 0.0 | (0.1 | ) | 24.1 | % | 21.7 | % | |||||||||||||
| Total cost of sales | (4.5 | ) | (5.8 | ) | 0.4 | 0.9 | (16.2 | )% | (22.9 | )% | ||||||||||||||
| Selling, general and administrative expenses | (11.1 | ) | (11.3 | ) | 1.1 | (0.9 | ) | 7.9 | % | (2.2 | )% | |||||||||||||
| Stock-based compensation | (0.1 | ) | (0.2 | ) | 0.0 | 0.1 | (44.9 | )% | (50.0 | )% | ||||||||||||||
| Depreciation and amortization | (3.1 | ) | (3.7 | ) | 0.3 | 0.3 | (7.7 | )% | (16.2 | )% | ||||||||||||||
| Net operating Income (Loss) | (1.7 | ) | (1.4 | ) | $ | 0.1 | $ | (0.4 | ) | 24.9 | % | 16.3 | % | |||||||||||
| Exchange Rate - $ to £ | 1.21 | 1.34 | ||||||||||||||||||||||
Note: Exchange rate in the table is calculated by dividing the USD total revenue by the GBP total revenue, therefore this could be slightly different from the average rate during the period depending on timing of transactions.
All variances discussed in the Leisure results below are on a functional currency (at constant rate) basis, which excludes the impact of any changes in foreign currency exchange rates.
Leisure Revenue
For the three-month period, revenue decreased by $0.8 million, primarily due to the structured withdrawal of non-core low-margin amusement and prize vend machines as recognized in the third quarter of 2022 as well as the reduction in the number of gaming machines.
Service revenue decreased by $0.8 million, driven by the decline in Pubs of $1.0 million and Bingo Halls of $0.3 million, partly offset by the increase in Holiday parks of $0.5 million.
Leisure Operating Income/ (Loss)
Operating loss for the three-month period was a loss of $1.7 million compared to a loss of $1.4 million during the prior year period. This was primarily due to the decrease in revenue driven by the decline in the Pubs business and the increase in SG&A expenses driven by the increase in headcount from the investment in technology and service areas of the business as well as exhibitions costs that were not incurred in the prior year period. This was partially offset by a decrease in cost of sales of $0.9 million and a decrease in depreciation and amortization of $0.3 million.
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Non-GAAP Financial Measures
We use certain non-GAAP financial measures, including EBITDA and Adjusted EBITDA, to analyze our operating performance. We use these financial measures to manage our business on a day-to-day basis. We believe that these measures are also commonly used in our industry to measure performance. For these reasons, we believe that these non-GAAP financial measures provide expanded insight into our business, in addition to standard U.S. GAAP financial measures. There are no specific rules or regulations for defining and using non-GAAP financial measures, and as a result the measures we use may not be comparable to measures used by other companies, even if they have similar labels. The presentation of non-GAAP financial information should not be considered in isolation from, or as a substitute for, or superior to, financial information prepared and presented in accordance with U.S. GAAP. You should consider our non-GAAP financial measures in conjunction with our U.S. GAAP financial measures.
We define our non-GAAP financial measures as follows:
EBITDA is defined as net income (loss) excluding depreciation and amortization, interest expense, interest income and income tax expense.
Adjusted EBITDA is defined as net income (loss) excluding depreciation and amortization, interest expense, interest income and income tax expense, and other additional exclusions and adjustments. Such additional excluded amounts include stock-based compensation U.S. GAAP charges where the associated liability is expected to be settled in stock, and changes in the value of earnout liabilities and income and expenditure in relation to legacy portions of the business (being those portions where trading no longer occurs) including closed defined benefit pension schemes. Additional adjustments are made for items considered outside the normal course of business, including (1) restructuring costs, which include charges attributable to employee severance, management changes, restructuring, dual running costs, costs related to facility closures and integration costs, (2) merger and acquisition costs and (3) gains or losses not in the ordinary course of business. This does not include any adjustments related to COVID-19.
We believe Adjusted EBITDA, when considered along with other performance measures, is a particularly useful performance measure, because it focuses on certain operating drivers of the business, including sales growth, operating costs, selling and administrative expense and other operating income and expense. We believe Adjusted EBITDA can provide a more complete understanding of our operating results and the trends to which we are subject, and an enhanced overall understanding of our financial performance and prospects for the future. Adjusted EBITDA is not intended to be a measure of liquidity or cash flows from operations or a measure comparable to net income or loss, because it does not take into account certain aspects of our operating performance (for example, it excludes non-recurring gains and losses which are not deemed to be a normal part of underlying business activities). Our use of Adjusted EBITDA may not be comparable to the use by other companies of similarly termed measures. Management compensates for these limitations by using Adjusted EBITDA as only one of several measures for evaluating our operating performance. In addition, capital expenditures, which affect depreciation and amortization, interest expense, and income tax benefit (expense), are evaluated separately by management.
Functional Currency at Constant rate. Currency impacts discussed have been calculated as the current-period average GBP: USD rate less the equivalent average rate in the prior period, multiplied by the current period amount in our functional currency (GBP). The remaining difference, referred to as functional currency at constant rate, is calculated as the difference in our functional currency, multiplied by the prior-period average GBP: USD rate, as a proxy for functional currency at constant rate movement.
Currency Movement represents the difference between the results in our reporting currency (USD) and the results on a functional currency (at constant rate) basis.
Reconciliations from net loss, as shown in our Consolidated Statements of Operations and Comprehensive Income (Loss), to Adjusted EBITDA are shown below.
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Reconciliation to Adjusted EBITDA by segment for the Three Months ended March 31, 2023
All amounts included herein have been rounded except where otherwise stated. As figures are rounded, numbers presented throughout this document may not add up precisely to the totals we provide and percentages may not precisely reflect the absolute figures.
| For the Three-Month Period ended | ||||||||||||||||||||||||
| March 31, | ||||||||||||||||||||||||
| (In millions) | 2023 | |||||||||||||||||||||||
| Total | Gaming | Virtual Sports | Interactive | Leisure | Corporate | |||||||||||||||||||
| Net Income/ (loss) | $ | (0.2 | ) | $ | 5.4 | $ | 12.0 | $ | 2.3 | $ | (1.7 | ) | $ | (18.2 | ) | |||||||||
| Items Relating to Legacy Activities: | ||||||||||||||||||||||||
| Pension charges (1) | 0.2 | 0.2 | ||||||||||||||||||||||
| Items outside the normal course of business: | ||||||||||||||||||||||||
| Costs of group restructure (3) | 3.0 | 3.0 | ||||||||||||||||||||||
| Stock-based compensation expense (4) | 2.9 | 0.3 | 0.2 | 0.2 | 0.1 | 2.1 | ||||||||||||||||||
| Depreciation and amortization (4) | 8.9 | 3.8 | 0.7 | 0.8 | 3.1 | 0.5 | ||||||||||||||||||
| Interest expense net (4) | 6.3 | 6.3 | ||||||||||||||||||||||
| Other finance expenses / (income) (4) | (0.1 | ) | (0.1 | ) | ||||||||||||||||||||
| Income tax (4) | 0.1 | 0.1 | ||||||||||||||||||||||
| Adjusted EBITDA | $ | 21.1 | $ | 9.5 | $ | 12.9 | $ | 3.3 | $ | 1.5 | $ | (6.1 | ) | |||||||||||
| Adjusted EBITDA | £ | 17.4 | £ | 7.8 | £ | 10.5 | £ | 2.7 | £ | 1.3 | £ | (5.1 | ) | |||||||||||
| Exchange Rate - $ to £ (5) | 1.21 | |||||||||||||||||||||||
Note: Certain unallocated corporate function costs have not been allocated to the Company’s reportable operating segments because these costs are not allocable and to do so would not be practical; these are shown in the Corporate category.
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Reconciliation to Adjusted EBITDA by segment for the Three Months ended March 31, 2022
All amounts included herein have been rounded except where otherwise stated. As figures are rounded, numbers presented throughout this document may not add up precisely to the totals we provide and percentages may not precisely reflect the absolute figures.
| For the Three-Month Period ended | ||||||||||||||||||||||||
| March 31, | ||||||||||||||||||||||||
| (In millions) | 2022 | |||||||||||||||||||||||
| Total | Gaming | Virtual Sports | Interactive | Leisure | Corporate | |||||||||||||||||||
| Net Income/ (loss) | $ | 1.5 | $ | 6.7 | $ | 8.7 | $ | 2.1 | $ | (1.4 | ) | $ | (14.5 | ) | ||||||||||
| Items Relating to Legacy Activities: | ||||||||||||||||||||||||
| Pension charges (1) | 0.1 | 0.1 | ||||||||||||||||||||||
| Items outside the normal course of business: | ||||||||||||||||||||||||
| Acquisition and integration related transaction expenses (2) | 0.1 | 0.1 | - | |||||||||||||||||||||
| Stock-based compensation expense (4) | 2.8 | 0.3 | 0.1 | 0.1 | 0.2 | 2.1 | ||||||||||||||||||
| Depreciation and amortization (4) | 10.1 | 4.6 | 0.6 | 0.7 | 3.7 | 0.5 | ||||||||||||||||||
| Interest expense net (4) | 6.5 | 6.5 | ||||||||||||||||||||||
| Profit on disposal of business (6) | (0.9 | ) | (0.9 | ) | - | |||||||||||||||||||
| Other finance expenses / (income) (4) | (0.3 | ) | (0.3 | ) | ||||||||||||||||||||
| Income tax (4) | 0.1 | 0.1 | ||||||||||||||||||||||
| Adjusted EBITDA | $ | 20.1 | $ | 10.8 | $ | 9.4 | $ | 2.9 | $ | 2.5 | $ | (5.5 | ) | |||||||||||
| Adjusted EBITDA | £ | 15.0 | £ | 8.1 | £ | 7.1 | £ | 2.1 | £ | 1.8 | £ | (4.1 | ) | |||||||||||
| Exchange Rate - $ to £ (5) | 1.34 | |||||||||||||||||||||||
Note: Certain unallocated corporate function costs have not been allocated to the Company’s reportable operating segments because these costs are not allocable and to do so would not be practical; these are shown in the Corporate category.
