Inspired Entertainment, Inc 10-Q for FY2024 Q2
Inspired Entertainment, Inc. (INSE)
About this 10-Q
Inspired Entertainment, Inc filed this 10-Q on August 8, 2024, covering the quarter ended June 30, 2024 (FY2024 Q2).
Headline figures
Quarter ended June 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $75.6M
- down 4.8% from $79.4M a year earlier
- Net income
- $2M
- down 64.3% from net income of $5.6M a year earlier
- Diluted EPS
- $0.07
- down 63.2% from $0.19 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:
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 ☐ No
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The |
As of August 6, 2024, there were shares of the Company’s common stock issued and outstanding.
Explanatory Note:
Although on January 1, 2024, we ceased to qualify as a smaller reporting company, as defined in Rule 12b-2 promulgated under the Exchange Act, we have requalified for such status commencing with this Quarterly Report on Form 10-Q, based on the aggregate market value of our common stock held by non-affiliates as of June 30, 2024. Our status as a smaller reporting company allows us to provide scaled disclosure in certain SEC filings, which may permit less disclosure than would apply to reporting companies that did not so qualify.
TABLE OF CONTENTS
| PART I. | FINANCIAL INFORMATION | 1 |
| ITEM 1. | FINANCIAL STATEMENTS (UNAUDITED) | 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 | 16 |
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 40 |
| ITEM 4. | CONTROLS AND PROCEDURES | 40 |
| PART II. | OTHER INFORMATION | 41 |
| ITEM 1. | LEGAL PROCEEDINGS | 41 |
| ITEM 1A. | RISK FACTORS | 41 |
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 41 |
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES | 41 |
| ITEM 4. | MINE SAFETY DISCLOSURES | 41 |
| ITEM 5. | OTHER INFORMATION | 41 |
| ITEM 6. | EXHIBITS | 42 |
| SIGNATURES | 43 | |
| 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)
June 30, 2024 | December 31, 2023 | |||||||
| (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 | ||||||||
| Costs of obtaining and fulfilling customer contracts, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Deficit | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Corporate tax and other current taxes payable | ||||||||
| Deferred revenue, current | ||||||||
| Operating lease liabilities | ||||||||
| Current portion of long-term debt | ||||||||
| 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, shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively. | ||||||||
| Common stock; $ par value; shares authorized; shares and shares issued and outstanding at June 30, 2024 and December 31, 2023, 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 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)
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue: | ||||||||||||||||
| Service | $ | $ | $ | $ | ||||||||||||
| Product sales | ||||||||||||||||
| Total revenue | ||||||||||||||||
| Cost of sales: | ||||||||||||||||
| Cost of service (1) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Cost of product sales (1) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Cost of sales | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Selling, general and administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Depreciation and amortization | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net operating income | ||||||||||||||||
| Other expense | ||||||||||||||||
| Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other finance income | ||||||||||||||||
| Total other expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) before income taxes | ( | ) | ||||||||||||||
| Income tax (expense) benefit | ( | ) | ( | ) | ( | ) | ||||||||||
| Net income (loss) | ( | ) | ||||||||||||||
| 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 (loss) | ( | ) | ( | ) | ||||||||||||
| Comprehensive income (loss) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| 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 condensed consolidated financial statements.
| 2 |
INSPIRED ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE PERIOD JANUARY 1, 2024 TO JUNE 30, 2024
(in millions, except share data)
(Unaudited)
| Shares | Amount | capital | income | deficit | deficit | |||||||||||||||||||
| Common stock | Additional paid in | Accumulated other comprehensive | Accumulated | Total stockholders’ | ||||||||||||||||||||
| Shares | Amount | capital | income | deficit | deficit | |||||||||||||||||||
| Balance as of January 1, 2024 | $ | $ | $ | | $ | ( | ) | $ | ( | ) | ||||||||||||||
| Foreign currency translation adjustments | — | |||||||||||||||||||||||
| Reclassification of loss on pension plan to comprehensive income | — | |||||||||||||||||||||||
| Issuances under stock plans | ( | ) | ( | ) | ||||||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Foreign currency translation adjustments | — | ( | ) | ( | ) | |||||||||||||||||||
| Reclassification of loss on pension plan to comprehensive income | — | |||||||||||||||||||||||
| Issuances under stock plans | ||||||||||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||||||
| Net income | — | |||||||||||||||||||||||
| Balance as of June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 3 |
INSPIRED ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE PERIOD JANUARY 1, 2023 TO JUNE 30, 2023
(in millions, except share data)
(Unaudited)
| Common stock | Additional paid in | Accumulated other comprehensive | Accumulated | Total stockholders’ | ||||||||||||||||||||
| Shares | Amount | capital | income | deficit | deficit | |||||||||||||||||||
| Balance as of January 1, 2023 | $ | $ | $ | | $ | ( | ) | $ | ( | ) | ||||||||||||||
| Foreign currency translation adjustments | — | ( | ) | ( | ) | |||||||||||||||||||
| Reclassification of loss on pension plan to comprehensive income | — | |||||||||||||||||||||||
| 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 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Foreign currency translation adjustments | — | ( | ) | ( | ) | |||||||||||||||||||
| Reclassification of loss on pension plan to comprehensive income | — | |||||||||||||||||||||||
| Reclassification of loss on hedging instrument to comprehensive income | — | |||||||||||||||||||||||
| Repurchase of common stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Issuances under stock plans | ( | ) | ( | ) | ||||||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||||||
| Net income | — | |||||||||||||||||||||||
| — | ||||||||||||||||||||||||
| Balance as of June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Balance | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 4 |
INSPIRED ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
| 2024 | 2023 | |||||||
Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of right of use asset | ||||||||
| Stock-based compensation expense | ||||||||
| Contract cost 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 and accrued expenses | ( | ) | ( | ) | ||||
| Deferred revenue and customer prepayment | ||||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Other long-term liabilities | ( | ) | ( | ) | ||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Acquisition of third-party company trade and assets | ( | ) | ||||||
| Purchases of capital software and internally developed costs | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Repurchase of common stock | ( | ) | ||||||
| Repayments of finance leases | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Effect of exchange rate changes on cash | ( | ) | ||||||
| Net (decrease) increase 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 non-cash investing and financing activities | ||||||||
| Lease liabilities arising from obtaining right of use assets | $ | ( | ) | $ | ( | ) | ||
| Additional paid in capital from settlement of RSUs | $ | ( | ) | $ | ( | ) | ||
| Property and equipment acquired through finance lease | $ | $ | ||||||
| ARO assets arising during the period | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 5 |
1. Nature of Operations, Management’s Plans and Summary of Significant Accounting Policies, as restated
Company Description and Nature of Operations
We are a global gaming technology company, supplying content, platform, gaming terminals and other products and services to online and land-based regulated lottery, betting and gaming operators worldwide through a broad range of distribution channels, predominantly on a business-to-business basis. We provide end-to-end digital gaming solutions (i) on our own proprietary and secure network, which accommodates a wide range of devices, including land-based gaming machine terminals, mobile devices and online computer applications and (ii) through third party networks. Our content and other products can be found through the consumer-facing portals of our interactive customers and, through our land-based customers, in licensed betting offices, adult gaming centers, pubs, bingo halls, airports, motorway service areas and leisure parks.
Management Liquidity Plans
As
of June 30, 2024, the Company’s cash on hand was $
Management currently believes that the Company’s cash balances on hand, cash flows expected to be generated from operations, ability to control and defer capital projects and amounts available from the Company’s external borrowings will be sufficient to fund the Company’s net cash requirements through August 2025.
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Certain information or footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is management’s opinion, however, that the accompanying unaudited interim condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the years ended December 31, 2023 and 2022. The financial information as of December 31, 2023 is derived from the audited consolidated financial statements presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on April 15, 2024. The financial information for the three and six months ended June 30, 2023 is derived from the unaudited consolidated financial statements presented in the Company’s Quarterly Report on Form 10-Q/A for the three and six months ended June 30, 2023 filed with the SEC on February 27, 2024. The interim results for the three and six months ended June 30, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024 or for any future interim periods.
| 6 |
2. Allowance for Credit Losses
Changes in the allowance for credit losses are as follows:
Schedule of Changes in Allowance for Credit Losses
June 30, 2024 | December 31, 2023 | |||||||
| (in millions) | ||||||||
| Beginning balance | $ | ( | ) | $ | ( | ) | ||
| Additional allowance for credit losses | ( | ) | ( | ) | ||||
| Recoveries | ||||||||
| Write offs | ||||||||
| Foreign currency translation adjustments | ( | ) | ||||||
| Ending balance | $ | ( | ) | $ | ( | ) | ||
3. Inventory
Inventory consists of the following:
Schedule of Inventory
June 30, 2024 | December 31, 2023 | |||||||
| (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.
4. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
Schedule of Accounts Payable and Accrued Expenses
June 30, 2024 | December 31, 2023 | |||||||
| (in millions) | ||||||||
| Accounts payable | $ | $ | ||||||
| Payroll and related costs | ||||||||
| Cost of sales including inventory | ||||||||
| Other | ||||||||
| Total accounts payable and accrued expenses | $ | $ | ||||||
| 7 |
5. Contract Related Disclosures
The following table summarizes contract related balances:
Schedule of Contract Related Balances
Accounts Receivable | Unbilled Accounts Receivable | Right to recover asset | Deferred Income | Customer Prepayments and Deposits | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| At June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||
| At December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||
Revenue
recognized that was included in the deferred income balance at the beginning of the period amounted to $
For the periods ended June 30, 2024 and 2023 respectively, there were no significant amounts of revenue recognized as a result of changes in contract transaction price related to performance obligations that were satisfied in the respective prior periods.
Transaction Price Allocated to Remaining Performance Obligations
At
June 30, 2024, the transaction price allocated to unsatisfied performance obligations for contracts expected to be greater than one year,
or performance obligations for which we do not have a right to consideration from the customer in the amount that corresponds to the
value to the customer for our performance completed to date, variable consideration which is not accounted for in accordance with the
sales-based or usage-based royalties guidance, or contracts which are not wholly unperformed, was approximately $
6. Long Term and Other Debt
Under our debt facilities in place as of June 30, 2024, we were not subject to covenant testing on our senior secured notes (the “Senior Secured Notes”). We are, however, subject to covenant testing at the level of Inspired Entertainment Inc., the ultimate holding company, on our Revolving Credit Facility Agreement (the “RCF Agreement”) which required the Company to maintain a maximum consolidated senior secured net leverage ratio of 6.0x on March 31, 2022, stepping down to 5.75x on March 31, 2023 and 5.50x from March 31, 2024 and thereafter (the “RCF Financial Covenant”). The RCF Financial Covenant is calculated as the ratio of consolidated senior secured net debt to consolidated pro forma EBITDA (defined as net loss excluding depreciation and amortization, interest expense, interest income and income tax expense) for the 12-month period preceding the relevant quarterly testing date and is tested quarterly on a rolling basis, subject to the Initial Facility (as defined in the RCF Agreement) being drawn on the relevant test date. The RCF Financial Covenant does not include a minimum interest coverage ratio or other financial covenants. Covenant testing at June 30, 2024 showed covenant compliance with a net leverage of 3.1x.
The Indenture governing the Senior Secured Notes contains covenants and certain reporting requirements including the requirement to provide the lender, within 60 days after the close of the quarter, unaudited quarterly financial statements with footnote disclosures.
There were no covenant violations in the periods ended June 30, 2024 or June 30, 2023.
Schedule of Restricted Stock Unit Activity
Number of Shares | ||||
| Unvested Outstanding at January 1, 2024 (1) | ||||
| Granted (2) | ||||
| Forfeited | ( | ) | ||
| Vested | ( | ) | ||
| Unvested Outstanding at June 30, 2024 | ||||
| (1) |
|
| (2) |
The Company issued a total of shares during the six months ended June 30, 2024, in connection with the Company’s equity-based plans, which included an aggregate of shares issued in connection with the net settlement of RSUs that vested during the prior year (primarily on December 29, 2023).
8. Accumulated Other Comprehensive Loss (Income)
The accumulated balances for each classification of comprehensive loss (income) are presented below:
Schedule of Accumulated Other Comprehensive Loss (Income)
Foreign Currency Translation Adjustments | Change in Fair Value of Hedging Instrument | Unrecognized Pension Benefit Costs | Accumulated Other Comprehensive (Income) | |||||||||||||
| (in millions) | ||||||||||||||||
| Balance at January 1, 2024 | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||
| Change during the period | ( | ) | ( | ) | ( | ) | ||||||||||
| Balance at March 31, 2024 | ( | ) | ( | ) | ||||||||||||
| Change during the period | ( | ) | ( | ) | ||||||||||||
| Balance at June 30, 2024 | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||
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 | ( | ) | ( | ) | ||||||||||||
| Change during the period | ( | ) | ( | ) | ||||||||||||
| Balance at June 30, 2023 | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||
In
connection with the issuance of the Senior Secured Notes, and the entry into the
“RCF Agreement on May 19, 2021, the Company terminated all of its interest rate swaps. Accordingly, hedge accounting is
no longer applicable. The amounts previously recorded in Accumulated Other Comprehensive Income were amortized into Interest expense
over the terms of the hedged forecasted interest payments. Losses reclassified from Accumulated Other Comprehensive Income into Interest
expense in the Consolidated Statements of Operations and Income for the six months ended June 30, 2024 and June 30, 2023 amounted to
$
| 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 stock options and RSUs, unless the inclusion would be anti-dilutive.
Schedule of Anti-dilutive Securities Excluded from Computation of Earnings per Share
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| RSUs | ||||||||||||||||
Schedule of Numerators and Denominators of the Basic and Diluted EPS Computations
| Three months ended June 30, 2024 | Income (Numerator) (in millions) | Shares (Denominator) | Per-Share Amount | |||||||||
| Basic EPS | ||||||||||||
| Income available to common stockholders | $ | | $ | | ||||||||
| Effect of Dilutive Securities | ||||||||||||
| RSUs | $ | |||||||||||
| Diluted EPS | ||||||||||||
| Income available to common stockholders | $ | $ | ||||||||||
| Three months ended June 30, 2023 | Income (Numerator) (in millions) | Shares (Denominator) | Per-Share Amount | |||||||||
| Basic EPS | ||||||||||||
| Income available to common stockholders | $ | | $ | | ||||||||
| Effect of Dilutive Securities | ||||||||||||
| RSUs | $ | ( | ) | |||||||||
| Diluted EPS | ||||||||||||
| Income available to common stockholders | $ | $ | ||||||||||
| Six months ended June 30, 2023 | Income (Numerator) (in millions) | Shares (Denominator) | Per-Share Amount | |||||||||
| Basic EPS | ||||||||||||
| Income available to common stockholders | $ | | $ | | ||||||||
| Effect of Dilutive Securities | ||||||||||||
| RSUs | $ | ( | ) | |||||||||
| Diluted EPS | ||||||||||||
| Income available to common stockholders | $ | $ | ||||||||||
The calculation of Basic EPS includes the effects of and shares for the three and six months ended June 30, 2024 and 2023, respectively, with respect to RSU awards that have vested but have not yet been issued.
| 9 |
10. Other Finance Income
Other finance income consisted of the following:
Schedule of Other Finance Income (Expense)
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (in millions) | (in millions) | |||||||||||||||
| Pension interest cost | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Expected return on pension plan assets | ||||||||||||||||
| Other finance income (expense) | $ | $ | $ | $ | ||||||||||||
11. Income Taxes
The
effective income tax rate for the three months ended June 30, 2024 and 2023 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 June 30, 2024 and 2023. We intend to continue maintaining a full valuation allowance on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. However, given our current earnings and anticipated future earnings, we believe that there is a reasonable possibility that within the next twelve months, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of the valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve.
12. Related Parties
Macquarie
Corporate Holdings Pty Limited (UK Branch) (“Macquarie UK”), (an arranger and lending party under our RCF Agreement) is an
affiliate of MIHI LLC, which beneficially owned approximately
Richard
Weil, the brother of A. Lorne Weil, our Executive Chairman, provides consulting services to the Company relating to our lottery operations
in the Dominican Republic under a consultancy agreement dated December 31, 2021, as amended. The aggregate amount incurred by the Company
in consulting fees was $
| 10 |
13. Leases
Certain of our arrangements include leases for equipment installed at customer locations. As the lessor, we combine lease and non-lease components for all classes of underlying assets in arrangements that involve operating leases. The single combined component is accounted for under ASC 606, Revenue from Contracts with Customers based on the consideration that the non-lease components are the predominant items in the arrangements. If a component cannot be combined, the consideration is allocated between the lease component and the non-lease component based on relative standalone selling price. The lease component is accounted for under ASC 842, Leases and the non-lease component is accounted for under ASC 606.
Lease income from operating leases is not material for any of the periods presented. Lease income from sales type leases is as follows:
Schedule of Lease Income from Sales
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (in millions) | (in millions) | |||||||||||||||
| Interest receivable | $ | $ | ||||||||||||||
| Profit recognized at commencement date of sales type leases | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
14. Commitments and Contingencies
Employment Agreements
We are party to employment agreements with our executive officers and other employees of the Company and our subsidiaries which contain, among other terms, provisions relating to severance and notice requirements.
Legal Matters
From time to time, the Company may become involved in lawsuits and legal matters arising in the ordinary course of business. While the Company believes that, currently, it has no such matters that are material, there can be no assurance that existing or new matters arising in the ordinary course of business will not have a material adverse effect on the Company’s business, financial condition or results of operations.
| 11 |
15. Pension Plan
We operate a defined contribution plan in the US, and both defined benefit and defined contribution pension schemes in the UK. The defined contribution scheme assets are held separately from those of the Company in independently administered funds.
