Inspired Entertainment, Inc.

Previous wording

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.

Current wording

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 discussed in the section titled “Risk Factors” included elsewhere in this report.

Previous wording

For the three and nine-months ended September 30, 2024, we derived approximately 77% and 76% of our revenue from the UK (including customers headquartered in the UK but whose revenue is generated globally), respectively, 7% (in both periods) from Greece, and the remaining 16% and 17% respectively across the rest of the world. For the three and nine-months ended September 30, 2023, we derived approximately 82% and 79% of our revenue from the UK (including customers headquartered in the UK but whose revenue is generated globally), respectively, 5% and 7% from Greece, respectively, and the remaining 13% and 14% respectively across the rest of the world. The UK percentage was impacted by specific Hardware sales, which generally result in a lower margin (“Low Margin sales”), which contributed UK revenues for the three-month period by 39% and for the nine-month period by 16%.

Current wording

For the three-months ended March 31, 2025, we derived approximately 65% of our revenue from the UK (including customers headquartered in the UK but whose revenue is generated globally), 10% from Greece, 11% from USA, and the remaining 14% across the rest of the world. For the three-months ended March 31, 2024, we derived approximately 74% of our revenue from the UK (including customers headquartered in the UK but whose revenue is generated globally), 10% from Greece, 6% from USA, and the remaining 10% across the rest of the world.

Previous wording

As of September 30, 2024, our non-current assets (excluding goodwill) were attributable as follows: 74% to the UK, 9% to Greece and 17% across the rest of the world. As of September 30, 2023, our non-current assets (excluding goodwill) were attributable as follows: 71% to the UK, 11% to Greece and 18% across the rest of the world.

Current wording

As of March 31, 2025, our non-current assets (excluding goodwill) were attributable as follows: 74% to the UK, 11% to Greece and 15% across the rest of the world. As of March 31, 2024, our non-current assets (excluding goodwill) were attributable as follows: 75% to the UK, 8% to Greece and 17% across the rest of the world.

Previous wording

During the three and nine-months ended September 30, 2024, we derived approximately 23% and 24% of our revenue from sales to customers outside the UK, respectively (see caveat above), compared to 18% and 21% during the three and six months ended September 30, 2023, respectively.

Current wording

During the three-months ended March 31, 2025, we derived approximately 35% of our revenue from sales to customers outside the UK, compared to 26% during the three months ended March 31, 2024.

Previous wording

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.

Current wording

In the section “Results of Operations” below, currency impacts shown have been calculated as the current-period average GBP:USD rate less the equivalent average rate in the prior period, multiplied by the current period amount in our functional currency (GBP). The remaining difference, referred to as functional currency at constant rate, is calculated as the difference in our functional currency, multiplied by the prior-period average GBP:USD rate. This is not a U.S. GAAP measure but is one which management believes gives a clearer indication of results. In the tables below, variances in particular line items from period to period exclude currency translation movements, and currency translation impacts are shown independently.

Previous wording

Our results are affected by changes in foreign currency exchange rates, primarily between our functional currency (GBP) and our reporting currency (USD). During the periods ended September 30, 2024 and September 30, 2023, the average GBP:USD rates for the three-month period were 1.30 and 1.27, respectively, and for the nine-month period were 1.28 and 1.25, respectively.

Current wording

Our results are affected by changes in foreign currency exchange rates, primarily between our functional currency (GBP) and our reporting currency (USD). During the periods ended March 31, 2025 and March 31, 2024, the average GBP:USD rates were for the three-month period 1.26 and 1.27, respectively.

Previous wording

During the three-month period ended September 30, 2024 the Interactive segment went live with seventeen new operators. The total number of customers at the end of the period increased by twelve overall due to the closure of several smaller-scale customers.

Current wording

During the three-month period ended March 31, 2025 the Interactive segment went live with 18 new operators increasing the total number of customers at the end of the period by 15 due to the closure of a few smaller customers.