Notes to Adjusted EBITDA reconciliation tables above:
| (1) | “Pension charges” are profit and loss charges included within selling, general and administrative expenses, relating to a defined benefit scheme which was closed to new entrants in 1999 and to future accrual in 2010. As well as the amortization of net loss, the figure also includes charges relating to the Pension Protection Fund (which were historically borne by the pension scheme) and a small amount of associated professional services expenses. These costs are included within Corporate Functions. |
| (2) | Acquisition and integration related transaction expenses, are as described above in the Results of Operations line item discussions. |
| (3) | “Costs of group restructure” include redundancy costs, Payments In Lieu of Notice costs and any associated employer taxes. To qualify as being an adjusting item, costs must be part of a large restructuring project, which will net save ongoing future costs. |
| (4) | Stock-based compensation expense, Depreciation and amortization, Total other expense, net and Income tax are as described above in the Results of Operations line item discussions. Total expense, net includes interest income, interest expense, change in fair value of earnout liability, change in fair value of derivative liability and other finance income. |
| (5) | Exchange rate in the table is calculated by dividing the USD Adjusted EBITDA by the GBP Adjusted EBITDA, therefore this could be slightly different from the average rate during the period depending on timing of transactions. |
| 32 |
| (6) | “Profit on disposal of trade & assets” — In January 2022, the Company sold its Italian VLT business, including all terminals and other assets, staff costs and facilities and contracts to a non-connected party, recognizing a profit on this disposal. |
Liquidity and Capital Resources
Three Months ended March 31, 2023, compared to Three Months ended March 31, 2022
All amounts included herein have been rounded except where otherwise stated. As figures are rounded, numbers presented throughout this document may not add up precisely to the totals we provide and percentages may not precisely reflect the absolute figures.
| Three Months ended | Variance | |||||||||||
| (in millions) | Mar 31, | Mar 31, | ||||||||||
| 2023 | 2022 | 2023 to 2022 | ||||||||||
| Net (loss)/profit | $ | (0.2 | ) | $ | 1.5 | $ | (1.7 | ) | ||||
| Amortization of debt fees | 0.3 | 0.4 | (0.1 | ) | ||||||||
| Change in fair value of derivative liabilities and stock-based compensation expense | 3.1 | 3.0 | 0.1 | |||||||||
| Depreciation and amortization (incl RoU assets) | 9.4 | 10.8 | (1.4 | ) | ||||||||
| Other net cash generated/(utilized) by operating activities | 2.2 | (10.6 | ) | 12.8 | ||||||||
| Net cash provided by operating activities | 14.8 | 5.1 | 9.7 | |||||||||
| Net cash used in investing activities | (11.5 | ) | (10.9 | ) | (0.6 | ) | ||||||
| Net cash used by financing activities | (0.5 | ) | (0.1 | ) | (0.4 | ) | ||||||
| Effect of exchange rates on cash | 0.0 | (1.1 | ) | 1.1 | ||||||||
| Net increase/(decrease) in cash and cash equivalents | $ | 2.8 | $ | (7.0 | ) | $ | 9.8 | |||||
Net cash provided by operating activities
For the three months ended March 31, 2023, net cash inflow provided by operating activities was $14.8 million, compared to a $5.1 million inflow for the three months ended March 31, 2022, representing a $9.7 million increase in cash generation from operating activities. This increase was driven primarily through improved working capital levels with the three months ended March 31, 2023 benefitting from favorable receipts due to the timing of sales and the three months ended March 31, 2022 showing significant inventory increases after the Company made the strategic decision to secure components and protect sales in a challenging global supply chain market.
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Depreciation and amortization decreased by $1.4 million, to $9.4 million, with reductions of $1.0 million in machine depreciation and $0.2million for both amortization of intangible assets and amortization of right of use assets.
Other net cash generated/(utilized) by operating activities increased by $12.8 million, to a $2.2 million inflow. The relative movements between the three months ended March 31, 2023 and the three months ended March 31, 2022 resulted in a $10.6 million increase from receivables due to timing of sales, a $7.3 million inventory increase due to a smaller rise in inventory in the three months ended March 31, 2023 compared to the prior year when the Company made the strategic decision to secure components and protect sales in a challenging global supply chain market and a $3.4 million favorable movement in payroll and trading taxes. This was partly offset by an $8.3 million adverse movement in accounts payable due to timing and the prior year movement being impacted by the increase in inventory levels.
Net cash used in investing activities
Net cash utilized in investing activities increased by $0.6 million, to $11.5 million during the three months ended March 31, 2023. This was driven by higher spend on plant, property and equipment (a $0.8 million increase compared to 2022 offset by a $0.4 million reduction of spend on capitalized software.
Net cash (used)/generated by financing activities
During the three months ended March 31, 2023, net cash utilized by financing activities was $0.5 million relating to finance lease spend. During the three months ended March 31, 2022, net cash utilized by financing activities was $0.1 million relating to finance lease spend.
Funding Needs and Sources
To fund our obligations, we have historically relied on a combination of cash flows provided by operations and the incurrence of additional debt or the refinancing of existing debt. As of March 31, 2023, we had liquidity consisting of $27.8 million in cash and cash equivalents and a further $24.7 million of undrawn revolver facility. This compares to $40.8 million of cash and cash equivalents as of March 31, 2022, with a further $26.3 million of revolver facilities undrawn. We had a working capital inflow of $2.2 million for the three months ended March 31, 2023, compared to a $10.6 million outflow for the three months ended March 31, 2022.
The level of our working capital surplus or deficit varies with the level of machine production we are undertaking and our capitalization as well as the seasonality evident in some of the businesses. In periods with minimal machine volumes and capital spend, our working capital is typically more stable. In periods where significant numbers of machines are being produced, the levels of inventory and creditors are typically higher and there is a natural timing difference between converting the stock into sellable or capitalized plant and settling payments to suppliers. These factors, along with movements in trading activity levels can result in significant working capital volatility. In periods of low activity, our working capital volatility is reduced. Working capital is reviewed and managed with the aim of ensuring that current liabilities are covered by the level of cash held and the expected level of short-term receipts.
Some of our business operations require cash to be held within the machines. As of March 31, 2023, $5.5 million of our $27.8 million of cash and cash equivalents were held as operational floats within the machines. At March 31, 2022, $4.9 million of our $40.8 million of cash and cash equivalents were held as operational floats within the machines
Management currently believes that the Company’s cash balances on hand, cash flows expected to be generated from operations, and the ability to control and defer capital projects will be sufficient to fund the Company’s net cash requirements through May 2024.
| 34 |
Long Term and Other Debt
All amounts included herein have been rounded except where otherwise stated. As figures are rounded, numbers presented throughout this document may not add up precisely to the totals we provide and percentages may not precisely reflect the absolute figures.
| (In millions) | March 31, 2023 | March 31, 2022 | ||||||||||||||
| Cash held | £ | 22.5 | $ | 27.8 | £ | 31.0 | $ | 40.8 | ||||||||
| Original principal senior debt | (235.0 | ) | (290.6 | ) | (235.0 | ) | (309.3 | ) | ||||||||
| Cash interest accrued | (6.1 | ) | (7.6 | ) | (6.1 | ) | (8.1 | ) | ||||||||
| Finance lease creditors | (1.4 | ) | (1.7 | ) | (2.0 | ) | (2.7 | ) | ||||||||
| Total | £ | (220.0 | ) | $ | (272.1 | ) | £ | (212.2 | ) | $ | (279.3 | ) | ||||
Debt Covenants
Under our debt facilities in place as of March 31, 2023, we are not subject to covenant testing on the Senior Secured Notes. We are, however, subject to covenant testing at the level of Inspired Entertainment Inc., the ultimate holding company, on our Super Senior Revolving Credit Facility which requires the Company to maintain a maximum consolidated senior secured net leverage ratio of 6.0x on March 31, 2022, stepping down to 5.75x on March 31, 2023 and 5.50x from March 31, 2024 and thereafter (the “RCF Financial Covenant”). The RCF Financial Covenant is calculated as the ratio of consolidated senior secured net debt to consolidated pro forma EBITDA (defined as net loss excluding depreciation and amortization, interest expense, interest income and income tax expense) for the 12-month period preceding the relevant quarterly testing date and is tested quarterly on a rolling basis, subject to the Initial Facility (as defined in the RCF Agreement) being drawn on the relevant test date. The RCF Financial Covenant does not include a minimum interest coverage ratio or other financial covenants. Covenant testing at March 31, 2023 showed covenant compliance with a net leverage of 2.6x.
There were no breaches of the debt covenants in the periods ended March 31, 2023 or March 31, 2022.
Liens and Encumbrances
As of March 31, 2023, our senior bank debt was secured by the imposition of a fixed and floating charge in favor of the lender over all the assets of the Company and certain of the Company’s subsidiaries.
Share Repurchases
The Board of Directors has authorized that the Company may use up to $25.0 million to repurchase Inspired shares of common stock, subject to repurchases being effected on or before May 10, 2025. Management has discretion as to whether to repurchase shares of the Company. There were no repurchases in the three months ended March 31, 2023 but at this point an aggregate of $10.5 million of our shares of common stock had been repurchased.
Contractual Obligations
As of March 31, 2023, our contractual obligations were as follows:
| Less than | More than | |||||||||||||||||||
| Contractual Obligations (in millions) | Total | 1 yr | 1-3 years | 3-5 years | 5 yrs | |||||||||||||||
| Operating activities | ||||||||||||||||||||
| Interest on long term debt | $ | 80.1 | $ | 22.9 | $ | 45.7 | $ | 11.5 | $ | - | ||||||||||
| Financing activities | ||||||||||||||||||||
| Senior bank debt - principal repayment | 290.6 | - | - | 290.6 | - | |||||||||||||||
| Finance lease payments | 1.7 | 0.5 | 1.2 | - | - | |||||||||||||||
| Operating lease payments | 8.4 | 2.8 | 3.1 | 1.1 | 1.4 | |||||||||||||||
| Interest on non-utilization fees | 0.9 | 0.3 | 0.6 | - | - | |||||||||||||||
| Total | $ | 381.7 | $ | 26.5 | $ | 50.6 | $ | 303.2 | $ | 1.4 | ||||||||||
| 35 |
Off-Balance Sheet Arrangements
As of March 31, 2023, there were no off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, promulgated by the U.S. Securities and Exchange Commission.