Defined Benefit Pension Scheme
The defined benefit scheme has been closed to new entrants since April 1, 1999 and closed to future accruals for services rendered to the Company for the entire financial statement periods presented. The latest actuarial valuation of the scheme (as at March 31, 2021), which was finalized in June 2022, determined that the statutory funding objective was not met, i.e., there were insufficient assets to cover the scheme’s technical provisions and there was a funding shortfall.
In June 2022, a recovery plan was put in place to eliminate the funding shortfall. The plan expects the shortfall to be eliminated by October 31, 2026.
The following table presents the components of our net periodic pension cost:
Schedule of Net Periodic Pension Cost
| 2024 | 2023 | |||||||
Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| (in millions) | ||||||||
| Components of net periodic pension cost: | ||||||||
| Interest cost | $ | $ | ||||||
| Expected return on plan assets | ( | ) | ( | ) | ||||
| Amortization of net loss | ||||||||
| Net periodic cost | $ | $ | ||||||
| 12 |
16. Segment Reporting and Geographic Information
The Company operates its business along four operating segments, which are segregated on the basis of revenue stream: Gaming, Virtual Sports, Interactive and Leisure. The Company believes this method of segment reporting reflects both the way its business segments are managed and the way the performance of each segment is evaluated.
The following tables present revenue, cost of sales, excluding depreciation and amortization, selling, general and administrative expenses, stock-based compensation expense and depreciation and amortization, operating income (loss) and total capital expenditures for the periods ended June 30, 2024 and June 30, 2023, respectively, by business segment. Certain unallocated corporate function costs have not been allocated to the Company’s reportable operating segments because these costs are not allocable and to do so would not be practical. Corporate function costs consist primarily of selling, general and administrative expenses, depreciation and amortization and capital expenditures relating to corporate/shared functions.
Segment Information
Schedule of Segment Reporting Information by Segment
Three Months Ended June 30, 2024
| Gaming | Virtual Sports | Interactive | Leisure | Corporate Functions | Total | |||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||
| Service | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Product sales | ||||||||||||||||||||||||
| Total revenue | ||||||||||||||||||||||||
| Cost of sales, excluding depreciation and amortization: | ||||||||||||||||||||||||
| Cost of service | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Cost of product sales | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Cost of sales | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Selling, general and administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Stock-based compensation expense | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Depreciation and amortization | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Segment operating income (loss) | ( | ) | ||||||||||||||||||||||
| Net operating income | $ | |||||||||||||||||||||||
| Total capital expenditures for the three months ended June 30, 2024 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Three Months Ended June 30, 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 | ( | ) | ( | ) | ||||||||||||||||||||
| Cost of sales | ( | ) | ( | ) | ||||||||||||||||||||
| Selling, general and administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Stock-based compensation expense | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Depreciation and amortization | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Segment operating income (loss) | ( | ) | ||||||||||||||||||||||
| Net operating income | $ | |||||||||||||||||||||||
| Total capital expenditures for the three months ended June 30, 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| 13 |
Six Months Ended June 30, 2024
| 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 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Cost of sales | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Selling, general and administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Stock-based compensation expense | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Depreciation and amortization | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Segment operating income (loss) | ( | ) | ||||||||||||||||||||||
| Net operating income | $ | |||||||||||||||||||||||
| Total capital expenditures for the six months ended June 30, 2024 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Six Months Ended June 30, 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 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Cost of sales | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Selling, general and administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Stock-based compensation expense | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Depreciation and amortization | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Segment operating income (loss) | ( | ) | ||||||||||||||||||||||
| Net operating income | $ | |||||||||||||||||||||||
| Total capital expenditures for the six months ended June 30, 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| 14 |
Geographic Information
Geographic information for revenue is set forth below:
Schedule of Geographic Information
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (in millions) | (in millions) | |||||||||||||||
| Total revenue | ||||||||||||||||
| UK | $ | $ | $ | $ | ||||||||||||
| 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:
June 30, 2024 | December 31, 2023 | |||||||
| (in millions) | ||||||||
| UK | $ | $ | ||||||
| Greece | ||||||||
| Rest of world | ||||||||
| Total | $ | $ | ||||||
| Total non-current assets excluding goodwill | $ | $ | ||||||
Software development costs are included as attributable to the market in which they are utilized.
17. Customer Concentration
During
the three months ended June 30, 2024, no customers represented at least 10% of the Company’s revenue. During the three months
ended June 30, 2023, one customer represented at least 10% of the Company’s revenue, accounting for
During
the six months ended June 30, 2024, one customer represented at least 10% of the Company’s revenue, accounting for
At
June 30, 2024, no customers represented at least 10% of the Company’s accounts receivable. At December 31, 2023, one customer
represented at least 10% of the Company’s accounts receivable, accounting for approximately
18. Subsequent Events
The Company evaluates subsequent events and transactions that occur after the balance sheet date up to the date that the financial statements were issued. Based upon this review, the Company did not identify subsequent events that would have required adjustment or disclosure in the consolidated financial statements.
| 15 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes thereto included elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual future results could differ materially from the historical results discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those referenced in the section titled “Risk Factors” included in our annual report on Form 10-K for our fiscal year ended December 31, 2023, filed with the SEC on April 15, 2024.
Forward-Looking Statements
We make forward-looking statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations. For definitions of the term Forward-Looking Statements, see the definitions provided in the Cautionary Note Regarding Forward-Looking Statements at the forepart of this report
Seasonality
Our results of operations can fluctuate due to seasonal trends and other factors. Sales of our gaming machines can vary quarter on quarter due to both supply and demand factors. Player activity for our holiday parks is generally higher in the second and third quarters of the year, particularly during the summer months and slower during the first and fourth quarters of the year.
Revenue
We generate revenue in four principal ways: i) on a participation basis, ii) on a fixed rental fee basis, iii) through product sales and iv) through software license fees. Participation revenue generally includes a right to receive a share of our customers’ gaming revenue, typically as a share of net win but sometimes as a share of the handle or “coin in” which represents the total amount wagered.
Geographic Range
Geographically, the majority of our revenue is derived from, and the majority of our non-current assets are attributable to, our UK operations. The remainder of our revenue is derived from, and non-current assets attributable to, Greece and the rest of the world (including North America).
For the three and six months ended June 30, 2024, we derived approximately 75% (in both periods) of our revenue from the UK (including customers headquartered in the UK but whose revenue is generated globally), respectively, 6% and 8% from Greece, respectively, and the remaining 19% and 17% across the rest of the world. During the three and six months ended June 30, 2023, we derived approximately 78% and 77% from the UK, 7% and 8% from Greece and 15% (in both periods) for the rest of world.
As of June 30, 2024, our non-current assets (excluding goodwill) were attributable as follows: 70% to the UK, 10% to Greece and 20% across the rest of the world. As of June 30, 2023, our non-current assets (excluding goodwill) were attributable as follows: 77% to the UK, 4% to Greece and 19% across the rest of the world.
| 16 |
Foreign Exchange
Our results are affected by changes in foreign currency exchange rates as a result of the translation of foreign functional currencies into our reporting currency and the re-measurement of foreign currency transactions and balances. The impact of foreign currency exchange rate fluctuations represents the difference between current rates and prior-period rates applied to current activity. The geographic region in which the largest portion of our business is operated is the UK and the British pound (“GBP”) is considered to be our functional currency. Our reporting currency is the U.S. dollar (“USD”). Our results are translated from our functional currency of GBP into the reporting currency of USD using average rates for profit and loss transactions and applicable spot rates for period-end balances. The effect of translating our functional currency into our reporting currency, as well as translating the results of foreign subsidiaries that have a different functional currency into our functional currency, is reported separately in Accumulated Other Comprehensive Income.
During the three and six months ended June 30, 2024, we derived approximately 25% (in both periods) of our revenue from sales to customers outside the UK (see caveat above), compared to 22% and 23% during the three and six months ended June 30, 2023, respectively.
In the section “Results of Operations” below, currency impacts shown have been calculated as the current-period average GBP:USD rate less the equivalent average rate in the prior year period, multiplied by the current period amount in our functional currency (GBP). The remaining difference, referred to as functional currency at constant rate, is calculated as the difference in our functional currency, multiplied by the prior-period average GBP:USD rate. This is not a U.S. GAAP measure, but is one which management believes gives a clearer indication of results. In the tables below, variances in particular line items from period to period exclude currency translation movements, and currency translation impacts are shown independently.
Non-GAAP Financial Measures
We use certain financial measures that are not compliant with U.S. GAAP (“Non-GAAP financial measures”), including EBITDA and Adjusted EBITDA, to analyze our operating performance. In this discussion and analysis, we present certain non-GAAP financial measures, define and explain these measures and provide reconciliations to the most comparable U.S. GAAP measures. See “Non-GAAP Financial Measures” below.
Results of Operations
Our results are affected by changes in foreign currency exchange rates, primarily between our functional currency (GBP) and our reporting currency (USD). During the three month periods ended June 30, 2024 and June 30, 2023, the average GBP:USD rates were 1.26 and 1.25, respectively, and for the six-month period were 1.27 and 1.24, respectively.
The following discussion and analysis of our results of operations has been organized in the following manner:
| ● | a discussion and analysis of the Company’s results of operations for the three and six-month periods ended June 30, 2024, compared to the same period in 2023; and | |
| ● | a discussion and analysis of the results of operations for each of the Company’s segments (Gaming, Virtual Sports, Interactive and Leisure) for the three and six-month periods ended June 30, 2024, compared to the same period in 2023, including key performance indicator (“KPI”) analysis. |
| 17 |
In the discussion and analysis below, certain data may vary from the amounts presented in our consolidated financial statements due to rounding.
For all reported variances, refer to the overall company and segment tables shown below. All variances discussed in the overall company and segment results are on a functional currency (at constant rate) basis, which excludes the impact of any changes in foreign currency exchange rates.
Key Events – Current Quarter
During the three-month period ended June 30, 2024 in the Gaming segment, Alberta Gaming, Liquor and Cannabis (“AGLC”) in Canada ordered 150 new Valor terminals which were deployed during the quarter following a successful six-month trial. In addition, William Hill has committed to lease 5,000 new Vantage® terminals. Deployment of the new terminals will begin in the fourth quarter of 2024, with expected completion in the first half of 2025.
During the three-month period ended June 30, 2024 we partnered with the NBA to provide a Virtual Sports offering, which went live in the Greek market during the period.
During the three-month period ended June 30, 2024 the Interactive segment went live with fourteen new operators. The total number of customers at the end of the period increased by nine due to changes with several smaller-scale customers. In addition, Inspired licensed its remote gaming server (“RGS”) to an operator customer, allowing the customer to host its own instance of the most recent version of our RGS.
Inspired also announced an engagement with Tunley Environmental to conduct a thorough business carbon assessment, with the goal of reducing the company’s carbon footprint aligning with the Company’s commitment to reduce its environmental footprint.
Key agreements made in the ordinary course of business in the three-month period ended June 30, 2024 include a contract with Meadow Bay Villages to run the family entertainment center at Billing Aquadrome, Northampton UK resulting in installations in May and July 2024.
Overall Company Results
Three and Six Months ended June 30, 2024, compared to Three and Six Months ended June 30, 2023
| For the Three-Month Period ended | Variance | For the Six-Month Period ended | Variance | |||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | June 30, | June 30, | 2024 vs 2023 | June 30, | June 30, | 2024 vs 2023 | ||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Variance Attributable to Currency Movement | Variance on a Functional currency basis | Total Functional Currency Variance % | Total Reported Variance % | 2024 | 2023 | Variance Attributable to Currency Movement | Variance on a Functional currency basis | Total Functional Currency Variance % | Total Reported Variance % | |||||||||||||||||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Service | $ | 65.8 | $ | 67.5 | $ | 0.6 | $ | (2.3 | ) | (3 | )% | (3 | )% | $ | 122.9 | $ | 125.0 | $ | 3.0 | $ | (5.1 | ) | (4 | )% | (2 | )% | ||||||||||||||||||||||
| Product | 9.8 | 11.9 | 0.2 | (2.3 | ) | (19 | )% | (18 | )% | 15.8 | 19.3 | 0.4 | (3.9 | ) | (20 | )% | (18 | )% | ||||||||||||||||||||||||||||||
| Total revenue | 75.6 | 79.4 | 0.8 | (4.6 | ) | (6 | )% | (5 | )% | 138.7 | 144.3 | 3.4 | (9.0 | ) | (6 | )% | (4 | )% | ||||||||||||||||||||||||||||||
| Cost of Sales, excluding depreciation and amortization: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of Service | (19.0 | ) | (20.5 | ) | (0.1 | ) | 1.6 | (8 | )% | (7 | )% | (34.9 | ) | (35.5 | ) | (0.7 | ) | 1.3 | (4 | )% | (2 | )% | ||||||||||||||||||||||||||
| Cost of Product | (5.8 | ) | (8.4 | ) | - | 2.6 | (31 | )% | (31 | )% | (10.3 | ) | (15.1 | ) | (0.3 | ) | 5.1 | (34 | )% | (32 | )% | |||||||||||||||||||||||||||
| Selling, general and administrative expenses | (29.2 | ) | (23.5 | ) | (0.3 | ) | (5.4 | ) | 23 | % | 24 | % | (61.1 | ) | (49.8 | ) | (1.7 | ) | (9.6 | ) | 19 | % | 23 | % | ||||||||||||||||||||||||
| Stock-based compensation | (1.6 | ) | (3.1 | ) | 0.2 | 1.3 | (42 | )% | (48 | )% | (3.9 | ) | (6.0 | ) | - | 2.1 | (35 | )% | (35 | )% | ||||||||||||||||||||||||||||
| Depreciation and amortization | (10.6 | ) | (10.1 | ) | (0.2 | ) | (0.3 | ) | 3 | % | 5 | % | (20.5 | ) | (19.5 | ) | (0.5 | ) | (0.5 | ) | 3 | % | 5 | % | ||||||||||||||||||||||||
| Net operating Income | 9.4 | 13.8 | 0.4 | (4.8 | ) | (35 | )% | (32 | )% | 8.0 | 18.4 | 0.2 | (10.6 | ) | (58 | )% | (57 | )% | ||||||||||||||||||||||||||||||
| Other income (expense) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | (6.7 | ) | (7.3 | ) | (0.1 | ) | 0.7 | (10 | )% | (8 | )% | (13.3 | ) | (13.6 | ) | (0.4 | ) | 0.7 | (5 | )% | (2 | )% | ||||||||||||||||||||||||||
| Other finance income (expense) | 0.1 | 0.1 | - | - | 0 | % | 0 | % | 0.2 | 0.2 | - | - | 0 | % | 0 | % | ||||||||||||||||||||||||||||||||
| Total other income (expense), net | (6.6 | ) | (7.2 | ) | (0.1 | ) | 0.7 | (10 | )% | (8 | )% | (13.1 | ) | (13.4 | ) | (0.4 | ) | 0.7 | (5 | )% | (2 | )% | ||||||||||||||||||||||||||
| Net Income (loss) from continuing operations before income taxes | 2.8 | 6.6 | 0.3 | (4.1 | ) | (62 | )% | (58 | )% | (5.1 | ) | 5.0 | (0.2 | ) | (9.9 | ) | (198 | )% | (202 | )% | ||||||||||||||||||||||||||||
| Income tax expense | (0.8 | ) | (1.0 | ) | (0.1 | ) | 0.3 | (30 | )% | (20 | )% | 1.4 | (0.8 | ) | - | 2.2 | (275 | )% | (275 | )% | ||||||||||||||||||||||||||||
| Net Income (Loss) | $ | 2.0 | $ | 5.6 | $ | 0.2 | $ | (3.8 | ) | (68 | )% | (64 | )% | $ | (3.7 | ) | $ | 4.2 | $ | (0.3 | ) | $ | (7.6 | ) | (181 | )% | (188 | )% | ||||||||||||||||||||
| Exchange Rate - $ to £ | 1.26 | 1.25 | 1.27 | 1.23 | ||||||||||||||||||||||||||||||||||||||||||||
See “Segments Results” below for a more detailed explanation of the significant changes in our components of revenue within the individual segment results of operations.
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Revenue (for the three and six months ended June 30, 2024, compared to the three and six months ended June 30, 2023)
Consolidated Reported Revenue by Segment
| ● | There were no Low Margin-related sales for the three and six-months ended June 30, 2024. For the three and six-months ended June 30, 2023 Low Margin-related sales were $4.4 million (in both periods) |
For the three and six months ended June 30, 2024, revenue on a functional currency (at constant rate) basis decreased by $4.6 million and $9.0 million, respectively, or 6% (in both periods)
For the three-month period ended June 30, 2024, Gaming revenue declined by $4.3 million. Gaming product sales declined $2.1 million due to a decrease in the UK market, partially offset by growth in North America, Gaming service revenue declined $2.2 million, due to a decrease in the UK and mainland European markets. Virtual Sports declined by $3.5 million due to reduced Online revenue. Interactive grew by $2.7 million, driven by revenue growth in the UK, North America and mainland Europe: and Leisure grew by $0.7 million predominately driven by the increased revenues in Holiday Parks due to the addition of a new site as well as growth in existing sites.
For the six-month period ended June 30, 2024, Gaming revenue declined by $8.2 million. Gaming product sales declined $3.7 million due to a decrease in the UK market for low margin sales in the prior year period not repeated in the current year, partially offset by growth in North America, Gaming service revenue decreased by $4.5 million predominately due to revenue decline in the UK and mainland European markets. Virtual Sports decreased by $6.4 million due to a decrease in Online revenue; Interactive grew by $4.6 million, driven by revenue growth in the UK, mainland Europe and Latin America; and Leisure revenue increased by $1.4 million due to increases in Holiday Parks and Pubs.