Previous wording

Key agreements made in the three-month period ended September 30, 2024 include a contract with Mecca Bingo for the provision of gaming machines, including the installation of 150 terminals with expected deployment in the fourth quarter of 2024 and a five-year machine supply agreement with Carlton Bingo, both in the Leisure segment.

Current wording

Key agreements signed in the three-month period ended March 31, 2025 include a five-year contract with Buzz Bingo, a five-year contract with MOTO and a five-year contract with Welcome Break all for the provision of gaming machines in the Leisure segment.

Previous wording

For the three and nine-months ended September 30, 2024, revenue on a functional currency (at constant rate) basis decreased by $21.5 million and $30.2 million compared to the same period in 2023.

Current wording

For the three-month period ended March 31, 2025, revenue on a functional currency (at constant rate) basis decreased by $1.6 million, or 3%.

Previous wording

For the nine-month period ended September 30, 2024, Gaming revenue declined by $30.6 million predominantly due to a decrease in product sales of $26.5 million, of which $27.1 million were Low Margin sales. Gaming service revenue declined by $4.1 million, predominately due to declines in the UK, mainland Europe and Greece. Virtual Sports declined by $9.0 million, with $8.7 million of the reduction coming from Online. Interactive revenue grew by $7.2 million, which was driven by growth in the UK, mainland Europe and North America. Leisure grew by $2.2 million, predominantly driven by growth in the Holiday Parks and Pubs sectors.

Current wording

For the three-month period ended March 31, 2025 Gaming revenue declined by $1.5 million, predominantly due to a decrease in product sales of $2.8 million due to a decline in Product sales as activity is not linear year-on-year. Gaming service revenue increased by $1.3 million, predominantly due to growth in the UK and Greece. Virtual Sports declined by $3.6 million, with $3.3 million of the reduction coming from online sales, while Interactive grew by $4.1 million due to growth driven in the UK and North American markets. Leisure revenue declined by $0.6 million predominantly due to Holiday Parks and Pubs sectors.

Previous wording

During the three and nine-months ended September 30, 2024, the Company recorded expenses of $1.8 million and $5.7 million, respectively, compared to expenses of $3.3 million and $9.3 million for the three and nine-months ended September 30, 2023. All expenses were related to outstanding awards but the nine-months ended September 30, 2023, included $0.4 million related to award units that were fully vested on the date of grant and therefore were expensed immediately and also included $0.7 million related to the costs of the restatement of our prior financial statements.

Current wording

During the three-month period ended March 31, 2025, the Company recorded expenses of $1.4 million, compared to expenses of $2.3 million, for the three-month period ended March 31, 2024. All expenses related to outstanding awards.

Previous wording

Depreciation and amortization for the nine-month period ended September 30, 2024 increased by $1.2 million driven by increases in Virtuals of $2.2 million and Interactive of $1.4 million for increased software development and intangible assets, offset by reductions in Gaming of $1.8 million and Leisure of $0.2 million as machine assets unwind.

Current wording

Depreciation and amortization for the three-month period ended March 31, 2025, increased by $0.8 million, driven mainly by increases in Gaming of $0.5 million and Leisure increase of $0.2 million due to an increase in machine assets, Virtual Sports of $0.4 million for increased software development and intangible assets, offset by a reduction in Interactive of $0.5 million as assets reached full amortization.

Previous wording

Segment Results (for the three and nine-months ended September 30, 2024, compared to the three and nine-months ended September 30, 2023)

Current wording

Segment Results (for the three-months ended March 31, 2025, compared to the three-months ended March 31, 2024)

Previous wording

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.

Current wording

We generate revenue from our Gaming segment through the delivery of our gaming terminals preloaded with proprietary gaming software, server-based content, as well as services such as terminal repairs, maintenance, software updates 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.

Previous wording

“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.

Current wording

“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 impact 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.

Previous wording

“Gaming Project Recurring Revenue” relates specifically to a single customer for machine upgrades and distribution.

Current wording

“Gaming Project Recurring Revenue” relates specifically to a single customer for machine estate upgrades and distribution.