Critical Accounting Policies and Accounting Estimates
The preparation of our audited consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions. We exercise considerable judgment with respect to establishing sound accounting policies and in making estimates and assumptions that affect the reported amounts of our assets and liabilities, our recognition of revenue and expenses, and our disclosure of commitments and contingencies at the date of the consolidated financial statements. On an on-going basis, we evaluate our estimates and judgments. We base our estimates and judgments on a variety of factors, including our historical experience, knowledge of our business and industry and current and expected economic conditions, that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We periodically re-evaluate our estimates and assumptions with respect to these judgments and modify our approach when circumstances indicate that modifications are necessary. While we believe that the factors we evaluate provide us with a meaningful basis for establishing and applying sound accounting policies, we cannot guarantee that the results will always be accurate. Since the determination of these estimates requires the exercise of judgment, actual results could differ from such estimates.
For a discussion of other recently issued accounting standards, and assessments as to their impacts on the Company, see Nature of Operations, Management’s Plans and Summary of Significant Accounting Policies, Note 1 to the consolidated financial statements included elsewhere in this report.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our principal market risks are our exposure to changes in foreign currency exchange rates.
Interest Rate Risk
Following the Company’s refinancing of its debt in May 2021, the external borrowings of £235.0 million ($290.6 million) are provided at a fixed rate. Therefore, movements in rates such as LIBOR do not impact on the current borrowings and the only fluctuation that is expected to be reported will be that solely caused by movements in the exchange rates between the Company’s functional currency and its reporting currency.
Foreign Currency Exchange Rate Risk
Our operations are conducted in various countries around the world, and we receive revenue and pay expenses from these operations in a number of different currencies. As such, our earnings are subject to movements in foreign currency exchange rates when transactions are denominated in (i) currencies other than GBP, which is our functional currency, or (ii) the functional currencies of our subsidiaries, which is not necessarily GBP. To estimate our foreign currency exchange rate risk, we identify material Euro and US Dollar trading and balance sheet amounts and recalculate the result using a 10% movement in the GBP:US Dollar exchange rate. For the trading figures the 10% movement is based on the average exchange rate throughout the reported period and for the balance sheet figures the 10% movement is based on the exchange rate used at March 31, 2023.
Excluding intercompany balances, our Euro functional currency net assets total approximately $8.6 million, and our US Dollar functional currency net assets total approximately $4.1 million. We use a sensitivity analysis model to measure the impact of a 10% adverse movement of foreign currency exchange rates against the US Dollar. A hypothetical 10% adverse change in the value of the Euro and the US Dollar relative to GBP as of March 31, 2023, would result in favorable translation adjustments of approximately $0.8 million and $0.4 million, respectively, recorded in other comprehensive loss.
| 36 |
Included within our trading results are earnings outside of our functional currency. Retained gains from Euro based entities earned in Euros and retained losses from USD based entities earned in US Dollars in the three months ended March 31, 2023, were €3.1 million and $5.6 million, respectively. A hypothetical 10% adverse change in the value of the Euro and the US Dollar relative to GBP as of March 31, 2023, would result in translation adjustments of approximately $0.3 million favorable and $0.5 million unfavorable, respectively, recorded in trading operations.
The majority of the Company’s trading is in GBP, the functional currency, although the reporting currency of the Company is the US Dollar. As such, changes in the GBP:USD exchange rate have an effect on the Company’s results. A 10% weakening of GBP against the US Dollar would change the trading operational results unfavorably by approximately $0.2 million and would result in unfavorable translation adjustments of approximately $6.4 million, recorded in other comprehensive loss.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Certifying Officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer (together, the “Certifying Officers”), we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on the foregoing, our Certifying Officers concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of March 31, 2023, due to the material weaknesses described in Item 9A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 16, 2023. Management has redesigned existing controls and is implementing additional controls designed to remediate these material weaknesses; however, these controls have not operated effectively over a sufficient period of time in order to conclude that the material weaknesses have been fully remediated.
Notwithstanding the identified material weaknesses and management’s assessment that our disclosure controls and procedures were not effective at the reasonable assurance level as of March 31, 2023, management believes that the interim consolidated financial statements and footnote disclosures included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations, cash flows and disclosures as of and for the periods presented in accordance with generally accepted accounting principles.
Changes in Internal Control over Financial Reporting
Other than the control changes to remediate the identified material weaknesses, there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may become involved in lawsuits and legal proceedings arising in the ordinary course of business. While we believe that, currently, we have 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 our business, financial condition or results of operations.
ITEM 1A. RISK FACTORS
Our business is subject to a high degree of risk. You should carefully consider the risk factors discussed in our Annual Report on Form 10-K for our fiscal year ended December 31, 2022. You should carefully read and assess all of these risk factors. Any of these risks could materially and adversely affect our business, operating results, financial condition and prospects, and cause the value of our common stock to decline, which could cause investors in our common stock to lose all or part of their investments.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q:
| # | Indicates management contract or compensatory plan. |
| * | Filed herewith. |
| ** | Furnished herewith. |
| 39 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| INSPIRED ENTERTAINMENT, INC. | ||
| Date: May 10, 2023 | /s/ A. Lorne Weil | |
| Name: | A. Lorne Weil | |
| Title: | Executive Chairman | |
| (Principal Executive Officer) | ||
| Date: May 10, 2023 | /s/ Stewart F.B. Baker | |
| Name: | Stewart F.B. Baker | |
| Title: | Executive Vice President and | |
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
| 40 |
Exhibit 10.1
Time-Based RSU Award Terms
INSPIRED ENTERTAINMENT, INC.
2021 OMNIBUS INCENTIVE PLAN
Restricted Stock Unit Award Terms
This is a summary of the terms applicable to the award of Units as specified in these Restricted Stock Unit Award Terms (the “Terms”) by Inspired Entertainment, Inc., a Delaware corporation (the “Company”), to you (the “Participant”), an employee of the Company or one of its subsidiaries (“RSU Grant”). Any term capitalized but not defined in these Terms shall have the meaning set forth in the Inspired Entertainment, Inc. 2021 Omnibus Incentive Plan (the “Plan”).
IMPORTANT NOTICE: This grant requires the Participant to affirmatively accept it. You must log on onto the Global Shares Portal to accept your RSU Grant. Follow the procedure described in the Global Shares Portal to accept your RSU Grant. Failure to accept the terms and conditions of your RSU Grant within the number of days specified on the Global Shares Portal may result in the forfeiture of the RSU Grant.
1. Grant of Units. In accordance with the terms of the Plan and subject to the terms and conditions of the Plan and these Terms, the Company hereby grants to the Participant the number of Restricted Stock Units specified on the Global Shares Portal (each a “Unit” and collectively, the “Units”). The Units will be granted on the grant date as indicated on the Global Shares Portal (“Grant Date”).
2. Vesting of Units. The Units shall vest (i.e., the restrictions shall lapse) in the following installments:
| ● | One-third on December 31, 2023. |
| ● | One-third on December 31, 2024; and |
| ● | One-third on December 31, 2025. |
Notwithstanding the foregoing, and except as otherwise provided in Section 5 of these Terms or the Plan, if the Participant ceases to provide employment or other services to the Company or a subsidiary of the Company for any reason, all unvested Units shall be automatically and immediately forfeited and terminated.
3. Settlement of Units. Within thirty (30) days of an applicable vesting date, the Company will issue in certificated or uncertificated form to the Participant a number of shares of the Company’s common stock (the “Stock”) corresponding to the number of Units that vested, less the number, if any, withheld in satisfaction of applicable withholding taxes as discussed in Section 4.
4. Taxes; Withholding Obligation.
(a) The Participant shall be ultimately liable and responsible for all federal, state, local or foreign income or employment taxes owed in connection with the Units and/or required to be withheld, regardless of any action the Company takes with respect to any tax withholding obligations that arise in connection with the Units. The Company makes no representation or undertaking regarding the domestic or foreign tax treatment of the Participant in connection with the grant or vesting of the Units, the issuance of shares of Stock upon settlement of the Units or the subsequent sale of such shares of Stock. The Company is not committed and is not under any obligation to structure the Units to reduce or eliminate the Participant’s tax liability.
(b) As a condition to the Company’s delivery of shares of Stock pursuant to Section 3, the Participant shall be required to make appropriate arrangements for the satisfaction of any applicable domestic or foreign tax or employment or social insurance withholding obligation which may include tendering to the Company a cash payment equal to the withholding amount due in accordance with procedures adopted from time to time by the Company. If withholding of taxes and/or social insurance is required at the time of vesting and the Participant has not made other arrangements satisfactory to the Company, the Company will withhold from any shares deliverable upon the vesting of Units a number having a Fair Market Value equal to the withholding taxes due.
5. Effect of Termination of Employment/Service. If the Participant ceases to provide employment or other services to the Company or a subsidiary of the Company for any reason all unvested Units shall be automatically and immediately forfeited and terminated; provided that, if there is a conflict between this provision and the provisions of any employment (or similar) agreement between the Company (or a subsidiary of the Company) and the Participant in effect at the time of termination, the provisions of such employment (or similar) agreement shall govern. Notwithstanding the foregoing, in the event:
| ● | the Participant ceases to provide employment or other services due to the Participant’s death or | |
| ● | a Change in Control occurs AND the Participant’s employment or other services are terminated by the Company or an Affiliate without Cause within the twelve (12) month period immediately following such Change in Control (such that the Participant’s Units would otherwise be cancelled (e.g., not be retained in accordance with Section 14(g) of the Plan)), |
the Participant’s unvested Units shall vest as of the date of such termination.
6. Clawback. By accepting the award of Units, the Participant agrees that the Company may recover some or all of the shares of Stock delivered with respect to such award or recoup some or all of the value thereof via offset from other amounts owed by the Participant to the Company or any of its Affiliates, at any time in the three calendar years following delivery thereof, if and to the extent that the Committee concludes that (i) U.S. federal or state law, the laws of any other jurisdiction in which the Participant has been employed by or providing services to the Company during the term of the award, or the listing requirements of any exchange on which the Company’s stock is listed for trading so require, or (ii) as required by Section 304 of the U.S. Sarbanes-Oxley Act of 2002, Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act or otherwise after a restatement of the Company’s financial results as reported to the U.S. Securities and Exchange Commission. By accepting an award hereunder, and by accepting any delivery of shares of Stock hereunder, the Participant agrees to promptly comply with any Company demand for recovery or recoupment hereunder.