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Cost of Sales, excluding depreciation and amortization
Cost of sales, excluding depreciation and amortization, for the three and six months ended June 30, 2024, decreased by $4.2 million and $6.4 million, or 15% and 13%, respectively. The decreases were driven by a $1.6 million and $1.3 million decrease in cost of service, respectively, predominately driven by the decrease in service revenues and by a $2.6 million and $5.1 million decrease in cost of product, predominantly driven by the decrease in product revenues, respectively.
Selling, general and administrative expenses
Selling, general and administrative (“SG&A”) expenses for the three and six months ended June 30, 2024 increased by $5.4 million and $9.6 million, or 23% and 19%, respectively.
The increase in the three-month period ended June 30, 2024, was primarily driven by an increase of $2.8 million due to cost of the restatement of our prior financial statements (excluded from adjusted EBITDA), $0.7 million due to cost of restructuring (excluded from adjusted EBITDA) and $0.9 million due to non-staff costs mainly for increased facility, travel, storage and distribution costs.
The increase in the six-month period ended June 30, 2024, was driven primarily by the $7.8 million costs of the restatement of our prior financial statements (removed from Adjusted EBITDA), an increase in non-staff costs of $2.9 million, of which the largest proportion was driven by increased facility, travel, external labor, IT, storage and distribution costs as well as an increase in staff cost of $0.5 million driven by support staff costs and an increase in national living wage and salary increases. This was partially offset by a reduction in the cost of group restructure of $2.1 million (removed from Adjusted EBITDA).
Stock-based compensation
During the three and six-month periods ended June 30, 2024, the Company recorded stock based compensation expenses of $1.6 million and $3.9 million, respectively, compared to stock based compensation expenses of $3.1 million and $6.0 million for the three and six months ended June 30, 2023. All expenses related to outstanding awards but the three and six months ended June 30, 2023, included $0.4 million related to award units that were fully vested on the date of grant and therefore were expensed immediately. The six months ended June 30, 2023 also included $0.7 million related to the group restructure.
Depreciation and amortization
Depreciation and amortization for the three-month period ended June 30, 2024, increased by $0.3 million. This increase was driven by increases in Virtual Sports of $1.6 million and Interactive of $0.2 million, partially offset by a reduction in Gaming of $1.2 million, due to assets being fully depreciated.
Depreciation and amortization for the six-month period ended June 30, 2024, increased by $0.5 million. This increase was driven by increases in Virtual Sports of $1.7 million and Interactive of $0.7 million, partially offset by a reduction in Gaming of $1.6 million and Leisure of $0.3 million due to assets being fully depreciated.
Net operating income / net income/(loss)
During the three and six-month periods ended June 30, 2024, net operating income was $9.4 million and $8.0 million, respectively, representing declines of $4.8 million and $10.6 million, respectively, compared to the prior year periods. The decreases were primarily due to the increases in SG&A expenses, (including the cost of restating our prior financial statements in the three and six-month periods).
For the three and six-months ended June 30, 2024 net income / (loss) was $2.0 million and net loss was $3.7 million, respectively, compared to a net income of $5.6 million and $4.2 million, respectively, in the prior periods.
For the three-month period ended June 30, 2024 the $3.8 million decline compared to the prior year period, was primarily due to the increase in SG&A expenses of $5.4 million. This was partially offset by a reduction in stock-based compensation of $1.3 million.
For the six-month period ended June 30. 2024 the $7.6 million decline compared to the prior year period, was primarily due to the increase in SG&A expenses of $9.6 million, primarily driven by the cost of the restatement of prior financial statements of $7.8 million. This was partially offset by a reduction in stock-based compensation of $2.1 million and in income tax expense of $2.2 million.
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Deferred Tax
The Company recorded a valuation allowance against all of our deferred tax assets as of both June 30, 2024 and 2023. We intend to continue maintaining a full valuation allowance on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. However, given our current earnings and anticipated future earnings, we believe that there is a reasonable possibility that within the next six months, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of the valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve.
Segment Results (for the three and six months ended June 30, 2024, compared to the three and six months ended June 30, 2023)
Gaming
We generate revenue from our Gaming segment through delivery of our gaming terminals preloaded with proprietary gaming software, server-based content, as well as services such as terminal repairs, maintenance, software upgrades and upgrades on a when and if available basis and content development. We receive rental fees for machines, typically in conjunction with long-term contracts, on both a participation and fixed fee basis. Our participation contracts are typically structured to pay us a percentage of net win (defined as net revenue to our operator customers, after deducting player winnings, free bets or plays and any relevant regulatory levies) from gaming terminals placed in our customers’ facilities. Typically, we recognize revenue from these arrangements on a daily basis over the term of the contract.
Revenue growth for our Gaming business is principally driven by changes in (i) the number of operator customers we have, (ii) the number of Gaming machines in operation, (iii) the net win performance of the machines and (iv) the net win percentage that we receive pursuant to our contracts with our customers.
Gaming, Key Performance Indicators
For the Three-Month Period ended | Variance | For the Six-Month Period ended | Variance | |||||||||||||||||||||||||||||
| June 30, | June 30, | 2024 vs 2023 | June 30, | June 30, | 2024 vs 2023 | |||||||||||||||||||||||||||
| Gaming | 2024 | 2023 | % | 2024 | 2023 | % | ||||||||||||||||||||||||||
| End of period installed base (# of terminals) (2) | 34,906 | 34,433 | 473 | 1.4 | % | 34,906 | 34,433 | 473 | 1.4 | % | ||||||||||||||||||||||
| Total Gaming - Average installed base (# of terminals) (2) | 34,878 | 34,715 | 163 | 0.5 | % | 34,831 | 34,746 | 85 | 0.2 | % | ||||||||||||||||||||||
| Participation - Average installed base (# of terminals) (2) | 29,917 | 30,522 | (605 | ) | (2.0 | )% | 29,875 | 30,658 | (783 | ) | (2.6 | )% | ||||||||||||||||||||
| Fixed Rental - Average installed base (# of terminals) | 4,962 | 4,193 | 769 | 18.3 | % | 4,955 | 4,089 | 866 | 21.2 | % | ||||||||||||||||||||||
| Service Only - Average installed base (# of terminals) | 5,308 | 12,898 | (7,590 | ) | (58.8 | )% | 6,578 | 13,529 | (6,951 | ) | (51.4 | )% | ||||||||||||||||||||
| Customer Gross Win per unit per day (1) (2) | £ | 96.0 | £ | 94.4 | £ | 1.6 | 1.7 | % | £ | 97.4 | £ | 96.3 | £ | 1.1 | 1.1 | % | ||||||||||||||||
| Customer Net Win per unit per day (1) (2) | £ | 70.8 | £ | 69.0 | £ | 1.8 | 2.6 | % | £ | 71.5 | £ | 70.3 | £ | 1.2 | 1.7 | % | ||||||||||||||||
| Inspired Blended Participation Rate | 5.3 | % | 5.7 | % | (0.4 | )% | (7.0 | )% | 5.4 | % | 5.7 | % | (0.3 | )% | (5.3 | )% | ||||||||||||||||
| Inspired Fixed Rental Revenue per Gaming Machine per week | £ | 39.6 | £ | 48.3 | £ | (8.7 | ) | (18.0 | )% | £ | 40.5 | £ | 49.0 | £ | (8.5 | ) | (17.3 | )% | ||||||||||||||
| Inspired Service Rental Revenue per Gaming Machine per week | £ | 5.3 | £ | 5.1 | £ | 0.2 | 3.9 | % | £ | 5.2 | £ | 5.1 | £ | 0.1 | 2.0 | % | ||||||||||||||||
| Gaming Long term license amortization (£’m) | £ | 0.6 | £ | 0.8 | £ | (0.2 | ) | (25.0 | )% | £ | 1.1 | £ | 1.6 | £ | (0.5 | ) | (31.3 | )% | ||||||||||||||
| Number of Machine sales | 705 | 1,523 | (818 | ) | (53.7 | )% | 1,294 | 2,211 | (917 | ) | (41.5 | )% | ||||||||||||||||||||
| Average selling price per terminal | £ | 8,971 | £ | 5,681 | £ | 3,290 | 57.9 | % | £ | 8,083 | £ | 6,365 | £ | 1,718 | 27.0 | % | ||||||||||||||||
| (1) | Includes all server-based gaming terminals in which the Company takes a participation revenue share across all territories. |
| (2) | Includes circa 2,500 of lottery terminals where the share is on handle instead of net win. |
In the table above:
“End of Period Installed Base” is equal to the number of deployed Gaming terminals at the end of each period that have been placed on a participation or fixed rental basis. Gaming participation revenue, which comprises the majority of Gaming Service revenue, is directly related to the participation terminal installed base. This is the medium by which our customers generate revenue and distribute a revenue share to the Company. To the extent all other key performance indicators (“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.
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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 consisting of both participation terminals and fixed rental terminals. Therefore, it is more closely aligned to revenue in the period. We believe this measure is particularly useful for assessing existing customers or markets to provide comparisons of historical size and performance. This does not include Service Only terminals.
“Participation - Average Installed Base” is the average number of deployed Gaming terminals that generated revenue on a participation basis.
“Fixed Rental - Average Installed Base” is the average number of deployed Gaming terminals that generated revenue on a fixed rental basis.
“Service Only - Average Installed Base” is the average number of terminals that generated revenue on a service only basis.
“Customer Gross Win per unit per day” is a KPI used by our management to (i) assess impact on the Company’s revenue, (ii) determine changes in the performance of the overall market and (iii) evaluate the impacts of regulatory change and our new content releases on our customers. Customer Gross Win per unit per day is the average per unit cash generated across all Gaming terminals in which the Company takes a participation revenue share across all territories in the period, defined as the difference between the amounts staked less winnings to players divided by the Average Installed Base in the period, then divided by the number of days in the period.
Gaming revenue accrued in the period is derived from Customer Gross Win accrued in the period after deducting gaming taxes (defined as a regulatory levy paid by the Customer to government bodies) and applying the Company’s contractual revenue share percentage.
Our management believes Customer Gross Win measures are meaningful because they represent a view of customer operating performance that is unaffected by our revenue share percentage and allow management to (1) readily view operating trends, (2) perform analytical comparisons and benchmarking between customers and (3) identify strategies to improve operating performance in the different markets in which we operate.
“Customer Net Win per unit per day” is Customer Gross Win per unit per day after giving effect to the deduction of gaming taxes.
“Inspired Blended Participation Rate” is the Company’s average revenue share percentage across all participation terminals where revenue is earned on a participation basis, weighted by Customer Net Win per unit per day.
“Inspired Fixed Rental Revenue per Gaming Machine per week” is the Company’s average fixed rental amount across all fixed rental terminals where revenue is generated on a fixed fee basis, per unit per week.
“Inspired Service Rental Revenue per Gaming Machine per week” is the Company’s average service rental amount across all service only rental terminals where revenue is generated on a service only fixed fee basis, per unit per week.
“Gaming Long term license amortization” is the upfront license fee per terminal which is typically spread over the life of the terminal.
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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
Set forth below is a breakdown of our Gaming recurring revenue. Gaming recurring revenue principally consist of Gaming participation revenue and fixed rental revenue.
For the Three-Month Period ended | Variance | For the Six-Month Period ended | Variance | |||||||||||||||||||||||||||||
| June 30, | June 30, | 2024 vs 2023 | June 30, | June 30, | 2024 vs 2023 | |||||||||||||||||||||||||||
| (In £ millions) | 2024 | 2023 | % | 2024 | 2023 | % | ||||||||||||||||||||||||||
| Gaming Recurring Revenue | ||||||||||||||||||||||||||||||||
| Total Gaming Revenue | £ | 21.3 | £ | 24.8 | £ | (3.5 | ) | (14 | )% | £ | 40.4 | £ | 47.1 | £ | (6.7 | ) | (14 | )% | ||||||||||||||
| Gaming Participation Revenue | £ | 10.2 | £ | 10.9 | (0.7 | ) | (6 | )% | £ | 20.8 | £ | 22.4 | £ | (1.6 | ) | (7 | )% | |||||||||||||||
| Gaming Other Fixed Fee Recurring Revenue | £ | 3.0 | £ | 3.4 | £ | (0.4 | ) | (12 | )% | £ | 6.3 | £ | 7.0 | £ | (0.7 | ) | (10 | )% | ||||||||||||||
| Gaming Project Recurring Revenue | £ | 0.2 | £ | 0.2 | 0 | % | £ | 0.5 | £ | 0.4 | £ | 0.1 | 25 | % | ||||||||||||||||||
| Gaming Long-term license amortization | £ | 0.6 | £ | 0.8 | £ | (0.2 | ) | (25 | )% | £ | 1.2 | £ | 1.6 | £ | (0.4 | ) | (25 | )% | ||||||||||||||
| Total Gaming Recurring Revenue * | £ | 14.0 | £ | 15.3 | £ | (1.3 | ) | (8 | )% | £ | 28.8 | £ | 31.4 | £ | (2.6 | ) | (8 | )% | ||||||||||||||
| Gaming Recurring Revenue as a % of Total Gaming Revenue † | 65 | % | 62 | % | 3 | % | 71 | % | 67 | % | 4 | % | ||||||||||||||||||||
| Total Gaming excluding Low Margin Sales | £ | 21.3 | £ | 24.8 | £ | 40.4 | £ | 47.1 | ||||||||||||||||||||||||
| Gaming Recurring Revenue as a % of Total Gaming Revenue (excluding Low Margin Sales) | 65 | % | 72 | % | 71 | % | 72 | % | ||||||||||||||||||||||||
| * | Does not reflect Low Margin-related revenue |
| † | Total Gaming Revenue for the three and six-month period ended June 30, 2024 has no Low Margin sales and for the three and six-month period ended June 30, 2023 includes £3.5 million of Low Margin sales. Excluding Low Margin sales, Gaming Recurring Revenue was 65% and 71% of Total Gaming Revenue respectively. |
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 Project Recurring Revenue” relates specifically to a single customer for machine upgrades and distribution.
“Gaming Long term license amortization” – see the set forth provided above.
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“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.
| For the Three-Month Period ended | For the Six-Month Period ended | |||||||||||||||||||||||||||||||||||||||
| June 30, | June 30, | Variance | June 30, | June 30, | Variance | |||||||||||||||||||||||||||||||||||
| (In millions) | 2024 | 2023 | 2024 vs 2023 | Total Functional Currency % | 2024 | 2023 | 2024 vs 2023 | Total Functional Currency % | ||||||||||||||||||||||||||||||||
| Service Revenue: | ||||||||||||||||||||||||||||||||||||||||
| UK LBO | $ | 9.1 | $ | 9.9 | (0.8 | ) | (8 | )% | (9 | )% | $ | 18.2 | $ | 19.6 | $ | (1.4 | ) | (7 | )% | (9 | )% | |||||||||||||||||||
| UK Other | 3.3 | 3.4 | (0.1 | ) | (3 | )% | (3 | )% | 6.8 | 6.8 | - | 0 | % | 1 | % | |||||||||||||||||||||||||
| Italy | 0.4 | 0.7 | (0.3 | ) | (43 | )% | (57 | )% | 0.8 | 1.5 | (0.7 | ) | (47 | )% | (60 | )% | ||||||||||||||||||||||||
| Greece | 3.6 | 4.0 | (0.4 | ) | (10 | )% | (13 | )% | 7.5 | 8.2 | (0.7 | ) | (9 | )% | (12 | )% | ||||||||||||||||||||||||
| Rest of the World | 0.2 | 0.5 | (0.3 | ) | (60 | )% | (60 | )% | 0.5 | 1.2 | (0.7 | ) | (58 | )% | (50 | )% | ||||||||||||||||||||||||
| Lotteries | 1.3 | 1.3 | - | 0 | % | 0 | % | 2.7 | 2.7 | - | 0 | % | (4 | )% | ||||||||||||||||||||||||||
| Total Service revenue | $ | 17.9 | $ | 19.8 | ($ | 1.9 | ) | (10 | )% | (11 | )% | $ | 36.5 | $ | 40.0 | $ | (3.5 | ) | (9 | )% | (11 | )% | ||||||||||||||||||
| Exchange Rate - $ to £ | 1.26 | 1.25 | 1.27 | 1.23 | ||||||||||||||||||||||||||||||||||||
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.
| 24 |
Gaming, Results of Operations
| For the Three-Month Period ended | Variance | For the Six-Month Period ended | Variance | |||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | June 30, | June 30, | 2024 vs 2023 | June 30, | June 30, | 2024 vs 2023 | ||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Variance Attributable to Currency Movement | Variance on a Functional currency basis | Total Functional Currency Variance % | Total Reported Variance % | 2024 | 2023 | Variance Attributable to Currency Movement | Variance on a Functional currency basis | Total Functional Currency Variance % | Total Reported Variance % | |||||||||||||||||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Service | $ | 17.9 | $ | 19.8 | $ | 0.3 | $ | (2.2 | ) | (11 | )% | (10 | )% | $ | 36.5 | $ | 40.0 | $ | 1.0 | $ | (4.5 | ) | (11 | )% | (9 | )% | ||||||||||||||||||||||
| Product | 9.2 | 11.3 | - | (2.1 | ) | (19 | )% | (19 | )% | 14.6 | 18.2 | 0.1 | (3.7 | ) | (20 | )% | (20 | )% | ||||||||||||||||||||||||||||||
| Total revenue | 27.1 | 31.1 | 0.3 | (4.3 | ) | (14 | )% | (13 | )% | 51.1 | 58.2 | 1.1 | (8.2 | ) | (14 | )% | (12 | )% | ||||||||||||||||||||||||||||||
| Cost of Sales, excluding depreciation and amortization: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of Service | (5.1 | ) | (6.5 | ) | - | 1.4 | (22 | )% | (22 | )% | (10.9 | ) | (12.4 | ) | (0.2 | ) | 1.7 | (14 | )% | (12 | )% | |||||||||||||||||||||||||||
| Cost of Product | (5.6 | ) | (8.4 | ) | - | 2.8 | (33 | )% | (33 | )% | (9.9 | ) | (14.2 | ) | (0.2 | ) | 4.5 | (32 | )% | (30 | )% | |||||||||||||||||||||||||||
| Total cost of sales | (10.7 | ) | (14.9 | ) | - | 4.2 | (28 | )% | (28 | )% | (20.8 | ) | (26.6 | ) | (0.4 | ) | 6.2 | (23 | )% | (22 | )% | |||||||||||||||||||||||||||
| Selling, general and administrative expenses | (6.4 | ) | (5.0 | ) | (0.1 | ) | (1.3 | ) | 26 | % | 28 | % | (13.0 | ) | (10.7 | ) | (0.4 | ) | (1.9 | ) | 18 | % | (21 | )% | ||||||||||||||||||||||||
| Stock-based compensation | (0.2 | ) | (0.4 | ) | - | 0.2 | (50 | )% | (50 | )% | (0.4 | ) | (0.7 | ) | - | 0.3 | (43 | )% | (43 | )% | ||||||||||||||||||||||||||||
| Depreciation and amortization | (3.4 | ) | (4.6 | ) | - | 1.2 | (26 | )% | (26 | )% | (7.7 | ) | (9.1 | ) | (0.2 | ) | 1.6 | (18 | )% | (15 | )% | |||||||||||||||||||||||||||
| Net operating Income | $ | 6.4 | $ | 6.2 | $ | 0.2 | $ | - | 0 | % | 2 | % | $ | 9.2 | $ | 11.1 | $ | 0.1 | $ | (2.0 | ) | (18 | )% | (17 | )% | |||||||||||||||||||||||
| Exchange Rate - $ to £ | 1.26 | 1.25 | 1.27 | 1.24 | ||||||||||||||||||||||||||||||||||||||||||||
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 and six-month periods ended June 30, 2024, Gaming revenue decreased by $4.3 million and $8.2 million, or 14% in both periods. This was driven by decreases in Service revenue of $2.2 million and $4.5 million, respectively, and decreases in Product revenue of $2.1 million and $3.7 million, respectively.
