# Inspired Entertainment, Inc.: Form 10-Q/A for the period ended Mar 31, 2023

- Company: [Inspired Entertainment, Inc.](/companies/inse.md) (CIK 1615063)
- Form: 10-Q/A
- Filed: 2024-02-27
- Accepted by EDGAR: Feb 27, 2024, 16:16 ET
- Period: 2023-03-31
- Accession: 0001493152-24-007974
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1615063/000149315224007974/form10-qa.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1615063/000149315224007974/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-01-01 to 2023-03-31 | $64.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-01-01 to 2023-03-31 | $15.0m | us-gaap:CostOfGoodsAndServicesSold |
| Selling, general and administrative | 3 months, 2023-01-01 to 2023-03-31 | $26.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-01-01 to 2023-03-31 | $4.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-01-01 to 2023-03-31 | $6.3m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-01-01 to 2023-03-31 | −$200.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-01-01 to 2023-03-31 | −$1.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-01-01 to 2023-03-31 | −$0.05 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-01-01 to 2023-03-31 | −$0.05 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-01-01 to 2023-03-31 | 27,974,182 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-01-01 to 2023-03-31 | $11.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-01-01 to 2023-03-31 | $5.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-03-31 | $27.8m | us-gaap:Cash |
| Current assets | at 2023-03-31 | $126.0m | us-gaap:AssetsCurrent |
| Total assets | at 2023-03-31 | $291.7m | us-gaap:Assets |
| Current liabilities | at 2023-03-31 | $73.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-03-31 | $378.2m | us-gaap:Liabilities |
| Long-term debt | at 2023-03-31 | $285.5m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2023-03-31 | −$86.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 75,041 characters.

*The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes thereto included elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual future results could differ materially from the historical results discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those referenced in the section titled “Risk Factors” included elsewhere in this report.*

### Forward-Looking Statements

We make forward-looking statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations. For definitions of the term Forward-Looking Statements, see the definitions provided in the Cautionary Note Regarding Forward-Looking Statements at the start of this Quarterly Report on Form 10-Q for the period ended March 31, 2023.

### Seasonality

Our results of operations can fluctuate due to seasonal trends and other factors. Sales of our gaming machines can vary quarter on quarter due to both supply and demand factors. Player activity for our holiday parks is generally higher in the second and third quarters of the year, particularly during the summer months and slower during the first and fourth quarters of the year. Historical seasonality has been impacted by COVID-19 business disruptions and could continue to be impacted in future periods.

### Revenue

We generate revenue in four principal ways: i) on a participation basis, ii) on a fixed rental fee basis, iii) through product sales, (iv) services provided and v) through software license fees. Participation revenue generally includes a right to receive a share of our customers’ gaming revenue, typically as a share of net win but sometimes as a share of the handle or “coin in” which represents the total amount wagered.

### Geographic Range

Geographically, the majority of our revenue is derived from, and the majority of our non-current assets are attributable to, our UK operations. The remainder of our revenue is derived from, and non-current assets attributable to, Greece and the rest of the world (including North America).

For the three months ended March 31, 2023, and the three-months ended March 31, 2022 we derived approximately 76% of our revenue from the UK (including customers headquartered in the UK but whose revenue is generated globally), 9% from Greece, and the remaining 15% across the rest of the world.

As of March 31, 2023, our non-current assets (excluding goodwill) were attributable as follows: 80% to the UK, 5% to Greece and 15% across the rest of the world.

### Foreign Exchange

Our results are affected by changes in foreign currency exchange rates as a result of the translation of foreign functional currencies into our reporting currency and the re-measurement of foreign currency transactions and balances. The impact of foreign currency exchange rate fluctuations represents the difference between current rates and prior-period rates applied to current activity. The geographic region in which the largest portion of our business is operated is the UK and the British pound (“GBP”) is considered to be our functional currency. Our reporting currency is the U.S. dollar (“USD”). Our results are translated from our functional currency of GBP into the reporting currency of USD using average rates for profit and loss transactions and applicable spot rates for period-end balances. The effect of translating our functional currency into our reporting currency, as well as translating the results of foreign subsidiaries that have a different functional currency into our functional currency, is reported separately in Accumulated Other Comprehensive Income.

During the three months ended March 31, 2023 and March 31, 2022, we derived approximately 25% of our revenue from sales to customers outside the UK.

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

### Non-GAAP Financial Measures

We use certain financial measures that are not compliant with U.S. GAAP (“Non-GAAP financial measures”), including EBITDA and Adjusted EBITDA, to analyze our operating performance. In this discussion and analysis, we present certain non-GAAP financial measures, define and explain these measures and provide reconciliations to the most comparable U.S. GAAP measures. See “Non-GAAP Financial Measures” below.