7. Transferability of Units. Except as otherwise provided herein, the Participant may not sell, transfer, pledge, assign or otherwise alienate or hypothecate Units other than by will or the laws of descent and distribution or equivalent laws in the jurisdiction of the Participant’s employment. Any attempt to transfer Units in contravention of this Section 7 is null and void ab initio.
8. Compliance with Securities Laws and other Requirements. Notwithstanding anything herein to the contrary, if at any time the Company determines that issuing or distributing shares of Stock would violate applicable securities laws or other legal or regulatory requirements, the Company will not issue or distribute such shares until such time as distribution of the shares would not violate applicable securities laws and other requirements. The Committee may declare any provision of these Terms or action of its own null and void, if it determines the provision or action fails to comply with the applicable short-swing trading rules under the securities laws. As a condition to issuing or distributing shares of Stock to the Participant, until such time as such shares have been registered pursuant to an effective registration statement under the securities laws, or an exemption from such requirements is available, the Company may require the Participant to make such written representations as it deems necessary or desirable to comply with applicable securities laws.
9. No Limitation on Rights of the Company. The grant of Units does not and will not in any way affect the right or power of the Company to make adjustments, reclassifications or changes in its capital or business structure, or to merge, consolidate, dissolve, liquidate, sell or transfer all or any part of its business or assets.
10. Plan and Terms Not a Contract of Employment or Service. Neither the Plan nor these Terms is a contract of employment or services, and no terms of the Participant’s employment or services agreement shall be affected in any way by the Plan, these Terms or related instruments, except to the extent specifically expressed therein. Neither the Plan nor these Terms shall be construed as conferring any legal rights on the Participant to continue to be employed or remain in service with the Company or any of its Affiliates, nor will it interfere with the Company’s or any of its Affiliates’ right to discharge the Participant with or without Cause or to otherwise deal with the Participant regardless of the existence of the Plan, these Terms or Units.
11. Participant to Have No Rights as a Stockholder. Before the date as of which the shares of Stock are issued to the Participant, the Participant will have no rights as a shareholder with respect to those shares.
12. Notice. Any notice or other communication required or permitted under these Terms must be in writing and must be delivered personally, sent by certified, registered or express mail, or sent by overnight courier, at the sender’s expense. Notice shall be deemed given when delivered personally or, if mailed, three days after the date of deposit in the United States mail or, if sent by overnight courier, on the regular business day following the date sent. Notice to the Company should be sent to Inspired Entertainment, Inc., 250 West 57th Street, Suite 415, New York, NY 10107, Attention: General Counsel. Notice to the Participant should be sent to the address the Participant has on file with the Company. Either party may change the person and/or address to whom or which the other party must give notice under this Section 12 by giving such other party written notice of such change, in accordance with the procedures described above.
13. Successors. All obligations of the Company under these Terms will be binding on any successor to the Company, whether the existence of the successor results from a direct or indirect purchase of all or substantially all of the business of the Company, or a merger, consolidation, or otherwise.
14. Governing Law. To the extent not preempted by federal law, these Terms will be construed and enforced in accordance with, and governed by, the laws of the State of New York, without giving effect to any conflicts of law principles that would require the application of the law of any other jurisdiction. The Company and the Participant hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with the Units and these Terms shall be brought only in the courts in the State of New York, County of New York, including the federal courts located therein should federal jurisdiction requirements exist, and (ii) consent to submit to the exclusive jurisdiction of the such courts for purposes of any action or proceeding arising out of or in connection with the Units or these Terms.
15. Plan Document Controls. The rights granted under these Terms are in all respects subject to the provisions set forth in the Plan to the same extent and with the same effect as if set forth fully in these Terms. If the terms of these Terms conflict with the terms of the Plan document, the Plan document will control.
16. Amendment of the Terms. The Company may amend these Terms from time to time. Please check the Global Shares Portal on a regular basis for any updates to these Terms.
17. Code Section 409A. The issuance of shares of Stock under the Terms shall be provided in a manner that complies with Code Section 409A and any ambiguity herein shall be interpreted so as to be consistent with the intent of this paragraph. In no event whatsoever shall the Company be liable for any additional tax, interest or penalty that may be imposed on the Participant by Code Section 409A or damages for failing to comply with Code Section 409A. Notwithstanding anything herein to the contrary, if the Participant is a “specified employee” as such term is defined under Code Section 409A at the time of a separation from service and the deferral of the commencement of any payments or benefits otherwise payable hereunder as a result of such separation from service is necessary in order to prevent any accelerated recognition of income or additional tax under Code Section 409A, then the Company will defer the issuance of shares of Stock hereunder (without any reduction therein) until the date that is at least six (6) months following the Participant’s separation from service with the Company or the earliest date permitted under Code Section 409A (e.g., immediately upon the Participant’s death), whereupon the Company will promptly issue to the Participant the shares of Stock that would have otherwise been previously issued to the Participant under these Terms during the period in which such issuance was deferred.
18. Data Privacy. The Participant explicitly and unambiguously consents to the collection, use, and transfer, in electronic or other form, of personal data as described in this Section 19 by and among, as applicable, the Company and its Affiliates for the exclusive purpose of implementing, administering, and managing the Plan and these Terms. In furtherance of such implementation, administration, and management, the Company and its Affiliates may hold certain personal information about the Participant, including, but not limited to, the Participant’s name, home address, telephone number(s), date of birth, social security or insurance number or other identification number, salary, nationality, job title(s), information regarding any securities of the Company or any of its Affiliates, and details of these Terms (the “Data”). In addition to transferring the Data amongst themselves as necessary for the purpose of implementation, administration, and management of the Plan and these Terms, the Company and its Affiliates may each transfer the Data to any third parties assisting the Company in the implementation, administration, and management of the Plan and these Terms. Recipients of the Data may be located in the Participant’s country or elsewhere, and the Participant’s country may have different data privacy laws and protections. The Participant authorizes such recipients to receive, possess, use, retain, and transfer the Data, in electronic or other form, for the purposes of assisting the Company in the implementation, administration, and management of the Plan and these Terms, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Company or the Participant may elect to deposit any shares of Stock. The Data related to the Participant will be held as long as is necessary to implement, administer, and manage the Plan and these Terms. The Participant may, at any time, view the Data held by the Company with respect to such Participant, request additional information about the storage and processing of the Data with respect to such Participant, recommend any necessary corrections to the Data with respect to the Participant, or refuse or withdraw the consents herein in writing, in any case without cost, by contacting the Participant’s local human resources representative. The Company may cancel the Participant’s eligibility to participate in the Plan, and in the Committee’s discretion, the Participant may forfeit any the Units if the Participant refuses or withdraws the consents described herein.
19. Entire Agreement. These Terms and any other documents to be executed to implement its provisions together constitute the entire agreement between the parties pertaining to the subject matter hereof, superseding all prior and contemporaneous agreements, representations and understandings of the parties with respect to the subject matter hereof.
Performance-Based RSU Award Terms
INSPIRED ENTERTAINMENT, INC.
2021 OMNIBUS INCENTIVE PLAN
Performance Unit Award Terms
This is a summary of the terms applicable to the award of Units as specified in these Performance Unit Award Terms (“Terms”) by Inspired Entertainment, Inc., a Delaware corporation (the “Company”), to you (the “Participant”), an employee of the Company or one of its subsidiaries (“RSU Grant”). Any term capitalized but not defined in these Terms shall have the meaning set forth in the Inspired Entertainment, Inc. 2021 Omnibus Incentive Plan (the “Plan”).
IMPORTANT NOTICE: This grant requires the Participant to affirmatively accept it. You must log on onto the Global Shares Portal to accept your RSU Grant. Follow the procedure described in the Global Shares Portal to accept your RSU Grant. Failure to accept the terms and conditions of your RSU Grant within the number of days specified out on the Global Shares Portal may result in the forfeiture of the RSU Grant.
1. Grant of Performance Units. In accordance with the terms of the Plan and subject to the terms and conditions of the Plan and these Terms, including the time-based service requirements through the scheduled Vesting Date (as defined in Section 2(b) below), the Company hereby grants to the Participant the number of Performance Units specified on the Global Shares Portal (each a “Unit” and collectively, the “Units”). The final number of Units that ultimately may become eligible to vest on the Vesting Date shall be determined by the Compensation Committee of the Company’s Board of Directors (the “Committee”) in accordance with the Threshold Performance Criteria for the Performance Period set forth in Appendix A hereto (the “Performance Condition”) and may range from 0% to 200% of the Units. The Units shall be granted on the grant date as indicated on the Global Shares Portal (“Grant Date”).
2. Vesting of Units. The vesting of Units is contingent on attainment of the Performance Condition for the Performance Period and the Participant’s continued employment through the Vesting Date, except as otherwise provided in Section 5 of these Terms or in the Plan. The Committee shall make its determinations with respect to attainment of the Performance Condition following the Performance Period.
| (a) | If the Committee determines that the Performance Condition has not been met, all of the Units shall be immediately forfeited and terminated. |
| (b) | Subject to Section 5 of these Terms, if the Committee determines that the Performance Condition has been met, the number of Units determined by the Committee in accordance with Appendix A shall be eligible to vest (i.e., the restrictions lapse) if the Participant remains in employment through December 31, 2025 (the “Vesting Date”). |
NOTE: For the avoidance of doubt, except as provided under Section 5 of these Terms (e.g., the Participant’s death, the Participant’s termination in connection with a Change in Control or pursuant to a specific provision of the Participant’s employment agreement) or the Plan, the Units will only be eligible to vest IF: 1) the Committee determines that the Performance Condition has been met AND 2) the Participant remains employed throughout the period from the Grant Date to the Vesting Date.
3. Settlement of Units. Within thirty (30) days of the Vesting Date, the Company will issue in certificated or uncertificated form to the Participant a number of shares of the Company’s common stock (the “Stock”) corresponding to the number of Units that vested, less the number, if any, withheld in satisfaction of applicable withholding taxes as discussed in Section 4. In no event shall the date of settlement be later than two-and-one-half (2 1/2) months after the later of (i) the end of the Company’s fiscal year in which the Vesting Date occurs or (ii) the end of the calendar year in which the Vesting Date occurs.