For the three-month period ended June 30, 2024, the decrease in Gaming Service revenue was driven by decreases of $1.0 million in the UK market inclusive of shop closures in UK LBO and $0.4 million in the Greek market primarily due to the reduction in Gross Win per day and expiry of historical amortized license revenues.
For the six-month period ended June 30, 2024, the decrease in Gaming Service revenue was driven by decreases of $2.8 million from the UK markets, inclusive of UK LBO shop closures, $0.7 million from North America, $0.8 million from Italy and $0.2 million from Greece, driven by the reduction in Gross Win per day and expiry of historical amortized license revenues.
For the three-month period ended June 30, 2024, the $2.1 million decrease in Gaming Product revenue was primarily driven by lower UK Product sales of $5.6 million, partially offset by increases of $2.7million in North America.
For the six-month period ended June 30, 2024, the $3.7 million decrease in Gaming Product revenue was primarily driven by lower UK Product sales of $6.3 million as the prior year period included $4.4 million of Low Margin sales, partially offset by increases of $2.4 million in North America.
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Gaming Operating income
Operating income was flat for the three-month period ended June 30, 2024, and decreased by $2.0 million for the six-month period ended June 30, 2024.
For the three-month period ended June 30, 2024, gross margin decreased by $0.1 million and SG&A expenses increased $1.3 million driven by increased in facility costs and decreased labor capitalization along with exceptional items not incurred in the prior year period. This was offset by decreases in depreciation and amortization and stock-based compensation of $1.2 million and $0.2 million, respectively.
The decrease in the six-month period ended June 30, 2024 was primarily driven by a reduction in gross margin of $2.0 million. SG&A expenses increased $1.9 million driven by reduced labor and overhead consumption, which was offset by a decrease in depreciation and amortization and stock-based compensation of $1.6 million and $0.3 million, respectively.
Virtual Sports
We generate revenue from our Virtual Sports segment through the on-premise solution and hosting of our products. We primarily receive fees 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
For the Three-Month Period ended | Variance | For the Six-Month Period ended | Variance | |||||||||||||||||||||||||||||
| June 30, | June 30, | 2024 vs 2023 | June 30, | June 30, | 2024 vs 2023 | |||||||||||||||||||||||||||
| 2024 | 2023 | % | 2024 | 2023 | % | |||||||||||||||||||||||||||
| Virtuals | ||||||||||||||||||||||||||||||||
| No. of Live Customers at the end of the period | 57 | 58 | (1 | ) | (2.0 | )% | 57 | 58 | (2 | ) | (3.4 | )% | ||||||||||||||||||||
| Average No. of Live Customers | 57 | 58 | (1 | ) | (2.0 | )% | 56 | 58 | (2 | ) | (3.4 | )% | ||||||||||||||||||||
| Total Revenue (£’m) | £ | 9.3 | £ | 12.1 | £ | (2.8 | ) | (23.1 | )% | £ | 19.0 | £ | 24.3 | £ | (5.3 | ) | (21.8 | )% | ||||||||||||||
| Total Revenue £’m - Retail | £ | 2.6 | £ | 2.6 | £ | - | 0.0 | % | £ | 4.9 | £ | 5.1 | £ | (0.2 | ) | (3.9 | )% | |||||||||||||||
| Total Revenue £’m - Online Virtuals | £ | 6.7 | £ | 9.5 | £ | (2.8 | ) | (29.5 | )% | £ | 14.1 | £ | 19.1 | £ | (5.0 | ) | (26.2 | )% | ||||||||||||||
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 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.
| 26 |
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.
For the Three-Month Period ended | Variance | For the Six-Month Period ended | Variance | |||||||||||||||||||||||||||||
| June 30, | June 30, | 2024 vs 2023 | June 30, | June 30, | 2024 vs 2023 | |||||||||||||||||||||||||||
| (In £ millions) | 2024 | 2023 | % | 2024 | 2023 | % | ||||||||||||||||||||||||||
| Virtual Sports Recurring Revenue | ||||||||||||||||||||||||||||||||
| Total Virtual Sports Revenue | £ | 9.3 | £ | 12.1 | £ | (2.8 | ) | (23 | )% | £ | 19.1 | £ | 24.3 | £ | (5.2 | ) | (21 | )% | ||||||||||||||
| Recurring Revenue - Retail Virtuals | £ | 2.5 | £ | 2.4 | £ | 0.1 | 4 | % | £ | 4.8 | £ | 4.9 | £ | (0.1 | ) | (2 | )% | |||||||||||||||
| Recurring Revenue - Online Virtuals | £ | 6.6 | £ | 9.4 | £ | (2.8 | ) | (30 | )% | £ | 13.8 | £ | 19.0 | £ | (5.2 | ) | (27 | )% | ||||||||||||||
| Total Virtual Sports Long-term license amortization | £ | - | £ | 0.2 | (0.2 | ) | (100 | )% | £ | 0.1 | £ | 0.2 | £ | (0.1 | ) | (50 | )% | |||||||||||||||
| Total Virtual Sports Recurring Revenue | £ | 9.1 | £ | 12.0 | £ | (2.9 | ) | (24 | )% | £ | 18.7 | £ | 24.1 | £ | (5.4 | ) | (22 | )% | ||||||||||||||
| Virtual Sports Recurring Revenue as a Percentage of Total Virtual Sports Revenue | 98 | % | 99 | % | 98 | % | 99 | % | ||||||||||||||||||||||||
“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.
| 27 |
Virtual Sports, Results of Operations
For the Three-Month Period ended | Variance | For the Six-Month Period ended | Variance | |||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | June 30, | June 30, | 2024 vs 2023 | June 30, | June 30, | 2024 vs 2023 | ||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Variance Attributable to Currency Movement | Variance on a Functional currency basis | Total Functional Currency Variance % | Total Reported Variance % | 2024 | 2023 | Variance Attributable to Currency Movement | Variance on a Functional currency basis | Total Functional Currency Variance % | Total Reported Variance % | |||||||||||||||||||||||||||||||||||||
| Service Revenue | $ | 11.7 | $ | 15.1 | $ | 0.1 | $ | (3.5 | ) | (23 | )% | (23 | )% | $ | 24.1 | $ | 29.9 | $ | 0.5 | $ | (6.3 | ) | (21 | )% | (19 | )% | ||||||||||||||||||||||
| Cost of Service | (0.1 | ) | (0.4 | ) | 0.1 | 0.2 | (50 | )% | (75 | )% | (0.5 | ) | (0.8 | ) | 0.1 | 0.2 | (25 | )% | (38 | )% | ||||||||||||||||||||||||||||
| Selling, general and administrative expenses | (2.0 | ) | (1.6 | ) | 0.1 | (0.5 | ) | 31 | % | 25 | % | (3.6 | ) | (3.3 | ) | (0.1 | ) | (0.2 | ) | 6 | % | 9 | % | |||||||||||||||||||||||||
| Stock-based compensation | (0.1 | ) | (0.2 | ) | - | 0.1 | (50 | )% | (50 | )% | (0.2 | ) | (0.4 | ) | - | 0.2 | (50 | )% | (50 | )% | ||||||||||||||||||||||||||||
| Depreciation and amortization | (2.5 | ) | (0.8 | ) | (0.1 | ) | (1.6 | ) | 200 | % | 213 | % | (3.4 | ) | (1.6 | ) | (0.1 | ) | (1.7 | ) | 106 | % | 113 | % | ||||||||||||||||||||||||
| Net operating Income | $ | 7.0 | $ | 12.1 | $ | 0.2 | $ | (5.3 | ) | (44 | )% | (42 | )% | $ | 16.4 | $ | 23.8 | $ | 0.4 | $ | (7.8 | ) | (33 | )% | (31 | )% | ||||||||||||||||||||||
| Exchange Rate - $ to £ | 1.26 | 1.25 | 1.27 | 1.23 | ||||||||||||||||||||||||||||||||||||||||||||
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 and six-month periods ended June 30, 2024, revenue decreased by $3.5 million and $6.3 million, or 23% and 21%, respectively. These decreases were driven by $3.6 million and $6.4 million decreases in Online Virtuals, respectively, primarily driven by driven by a major customer optimizing their customer base.
Virtual Sports operating income
During the three and six-month periods ended June 30, 2024, operating income decreased by $5.3 million and $7.8 million, primarily due to the decreases in revenues and increases in depreciation of $1.6 million and $1.7 million, respectively.
Interactive
We generate revenue from our Interactive segment through the various games and content made available via third party aggregation platforms with Inspired’s remote gaming server or directly on the Customers remote gaming server platform, and services such as customer support, platform maintenance, updates and upgrades. Typically, we receive fees 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.
| 28 |
Interactive, Key Performance Indicators
For the Three-Month Period ended | Variance | For the Six-Month Period ended | Variance | |||||||||||||||||||||||||||||
| June 30, | June 30, | 2024 vs 2023 | June 30, | June 30, | 2024 vs 2023 | |||||||||||||||||||||||||||
| 2024 | 2023 | % | 2024 | 2023 | % | |||||||||||||||||||||||||||
| Interactive | ||||||||||||||||||||||||||||||||
| No. of Live Customers at the end of the period | 164 | 146 | 18 | 12.3 | % | 164 | 146 | 18 | 12.3 | % | ||||||||||||||||||||||
| Average No. of Live Customers | 161 | 140 | 21 | 15.0 | % | 158 | 138 | 20 | 14.5 | % | ||||||||||||||||||||||
| No. of Games available at the end of the period | 307 | 283 | 24 | 8.5 | % | 307 | 283 | 24 | 8.5 | % | ||||||||||||||||||||||
| Average No. of Games available | 303 | 277 | 26 | 9.4 | % | 299 | 274 | 25 | 9.1 | % | ||||||||||||||||||||||
| No. of Live Games at the end of the period | 292 | 260 | 32 | 12.3 | % | 292 | 260 | 32 | 12.3 | % | ||||||||||||||||||||||
| Average No. of Live Games | 286 | 254 | 32 | 12.6 | % | 280 | 250 | 30 | 12.0 | % | ||||||||||||||||||||||
| Total Revenue (£’m) | £ | 7.4 | £ | 5.3 | £ | 2.1 | 39.6 | % | £ | 13.8 | £ | 10.2 | £ | 3.6 | 35.3 | % | ||||||||||||||||
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.
| 29 |
Interactive, Results of Operations
For the Three-Month Period ended | Variance | For the Six-Month Period ended | Variance | |||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | June 30, | June 30, | 2024 vs 2023 | June 30, | June 30, | 2024 vs 2023 | ||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Variance Attributable to Currency Movement | Variance on a Functional currency basis | Total Functional Currency Variance % | Total Reported Variance % | 2024 | 2023 | Variance Attributable to Currency Movement | Variance on a Functional currency basis | Total Functional Currency Variance % | Total Reported Variance % | |||||||||||||||||||||||||||||||||||||
| Service Revenue | $ | 9.4 | $ | 6.7 | $ | - | $ | 2.7 | 40 | % | 40 | % | $ | 17.5 | $ | 12.6 | $ | 0.4 | $ | 4.5 | 36 | % | 39 | % | ||||||||||||||||||||||||
| Cost of Service | (0.5 | ) | (0.4 | ) | - | (0.1 | ) | 25 | % | 25 | % | (1.1 | ) | (0.7 | ) | 0.1 | (0.5 | ) | 71 | % | 57 | % | ||||||||||||||||||||||||||
| Selling, general and administrative expenses | (2.8 | ) | (2.7 | ) | (0.1 | ) | - | 0 | % | 4 | % | (5.9 | ) | (5.2 | ) | (0.2 | ) | (0.5 | ) | 10 | % | 14 | % | |||||||||||||||||||||||||
| Stock-based compensation | (0.1 | ) | (0.1 | ) | (0.1 | ) | 0.1 | (100 | )% | 0 | % | (0.2 | ) | (0.3 | ) | - | 0.1 | (33 | )% | (33 | )% | |||||||||||||||||||||||||||
| Depreciation and amortization | (1.2 | ) | (1.0 | ) | - | (0.2 | ) | 20 | % | 20 | % | (2.4 | ) | (1.6 | ) | (0.1 | ) | (0.7 | ) | 44 | % | 50 | % | |||||||||||||||||||||||||
| Net operating Income | $ | 4.8 | $ | 2.5 | $ | (0.2 | ) | $ | 2.5 | 100 | % | 92 | % | $ | 7.9 | $ | 4.8 | $ | 0.2 | $ | 2.9 | 60 | % | 65 | % | |||||||||||||||||||||||
| Exchange Rate - $ to £ | 1.26 | 1.25 | 1.27 | 1.23 | ||||||||||||||||||||||||||||||||||||||||||||
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 and six-month periods ended June 30, 2024, revenue increased by $2.7 million and $4.5 million, or 40% and 36%, respectively, primarily driven by revenue growth in the UK, North America and mainland Europe due to new customer launches, 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 and six-month periods ended June 30, 2024, increased by $2.5 million and $2.9 million, respectively. For the three-month period ended June 30, 2024, this increase was driven by the increase in gross margin, partially offset by increases in depreciation and amortization of $0.2 million and $0.7 million, respectively. For the six-month period, this increase was driven by the increase in gross margin, offset by a $0.5 million increase in SG&A driven by increased staff and IT costs and a $0.7 million increase in depreciation and amortization.
| 30 |
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
For the Three-Month Period ended | Variance | For the Six-Month Period ended | Variance | |||||||||||||||||||||||||||||
| June 30, | June 30, | 2024 vs 2023 | June 30, | June 30, | 2024 vs 2023 | |||||||||||||||||||||||||||
| 2024 | 2023 | % | 2024 | 2023 | % | |||||||||||||||||||||||||||
| Leisure | ||||||||||||||||||||||||||||||||
| End of period installed base Gaming machines (# of terminals) | 10,540 | 10,725 | (185 | ) | (1.7 | )% | 10,540 | 10,725 | (185 | ) | (1.7 | )% | ||||||||||||||||||||
| Average installed base Gaming machines (# of terminals) | 10,600 | 10,709 | (109 | ) | (1.0 | )% | 10,647 | 10,739 | (92 | ) | (0.9 | )% | ||||||||||||||||||||
| End of period installed base Other (# of terminals) | 3,901 | 4,363 | (462 | ) | (10.6 | )% | 3,901 | 4,363 | (462 | ) | (10.6 | )% | ||||||||||||||||||||
| Average installed base Other (# of terminals) | 3,993 | 4,380 | (387 | ) | (8.8 | )% | 4,112 | 4,518 | (406 | ) | (9.0 | )% | ||||||||||||||||||||
| Pub Digital Gaming Machines - Average installed base (# of terminals) | 6,253 | 6,116 | 137 | 2.2 | % | 6,232 | 6,099 | 133 | 2.2 | % | ||||||||||||||||||||||
| Pub Analogue Gaming Machines - Average installed base (# of terminals) | 132 | 421 | (289 | ) | (68.6 | )% | 224 | 744 | (520 | ) | (69.9 | )% | ||||||||||||||||||||
| MSA and Bingo Gaming Machines - Average installed base (# of terminals)(1) | 3,013 | 3,011 | 2 | 0.1 | % | 3,059 | 3,107 | (48 | ) | (1.5 | )% | |||||||||||||||||||||
| Inspired Leisure Revenue per Gaming Machine per week | £ | 69.4 | £ | 67.6 | £ | 1.8 | 2.7 | % | £ | 69.8 | £ | 67.0 | £ | 2.8 | 4.2 | % | ||||||||||||||||
| Inspired Pub Digital Revenue per Gaming Machine per week | £ | 73.4 | £ | 70.5 | £ | 2.9 | 4.1 | % | £ | 73.3 | £ | 70.4 | £ | 2.9 | 4.1 | % | ||||||||||||||||
| Inspired Pub Analogue Revenue per Gaming Machine per week | £ | 32.2 | £ | 38.3 | £ | (6.1 | ) | (15.9 | )% | £ | 32.0 | £ | 37.6 | £ | (5.6 | ) | (14.9 | )% | ||||||||||||||
| Inspired MSA and Bingo Revenue per Gaming Machine per week | £ | 94.6 | £ | 98.3 | £ | (3.7 | ) | (3.8 | )% | £ | 93.1 | £ | 93.8 | £ | (0.7 | ) | (0.7 | )% | ||||||||||||||
| Inspired Other Revenue per Machine per week | £ | 23.6 | £ | 19.4 | £ | 4.2 | 21.6 | % | £ | 23.8 | £ | 19.8 | £ | 4.0 | 20.2 | % | ||||||||||||||||
| Total Holiday Parks Revenue (Gaming and Non Gaming) (£’m) | £ | 10.4 | £ | 9.8 | £ | 0.6 | 6.1 | % | £ | 13.5 | £ | 12.7 | £ | 0.8 | 6.3 | % | ||||||||||||||||
| (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 (UK Gambling Act 2005 places machines into categories dependent on maximum stake and prize available), from which there is participation or rental revenue at the end of the period or as an average over the period.