Previous wording

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.

Current wording

All variances discussed in the Gaming results below are on a functional currency (at a constant rate) basis, which excludes the impact of any changes in foreign currency exchange rates.

Previous wording

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.

Current wording

We generate revenue from our Virtual Sports segment through our on-premise licensing 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.

Previous wording

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.

Current wording

We generate revenue from our Interactive segment through various gaming content made available via third-party aggregation platforms integrated with our remote gaming server or directly on the Company’s 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.

Previous wording

“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.

Current wording

“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 in 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 incorporated live games and inactive games.

Previous wording

During the three and nine-month periods ended September 30, 2024, revenue increased by $2.7 million and $7.2 million, or 37% 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.

Current wording

During the three-month period ended March 31, 2025 revenue increased by $4.1 million, or 51% compared to the three-month period ended March 31, 2024, driven by recurring revenue growth in the UK and North America due to the launch of new content across the estate and increased promotional activity through exclusive deals with tier-one customers.

Previous wording

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.

Current wording

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 (4) the costs of the restatement of previously issued financial statements.

Previous wording

Reconciliations from net loss, as shown in our Consolidates Statements of Operations and Comprehensive Income (Loss), to Adjusted EBITDA are shown below:

Current wording

Reconciliations from net loss, as shown in our Consolidated Statements of Operations and Comprehensive Income (Loss), to Adjusted EBITDA are shown below.

Previous wording

Reconciliation to Adjusted EBITDA by segment for the Three and Nine-Months ended September 30, 2024

Current wording

Reconciliation to Adjusted EBITDA by segment for the Three Months Ended March 31, 2025

Previous wording

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.

Current wording

Note: Certain unallocated corporate function costs have not been allocated to the Company’s reportable operating segments because these costs are not allocable and to do so would not be practical; these are shown in the Corporate category.

Previous wording

Reconciliation to Adjusted EBITDA by segment for the Three and Nine-Months ended September 30, 2023

Current wording

Reconciliation to Adjusted EBITDA by segment for the Three Months Ended March 31, 2024

Previous wording

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.

Current wording

Note: Certain unallocated corporate function costs have not been allocated to the Company’s reportable operating segments because these costs are not allocable and to do so would not be practical; these are shown in the Corporate category.

Previous wording

Change in fair value of derivative liabilities and stock-based compensation expense decreased by $4.1 million to $5.7 million due to a $3.6 million reduction in the stock-based compensation expense and a $0.5 million reduction in the recycling of the terminated currency swaps which ended on September 30, 2023.

Current wording

Change in the fair value of derivative liabilities and stock-based compensation expense decreased by $0.9 million from $2.3 million to $1.4 million due to lower stock-based compensation expense.

Previous wording

Net cash utilized in investing activities decreased by $9.9 million, to $29.5 million during the nine months ended September 30, 2024. This was driven by an $8.4 million decrease in plant, property and equipment, a $1.9 million decrease in capitalized software spend and a $0.9 million increase in contract cost additions. The prior period also included the acquisition of Lot.to for $0.6 million.

Current wording

Net cash utilized in investing activities increased by $5.0 million, to $15.1 million in the three-month period ended March 31, 2025. This was driven by a higher expenditure on plant, property and equipment ($4.9 million increase compared to 2024) and on contract cost additions ($1.4 million increase compared to 2024). These were partly offset by a $1.2 million decrease in capitalized software.

Previous wording

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 September 30, 2024, we had liquidity consisting of $36.5 million in cash and cash equivalents and a further $6.7 million of undrawn revolver facility. This compares to $26.4 million of cash and cash equivalents as of September 30, 2023, with a further $24.4 million of revolver facilities undrawn. We had a working capital outflow of $16.4 million for the nine months ended September 30, 2024, compared to an $8.0 million outflow for the nine months ended September 30, 2023.