4. Taxes; Withholding Obligation.
(a) The Participant shall be ultimately liable and responsible for all federal, state, local or foreign income or employment taxes owed in connection with the Units and/or required to be withheld, regardless of any action the Company takes with respect to any tax withholding obligations that arise in connection with the Units. The Company makes no representation or undertaking regarding the domestic or foreign tax treatment of the Participant in connection with the grant or vesting of the Units, the issuance of shares of Stock upon settlement of the Units or the subsequent sale of such shares of Stock. The Company is not committed and is not under any obligation to structure the Units to reduce or eliminate the Participant’s tax liability.
(b) As a condition to the Company’s delivery of shares of Stock pursuant to Section 3, the Participant shall be required to make appropriate arrangements for the satisfaction of any applicable domestic or foreign tax or employment or social insurance withholding obligation which may include tendering to the Company a cash payment equal to the withholding amount due in accordance with procedures adopted from time to time by the Company. If withholding of taxes and/or social insurance is required at the time of vesting and the Participant has not made other arrangements satisfactory to the Company, the Company will withhold from any shares deliverable upon the vesting of Units a number having a Fair Market Value equal to the withholding taxes due.
5. Effect of Termination of Employment/Service. If the Participant ceases to provide employment or other services to the Company or a subsidiary of the Company for any reason prior to the Vesting Date, the Units shall be automatically and immediately forfeited and terminated; provided that, if there is a conflict between this provision and the provisions of any employment (or similar) agreement between the Company (or a subsidiary of the Company) and the Participant in effect at the time of termination, the provisions of such employment (or similar) agreement shall govern. Notwithstanding the foregoing, in the event:
| ● | the Participant ceases to provide employment or other services due to the Participant’s death or |
| ● | a Change in Control occurs AND the Participant’s employment or other services are terminated by the Company or an Affiliate without Cause within the twelve (12) month period immediately following such Change in Control (such that the Participant’s Units would otherwise be cancelled (e.g., not be retained in accordance with Section 14(g) of the Plan)), |
the Participant’s Units shall vest as of the date of such termination; and, for the avoidance of doubt, the number of Units that vest shall equal the number specified in Section 1 above if the termination date is during the Performance Period (i.e., the number issuable for target-level performance) and otherwise shall be determined in accordance with Section 2 above if the termination date is subsequent to the Performance Period (i.e., the number issuable based on the extent to which the Performance Condition has been attained in accordance with Appendix A).
6. Clawback. By accepting the award of Units, the Participant agrees that the Company may recover some or all of the shares of Stock delivered with respect to such award or recoup some or all of the value thereof via offset from other amounts owed by the Participant to the Company or any of its Affiliates, at any time in the three calendar years following delivery thereof, if and to the extent that the Committee concludes that (i) U.S. federal or state law, the laws of any other jurisdiction in which the Participant has been employed by or providing services to the Company during the term of the award, or the listing requirements of any exchange on which the Company’s stock is listed for trading so require, (ii) the performance criteria required for the vesting were not met, or not met to the extent necessary to support the amount of Units that vested, or (iii) as required by Section 304 of the U.S. Sarbanes-Oxley Act of 2002, Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act or otherwise after a restatement of the Company’s financial results as reported to the U.S. Securities and Exchange Commission. By accepting an award hereunder, and by accepting any delivery of shares of Stock hereunder the Participant agrees to promptly comply with any Company demand for recovery or recoupment hereunder.
7. Transferability of Units. Except as otherwise provided herein, the Participant may not sell, transfer, pledge, assign or otherwise alienate or hypothecate Units other than by will or the laws of descent and distribution or equivalent laws in the jurisdiction of the Participant’s employment. Any attempt to transfer Units in contravention of this Section 7 is null and void ab initio.
8. Compliance with Securities Laws and other Requirements. Notwithstanding anything herein to the contrary, if at any time the Company determines that issuing or distributing shares of Stock would violate applicable securities laws or other legal or regulatory requirements, the Company will not issue or distribute such shares until such time as distribution of the shares would not violate applicable securities laws and other requirements. The Committee may declare any provision of these Terms or action of its own null and void, if it determines the provision or action fails to comply with the applicable short-swing trading rules under the securities laws. As a condition to issuing or distributing shares of Stock to the Participant, until such time as such shares have been registered pursuant to an effective registration statement under the securities laws, or an exemption from such requirements is available, the Company may require the Participant to make such written representations as it deems necessary or desirable to comply with applicable securities laws.
9. No Limitation on Rights of the Company. The grant of Units does not and will not in any way affect the right or power of the Company to make adjustments, reclassifications or changes in its capital or business structure, or to merge, consolidate, dissolve, liquidate, sell or transfer all or any part of its business or assets.
10. Plan and Terms Not a Contract of Employment or Service. Neither the Plan nor these Terms is a contract of employment or services, and no terms of the Participant’s employment or services agreement shall be affected in any way by the Plan, these Terms or related instruments, except to the extent specifically expressed therein. Neither the Plan nor these Terms shall be construed as conferring any legal rights on the Participant to continue to be employed or remain in service with the Company or any of its Affiliates, nor will it interfere with the Company’s or any of its Affiliates’ right to discharge the Participant with or without Cause or to otherwise deal with the Participant regardless of the existence of the Plan, these Terms or Units.
11. Participant to Have No Rights as a Stockholder. Before the date as of which the shares of Stock are issued to the Participant, the Participant will have no rights as a shareholder with respect to those shares.
12. Notice. Any notice or other communication required or permitted under these Terms must be in writing and must be delivered personally, sent by certified, registered or express mail, or sent by overnight courier, at the sender’s expense. Notice shall be deemed given when delivered personally or, if mailed, three days after the date of deposit in the United States mail or, if sent by overnight courier, on the regular business day following the date sent. Notice to the Company should be sent to Inspired Entertainment, Inc., 250 West 57th Street, Suite 415, New York, NY 10107, Attention: General Counsel. Notice to the Participant should be sent to the address the Participant has on file with the Company. Either party may change the person and/or address to whom or which the other party must give notice under this Section 12 by giving such other party written notice of such change, in accordance with the procedures described above.
13. Successors. All obligations of the Company under these Terms will be binding on any successor to the Company, whether the existence of the successor results from a direct or indirect purchase of all or substantially all of the business of the Company, or a merger, consolidation, or otherwise.
14. Governing Law. To the extent not preempted by federal law, these Terms will be construed and enforced in accordance with, and governed by, the laws of the State of New York, without giving effect to any conflicts of law principles that would require the application of the law of any other jurisdiction. The Company and the Participant hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with the Units and these Terms shall be brought only in the courts in the State of New York, County of New York, including the federal courts located therein should federal jurisdiction requirements exist, and (ii) consent to submit to the exclusive jurisdiction of the such courts for purposes of any action or proceeding arising out of or in connection with the Units or these Terms.
15. Plan Document Controls. The rights granted under these Terms are in all respects subject to the provisions set forth in the Plan to the same extent and with the same effect as if set forth fully in these Terms. If these Terms conflict with the terms of the Plan document, the Plan document will control.
16. Amendment of the Terms. The Company may amend these Terms from time to time. Please check the Global Shares Portal on a regular basis for any updates to these Terms.
17. Code Section 409A. The issuance of shares of Stock under these Terms shall be provided in a manner that complies with Code Section 409A and any ambiguity herein shall be interpreted so as to be consistent with the intent of this paragraph. In no event whatsoever shall the Company be liable for any additional tax, interest or penalty that may be imposed on the Participant by Code Section 409A or damages for failing to comply with Code Section 409A. Notwithstanding anything herein to the contrary, if the Participant is a “specified employee” as such term is defined under Code Section 409A at the time of a separation from service and the deferral of the commencement of any payments or benefits otherwise payable hereunder as a result of such separation from service is necessary in order to prevent any accelerated recognition of income or additional tax under Code Section 409A, then the Company will defer the issuance of shares of Stock hereunder (without any reduction therein) until the date that is at least six (6) months following the Participant’s separation from service with the Company or the earliest date permitted under Code Section 409A (e.g., immediately upon the Participant’s death), whereupon the Company will promptly issue to the Participant the shares of Stock that would have otherwise been previously issued to the Participant under these Terms during the period in which such issuance was deferred.
18. Data Privacy. The Participant explicitly and unambiguously consents to the collection, use, and transfer, in electronic or other form, of personal data as described in this Section 19 by and among, as applicable, the Company and its Affiliates for the exclusive purpose of implementing, administering, and managing the Plan and these Terms. In furtherance of such implementation, administration, and management, the Company and its Affiliates may hold certain personal information about the Participant, including, but not limited to, the Participant’s name, home address, telephone number(s), date of birth, social security or insurance number or other identification number, salary, nationality, job title(s), information regarding any securities of the Company or any of its Affiliates, and details of these Terms (the “Data”). In addition to transferring the Data amongst themselves as necessary for the purpose of implementation, administration, and management of the Plan and these Terms, the Company and its Affiliates may each transfer the Data to any third parties assisting the Company in the implementation, administration, and management of the Plan and these Terms. Recipients of the Data may be located in the Participant’s country or elsewhere, and the Participant’s country may have different data privacy laws and protections. The Participant authorizes such recipients to receive, possess, use, retain, and transfer the Data, in electronic or other form, for the purposes of assisting the Company in the implementation, administration, and management of the Plan and these Terms, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Company or the Participant may elect to deposit any shares of Stock. The Data related to the Participant will be held as long as is necessary to implement, administer, and manage the Plan and these Terms. The Participant may, at any time, view the Data held by the Company with respect to such Participant, request additional information about the storage and processing of the Data with respect to such Participant, recommend any necessary corrections to the Data with respect to the Participant, or refuse or withdraw the consents herein in writing, in any case without cost, by contacting the Participant’s local human resources representative. The Company may cancel the Participant’s eligibility to participate in the Plan, and in the Committee’s discretion, the Participant may forfeit any the Units if the Participant refuses or withdraws the consents described herein.
19. Entire Agreement. These Terms and any other documents to be executed to implement its provisions together constitute the entire agreement between the parties pertaining to the subject matter hereof, superseding all prior and contemporaneous agreements, representations and understandings of the parties with respect to the subject matter hereof.