“End of period installed base Other” and “Average installed base Other” represent the number of all other category machines installed (excluding Holiday Park machines) from which there is participation or rental revenue at the end of the period or as an average over the period.
“Revenue per machine unit per week” represents the average weekly participation or rental revenue recognized during the period.
Leisure, Results of Operations
For the Three-Month Period ended | Variance | For the Six-Month Period ended | Variance | |||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | June 30, | June 30, | 2024 vs 2023 | June 30, | June 30, | 2024 vs 2023 | ||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Variance Attributable to Currency Movement | Variance on a Functional currency basis | Total Functional Currency Variance % | Total Reported Variance % | 2024 | 2023 | Variance Attributable to Currency Movement | Variance on a Functional currency basis | Total Functional Currency Variance % | Total Reported Variance % | |||||||||||||||||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Service | $ | 26.8 | $ | 25.9 | $ | 0.2 | $ | 0.7 | 3 | % | 3 | % | $ | 44.8 | $ | 42.5 | $ | 1.0 | $ | 1.3 | 3 | % | 5 | % | ||||||||||||||||||||||||
| Product | 0.6 | 0.6 | - | - | 0 | % | 0 | % | 1.2 | 1.1 | - | 0.1 | 9 | % | 9 | % | ||||||||||||||||||||||||||||||||
| Total revenue | 27.4 | 26.5 | 0.2 | 0.7 | 3 | % | 3 | % | 46.0 | 43.6 | 1.0 | 1.4 | 3 | % | 6 | % | ||||||||||||||||||||||||||||||||
| Cost of Sales, excluding depreciation and amortization: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of Service | (13.3 | ) | (13.2 | ) | (0.1 | ) | - | 0 | % | 1 | % | (22.4 | ) | (21.6 | ) | (0.5 | ) | (0.3 | ) | 1 | % | 4 | % | |||||||||||||||||||||||||
| Cost of Product | (0.2 | ) | - | - | (0.2 | ) | 100 | % | 100 | % | (0.4 | ) | (0.9 | ) | 0.1 | 0.4 | (44 | )% | (56 | )% | ||||||||||||||||||||||||||||
| Total cost of sales | (13.5 | ) | (13.2 | ) | (0.1 | ) | (0.2 | ) | 2 | % | 2 | % | (22.8 | ) | (22.5 | ) | (0.4 | ) | 0.1 | (1 | )% | (1 | )% | |||||||||||||||||||||||||
| Selling, general and administrative expenses | (7.8 | ) | (6.8 | ) | (0.2 | ) | (0.8 | ) | 12 | % | 15 | % | (15.3 | ) | (13.7 | ) | (0.5 | ) | (1.1 | ) | 9 | % | 12 | % | ||||||||||||||||||||||||
| Stock-based compensation | (0.1 | ) | (0.4 | ) | - | 0.3 | (75 | )% | (75 | )% | (0.2 | ) | (0.5 | ) | - | 0.3 | (60 | )% | (60 | )% | ||||||||||||||||||||||||||||
| Depreciation and amortization | (3.0 | ) | (3.0 | ) | - | - | 0 | % | - | (6.0 | ) | (6.1 | ) | (0.2 | ) | 0.3 | (5 | )% | (2 | )% | ||||||||||||||||||||||||||||
| Net operating Income | $ | 3.0 | $ | 3.1 | $ | (0.1 | ) | $ | - | 0 | % | (3 | )% | $ | 1.7 | $ | 0.8 | $ | (0.1 | ) | $ | 1.0 | 125 | % | 113 | % | ||||||||||||||||||||||
| Exchange Rate - $ to £ | 1.26 | 1.25 | 1.27 | 1.24 | ||||||||||||||||||||||||||||||||||||||||||||
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.
| 31 |
Leisure Revenue
For the three and six-month periods ended June 30, 2024, revenue increased by $0.7 million and $1.4 million, respectively. These increases were primarily due to increased service revenue of $0.7 million and $1.3 million, respectively, predominately due to the increase in Holiday Parks of $0.7 million and $1.0 million driven by the increased revenues in Holiday Parks due to the addition of a new site as well as growth in existing sites.
Leisure Operating Income
Operating income for the three-month period ended June 30, 2024, was flat and six-month period ended June 30, 2024, increased by $1.0 million. This was primarily due to the increases in gross margin partially offset by increases in SG&A expenses of $0.8 million and $1.2 million for the three and six-month periods, respectively, driven by the increase in seasonal staff, the increase in national living wage and salary increases, along with reduced technology labor capitalization.
Non-GAAP Financial Measures
We use certain non-GAAP financial measures, including 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 (see Adjusted EBITDA reconciliation table). 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 but not limited to (1) restructuring costs, which include charges attributable to employee severance, impairments, 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.
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.
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Adjusted Revenue (Revenue Excluding Low Margin Gaming Hardware Sales) is defined as revenue excluding Gaming hardware sales that are sold at Low Margin with the intention of securing longer term recurring revenue streams.
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 Consolidates Statements of Operations and Comprehensive Income (Loss), to Adjusted EBITDA are shown below:
Reconciliation to Adjusted EBITDA by segment for the Three and Six Months ended June 30, 2024
| For the Three-Month Period ended | For the Six-Month Period ended | |||||||||||||||||||||||||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | 2024 | 2024 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total | Gaming | Virtual Sports | Interactive | Leisure | Corporate | Total | Gaming | Virtual Sports | Interactive | Leisure | Corporate | |||||||||||||||||||||||||||||||||||||
| Net Income/ (loss) | $ | 2.0 | $ | 6.4 | $ | 7.0 | $ | 4.8 | $ | 3.0 | $ | (19.2 | ) | $ | (3.7 | ) | $ | 9.2 | $ | 16.4 | $ | 7.9 | $ | 1.7 | $ | (38.9 | ) | |||||||||||||||||||||
| Items Relating to Legacy Activities: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Pension charges (1) | 0.3 | 0.3 | 0.6 | 0.6 | ||||||||||||||||||||||||||||||||||||||||||||
| Items outside the normal course of business: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Costs of group restructure (2) | 0.8 | 0.3 | 0.5 | 0.9 | 0.3 | 0.6 | ||||||||||||||||||||||||||||||||||||||||||
| Costs of group restatement (3) | 2.8 | 2.8 | 7.8 | 7.8 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense (4) | 1.6 | 0.2 | 0.1 | 0.1 | 0.1 | 1.1 | 3.9 | 0.4 | 0.2 | 0.2 | 0.2 | 2.9 | ||||||||||||||||||||||||||||||||||||
| Depreciation and amortization (4) | 10.6 | 3.4 | 2.5 | 1.2 | 3.0 | 0.5 | 20.5 | 7.7 | 3.4 | 2.4 | 6.0 | 1.0 | ||||||||||||||||||||||||||||||||||||
| Interest expense net (4) | 6.7 | 6.7 | 13.3 | 13.3 | ||||||||||||||||||||||||||||||||||||||||||||
| Other finance expenses / (income) (4) | (0.1 | ) | (0.1 | ) | (0.2 | ) | (0.2 | ) | ||||||||||||||||||||||||||||||||||||||||
| Income tax (4) | 0.8 | 0.8 | (1.4 | ) | (1.4 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 25.5 | $ | 10.3 | $ | 9.6 | $ | 6.1 | $ | 6.1 | $ | (6.6 | ) | $ | 41.7 | $ | 17.6 | $ | 20.0 | $ | 10.5 | $ | 7.9 | $ | (14.3 | ) | ||||||||||||||||||||||
| Adjusted EBITDA | £ | 20.2 | £ | 8.1 | £ | 7.7 | £ | 4.8 | £ | 4.9 | £ | (5.3 | ) | £ | 32.8 | £ | 14.0 | £ | 15.6 | £ | 8.2 | £ | 6.3 | £ | (11.3 | ) | ||||||||||||||||||||||
| Exchange Rate - $ to £ (5) | 1.26 | 1.27 | ||||||||||||||||||||||||||||||||||||||||||||||
Note: Certain corporate function costs have not been allocated to the Company’s reportable operating segments because 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 and Six Months ended June 30, 2023
| For the Three-Month Period ended | For the Six-Month Period ended | |||||||||||||||||||||||||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | 2023 | 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total | Gaming | Virtual Sports | Interactive | Leisure | Corporate | Total | Gaming | Virtual Sports | Interactive | Leisure | Corporate | |||||||||||||||||||||||||||||||||||||
| Net Income/ (loss) | $ | 5.6 | $ | 6.2 | $ | 12.1 | $ | 2.5 | $ | 3.1 | $ | (18.3 | ) | $ | 4.2 | $ | 11.1 | $ | 23.8 | $ | 4.8 | $ | 0.8 | $ | (36.3 | ) | ||||||||||||||||||||||
| Items Relating to Legacy Activities: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Pension charges (1) | 0.2 | 0.2 | 0.4 | 0.4 | ||||||||||||||||||||||||||||||||||||||||||||
| Items outside the normal course of business: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of Group Restructure (2) | - | - | - | 3.0 | 3.0 | |||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense (4) | 3.1 | 0.4 | 0.2 | 0.1 | 0.4 | 2.0 | 6.0 | 0.7 | 0.4 | 0.3 | 0.5 | 4.1 | ||||||||||||||||||||||||||||||||||||
| Depreciation and amortization (4) | 10.1 | 4.6 | 0.8 | 1.0 | 3.0 | 0.7 | 19.5 | 9.1 | 1.6 | 1.6 | 6.1 | 1.1 | ||||||||||||||||||||||||||||||||||||
| Interest expense net (4) | 7.3 | 7.3 | 13.6 | 13.6 | ||||||||||||||||||||||||||||||||||||||||||||
| Other finance expenses / (income) (4) | (0.1 | ) | (0.1 | ) | (0.2 | ) | (0.2 | ) | ||||||||||||||||||||||||||||||||||||||||
| Income tax (4) | 1.0 | 1.0 | 0.8 | 0.8 | ||||||||||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 27.2 | $ | 11.2 | $ | 13.1 | $ | 3.6 | $ | 6.5 | $ | (7.2 | ) | $ | 47.3 | $ | 20.9 | $ | 25.8 | $ | 6.7 | $ | 7.4 | $ | (13.5 | ) | ||||||||||||||||||||||
| Adjusted EBITDA | £ | 21.8 | £ | 8.9 | £ | 10.5 | £ | 2.9 | £ | 5.1 | £ | (5.6 | ) | £ | 38.4 | £ | 16.9 | £ | 20.9 | £ | 5.4 | £ | 5.9 | £ | (10.7 | ) | ||||||||||||||||||||||
| Exchange Rate - $ to £ (5) | 1.24 | 1.23 | ||||||||||||||||||||||||||||||||||||||||||||||
Note: Certain corporate function costs have not been allocated to the Company’s reportable operating segments because 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) | “Costs of Group Restructure” includes 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 or be in relation to the exit of an Executive. |
| (3) | “Costs of group Restatement” includes accounting advice associated with the restatement of the 2020, 2021 and 2022 annual accounts and the 2023 Q1 and Q2 interim accounts. To qualify as being an adjusting item, costs must be specific to the event and be neither normal nor recurring in nature. |
| (4) | Stock-based compensation expense, Depreciation and amortization, Total other expense, net and Income tax are described above in the Results of Operations line item discussions. Total expense, net includes interest income, interest expense, change in fair value of earnout liability, change in fair value of derivative liability and other finance income. |
| (5) | Exchange rate in the table is calculated by dividing the USD Adjusted EBITDA by the GBP Adjusted EBITDA, therefore this could be slightly different from the average rate during the period depending on timing of transactions. |
| (6) | “Profit on disposal of trade & assets” — In January 2022, the Company sold its Italian VLT business, including all terminals and other assets, staff costs and facilities and contracts to a non-connected party, recognizing a profit on this disposal. |
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Reconciliation to Adjusted Revenue
We believe that accounting for low margin hardware sales in conformance with U.S. GAAP can result in a distorted presentation of our revenue and growth. Therefore, we use Revenue Excluding Low Margin Sales, or Adjusted Revenue, to internally analyze our operating performance. A reconciliation from revenue, as shown in our Consolidated Statements of Operations and Comprehensive Loss included elsewhere in this report, to Adjusted Revenue is shown below.
For the Three-Month Period ended | For the Six-Month Period ended | |||||||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||||||
| (In millions) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Net revenues | $ | 75.6 | $ | 79.4 | $ | 138.7 | $ | 144.3 | ||||||||
| Less Low Margin Gaming Sales | - | (4.4 | ) | - | (4.4 | ) | ||||||||||
| Adjusted Revenue | $ | 75.6 | $ | 75.0 | $ | 138.7 | $ | 139.9 | ||||||||
| Adjusted Revenue | £ | 59.8 | £ | 59.9 | £ | 109.6 | £ | 113.4 | ||||||||
| Exchange Rate - $ to £ | 1.26 | 1.25 | 1.27 | 1.23 | ||||||||||||
Liquidity and Capital Resources
Six Months ended June 30, 2024, compared to Six Months ended June 30, 2023
| Six Months ended | Variance | |||||||||||
| (in millions) | June 30, | June 30, | ||||||||||
| 2024 | 2023 | 2024 to 2023 | ||||||||||
| Net (loss) income | $ | (3.7 | ) | $ | 4.2 | $ | (7.9 | ) | ||||
| Amortization of debt fees | 0.6 | 1.0 | (0.4 | ) | ||||||||
| Change in fair value of derivative liabilities and stock-based compensation expense | 3.9 | 6.3 | (2.4 | ) | ||||||||
| Depreciation and amortization (incl right of use assets) | 22.5 | 21.4 | 1.1 | |||||||||
| Contract cost additions | (5.7 | ) | (5.2 | ) | (0.5 | ) | ||||||
| Other net cash (utilized) generated by operating activities | (19.7 | ) | 4.8 | (24.5 | ) | |||||||
| Net cash (used) provided by operating activities | (2.1 | ) | 32.5 | (34.6 | ) | |||||||
| Net cash used in investing activities | (13.5 | ) | (16.0 | ) | 2.5 | |||||||
| Net cash used by financing activities | (0.5 | ) | (0.8 | ) | 0.3 | |||||||
| Effect of exchange rates on cash | (0.4 | ) | 1.4 | (1.8 | ) | |||||||
| Net (decrease)/increase in cash and cash equivalents | $ | (16.5 | ) | $ | 17.1 | $ | (33.6 | ) | ||||
Net cash provided by operating activities
For the six months ended June 30, 2024, net cash provided by operating activities was a $2.1 million outflow, compared to a $32.5 million inflow for the six months ended June 30, 2023, representing a $34.6 million decrease in cash generation from operating activities. This decrease was driven primarily through the previous year benefiting from favorable receipts due to the timing of invoicing for Vantage terminal rollout for several key customers.
Change in fair value of derivative liabilities and stock-based compensation expense decreased by $2.4 million to $3.9 million due to a $2.1 million reduction in the stock-based compensation expense and a $0.3 million reduction in the recycling of the terminated currency swaps which ended on September 30, 2023.
Depreciation and amortization increased by $1.1 million, to $22.5 million, with increases of $1.1 million for intangible assets and $0.9 million for contract costs partly offset by a $0.5 million reduction in machine depreciation and a $0.4 million reduction in software development amortization.
Contract cost additions increased by $0.5 million to $5.7 million for the six months ended June 30,2024 compared to the six months ended June 30, 2023.
Other net cash (utilized)/generated by operating activities decreased by $24.5 million, to a $19.7 million outflow. The relative movements between the six months ended June 30, 2024 and the six months ended June 30, 2023 resulted in adverse movements in deferred revenue and tax of $23.0 million and $4.6 million respectively due to invoice timing in the prior year, accounts payable $10.1 million due to differing production levels and accounts receivable $4.8 million. These were partly offset by a favorable $16.4 million inventory movement due to the large increase in the prior year for Vantage machine production and a $2.5 million movement in other debtors and prepayments.