Current wording

To fund our obligations, historically we have relied on a combination of cash flows provided by operations and the incurrence of additional debt or the refinancing of existing debt. As of March 31, 2025, we had liquidity consisting of $39.0 million in cash and a further $6.5 million of undrawn revolver facility. This compares to $35.3 million of cash as of March 31, 2024, with a further $6.3 million of revolver facilities undrawn. We had a working capital inflow of $14.2 million for the three-month period ended March 31, 2025, compared to a $1.0 million outflow for the three-month period ended March 31, 2024.

Previous wording

The level of our working capital surplus or deficit varies with the level of machine production and procurement 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 or procured, 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.

Current wording

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 experienced 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 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.

Previous wording

Some of our business operations require cash to be held within the machines. As of September 30, 2024, $6.7 million of our $36.5 million of cash and cash equivalents were held as operational floats within the machines. At September 30, 2023, $6.0 million of our $26.4 million of cash and cash equivalents were held as operational floats within the machines

Current wording

Some of our business operations require cash to be held within the machines. As of March 31, 2025, $6.1 million of our $39.0 million of cash were held as operational floats within the machines. At March 31, 2024, $6.1 million of our $35.3 million of cash were held as operational floats within the machines

Previous wording

Under our debt facilities in place as of September 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 Super Senior Revolving Credit Facility which requires the Company to maintain a maximum consolidated senior secured net leverage ratio of 6.0x on March 31, 2022, stepping down to 5.75x on March 31, 2023 and 5.50x from March 31, 2024 and thereafter (the “RCF Financial Covenant”). The RCF Financial Covenant is calculated as the ratio of consolidated senior secured net debt to consolidated pro forma EBITDA (defined as net loss excluding depreciation and amortization, interest expense, interest income and income tax expense) for the 12-month period preceding the relevant quarterly testing date and is tested quarterly on a rolling basis, subject to the Initial Facility (as defined in the RCF Agreement) being drawn on the relevant test date. The RCF Financial Covenant does not include a minimum interest coverage ratio or other financial covenants. Covenant testing at September 30, 2024 showed covenant compliance with a net leverage of 3.1x.

Current wording

Under our debt facilities in place as of March 31, 2025, we are not subject to covenant testing on the Senior Secured Notes. We are, however, subject to covenant testing at the level of Inspired Entertainment Inc., the ultimate holding company, on our Super Senior Revolving Credit Facility which requires the Company to maintain a maximum consolidated senior secured net leverage ratio of 6.25x on the test date for the relevant period ended June 30, 2021, stepping down to 6.0x on March 31, 2022, 5.75x on March 31, 2023 and 5.50x from March 31, 2024 and thereafter (the “RCF Financial Covenant”). The RCF Financial Covenant is calculated as the ratio of consolidated senior secured net debt to consolidated pro forma EBITDA (defined as net loss excluding depreciation and amortization, interest expense, interest income and income tax expense) for the 12-month period preceding the relevant quarterly testing date and is tested quarterly on a rolling basis, subject to the Initial Facility (as defined in the RCF Agreement) being drawn on the relevant test date. The RCF Financial Covenant does not include a minimum interest coverage ratio or other financial covenants. Covenant testing at March 31, 2025 showed covenant compliance.

Previous wording

There were no other breaches of the debt covenants in the periods ended September 30, 2024 or September 30, 2023.

Current wording

There were no breaches of the debt covenants in the three-month period ended March 31, 2025 or March 31, 2024.

Previous wording

As of September 30, 2024, our senior bank debt was secured by the imposition of a fixed and floating charge in favor of the lender over all the assets of the Company and certain of the Company’s subsidiaries.

Current wording

As of March 31, 2025, 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.

Previous wording

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. During the nine months ended September 30, 2024 no shares were repurchased meaning the previous figure of an aggregate total spend of $12.0 million in repurchasing our shares of common stock remains unchanged.

Current wording

The Board of Directors has authorized the Company to use up to $25.0 million to repurchase shares of Inspired 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 and as of March 31, 2025, an aggregate of $12.0 million of our shares of common stock had been repurchased. No shares have been repurchased after September 2023.