Appendix A
Performance Condition Vesting Criteria and Methodology
| A. | Performance Period |
January 1, 2023, to December 31, 2023
| B. | Unit Calculations Assuming Threshold Performance Criteria are Achieved |
Percentage of Target Adjusted EBITDAB |
Payout % | |
| ≤ [__]% | [__]% | |
| [__]% | [__]% | |
| [__]% | [__]% | |
| [__]% | [__]% | |
| [__]% | [__]% | |
| [__]% | [__]% | |
| [__]% | [__]% | |
| [__]% | [__]% | |
| [__]% | [__]% | |
| [__]% | [__]% | |
| ≥ [__]% | [__]% |
**Payout percentage between points will be pro-rated. No amount is paid below Threshold.
**Units will be rounded down to the nearest whole share.
| C. | Additional Factors or Information Regarding Performance Condition Methodology |
Adjusted EBITDA is defined as net loss [or income] excluding depreciation and amortization, interest expense, interest income and income tax expense, and other additional specified exclusions and adjustments. Such additional excluded amounts include stock-based compensation, U.S. GAAP charges where the associated liability is expected to be settled in stock, and changes in the value of earnout liabilities and income and expenditure in relation to legacy portions of the business (being those portions where trading no longer occurs) including closed defined benefit pension schemes. Additional adjustments are made for items considered outside the normal course of business, including (1) restructuring costs, which include charges attributable to employee severance, management changes, restructuring and integration (2) merger and acquisition costs and (3) gains or losses not in the ordinary course of business.
Adjusted EBITDAB, as defined in Section B above (under “Threshold Performance Criteria”), will be measured by Adjusted EBITDA excluding any costs associated with the 2023 Management Bonus Plan.
Treatment of an Acquired Business under Adjusted EBITDAB
To the extent that the Company makes any acquisitions during 2023, the Adjusted EBITDAB shall include the EBITDAB of any such business that was acquired (an “Acquired Business”) and shall be reduced by the product of (a) the consideration paid for the Acquired Business (as measured by its Enterprise Value at purchase), (b) the portion of the year for which the Acquired Business was owned by the Company (on an Actual/365 basis) and (c) 15% (the “Cost of Capital Factor”). The product of (a), (b) and (c) in the preceding sentence shall be referred to as the “Negative EBITDAB Adjustment.” For the avoidance of doubt, any one- time expenses attributable to implementing the acquisition of an Acquired Business, including but not limited to implementing any projected synergies of such acquisition, shall be excluded from the calculation of Adjusted EBITDA (“One-Time AB Items”).
As a hypothetical example, to the extent the Company acquired a business for an Enterprise Value of $100 million at the close of business on June 30th (such that the results of the Acquired Business were included in the Company’s results beginning July 1st), then the Negative EBITDAB Adjustment related to the Acquired Business would be equal to:
| (a) | $100 million | times | ||
| (b) | 50.41096% (184 days/365 days) | times | ||
| (c) | 15% | |||
| Yielding | $7.5616438 million | |||
To the extent that this hypothetical Acquired Business generated Adjusted EBITDAB of $10 million while under the ownership of the Company during 2023, then the net Adjusted EBITDAB impact, ignoring any One-Time AB Items, of the Acquired Business (the actual Adjusted EBITDAB minus the Negative EBITDAB Adjustment) would be $2.4383562 million.
| D. | Committee Determinations |
Determinations as to achievement of Performance Criteria and Unit calculations shall be made by the Committee in its sole discretion following the Performance Period. The Committee may adjust awards and metrics based on extraordinary or unforeseen events and its determinations shall be binding and conclusive.
NOTE: Service Vesting Conditions Continue through Vesting Date
Notwithstanding a Committee determination that applicable Performance Criteria for the Units have been achieved, the Units shall remain subject to the time-based service conditions specified in the Terms through the scheduled Vesting Date (i.e., December 31, 2025).
Exhibit 10.5
Time-Based RSU Award Agreement
INSPIRED ENTERTAINMENT, INC.
2021 OMNIBUS INCENTIVE PLAN
Restricted Stock Unit Award Agreement
This RESTRICTED STOCK UNIT AWARD AGREEMENT (this “Agreement”) is effective as of February 14, 2023 (the “Grant Date”), and is between Inspired Entertainment, Inc., a Delaware corporation (the “Company”), and Daniel Silvers (the “Participant”), pursuant to the terms of Mr. Silvers Employment Agreement with the Company of December 14, 2016 as subsequently amended and the Separation and Release Agreement entered into between Mr. Silvers and the Company dated Jan 10, 2023. Any term capitalized but not defined in this Agreement shall have the meaning set forth in the Inspired Entertainment, Inc. 2021 Omnibus Incentive Plan (the “Plan”).
1. Grant of Units. In accordance with the terms of the Plan and subject to the terms and conditions of the Plan and this Agreement, the Company hereby grants to the Participant 12,833 Restricted Stock Units (each a “Unit” and collectively, the “Units”).
2. Vesting of Units. The Units shall be fully vested on the Grant Date.
3. Settlement of Units. The Units shall settle in the following installments and within 30 days of the dates set out below:
| ● | One-third on December 31, 2023; | |
| ● | One-third on December 31, 2024; and | |
| ● | One-third on December 31, 2025. |
Within thirty (30) days of an applicable settlement date, the Company will issue in certificated or uncertificated form to the Participant a number of shares of the Company’s common stock (the “Stock”) corresponding to the number of Units that are to then be settled in shares of Stock, less the number, if any, withheld in satisfaction of applicable withholding taxes as discussed in Section 4.
4. Taxes; Withholding Obligation.
(a) The Participant shall be ultimately liable and responsible for all federal, state, local or foreign income or employment taxes owed in connection with the Units and/or required to be withheld, regardless of any action the Company takes with respect to any tax withholding obligations that arise in connection with the Units. The Company makes no representation or undertaking regarding the domestic or foreign tax treatment of the Participant in connection with the grant or vesting of the Units, the issuance of shares of Stock upon settlement of the Units or the subsequent sale of such shares of Stock. The Company is not committed and is not under any obligation to structure the Units to reduce or eliminate the Participant’s tax liability.
(b) As a condition to the Company’s delivery of shares of Stock pursuant to Section 3, the Participant shall be required to make appropriate arrangements for the satisfaction of any applicable domestic or foreign tax or employment or social insurance withholding obligation which may include tendering to the Company a cash payment equal to the withholding amount due in accordance with procedures adopted from time to time by the Company. If withholding of taxes and/or social insurance is required at the time of vesting and the Participant has not made other arrangements satisfactory to the Company, the Company will withhold from any shares deliverable upon the vesting of Units a number having a Fair Market Value equal to the withholding taxes due.
5. Clawback. By accepting the award of Units, the Participant agrees that the Company may recover some or all of the shares of Stock delivered with respect to such award or recoup some or all of the value thereof via offset from other amounts owed by the Participant to the Company or any of its Affiliates, at any time in the three calendar years following delivery thereof, if and to the extent that the Committee concludes that (i) U.S. federal or state law, the laws of any other jurisdiction in which the Participant has been employed by or providing services to the Company during the term of the award, or the listing requirements of any exchange on which the Company’s stock is listed for trading so require, or (ii) as required by Section 304 of the U.S. Sarbanes-Oxley Act of 2002, Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act or otherwise after a restatement of the Company’s financial results as reported to the U.S. Securities and Exchange Commission. By accepting an award hereunder, and by accepting any delivery of shares of Stock hereunder, the Participant agrees to promptly comply with any Company demand for recovery or recoupment hereunder.
6. Transferability of Units. Except as otherwise provided herein, the Participant may not sell, transfer, pledge, assign or otherwise alienate or hypothecate Units other than by will or the laws of descent and distribution or equivalent laws in the jurisdiction of the Participant’s employment. Any attempt to transfer Units in contravention of this Section 7 is null and void ab initio.
7. Compliance with Securities Laws and other Requirements. Notwithstanding anything herein to the contrary, if at any time the Company determines that issuing or distributing shares of Stock would violate applicable securities laws or other legal or regulatory requirements, the Company will not issue or distribute such shares until such time as distribution of the shares would not violate applicable securities laws and other requirements. The Committee may declare any provision of this Agreement or action of its own null and void, if it determines the provision or action fails to comply with the applicable short-swing trading rules under the securities laws. As a condition to issuing or distributing shares of Stock to the Participant, until such time as such shares have been registered pursuant to an effective registration statement under the securities laws, or an exemption from such requirements is available, the Company may require the Participant to make such written representations as it deems necessary or desirable to comply with applicable securities laws.
8. No Limitation on Rights of the Company. The grant of Units does not and will not in any way affect the right or power of the Company to make adjustments, reclassifications or changes in its capital or business structure, or to merge, consolidate, dissolve, liquidate, sell or transfer all or any part of its business or assets.
9. Plan and Agreement Not a Contract of Employment or Service. Neither the Plan nor this Agreement is a contract of employment or services, and no terms of the Participant’s employment or services agreement shall be affected in any way by the Plan, this Agreement or related instruments, except to the extent specifically expressed therein.
10. Participant to Have No Rights as a Stockholder. Before the date as of which the shares of Stock are issued to the Participant, the Participant will have no rights as a shareholder with respect to those shares.
11. Notice. Any notice or other communication required or permitted under this Agreement must be in writing and must be delivered personally, sent by certified, registered or express mail, or sent by overnight courier, at the sender’s expense. Notice shall be deemed given when delivered personally or, if mailed, three days after the date of deposit in the United States mail or, if sent by overnight courier, on the regular business day following the date sent. Notice to the Company should be sent to Inspired Entertainment, Inc., 250 West 57th Street, Suite 415, New York, NY 10107, Attention: General Counsel. Notice to the Participant should be sent to the address the Participant has on file with the Company. Either party may change the person and/or address to whom or which the other party must give notice under this Section 12 by giving such other party written notice of such change, in accordance with the procedures described above.
12. Successors. All obligations of the Company under this Agreement will be binding on any successor to the Company, whether the existence of the successor results from a direct or indirect purchase of all or substantially all of the business of the Company, or a merger, consolidation, or otherwise.
13. Governing Law. To the extent not preempted by federal law, this Agreement will be construed and enforced in accordance with, and governed by, the laws of the State of New York, without giving effect to any conflicts of law principles that would require the application of the law of any other jurisdiction. The Company and the Participant hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with the Units and this Agreement shall be brought only in the courts in the State of New York, County of New York, including the federal courts located therein should federal jurisdiction requirements exist, and (ii) consent to submit to the exclusive jurisdiction of the such courts for purposes of any action or proceeding arising out of or in connection with the Units or this Agreement.