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Net cash used in investing activities
Net cash utilized in investing activities decreased by $2.5 million, to $13.5 million during the six months ended June 30, 2024. This was driven by lower spend on plant, property and equipment of $1.3 million, lower capital software spend of $0.6million and the acquisition of Lot.to in 2023 for $0.6 million.
Net cash used by financing activities
During the six months ended June 30, 2024, net cash used by financing activities was $0.5 million relating to finance lease spend. During the six months ended June 30, 2023, net cash utilized by financing activities was $0.8 million, with $0.7 million of finance lease spend and $0.1 million on share repurchases.
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 June 30, 2024, we had liquidity consisting of $23.5 million in cash and cash equivalents and a further $6.3 million of undrawn revolver facility. This compares to $42.1 million of cash and cash equivalents as of June 30, 2023, with a further $25.4 million of revolver facilities undrawn. We had a working capital outflow of $19.8 million for the six months ended June 30, 2024, compared to a $4.8 million inflow for the six months ended June 30, 2023.
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 June 30, 2024, $6.4 million of our $23.5 million of cash and cash equivalents were held as operational floats within the machines. At June 30, 2023, $5.8 million of our $42.1 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 August 2025.
Long Term and Other Debt
| (In millions) | June 30, 2024 | June 30, 2023 | ||||||||||||||
| Cash held | £ | 18.6 | $ | 23.5 | £ | 33.1 | $ | 42.1 | ||||||||
| Revolver drawn | (15.0 | ) | (19.0 | ) | - | - | ||||||||||
| Original principal senior debt | (235.0 | ) | (297.1 | ) | (235.0 | ) | (298.8 | ) | ||||||||
| Cash interest accrued | (1.7 | ) | (2.1 | ) | (1.5 | ) | (1.9 | ) | ||||||||
| Finance lease creditors | (2.5 | ) | (3.1 | ) | (2.2 | ) | (2.8 | ) | ||||||||
| Total | £ | (235.6 | ) | $ | (297.8 | ) | £ | (205.6 | ) | $ | (261.4 | ) | ||||
Debt Covenants
Under our debt facilities in place as of June 30, 2024, 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 RCF 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 income (loss) excluding depreciation and amortization, interest expense, interest income and income tax expense) for the 12-month period preceding the relevant quarterly testing date and is tested quarterly on a rolling basis, subject to the Initial Facility (as defined in the RCF Agreement) being drawn on the relevant test date. The RCF Financial Covenant does not include a minimum interest coverage ratio or other financial covenants. Covenant testing at June 30, 2024 showed covenant compliance with a net leverage of 3.1x.
The Indenture governing the Senior Secured Notes contains covenants and certain reporting requirements including the requirement to provide the lender, within 60 days after the close of the quarter, unaudited quarterly financial statements with footnote disclosures.
There were no covenant violations in the periods ended June 30, 2024 or June 30, 2023.
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Liens and Encumbrances
As of June 30, 2024, our Senior Secured Notes were 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 six months ended June 30, 2024. As of June 30, 2024 the Company has repurchased an aggregate of 1,193,118 shares of our common stock at an aggregate cost of $12.0 million.
Contractual Obligations
As of June 30, 2024, our contractual obligations were as follows:
| Less than | More than | |||||||||||||||||||
| Contractual Obligations (in millions) | Total | 1 year | 1-2 years | 3-5 years | 5 years | |||||||||||||||
| Operating activities | ||||||||||||||||||||
| Interest on long term debt | $ | 46.8 | $ | 23.4 | $ | 23.4 | $ | - | $ | - | ||||||||||
| Purchase of Vantage machines | 24.6 | 24.6 | - | - | - | |||||||||||||||
| Financing activities | ||||||||||||||||||||
| Revolver repayment | 19.9 | 19.9 | - | - | - | |||||||||||||||
| Senior bank debt - principal repayment | 297.1 | - | 297.1 | - | - | |||||||||||||||
| Finance lease payments | 3.1 | 1.1 | 0.8 | 1.2 | - | |||||||||||||||
| Operating lease payments | 15.5 | 5.2 | 3.7 | 4.2 | 2.4 | |||||||||||||||
| Interest on non-utilisation fees | 0.4 | 0.2 | 0.2 | - | - | |||||||||||||||
| Total | $ | 407.4 | $ | 74.4 | $ | 325.2 | $ | 5.4 | $ | 2.4 | ||||||||||
Off-Balance Sheet Arrangements
As of June 30, 2024, there were no off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, promulgated by the SEC.
Critical Accounting Policies and Accounting Estimates
The preparation of our audited consolidated financial statements in conformity with 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.
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For a discussion of other recently issued accounting standards, and assessments as to their impacts on the Company, see Note 1 “Nature of Operations, Management’s Plans and Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on April 15, 2024
Revenue
Application of GAAP related to the measurement and recognition of revenue requires us to make judgments and estimates. Specifically, complex arrangements with nonstandard terms and conditions may require significant contract interpretation to determine the appropriate accounting. The Company often enters into contracts with customers that consist of a combination of services and products that are accounted for as one or more distinct performance obligations. Management applies judgment in evaluating the contractual terms and conditions that impact the identification of performance obligations and the pattern of revenue recognition. For these arrangements that contain multiple promises, judgement is also required to determine the stand-alone selling price (“SSP”) for each distinct performance obligation. In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP using information that may include market conditions, size of the customer, geography and other observable inputs or, as necessary, unobservable considerations such as historical experience, knowledge of our business and industry and our current or expected selling practices.
Revenue recognition is also impacted by our ability to estimate variable consideration, including, for example, rebates, service-level penalties, and other incentive payments. We consider various factors when making these judgments, including a review of specific transactions, historical experience and market and economic conditions. Evaluations are conducted each quarter to assess the adequacy of the estimates.
Other significant judgments include determining whether the Company is acting as the principal or the agent in a transaction.
The Company recognized service and product revenue of $122.9 million and $15.8 million, respectively, for the six months ended June 30,2024. The Company’s revenue recognition policy, which requires significant judgments and estimates, is fully described in Note 1 “Nature of Operations, Management’s Plans and Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report.
Goodwill Impairment Assessment
In accordance with ASC 350, Intangibles—Goodwill and Other, we allocate goodwill to reporting units based on the reporting unit expected to benefit from the business combination. We evaluate our reporting units on at least an annual basis and, if necessary, reassign goodwill upon reorganization using a relative fair value allocation approach. We determined that we have five reporting units: Virtual Sports, Interactive, Leisure, and two reporting units within our Gaming segment. As of June 30, 2024, total goodwill with the Virtual Sports, Interactive, and two Gaming reporting units is $44.4 million, $1.8 million, $9.2 million, and $2.9 million, respectively. There is no remaining goodwill within the Leisure reporting unit. Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) annually on the last day of our fiscal period or between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit.
Goodwill is reviewed for impairment using either a qualitative assessment or a quantitative one-step process. If we perform a qualitative assessment and determine that the fair value of a reporting unit more likely than not exceeds the carrying value, no further evaluation is necessary. For reporting units where we perform the quantitative test, we are required to compare the fair value of each reporting unit, which we primarily determine using an income approach based on the present value of discounted cash flows, to the respective carrying value, which includes goodwill. If the fair value of the reporting unit exceeds its carrying value, the goodwill is not considered impaired. If the carrying value is higher than the fair value, we recognize an impairment charge for the amount by which the carrying value exceeds the reporting unit’s estimated fair value.
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Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. Performance of the qualitative goodwill assessment requires judgment in identifying and considering the significance of relevant key factors, events and circumstances that affect the fair value or carrying amount of the reporting units. Such events and circumstances that we have considered include macroeconomic conditions, industry specific and market considerations, and reporting unit-specific factors such as overall actual and projected financial performance, among other factors. We also considered the results from the most recent date that a fair value measurement was performed as a part of a quantitative goodwill assessment and specifically the cushion between each reporting unit’s fair value and carrying value. The estimates used to calculate the fair value of a reporting unit as a part of a quantitative goodwill assessment change from year to year based on operating results, market conditions, and other factors. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment, if any, for each reporting unit.
We performed our annual goodwill impairment test as of December 31, 2023 using a qualitative assessment for all of our reporting units. Based on the results of our qualitative impairment assessments, we concluded that it is more likely than not that the fair values of each of our reporting units substantially exceeded their respective carrying values and there were no reporting units requiring further assessment.
Long-lived Assets and Finite-lived Intangible Assets
We evaluate the recoverability of intangible assets and other long-lived assets with finite useful lives by comparing the carrying value of the asset group to the estimated undiscounted future cash flows that we expect the asset to generate if events or changes in circumstances indicate that these assets are not recoverable. If the asset group fails the recoverability test, an impairment loss is measured as the amount by which the carrying amount of the asset group exceeds its fair value. The fair value is determined using a discounted cash flow approach where projections of future cash flows generated by those assets are discounted using an estimated discount rate. Significant judgment is required to estimate the amount and timing of future cash flows and the relative risk of achieving those cash flows. We also make judgments about the remaining useful lives of intangible assets and other long-lived assets that have finite lives. While we believe our estimates of future operating results and projected cash flows are reasonable, any significant adverse changes in key assumptions (i.e., adverse change in the extent or manner in which an asset or asset group is being used or expectation that, more likely than not, an asset or asset group will be sold or otherwise disposed of before the end of its useful life) or adverse changes in economic and market conditions may cause a change in our evaluation of recoverability or our estimation of fair value and could result in an impairment charge that could be material to our financial statements. Any impairment loss shall be allocated to the long-lived assets of the group on a pro rata basis using the relative carrying amounts of those assets, except that the loss allocated to an individual long-lived asset of the group shall not reduce the carrying amount of that asset below its fair value.
Management determined that there were no new indicators of impairment for the six months ended June 30, 2024 and 2023 and the Company concluded that there was no impairment of the Company’s intangible and long-lived assets as of June 30, 2024 and 2023.
Software Development Costs
Software development costs represent costs incurred to develop internal-use software, including software developed to deliver our cloud-based offerings to customers, as well as external-use software to be used in the products we sell, lease or license to customers. Such costs primarily consist of salaries and payroll related costs for employees and external contractors directly involved in the corresponding software development efforts. We determine the appropriate guidance to apply to software development costs on a project-by-project basis, based on the nature of the underlying software.
Certain direct costs incurred to develop new internal-use software, as well as certain software enhancements that provide new functionality, are capitalized once the project has been approved by management and is in the application development stage.
Costs incurred in the preliminary planning stage and the post implementation operational stage are expensed as incurred. Costs incurred in developing external-use software are expensed as incurred until technological feasibility has been established, after which costs are capitalized up to the date the software is available for general release to customers. Technological feasibility is established upon completion of a detailed program design or, in its absence, upon completion of a working model.
The Company must apply judgement in determining the amount of software development costs that should be capitalized. Specifically, we must evaluate, on a project by project basis, whether the resultant product or platform will be completed and generate ongoing economic benefits, principally through revenue from our customers, which is subject to uncertainties.
Once the software is substantially complete or available for general release, capitalized internal-use and external-use software costs are amortized on a straight-line basis over the estimated economic useful life of the software, which ranges from two to five years. There is judgement involved in estimating the useful life of developed software and the two-to-five-year period was determined based on factors such as the continuous development in the technology, obsolescence, and anticipated life of the service offering before significant upgrades. Management evaluates the useful lives of these assets on a recurring basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.
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ITEM 3. 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 ($297.1 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 June 30, 2024.
Excluding intercompany balances, our Euro functional currency net assets total approximately $14.1 million, and our US Dollar functional currency net assets total approximately $6.4 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 June 30, 2024, would result in favorable translation adjustments of approximately $1.3 million and $0.6 million, respectively, recorded in other comprehensive loss.
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 six months ended June 30, 2024, were €6.3 million and $11.6 million, respectively. A hypothetical 10% adverse change in the value of the Euro and the US Dollar relative to GBP as of June 30, 2024, would result in translation adjustments of approximately $0.6 million favorable and $1.1 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 $0.1 million and would result in unfavorable translation adjustments of approximately $9.7 million, recorded in other comprehensive loss.
For further information regarding the new external borrowings, see Note 13 to the Consolidated Financial Statements, “Long Term and Other Debt”.
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 June 30, 2024, 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, 2023, filed with the SEC on April 15, 2024. Management is redesigning and implementing existing and additional controls to remediate these material weaknesses.
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 June 30, 2024, 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
Securities Matters Arising From the Company’s Restated Financial Statements and Related Matters
On March 12, 2024, the Company received a subpoena from the SEC seeking documents concerning, among other things, the Company’s recently restated financial statements. The Company intends to comply with the subpoena and is cooperating with the SEC’s inquiry.
The Company cannot predict the ultimate outcome or timing of the SEC investigation, what if any actions may be taken by the SEC, or the effect that such actions may have on the business, prospects, operating results and financial condition. The resolution of the SEC investigation may result in substantial monetary penalties or settlement costs. However, at this time, Management believes that the ultimate outcome and timing of the SEC investigation remains uncertain and is not estimable given the broad range of potential outcomes.
From time to time, the Company is involved in legal matters arising in the ordinary course of business. While the Company believes that such matters are currently not material, there can be no assurance that matters arising in the ordinary course of business for which the Company is, or could be, involved in litigation, will not have an adverse effect on its 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 Part I, Item 1A of our Annual Report on Form 10-K for our fiscal year ended December 31, 2023, filed with the SEC on April 15, 2024. 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. |
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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: August 8, 2024 | /s/ A. Lorne Weil | |
| Name: | A. Lorne Weil | |
| Title: | Executive Chairman | |
| (Principal Executive Officer) | ||
| Date: August 8, 2024 | /s/ Marilyn Jentzen | |
| Name: | Marilyn Jentzen | |
| Title: | Interim Chief Financial Officer | |
| (Principal Financial and Accounting Officer) | ||
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Exhibit 10.2
DATED: 8th February 2024
| INSPIRED GAMING (UK) LIMITED | (1) |
and
|
|
| SIMONA CAMILLERI | (2) |
EMPLOYMENT CONTRACT
|
PARTIES
| (1) | Inspired Gaming (UK) Limited incorporated and registered in England and Wales with company number 03565640 whose registered office is at First Floor, 107 Station Street, Burton Upon Trent, Staffordshire, DE14 1SZ (Company). |
| (2) | The Employee as per Schedule 1 (“You”). |
AGREED TERMS
| 1. | INTERPRETATION |
| 1.1 | The definitions and rules of interpretation in this clause 1 apply in this agreement. |
Capacity: as agent, consultant, director, employee, owner, partner, shareholder or in any other capacity.
Commencement Date: See Schedule 1.
Confidential Information: information (whether or not recorded in documentary form, or stored on any magnetic or optical disk or memory) relating to the business, products, affairs and finances of the Company or any Group Company for the time being confidential to the Company or any Group Company and trade secrets including, without limitation, technical data and know-how relating to the business of the Company or of any Group Company or any of their suppliers, clients, customers, agents, distributors, shareholders or management such as price lists, rental lists, terms of business, customer details and locations that you create, develop, receive or obtain in connection with the Employment, whether or not such information (if in anything other than oral form) is marked confidential.
Copies: copies or records of any Confidential Information in whatever form (including, without limitation, in written, oral, visual or electronic form or on any magnetic or optical disk or memory and wherever located) including, without limitation, extracts, analysis, studies, plans, compilations or any other way of representing or recording and recalling information which contains, reflects or is derived or generated from Confidential Information.
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Employment: your employment by the Company on the terms of this agreement.
Employment IPRs: Intellectual Property Rights created by you in the course of your employment with the Company (whether or not during working hours or using the premises or resources of the Company) including but not limited to any rights related to gambling and lottery services, server-based gaming, virtual sports betting, electronic table gaming, licensing of gaming software, sale, rental and lease of gaming machines and equipment, provision of betting and lottery content, video lottery terminals, ticket dispensing apparatus and distribution of betting and lottery content online or via mobile, remote and field support related to the provision of the aforementioned and anything ancillary which is materially similar to such goods and services.
Employment Inventions: any Invention which is made wholly or partially by you at any time during the course of your employment with the Company (whether or not during working hours or using premises or resources or the Company, and whether or not recorded in material form).
Garden Leave: any period during which the Company has exercised its rights under clause 16.
Group Company: the Company, any company of which it is a Subsidiary (its holding company) and any Subsidiaries of the Company or of any such holding company.
Incapacity: any sickness, injury or other medical disorder or condition which prevents you from carrying out your duties.
Intellectual Property Rights: patents, rights to inventions, copyright and related rights, trademarks, trade names and domain names, rights in get-up, rights in goodwill or to sue for passing off, unfair competition rights, rights in designs, rights in computer software, database rights, topography rights, rights in confidential information (including know-how and trade secrets) and any other intellectual property rights, in each case whether registered or unregistered and including all applications (or rights to apply) for, and renewals or extensions of, such rights and all similar or equivalent rights or forms of protection which subsist or will subsist now or in the future in any part of the world.
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Invention: any invention, idea, discovery, development, improvement or innovation, whether or not patentable or capable of registration, and whether or not recorded in any medium.
Pre-Contractual Statement: any undertaking, promise, assurance, statement, representation, warranty or understanding (whether in writing or not) of any person (whether party to this agreement or not) relating to your employment under this agreement other than as expressly set out in this agreement or any documents referred to in it.
Restricted Business: the business of gambling and lottery services, server-based gaming, virtual sports betting, electronic table gaming, licensing of gaming software, sale, rental and lease of gaming machines and equipment, provision of betting and lottery content, video lottery terminals, ticket dispensing apparatus and distribution of betting and lottery content online or via mobile, remote and field support and development related to the provision of the aforementioned and anything ancillary which is materially similar to such goods and services and any other business of the Company from time to time or those parts of the business of the Company and any Group Company with which you were involved to a material extent in the six months before Termination.
Restricted Customer: any firm, company or person who, during the six month(s) before Termination, was a customer or prospective customer of or was in the habit of dealing with the Company or any Group Company with whom you had contact or management responsibility for or about whom you became aware or informed in the course of your Employment or regarding whom you had access to confidential information.
Restricted Person: anyone employed or engaged by the Company or any Group Company at a management level or in a sales, business development, finance, IT operations or development role who could materially damage the interests of the Company or any Group Company if they left their employment or were involved in any Capacity in any business concern which competes with any Restricted Business and with whom you dealt or had personal contact within the six month(s) before Termination in the course of your employment but excluding anyone employed solely in an administrative, clerical or unskilled manual role.
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Staff Handbook: the staff handbook of the Company as amended from time to time.
Subsidiary and Holding Company: mean a “subsidiary” and “holding company” as defined in section 1159 of the Companies Act 2006 and a company shall be treated, for the purposes only of the membership requirement contained in subsections 1159(1)(b) and (c) as a member of another company even if its shares in that other company are registered in the name of (a) another person (or its nominee), whether by way of security or in connection with the taking of security, or (b) a nominee.
Termination: the termination (including the termination date) of your Employment with the Company however caused.
| 1.2 | The headings in this agreement are inserted for convenience only and shall not affect its construction. |
| 1.3 | A reference to a particular law is a reference to it as it is in force for the time being taking account of any amendment, extension, or re-enactment and includes any subordinate legislation for the time being in force made under it. |
| 1.4 | Unless the context otherwise requires, a reference to one gender shall include a reference to the other genders. |
| 1.5 | Unless the context otherwise requires, words in the singular include the plural and in the plural include the singular. |
| 1.6 | The schedules to this agreement form part of (and are incorporated into) this agreement. |
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| 2. | TERM OF APPOINTMENT |
| 2.1 | Your Employment commenced on the Commencement Date and shall continue, subject to the remaining terms of this agreement, until terminated by either party giving the other not less than the notice period specified in Schedule 1. Your date of commencement of continuous Employment, if different is as stated in Schedule 1. |
| 2.2 | The first six months of your Employment shall be a probationary period and the Employment may be terminated during this period at any time on one week’s notice or payment in lieu of notice. The Company may, at its discretion, extend the probationary period. During the probationary period your performance and your suitability for continued employment will be monitored. The probationary period continues until you have been informed in writing that you have successfully completed your probationary period. |
| 3. | EMPLOYEE WARRANTIES |
| 3.1 | You represent and warrant to the Company that, by entering into this agreement or performing any of your obligations under it, you will not be in breach of any court order or any express or implied terms of any contract or other obligation binding on you and you undertake to indemnify the Company against any claims, costs, damages, liabilities or expenses which the Company may incur as a result if you are in breach of any such obligations. |
| 3.2 | You also warrant and represent that you are entitled to work in the United Kingdom without any additional approvals and will notify the Company immediately if you cease to be so entitled during the Employment. |
| 4. | DUTIES |
| 4.1 | You shall serve the Company in the role detailed in Schedule 1 or such other role and with such duties as the Company considers appropriate from time to time. |
| 4.2 | During your Employment you shall: |
| (a) | unless prevented by Incapacity, devote the whole of your time, attention and abilities to the business of the Company (and any Group Company) as required; |
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| (b) | faithfully and diligently exercise such powers and perform such duties as may from time to time be assigned to you; |
| (c) | comply with all reasonable and lawful directions given to you; |
| (e) | report your own wrongdoing and any wrongdoing or proposed wrongdoing of any other employee or director of any Group Company to the HR director or General Counsel immediately on becoming aware of it; |
| (f) | use your best endeavours to promote, protect, develop and extend the business of the Company; and |
| (g) | consent to the Company monitoring and recording any electronic communications or other systems the Company has for the purpose of ensuring that any rules the Company has are being complied with or for any other legitimate business purpose. |
| 4.3 | You shall comply with any and all anti-corruption, conflict of interest, hospitality and gifts and bribery policy(ies) and related procedures of the Company at all times. |
| 4.4 | You shall comply with any rules, policies and procedures set out in the Staff Handbook a copy of which is available from HR and has been given to you (and is also available on the Company intranet). The Staff Handbook does not form part of this agreement and the Company may amend it at any time. To the extent that there is any conflict between the terms of this agreement and the Staff Handbook, this agreement shall prevail. |
| 4.5 | All documents, manuals, hardware and software provided for your use by the Company, and any data or documents (including copies) produced, maintained or stored on the computer systems of the Company or other electronic equipment (including mobile phones), remain the property of the Company. |
| 4.6 | As a global business, the Group is obliged to comply with the gaming laws in all territories and jurisdictions in which the Group operates (and is regulated by) from time to time. You have a duty to comply with all relevant gaming laws and to keep your manager informed if you are aware of any other employee having breached any of these laws and/or regulations. |
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| 5. | PLACE OF WORK |
| 5.1 | Your normal place of work is as detailed in Schedule 1 or such other place on a temporary or permanent basis as the Company may reasonably require. |
| 5.2 | You agree to travel on any business of the Company (both within the United Kingdom or abroad) as may be required for the proper performance of your duties. |
| 5.3 | Unless expressly stated otherwise in Schedule 1 during the Employment you shall not be required to work outside the United Kingdom for any continuous period of more than one month. |
| 6. | HOURS OF WORK |
| 6.1 | Your normal working hours shall be as detailed in Schedule 1 together with such additional hours as are necessary for the proper performance of your duties including varied shifts, nights and weekend work where required. You acknowledge that you shall not receive further remuneration in respect of additional hours unless expressly agreed in writing in advance. |
| 7. | SALARY |
| 7.1 | You shall be paid an initial salary as detailed in Schedule 1. |
| 7.2 | Your salary shall accrue from day to day and be payable monthly in arrears on or about the 27th day of the month directly into your bank or building society. Where the 27th is a weekend or bank holiday you will be paid on the Friday before the weekend/bank holiday. |
| 7.3 | Your salary may be reviewed annually, the first such review to take place not less than one year after Commencement at the time of any Company-wide review (usually early in the calendar year). The Company is under no obligation to award an increase following a Salary review. There will be no review of the Salary after notice has been given by either party to terminate the Employment. |
| 7.4 | The Company may deduct from the salary any money owed to any Group Company by the Employee. |
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| 8. | EXPENSES |
| 8.1 | The Company shall reimburse (or procure the reimbursement of) all reasonable expenses wholly, properly and necessarily incurred in the course of your Employment, subject to production of VAT receipts or other appropriate evidence of payment and the policies of the Company on expenses as communicated to you from time to time and/or as set out in the Staff Handbook. |
| 8.2 | Any credit card supplied by the Company shall be used only for expenses incurred by you in the course of the Employment. |
| 9. | HOLIDAYS |
| 9.1 | You shall be entitled to the number of days’ paid holiday in each holiday year set out in Schedule 1. The holiday year of the Company runs between 1st January and 31st December. If the Employment commences or terminates part way through a holiday year, your entitlement during that holiday year shall be calculated on a pro-rata basis. |
| 9.2 | Holiday shall be taken at such time or times as shall be approved in advance by your manager. You shall not without the consent of your manager carry forward any accrued but untaken holiday entitlement to a subsequent holiday year. |
| 9.3 | You shall have no entitlement to payment in lieu of accrued but untaken holiday except on termination. The amount of such payment in lieu shall be 1/260th of your (full-time equivalent) salary for each untaken day of the entitlement for the holiday year in which Termination takes place. No days may be carried forward from the preceding holiday year for this purpose. |
| 9.4 | If on Termination you have taken in excess of your accrued holiday entitlement, the Company shall be entitled to recover from you by way of deduction from any payments due to you, or otherwise, one day’s pay calculated at 1/260th of the (full-time equivalent) salary for each excess day. |
| 9.5 | If either party has served notice to terminate the Company may require you to take any accrued but unused holiday entitlement during the notice period. Any accrued but unused holiday entitlement shall be deemed to be taken during any period of Garden Leave. |
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| 10. | INCAPACITY |
| 10.1 | Subject to your compliance with the sickness absence procedures of the Company (as amended from time to time), if you continue to receive payment and benefits (other than statutory sick pay) during any period of absence due to Incapacity this is entirely at the discretion of the Company. Any indicative potential entitlements are included in Schedule 1 and any payments shall be inclusive of any statutory sick pay due in accordance with applicable legislation in force at the time of absence. |
| 10.2 | If your pay during any period of Incapacity is reduced or you are paid SSP only, the level of contributions in respect of your membership of the Inspired Gaming Group Pension Scheme may continue, subject to the relevant pension scheme rules in force at the time of absence. |
| 10.3 | You agree to consent to medical examinations (at the expense of the Company) by a doctor nominated by the Company should the Company so require. You agree that any report produced in connection with any such examination may be disclosed to the Company and the Company may discuss the contents of the report with the relevant doctor. |
| 10.4 | If the Incapacity is or appears to be occasioned by actionable negligence, nuisance or breach of any statutory duty on the part of a third party in respect of which damages are or may be recoverable, you shall immediately notify HR of that fact and of any claim, compromise, settlement or judgment made or awarded in connection with it and all relevant particulars that the Company may reasonably require. You shall, if required, refund to the Company that part of any damages or compensation recovered relating to the loss of earnings for the period of the Incapacity as the Company may reasonably determine less any costs borne in connection with the recovery of such damages or compensation, provided that the amount to be refunded shall not exceed the total amount paid to you by the Company in respect of the period of Incapacity. |
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| 10.5 | The rights of the Company to terminate your Employment under the terms of this agreement apply even when such termination would or might cause you to forfeit any entitlement to sick pay, insurance or other benefits. |
| 11. | OUTSIDE INTERESTS |
| 11.1 | Subject to clause 11.2, during your employment you shall not, except as a representative of the Company or with prior written approval, whether paid or unpaid, be directly or indirectly engaged, concerned or have any financial interest in any Capacity in any other business, trade, profession or occupation (or the setting up of any business, trade, profession or occupation). |
| 11.2 | Notwithstanding clause 11.1, you may hold an investment by way of shares or other securities of not more than 5% of the total issued share capital of any company (whether or not it is listed or dealt in on a recognised stock exchange) where such company does not carry on a business similar to or competitive with any business for the time being carried on by any Group Company. |
| 11.3 | You agree to disclose to the Company any matters relating to your spouse or civil partner (or anyone living as such), children or parents which may, in the reasonable opinion of the Company, be considered to interfere, conflict or compete with the proper performance of your obligations under this agreement. |
| 12. | CONFIDENTIAL INFORMATION |
| 12.1 | Without prejudice to your common law duties, you shall not (except in the proper course of your duties, as authorised or required by law or as authorised by senior management, either during your Employment or at any time after Termination (howsoever arising)): |
| (a) | use any Confidential Information; or | |
| (b) | make or use any Copies; or | |
| (c) | disclose any Confidential Information to any person, company or other organisation whatsoever. |
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| 12.2 | The restriction in clause 12.1 does not apply to any Confidential Information which is or becomes in the public domain other than through unauthorised disclosure by you. |
| 12.3 | You shall be responsible for protecting the confidentiality of the Confidential Information and shall: |
| (a) | use your best endeavours to prevent the use or communication of any Confidential Information by any person, company or organisation (except in the proper course of his duties, as required by law or as authorised by the Company; and |
| (b) | inform the Company immediately upon becoming aware, or suspecting, that any such person, company or organisation knows or has used any Confidential Information. |
| 12.4 | All Confidential Information and Copies shall be the property of the Company and shall be handed over to HR or other nominated person by you on Termination, or at the request of the Company, at any time during your Employment. |
| 13. | PREVENTION OF THE FACILITATION OF TAX EVASION |
| 13.1 | You must take a zero-tolerance approach to tax evasion. You must not engage in any form of facilitating tax evasion, whether under UK law or under the law of any foreign country. You must immediately report to the General Counsel or the Chief Financial Officer any request or demand from a third party to facilitate the evasion of tax, or any concerns that such a request or demand may have been made. |
| 13.2 | You must at all times comply with anti-facilitation of tax evasion policy, a copy of which is available on our intranet and as may be updated from time to time. Failure to do so will be treated as a disciplinary matter and may result in the immediate termination of your employment. |
| 14. | INTELLECTUAL PROPERTY |
| 14.1 | You shall give the Company full written details of all Inventions and of all works embodying Intellectual Property Rights made wholly or partially by you at any time during the course of your Employment which relate to, or are capable of being used in, the business of any Group Company. You acknowledge that all Intellectual Property Rights subsisting (or which may in the future subsist) in all such Inventions and works shall automatically, on creation, vest in the Company absolutely. To the extent that they do not vest automatically, you hold them on trust for the Company. You agree promptly to execute all documents and do all acts as may, in the opinion of the Company, be necessary to give effect to this clause 13.1. |
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| 14.2 | You hereby irrevocably waive all moral rights under the Copyright, Designs and Patents Act 1988 (and all similar rights in other jurisdictions) which you have or will have in any existing or future works referred to in clause 13.1. |
| 14.3 | You hereby irrevocably appoint the Company to be your attorney to execute and do any such instrument or thing and generally to use your name for the purpose of giving the Company or its nominee the benefit of this clause 13. You acknowledge in favour of a third party that a certificate in writing signed by the Company that any instrument or act falls within the authority conferred by this clause 13 shall be conclusive evidence that such is the case. |
| 14.4 | Any additional Intellectual Property provisions are contained in Schedule 3. |
| 15. | PAYMENT IN LIEU OF NOTICE |
| 15.1 | Notwithstanding clause 2, the Company may, in its sole and absolute discretion, terminate the Employment at any time and with immediate effect by paying a sum in lieu of notice (Payment in lieu) equal to the basic salary (as at Termination) which you would have been entitled to receive under this agreement during the notice period referred to in Schedule 1 (or, if notice has already been given, during the remainder of the notice period) less income tax and National Insurance contributions. For the avoidance of doubt, the Payment in lieu shall not include any element in relation to: |
| (a) | any bonus or commission payments that might otherwise have been due during the period for which the Payment in lieu is made; |
| (b) | any payment in respect of benefits which you would have been entitled to receive during the period for which the Payment in lieu is made; and |
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| (c) | any payment in respect of any holiday entitlement that would have accrued during the period for which the Payment in lieu is made. |
| 15.2 | You shall have no right to receive a Payment in lieu unless the Company has exercised its discretion in clause 14.1. Nothing in this clause 14 shall prevent the Company from terminating your Employment in breach. |
| 16. | TERMINATION WITHOUT NOTICE |
| 16.1 | The Company may also terminate your Employment with immediate effect without notice and with no liability to make any further payment to you (other than in respect of amounts accrued due at the date of Termination) if you: |
| (a) | are guilty of any gross misconduct whether directly affecting the business of any Group Company or otherwise; or |
| (b) | commit any serious or repeated breach or non-observance of any of the provisions of this agreement or refuses or neglects to comply with any reasonable and lawful directions; or |
| (c) | are, in the reasonable opinion of the Company, grossly negligent and/or incompetent in the performance of your duties; or |
| (d) | are declared bankrupt or make any arrangement with or for the benefit of his creditors or has a county court administration order made against him under the County Court Act 1984; or |
| (e) | are convicted of any criminal offence (including, potentially, any traffic offence; or |
| (f) | cease to hold any professional qualification required as per Schedule 1; or |
| (g) | become of unsound mind (which includes lacking capacity under the Mental Capacity Act 2005), or a patient under any statute relating to mental health; or |
| (h) | cease to be eligible to work in the United Kingdom; or |
| (i) | are guilty of any fraud or dishonesty or act or fail to act in any other manner which in the opinion of the Company brings or is likely to or could bring any Group Company into disrepute or is materially adverse to the interests of any Group Company; or |
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| (j) | breach the Gambling Act or any other gaming legislation whether in the UK or in other territories in which the Group operates and/or any associated licence conditions or codes of practice; or |
| (k) | are guilty of a serious breach of any rules issued by the Company from time to time (including regarding its electronic communications systems). |
| 16.2 | The rights of the Company under clause 15.1 are without prejudice to any other rights that it might have at law to terminate the Employment or to accept any breach of this agreement by you as having brought the agreement to an end. Any delay by the Company in exercising it rights to terminate shall not constitute a waiver thereof. |
| 17. | GARDEN LEAVE |
| 17.1 | Following service of notice to terminate being given by either party, or if you purport to Terminate the Employment in breach of contract, the Company may by written notice place you on Garden Leave for the whole or part of the remainder of your Employment. |
| 17.2 | During any period of Garden Leave: |
| (a) | The Company shall be under no obligation to provide any work to you and may revoke any powers you hold on behalf of the Company or any Group Company; |
| (b) | The Company may require you to carry out alternative duties or to only perform such specific duties as are expressly assigned to you, at such location (including your home) as the Company may decide; |
| (c) | You shall continue to receive your basic salary and all contractual benefits in the usual way and subject to the terms of any benefit arrangement; |
| (d) | You shall remain an employee of the Company and bound by the terms of this agreement; |
| (e) | You shall ensure that your manager and HR know where you will be and how you can be contacted during each working day (except during any periods taken as holiday in the usual way); |
| (f) | The Company may exclude you from any premises of any Group Company; and |
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| (g) | The Company may require you not to contact or deal with (or attempt to contact or deal with) any officer, employee, consultant, client, customer, supplier, agent, distributor, shareholder, adviser or other business contact of any Group Company. |