14. Plan Document Controls. The rights granted under this Agreement are in all respects subject to the provisions set forth in the Plan to the same extent and with the same effect as if set forth fully in this Agreement. If the terms of this Agreement conflict with the terms of the Plan document, the Plan document will control.
15. Amendment of the Agreement. The Company and the Participant may amend this Agreement only by a written instrument signed by both parties.
16. Counterparts. The parties may execute this Agreement in one or more counterparts, all of which together shall constitute but one Agreement.
17. Code Section 409A. The issuance of shares of Stock under this Agreement shall be provided in a manner that complies with Code Section 409A and any ambiguity herein shall be interpreted so as to be consistent with the intent of this paragraph. In no event whatsoever shall the Company be liable for any additional tax, interest or penalty that may be imposed on the Participant by Code Section 409A or damages for failing to comply with Code Section 409A. Notwithstanding anything herein to the contrary, if the Participant is a “specified employee” as such term is defined under Code Section 409A at the time of a separation from service and the deferral of the commencement of any payments or benefits otherwise payable hereunder as a result of such separation from service is necessary in order to prevent any accelerated recognition of income or additional tax under Code Section 409A, then the Company will defer the issuance of shares of Stock hereunder (without any reduction therein) until the date that is at least six (6) months following the Participant’s separation from service with the Company or the earliest date permitted under Code Section 409A (e.g., immediately upon the Participant’s death), whereupon the Company will promptly issue to the Participant the shares of Stock that would have otherwise been previously issued to the Participant under this Agreement during the period in which such issuance was deferred.
18. Data Privacy. The Participant explicitly and unambiguously consents to the collection, use, and transfer, in electronic or other form, of personal data as described in this Section 19 by and among, as applicable, the Company and its Affiliates for the exclusive purpose of implementing, administering, and managing the Plan and this Agreement. In furtherance of such implementation, administration, and management, the Company and its Affiliates may hold certain personal information about the Participant, including, but not limited to, the Participant’s name, home address, telephone number(s), date of birth, social security or insurance number or other identification number, salary, nationality, job title(s), information regarding any securities of the Company or any of its Affiliates, and details of this Agreement (the “Data”). In addition to transferring the Data amongst themselves as necessary for the purpose of implementation, administration, and management of the Plan and this Agreement, the Company and its Affiliates may each transfer the Data to any third parties assisting the Company in the implementation, administration, and management of the Plan and this Agreement. Recipients of the Data may be located in the Participant’s country or elsewhere, and the Participant’s country may have different data privacy laws and protections. The Participant authorizes such recipients to receive, possess, use, retain, and transfer the Data, in electronic or other form, for the purposes of assisting the Company in the implementation, administration, and management of the Plan and this Agreement, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Company or the Participant may elect to deposit any shares of Stock. The Data related to the Participant will be held as long as is necessary to implement, administer, and manage the Plan and this Agreement. The Participant may, at any time, view the Data held by the Company with respect to such Participant, request additional information about the storage and processing of the Data with respect to such Participant, recommend any necessary corrections to the Data with respect to the Participant, or refuse or withdraw the consents herein in writing, in any case without cost, by contacting the Participant’s local human resources representative. The Company may cancel the Participant’s eligibility to participate in the Plan, and in the Committee’s discretion, the Participant may forfeit any the Units if the Participant refuses or withdraws the consents described herein.
19. Entire Agreement. This Agreement and any other documents to be executed to implement its provisions together constitute the entire agreement between the parties pertaining to the subject matter hereof, superseding all prior and contemporaneous agreements, representations and understandings of the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Company and the Participant have duly executed this Agreement as of the date first written above.
| INSPIRED ENTERTAINMENT, INC. | ||
| By: | /s/ Carys Damon | |
| Name: | Carys Damon | |
| Title: | EVP & General Counsel | |
| /s/ Daniel Silvers | ||
| Daniel Silvers | ||
Performance-Based RSU Award Agreement
INSPIRED ENTERTAINMENT, INC.
2021 OMNIBUS INCENTIVE PLAN
Performance Unit Award Agreement
This PERFORMANCE UNIT AWARD AGREEMENT (this “Agreement”) is entered into as of February 14, 2023 (the “Grant Date”), and is between Inspired Entertainment, Inc., a Delaware corporation (the “Company”), and Daniel Silvers (the “Participant”), pursuant to the terms of Mr. Silvers Employment Agreement with the Company of December 14, 2016 as subsequently amended and the Release and Settlement Agreement entered into between Mr. Silvers and the Company dated Jan 10, 2023. Any term capitalized but not defined in this Agreement shall have the meaning set forth in the Inspired Entertainment, Inc. 2021 Omnibus Incentive Plan (the “Plan”).
1. Grant of Performance Units. In accordance with the terms of the Plan and subject to the terms and conditions of the Plan and this Agreement, the Company hereby grants to the Participant 12,833 Performance Units (each a “Unit” and collectively, the “Units”). The Units represent the right to receive shares of the Company’s common stock (the “Stock”) based on the extent to which the Performance Condition (as defined below) has been met by the Company, which shall be determined by the Compensation Committee of the Company’s Board of Directors (the “Committee”) in accordance with the Threshold Performance Criteria for the Performance Period set forth in Appendix A hereto (the “Performance Condition”).
2. Earned Units. The final number of Units to which the Participant is entitled to receive Stock based on Company performance as compared to the Performance Condition as set forth in Exhibit A (collectively, the “Earned Units”) may range from 0% to 200% of the Units (and in respect of which Participant will not be treated less favorably than any other participants). The Committee shall make its determinations with respect to the level of attainment of the Performance Condition (and therefore the corresponding number of Earned Units) following the Performance Period.
For avoidance of doubt, there is no requirement that the Participant complete any minimum period of employment (or take any other actions) in order to receive issuance of Stock with respect to Earned Units. If the Committee determines that the threshold level for the Performance Condition has not been met, all of the Units shall be immediately forfeited and terminated.
3. Settlement of Earned Units. Within thirty (30) days of December 31, 2025, the Company will issue in certificated or uncertificated form to the Participant a number of shares of Stock corresponding to the number of Earned Units less the number, if any, withheld in satisfaction of applicable withholding taxes as discussed in Section 4.
4. Taxes; Withholding Obligation.
(a) The Participant shall be ultimately liable and responsible for all federal, state, local or foreign income or employment taxes owed in connection with the Units and/or required to be 2 withheld, regardless of any action the Company takes with respect to any tax withholding obligations that arise in connection with the Units. The Company makes no representation or undertaking regarding the domestic or foreign tax treatment of the Participant in connection with the grant of the Units, or attainment of the Performance Condition, the issuance of shares of Stock upon settlement of the Units or the subsequent sale of such shares of Stock. The Company is not committed and is not under any obligation to structure the Units to reduce or eliminate the Participant’s tax liability.
(b) As a condition to the Company’s delivery of shares of Stock pursuant to Section 3, the Participant shall be required to make appropriate arrangements for the satisfaction of any applicable domestic or foreign tax or employment or social insurance withholding obligation which may include tendering to the Company a cash payment equal to the withholding amount due in accordance with procedures adopted from time to time by the Company. If withholding of taxes and/or social insurance is required and the Participant has not made other arrangements satisfactory to the Company, the Company will withhold from any shares deliverable with respect to the Earned Units a number having a Fair Market Value equal to the withholding taxes due based upon the Participants’ most recent withholding election.
5. Clawback. By accepting the award of Units, the Participant agrees that the Company may recover some or all of the shares of Stock delivered with respect to such award or recoup some or all of the value thereof via offset from other amounts owed by the Participant to the Company or any of its Affiliates, at any time in the three calendar years following delivery thereof, if and to the extent that the Committee concludes that (i) U.S. federal or state law, the laws of any other jurisdiction in which the Participant has been employed by or providing services to the Company during the term of the award, or the listing requirements of any exchange on which the Company’s stock is listed for trading so require, (ii) the Performance Condition was not met, or not met to the extent necessary to support the amount of Earned Units, or (iii) as required by Section 304 of the U.S. Sarbanes-Oxley Act of 2002, Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act or otherwise after a restatement of the Company’s financial results as reported to the U.S. Securities and Exchange Commission. By accepting an award hereunder, and by accepting any delivery of shares of Stock hereunder the Participant agrees to promptly comply with any Company demand for recovery or recoupment hereunder.
6. Transferability of Units. Except as otherwise provided herein, the Participant may not sell, transfer, pledge, assign or otherwise alienate or hypothecate Units other than by will or the laws of descent and distribution or equivalent laws in the jurisdiction of the Participant’s employment. Any attempt to transfer Units in contravention of this Section 7 is null and void ab initio.
7. Compliance with Securities Laws and other Requirements. Notwithstanding anything herein to the contrary, if at any time the Company determines that issuing or distributing shares of Stock would violate applicable securities laws or other legal or regulatory requirements, the Company will not issue or distribute such shares until such time as distribution of the shares would not violate applicable securities laws and other requirements. The Committee may declare any provision of this Agreement or action of its own null and void, if it determines the provision or action fails to comply with the applicable short-swing trading rules under the securities laws. As a condition to issuing or distributing shares of Stock to the Participant, until such time as such shares have been registered pursuant to an effective registration statement under the securities 3 laws, or an exemption from such requirements is available, the Company may require the Participant to make such written representations as it deems necessary or desirable to comply with applicable securities laws.
8. No Limitation on Rights of the Company. The grant of Units does not and will not in any way affect the right or power of the Company to make adjustments, reclassifications or changes in its capital or business structure, or to merge, consolidate, dissolve, liquidate, sell or transfer all or any part of its business or assets.
9. Plan and Agreement Not a Contract of Employment or Service. Neither the Plan nor this Agreement is a contract of employment or services, and no terms of the Participant’s employment or services agreement shall be affected in any way by the Plan, this Agreement or related instruments, except to the extent specifically expressed therein. Neither the Plan nor this Agreement shall be construed as conferring any legal rights on the Participant to continue to be employed or remain in service with the Company or any of its Affiliates, nor will it interfere with the Company’s or any of its Affiliates’ right to discharge the Participant with or without Cause or to otherwise deal with the Participant regardless of the existence of the Plan, this Agreement or Units.