| 18. | OBLIGATIONS UPON TERMINATION |
| 18.1 | On Termination (however arising) or, if earlier, at the start of a period of Garden Leave following the service of notice or Termination, purported or otherwise, by you, you shall: |
| (a) | subject to clause 17.2 if applicable, immediately deliver to the Company all documents, books, materials, records, correspondence, papers and information (on whatever media and wherever located) relating to the business or affairs of any Group Company or their business contacts, any keys, credit card and any other property of any Group Company including any car or other asset provided to you, which is in your possession or under your control; |
| (b) | irretrievably delete any information relating to the business of any Group Company stored on any magnetic or optical disk or memory and all matter derived from such sources which is in your possession or under your control outside the premises of the Company; and |
| (c) | provide a signed statement that you have complied fully with your obligations under this clause 17.1 together with such reasonable evidence of compliance as the Company may request. |
| 18.2 | Where you have been placed on Garden Leave you shall not be required by clause 17.1 to return until the end of the Garden Leave period any property provided to you as a contractual benefit for personal use. |
| 18.3 | You hereby irrevocably appoint the Company to be your attorney to execute and do any such instrument or thing and generally to use your name for the purpose of giving the Company or its nominee the full benefit of clause 17.1(a). |
| 18.4 | Where termination is due to redundancy, entitlement to redundancy will be in line with statutory entitlement. |
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| 18.5 | On Termination however arising you shall not be entitled to any compensation for the loss of any rights or benefits under any share option, bonus, long-term incentive plan or other profit sharing scheme, if any, operated by any Group Company in which you may participate. |
| 18.6 | You will comply with the part termination restrictions contained in Schedule 2. |
| 19. | DISCIPLINARY AND GRIEVANCE PROCEDURES |
| 19.1 | You are subject to the disciplinary and grievance procedures of the Company, copies of which are available from HR. These procedures do not form part of your contract of employment. |
| 19.2 | If you want to raise a grievance, you may apply in writing to HR in accordance with the grievance procedure of the Company. |
| 19.3 | If you wish to appeal against a disciplinary or grievance decision you may apply in writing to HR in accordance with the procedure of the Company. |
| 19.4 | The Company may suspend you from any or all of your duties where appropriate during any period in which the Company is investigating any disciplinary, grievance or other matter. |
| 19.5 | During any period of suspension: |
| (a) | you shall continue to receive your basic salary and all contractual benefits in the usual way; |
| (b) | you shall remain an employee of the Company and bound by the terms of this agreement; |
| (c) | you shall ensure that HR knows where you will be and how you can be contacted during each working day (except during any periods taken as holiday in the usual way); |
| (d) | the Company may exclude you from your place of work or any other premises of the Company or any Group Company; and |
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| (e) | the Company may require you not to contact or deal with (or attempt to contact or deal with) any officer, employee, consultant, client, customer, supplier, agent, distributor, shareholder, adviser or other business contact of the Company or any Group Company. |
| 20. | PENSIONS |
| 20.1 | You will be auto enrolled into the Inspired Gaming UK Ltd Group Pension of the Company (or such other, if any, registered pension scheme as you may be invited participate in as may be established by the Company (Scheme(s)) subject to the rules of the Scheme(s) and the tax reliefs and exemptions available from HM Revenue & Customs, in both cases as amended from time to time. Full details of your entitlements, if any, are in Schedule 1 and full details of the Scheme(s) are available from HR. Contributions made into the pension scheme will be made via salary exchange unless this would mean that your salary would fall below National Minimum Wage levels, contributions would then be taken on a Net deduction basis. Further details on salary exchange are available from the HR Department. |
| 20.2 | You shall pay such contributions to the Scheme as may be required by the rules of the Scheme as amended from time to time unless this means your salary drops below the minimum wage. |
| 20.3 | Subject to the statutory minimum and HM Revenue & Customs requirements the Company may vary the Scheme at any time. |
| 20.4 | A contracting-out certificate is not in force in respect of your Employment. |
| 21. | DATA PROTECTION |
| 21.1 | We will collect and process information relating to you in accordance with the privacy notice which is on the intranet. You confirm that you have read and understand the data protection policy of the Company, a copy of which is available from HR or the Data Protection Officer. The Company will make changes to its data protection policy but will notify employees in of significant changes. |
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| 21.2 | You shall comply with the data protection policy when processing personal data in the course of employment including personal data relating to any employee, customer, client, supplier or agent of any Group Company. |
| 21.3 | Failure to comply with the data protection policy referred to in clause 20.2, may be dealt with under our disciplinary procedure and, in serious cases, may be treated as gross misconduct leading to summary dismissal. |
| 22. | COLLECTIVE AGREEMENTS |
| 22.1 | There is no collective agreement which directly affects your Employment. |
| 23. | LAY OFF AND SHORT-TIME WORKING |
| 23.1 | In the event of a temporary reduction of work, the Company reserves the right to lay you off without pay or alternatively reduce your working hours with a proportionate reduction in pay, save for any guarantee payment to which you may be entitled. |
| 24. | RECONSTRUCTION AND AMALGAMATION |
| 24.1 | If your Employment is terminated at any time by reason of any reconstruction or amalgamation of any Group Company, whether by winding up or otherwise, and you are offered employment with any concern or undertaking involved in or resulting from the reconstruction or amalgamation on terms which (considered in their entirety) are no less favourable to any material extent than the terms of this agreement, you shall have no claim against the Company or any other undertaking arising out of or connected with such termination. |
| 24.2 | You consent to the transfer of your Employment under this agreement to an Associated Employer at any time during your Employment. |
| 25. | NOTICE |
| 25.1 | A notice given to a party under this agreement shall be in writing in the English language and signed by or on behalf of the party giving it. It shall be delivered by hand or sent to the party at the address or fax number given in this agreement or as otherwise notified in writing to the other party. |
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| 25.2 | Any such notice shall be deemed to have been received: |
| (a) | if delivered by hand, at the time the notice is left at the address or given to the addressee; or |
| (b) | in the case of pre-paid first class UK post or other next working day delivery service, at 9.00 am two business days after posting or at the time recorded by the delivery service; or |
| (c) | in the case of fax, at the time of transmission. |
| 25.3 | A notice shall have effect from the earlier of its actual or deemed receipt by the addressee. For the purpose of calculating deemed receipt: |
| (a) | all references to time are to local time in the place of deemed receipt; and |
| (b) | if deemed receipt would occur on a Saturday or Sunday or a public holiday when banks are not open for business, deemed receipt is at 9.00 am on the next business day. |
| 25.4 | A notice required to be given under this agreement shall not be validly given if sent by e-mail. |
| 25.5 | This clause does not apply to the service of any proceedings or other documents in any legal action. |
| 26. | ENTIRE AGREEMENT |
| 26.1 | This agreement (and any document referred to in it) constitutes the whole agreement between the parties (and in the case of the Company, as agent for any Group Companies) and supersedes any previous arrangement, understanding or agreement between them relating to the subject matter of this agreement. |
| 26.2 | Each party warrants to the other parties that, in entering into this agreement (and any document referred to in it), it does not rely on any statement, representation, assurance or warranty of any person (whether a party to this agreement or not) other than as expressly set out in this agreement (or those documents). |
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| 26.3 | Each party agrees and undertakes to the other parties that the only rights and remedies available to it arising out of or in connection with this agreement or its subject matter shall be solely for breach of contract, in accordance with the provisions of this agreement. |
| 26.4 | Nothing in this clause 25 shall limit or exclude any liability for fraud. |
| 27. | VARIATION |
No variation of this agreement shall be effective unless it is in writing and notified to you. Any material adverse changes will normally need to be signed by the parties (or their authorised representatives).
| 28. | COUNTERPARTS |
This agreement may be executed in any number of counterparts, each of which, when executed and delivered, shall be an original, and all the counterparts together shall constitute one and the same instrument.
| 29. | THIRD PARTY RIGHTS |
No person other than a party to this agreement or a Group Company may enforce any of its terms.
| 30. | GOVERNING LAW |
| 30.1 | This agreement and any dispute or claim arising out of or in connection with it or its subject matter or formation (including non-contractual disputes or claims) shall be governed by and construed in accordance with the law of England and Wales. |
| 30.2 | The parties irrevocably agree to submit to the exclusive jurisdiction of the courts of England and Wales over any claim or matter arising under or in connection with this agreement or its subject matter or formation (including non-contractual disputes or claims). |
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This agreement has been entered into on the date stated at the beginning of this agreement.
| Executed as a deed by Inspired Gaming (UK) Limited by a director in the presence of: | ||
| SIGNATURE OF WITNESS /s/ Carys Damon | Director /s/ Brooks Pierce | |
| NAME OF WITNESS: CARYS DAMON | Name of Director: BROOKS PIERCE | |
| ADDRESS OF WITNESS: | ||
| OCCUPATION OF WITNESS: GENERAL COUNSEL |
| Signed as a deed by the Employee | ||
| in the presence of: | /s/ Simona Camilleri |
| /s/ David Julian Alexander Mautner | ||
| SIGNATURE OF WITNESS | ||
| NAME OF WITNESS: David Julian Alexander Mautner | ||
| ADDRESS OF WITNESS: | ||
| OCCUPATION OF WITNESS: Entrepreneur |
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SCHEDULE 1
Personal Employment Terms
Simona Camilleri, whose address is at (Employee).
| Job title: | General Counsel | |
| Reporting to: | Brooks Pierce, President, and Chief Executive Officer | |
| Place of work: | Homebased | |
| Normal Hours: | 37.5 Hours per week | |
| Date of commencement: | 1 May 2024 | |
| Salary: | £250,000 per annum | |
| Pension: | Inspired Gaming UK Ltd Group Pension - 15% Employer contribution | |
| Holiday Entitlement: | 25 days per annum plus Statutory Bank Holidays |
| Notice: | You are required to give 6 months’ notice of termination of employment to the Company. | |
| The Company is required to give 6 months’ notice. |
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PRIVATE MEDICAL INSURANCE
1. 100% funded by the company, you and your family shall be entitled to participate in the private medical insurance scheme of the Company subject to: (a) the terms of that scheme, as amended from time to time; (b) the rules or the insurance policy of the relevant insurance provider, as amended from time to time; and (c) you satisfying the normal underwriting requirements of the relevant insurance provider and the premium being at a rate which the Company considers reasonable. Full details of the scheme are available from HR.
2. If the insurance provider refuses for any reason to provide private medical insurance benefit to you, the Company shall not be liable to provide to the Employee any replacement benefit of the same or similar kind or to pay any compensation in lieu of such benefit.
3. The Company in its sole and absolute discretion reserves the right to discontinue, vary or amend the scheme (including the level of cover provided) at any time on reasonable notice
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SCHEDULE 2
Post-Termination Restrictions
| 1. | In order to protect the Confidential Information, trade secrets and business connections of the Company and each Group Company to which you have access as a result of your Employment, you covenant with the Company (for itself and as trustee and agent for each Group Company) that you shall not: |
| (a) | for 6 month(s) after Termination solicit or endeavour to entice away from the Company or any Group Company the business or custom of a Restricted Customer with a view to providing goods or services to that Restricted Customer in competition with any Restricted Business; or |
| (b) | for 6 month(s) after Termination in the course of any business concern which is in competition with any Restricted Business, offer to employ or engage or otherwise endeavour to entice away from the Company or any Group Company any Restricted Person; or |
| (c) | for 6 month(s) after Termination, be involved in any Capacity with any business concern which is (or intends to be) in competition with any Restricted Business; or |
| (d) | for 6 month(s) after Termination, be involved with the provision of goods or services to (or otherwise have any business dealings with) any Restricted Customer in the course of any business concern which is in competition with any Restricted Business; or |
| (e) | at any time after Termination, represent yourself as connected with the Company or any Group Company in any Capacity; or |
| (f) | for 6 months after Termination have any dealings with any supplier, partner; or other business doing business with the Company or any Group Company such that these dealings do or could cause such other entity to materially adversely affect the terms of business which they have with the Company or any other Group Company. |
| 2. | None of the restrictions in clause 1 of this Schedule shall prevent you from: |
| (a) | holding an investment by way of shares or other securities of not more than 5% of the total issued share capital of any company, whether or not it is listed or dealt in on a recognised stock exchange; or |
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| (b) | being engaged or concerned in any business concern insofar as your duties or work shall relate solely to geographical areas where (i) you have had no dealings, (ii) you have had no responsibility, or (iii) about which you have had no Confidential Information in the 6 months before Termination or the business concern is not in competition with any Restricted Business; or |
| (c) | being engaged or concerned in any business concern, provided that your duties or work shall relate solely to services or activities of a kind with which you were not concerned to a material extent and did not have Confidential Information regarding in the 6 months before Termination. |
| 3. | The restrictions imposed on you by this clause apply to you acting in any Capacity: |
| (a) | directly or indirectly; and |
| (b) | on your own behalf or on behalf of, or in conjunction with, any firm, company or person. |
| 4. | The periods for which the restrictions in clause 1 apply shall be reduced by any period that you spend on Garden Leave immediately before Termination. |
| 5. | If you receive an offer to be involved in a business concern in any Capacity during your Employment, or before the expiry of the last of the covenants in this clause, you shall give the person making the offer a copy of this clause and shall tell the Company the identity of that person as soon as possible after accepting the offer. |
| 6. | The Company and you entered into the restrictions in this clause having had the opportunity to be separately legally advised. |
| 7. | Each of the restrictions in this clause are intended to be separate and severable. If any of the restrictions shall be held to be void but would be valid if part of their wording were deleted, such restriction shall apply with such deletion as may be necessary to make it valid or effective. |
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| 8. | You will, at the request and expense of the Company, enter into a separate agreement with any Group Company in which you agree to be bound by restrictions corresponding to those restrictions in this clause (or such of those restrictions as the Company deems appropriate) in relation to that Group Company. |
SCHEDULE 3
Intellectual Property
| 1 | INTELLECTUAL PROPERTY |
| 1.1 | The definitions and rules of interpretation in the contract of employment apply in this Schedule. |
| 1.2 | You acknowledge that all Employment IPRs, Employment Inventions and all materials embodying them shall automatically belong to the Company to the fullest extent permitted by law. To the extent that they do not vest in the Company automatically, you hold them on trust for the Company. |
| 1.3 | You acknowledge that, because of the nature of your duties and the particular responsibilities arising from the nature of your duties, you have, and shall have at all times while you are employed by the Company, a special obligation to further the interests of the Company. |
| 1.4 | To the extent that legal title in any Employment IPRs or Employment Inventions does not vest in the Company by virtue of clause 1.2, you agree, immediately on creation of such rights and Inventions, to offer them to the Company in writing. You agree that the provisions of this clause 1 shall apply to all Employment IPRs and Employment Inventions offered to the Company under this clause 1.4 until such time as the Company has agreed in writing that you may offer them for sale to a third party. |
| 1.5 | You agree |
| (a) | to give the Company full written details of all Employment Inventions which relate to or are capable of being used in the business of any Group Company promptly on their creation; |
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| (b) | at the Company’s request and in any event on the termination of your employment to give to the Company all originals and copies of correspondence, documents, papers and records on all media which record or relate to any of the Employment IPRs; |
| (c) | not to attempt to register any Employment IPR nor patent any Employment Invention unless requested to do so by the Company; and |
| (d) | to keep confidential each Employment Invention unless the Company has consented in writing to its disclosure by you. |
| 1.6 | You waive all your present and future moral rights which arise under the Copyright Designs and Patents Act 1988, and all similar rights in other jurisdictions relating to any copyright which forms part of the Employment IPRs, and agree not to support, maintain or permit any claim for infringement of moral rights in such copyright works. |
| 1.7 | You acknowledge that, except as provided by law, no further remuneration or compensation other than that provided for in this agreement is or may become due to you in respect of your compliance with this clause. This clause is without prejudice to your rights under the Patents Act 1977. |
| 1.8 | You undertake to use your best endeavours to execute all documents and do all acts both during and after your employment by the Company as may, in the opinion of the Company, be necessary or desirable to vest the Employment IPRs in the Company, to register them in the name of the Company and to protect and maintain the Employment IPRs and the Employment Inventions. Such documents may, at the Company’s request, include waivers of all and any statutory moral rights relating to any copyright works which form part of the Employment IPRs. The Company agrees to reimburse your reasonable expenses of complying with this Schedule. |
| 1.9 | You agree to give all necessary assistance to the Company to enable it to enforce its Intellectual Property Rights against third parties, to defend claims for infringement of third party Intellectual Property Rights and to apply for registration of Intellectual Property Rights, where appropriate throughout the world, and for the full term of those rights. |
| 1.10 | You hereby irrevocably appoint the Company to be your attorney in your name and on your behalf to execute documents, use your name and do all things which are necessary or desirable for the Company to obtain for itself or its nominee the full benefit of this clause. You acknowledge that a certificate in writing, signed by any director or the secretary of the Company, that any instrument or act falls within the authority conferred by this agreement shall be conclusive evidence that such is the case so far as any third party is concerned. |
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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: August 8, 2024 | /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, Marilyn Jentzen, 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: August 8, 2024 | /s/ Marilyn Jentzen |
| Marilyn Jentzen | |
| Interim 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 June 30, 2024, 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: August 8, 2024 | By: | /s/ A. Lorne Weil |
| A. Lorne Weil | ||
| Executive Chairman | ||
| (Principal Executive Officer) |
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 June 30, 2024, as filed with the Securities and Exchange Commission (the “Report”), I, Marilyn Jentzen, Interim 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: August 8, 2024 | By: | /s/ Marilyn Jentzen |
| Marilyn Jentzen | ||
| Interim Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
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.