10. Participant to Have No Rights as a Stockholder. Before the date as of which the shares of Stock are issued to the Participant, the Participant will have no rights as a shareholder with respect to those shares.
11. Notice. Any notice or other communication required or permitted under this Agreement must be in writing and must be delivered personally, sent by certified, registered or express mail, or sent by overnight courier, at the sender’s expense. Notice shall be deemed given when delivered personally or, if mailed, three days after the date of deposit in the United States mail or, if sent by overnight courier, on the regular business day following the date sent. Notice to the Company should be sent to Inspired Entertainment, Inc., 250 West 57th Street, Suite 415, New York, NY 10107, Attention: General Counsel. Notice to the Participant should be sent to the address the Participant has on file with the Company. Either party may change the person and/or address to whom or which the other party must give notice under this Section 12 by giving such other party written notice of such change, in accordance with the procedures described above.
12. Successors. All obligations of the Company under this Agreement will be binding on any successor to the Company, whether the existence of the successor results from a direct or indirect purchase of all or substantially all of the business of the Company, or a merger, consolidation, or otherwise.
13. Governing Law. To the extent not preempted by federal law, this Agreement will be construed and enforced in accordance with, and governed by, the laws of the State of New York, without giving effect to any conflicts of law principles that would require the application of the law of any other jurisdiction. The Company and the Participant hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with the Units and this Agreement shall be brought only in the courts in the State of New York, County of New York, including the federal courts located therein should federal jurisdiction requirements exist, and (ii) consent to submit to the exclusive jurisdiction of the such courts for purposes of any action or proceeding arising out of or in connection with the Units or this Agreement.
14. Plan Document Controls. The rights granted under this Agreement are in all respects subject to the provisions set forth in the Plan to the same extent and with the same effect as if set forth fully in this Agreement. If the terms of this Agreement conflict with the terms of the Plan document, the Plan document will control.
15. Amendment of the Agreement. The Company and the Participant may amend this Agreement only by a written instrument signed by both parties.
16. Counterparts. The parties may execute this Agreement in one or more counterparts, all of which together shall constitute but one Agreement.
17. Code Section 409A. The issuance of shares of Stock under this Agreement shall be provided in a manner that complies with Code Section 409A and any ambiguity herein shall be interpreted so as to be consistent with the intent of this paragraph. In no event whatsoever shall the Company be liable for any additional tax, interest or penalty that may be imposed on the Participant by Code Section 409A or damages for failing to comply with Code Section 409A. Notwithstanding anything herein to the contrary, if the Participant is a “specified employee” as such term is defined under Code Section 409A at the time of a separation from service and the deferral of the commencement of any payments or benefits otherwise payable hereunder as a result of such separation from service is necessary in order to prevent any accelerated recognition of income or additional tax under Code Section 409A, then the Company will defer the issuance of shares of Stock hereunder (without any reduction therein) until the date that is at least six (6) months following the Participant’s separation from service with the Company or the earliest date permitted under Code Section 409A (e.g., immediately upon the Participant’s death), whereupon the Company will promptly issue to the Participant the shares of Stock that would have otherwise been previously issued to the Participant under this Agreement during the period in which such issuance was deferred.
18. Data Privacy. The Participant explicitly and unambiguously consents to the collection, use, and transfer, in electronic or other form, of personal data as described in this Section 19 by and among, as applicable, the Company and its Affiliates for the exclusive purpose of implementing, administering, and managing the Plan and this Agreement. In furtherance of such implementation, administration, and management, the Company and its Affiliates may hold certain personal information about the Participant, including, but not limited to, the Participant’s name, home address, telephone number(s), date of birth, social security or insurance number or other identification number, salary, nationality, job title(s), information regarding any securities of the Company or any of its Affiliates, and details of this Agreement (the “Data”). In addition to transferring the Data amongst themselves as necessary for the purpose of implementation, administration, and management of the Plan and this Agreement, the Company and its Affiliates may each transfer the Data to any third parties assisting the Company in the implementation, administration, and management of the Plan and this Agreement. Recipients of the Data may be located in the Participant’s country or elsewhere, and the Participant’s country may have different data privacy laws and protections. The Participant authorizes such recipients to receive, possess, use, retain, and transfer the Data, in electronic or other form, for the purposes of assisting the Company in the implementation, administration, and management of the Plan and this Agreement, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Company or the Participant may elect to deposit any shares of Stock. The Data related to the Participant 5 will be held as long as is necessary to implement, administer, and manage the Plan and this Agreement. The Participant may, at any time, view the Data held by the Company with respect to such Participant, request additional information about the storage and processing of the Data with respect to such Participant, recommend any necessary corrections to the Data with respect to the Participant, or refuse or withdraw the consents herein in writing, in any case without cost, by contacting the Participant’s local human resources representative. The Company may cancel the Participant’s eligibility to participate in the Plan, and in the Committee’s discretion, the Participant may forfeit any the Units if the Participant refuses or withdraws the consents described herein.
19. Entire Agreement. This Agreement and any other documents to be executed to implement its provisions together constitute the entire agreement between the parties pertaining to the subject matter hereof, superseding all prior and contemporaneous agreements, representations and understandings of the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Company and the Participant have duly executed this Agreement as of the date first written above.
| INSPIRED ENTERTAINMENT, INC. | ||
| By: | /s/ Carys Damon | |
| Name: | Carys Damon | |
| Title: | EVP & General Counsel | |
| /s/ Daniel Silvers | ||
| Daniel Silvers | ||
Appendix A
Performance Condition Criteria and Methodology
A. Performance Period
January 1, 2023, to December 31, 2023
B. Unit Calculations Assuming Threshold Performance Criteria are Achieved
Percentage of Target Adjusted EBITDAB |
Payout % | |
| ≤ [___]% | [___]% | |
| [___]% | [___]% | |
| [___]% | [___]% | |
| [___]% | [___]% | |
| [___]% | [___]% | |
| [___]% | [___]% | |
| [___]% | [___]% | |
| [___]% | [___]% | |
| [___]% | [___]% | |
| [___]% | [___]% | |
| ≥ [___]% | [___]% |
**Payout percentage between points will be pro-rated. No amount is paid below Threshold.
**Units will be rounded down to the nearest whole share.
D. Additional Factors or Information Regarding Performance Condition Methodology
Adjusted EBITDA is defined as net loss or income excluding depreciation and amortization, interest expense, interest income and income tax expense, and other additional specified exclusions and adjustments. Such additional excluded amounts include stock-based compensation, U.S. GAAP charges where the associated liability is expected to be settled in stock, and changes in the value of earnout liabilities and income and expenditure in relation to legacy portions of the business (being those portions where trading no longer occurs) including closed defined benefit pension schemes. Additional adjustments are made for items considered outside the normal course of business, including (1) restructuring costs, which include charges attributable to employee severance, management changes, restructuring and integration (2) merger and acquisition costs and (3) gains or losses not in the ordinary course of business..
Adjusted EBITDAB, as defined in Section B above (under “Threshold Performance Criteria”), will be measured by Adjusted EBITDA excluding any costs associated with the 2023 Management Bonus Plan.
Treatment of an Acquired Business under Adjusted EBITDAB
To the extent that the Company makes any acquisitions during 2023, the Adjusted EBITDAB shall include the EBITDAB of any such business that was acquired (an “Acquired Business”) and shall be reduced by the product of (a) the consideration paid for the Acquired Business (as measured by its Enterprise Value at purchase), (b) the portion of the year for which the Acquired Business was owned by the Company (on an Actual/365 basis) and (c) 15% (the “Cost of Capital Factor”). The product of (a), (b) and (c) in the preceding sentence shall be referred to as the “Negative EBITDAB Adjustment.” For the avoidance of doubt, any onetime expenses attributable to implementing the acquisition of an Acquired Business, including but not limited to implementing any projected synergies of such acquisition, shall be excluded from the calculation of Adjusted EBITDA (“One-Time AB Items”).
As a hypothetical example, to the extent the Company acquired a business for an Enterprise Value of $100 million at the close of business on June 30th (such that the results of the Acquired Business were included in the Company’s results beginning July 1st), then the Negative EBITDAB Adjustment related to the Acquired Business would be equal to:
| (a) | $100 million | times | ||
| (b) | 50.41096% (184 days/365 days) | times | ||
| (c) | 15% | |||
| Yielding | $7.5616438 million | |||
To the extent that this hypothetical Acquired Business generated Adjusted EBITDAB of $10 million while under the ownership of the Company during 2023, then the net Adjusted EBITDAB impact, ignoring any One-Time AB Items, of the Acquired Business (the actual Adjusted EBITDAB minus the Negative EBITDAB Adjustment) would be $2.4383562 million.
E. Committee Determinations
Determinations as to achievement of Performance Criteria and Unit calculations shall be made by the Committee in its sole discretion following the Performance Period. The Committee may adjust awards and metrics based on extraordinary or unforeseen events and its determinations shall be binding and conclusive.
EXHIBIT 31.1
CERTIFICATION OF THE
PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO
RULE 13a-14(a) AND RULE 15d-14(a)
UNDER THE
SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, A. Lorne Weil, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Inspired Entertainment, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
| Date: May 10, 2023 | /s/ A. Lorne Weil |
| A. Lorne Weil | |
| Executive Chairman | |
| (Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION OF THE
PRINCIPAL FINANCIAL OFFICER
PURSUANT TO
RULE 13a-14(a) AND RULE 15d-14(a)
UNDER THE
SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Stewart F.B. Baker, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Inspired Entertainment, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
| Date: May 10, 2023 | /s/ Stewart F.B. Baker |
| Stewart F.B. Baker | |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Inspired Entertainment, Inc. (the “Company”) on Form 10-Q for the fiscal period ended March 31, 2023, as filed with the Securities and Exchange Commission (the “Report”), I, A. Lorne Weil, Executive Chairman of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. To my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.
| Dated: May 10, 2023 | By: | /s/ A. Lorne Weil |
| A. Lorne Weil |
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Inspired Entertainment, Inc. (the “Company”) on Form 10-Q for the fiscal period ended March 31, 2023, as filed with the Securities and Exchange Commission (the “Report”), I, Stewart F.B. Baker, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. To my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Dated: May 10, 2023 | By: | /s/ Stewart F.B. Baker |
| Stewart F.B. Baker |
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.