### Results of Operations

Our results are affected by changes in foreign currency exchange rates, primarily between our functional currency (GBP) and our reporting currency (USD). During the periods ended March 31, 2023 and March 31, 2022, the average GBP:USD rates were for the three-month period 1.21 and 1.34, respectively.

The following discussion and analysis of our results of operations has been organized in the following manner:

- a discussion and analysis of the Company’s results of operations for the three-month period ended March 31, 2023, compared to the same period in 2022; and
- a discussion and analysis of the results of operations for each of the Company’s segments (Gaming, Virtual Sports, Interactive and Leisure) for the three-month periods ended March 31, 2023, compared to the same period in 2022, including KPI analysis.

In the discussion and analysis below, certain data may vary from the amounts presented in our consolidated financial statements due to rounding.

For all reported variances, refer to the overall company and segment tables shown below. All variances discussed in the overall company and segment results are on a functional currency (at constant rate) basis, which excludes the impact of any changes in foreign currency exchange rates.

### Restatement of Previously Issued Financial Statements

### Restatement Background

On November 2, 2023, the Company in concurrence with the Company’s audit committee, concluded that our 2023 and 2022 consolidated financial statements and our unaudited consolidated financial statements as of and for each of the first two quarterly periods in 2023 and all quarterly periods in 2022, included in our Quarterly Reports on Form 10-Q for the respective periods(collectively the “Prior Period Financial Statements”), should no longer be relied upon due to misstatements that are described below, and that we would restate such financial statements to make the necessary accounting corrections. Details of the restated consolidated financial statements as of March 31, 2023 and for the three months ended March 31, 2023 and 2022 are provided below (“Restatement Items”).

The Restatements Items reflect adjustments to correct errors in certain financial statement areas including capitalized software and costs to fulfill a contract, revenue and costs to obtain a contract, inventory, goodwill and intangibles, leasing, pension, and other reclassifications and immaterial errors identified. The nature and impact of these adjustments are described in footnote 2 of the financial statements. .

The Company issued a revision for capitalized software and related amortization expense in the quarterly report on Form 10-Q filed on August 11, 2023 for the period ended June 30, 2023 (the “Revision”). This revision related to certain completed software development projects that were, but should not have been, delayed in the shift from work in progress to completed projects. Consequently, the commencement of amortization for certain projects was delayed and the reported amortization was lower than the actual amortization. The Revision covers the period ended June 30, 2023 and the year ended December 31, 2022 and is distinct from the capitalized software restatements below. The tables below have been updated to separate the impact of the Restatement Items from the Revision.

### Overall Company Results

### Three Months ended March 31, 2023, compared to Three Months ended March 31, 2022

*(In millions)*

| Revenue: | For the Three-Month Period ended March 31, 2023 As Restated | March 31, 2022 As Restated | Variance 2023 vs 2022 Variance Attributable to Currency Movement | Variance on a Functional currency basis | Total Functional Currency Variance % | Total Reported Variance % |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Service | $57.5 | $56.0 | $(6.0) | $7.5 | 13.4% | 2.7% |
| Product | 7.4 | 4.3 | (0.7) | 3.8 | 88.4% | 72.1% |
| **Total revenue** | **64.9** | **60.3** | **(6.7)** | **11.3** | **18.7%** | **7.6%** |
| Cost of Sales, excluding depreciation and amortization: |  |  |  |  |  |  |
| Cost of Service | (15.0) | (16.8) | 1.5 | 0.3 | 1.8% | (10.7)% |
| Cost of Product | (6.7) | (2.5) | 0.7 | (4.9) | 196.0% | 168.0% |
| Selling, general and administrative expenses | (26.3) | (20.4) | 2.8 | (8.7) | 42.6% | 28.9% |
| Stock-based compensation | (2.9) | (2.8) | 0.3 | (0.4) | 14.3% | 3.6% |
| Acquisition and integration related transaction expenses | - | (0.2) | - | 0.2 | N/A | N/A |
| Depreciation and amortization | (9.4) | (10.7) | 0.7 | 0.6 | (5.6%) | (12.1%) |
| **Net operating Income (Loss)** | **4.6** | **6.9** | **(0.7)** | **(1.6)** | **(23.2%)** | **(33.3%)** |
| **Other income (expense)** |  |  |  |  |  |  |
| Interest expense, net | (6.3) | (6.5) | 0.7 | (0.5) | 7.7% | (3.1)% |
| Profit on disposal of trade & assets | - | 0.9 | (0.0) | (0.9) | N/A | N/A |
| Other finance income (expense) | 0.1 | 0.3 | (0.0) | (0.2) | (66.7%) | (66.7%) |
| **Total other income (expense), net** | **(6.2)** | **(5.3)** | **0.7** | **(1.6)** | **30.2%** | **17.0%** |
| **Net Income (loss) from continuing operations before income taxes** | (1.6) | 1.6 | (0.0) | (3.2) | (200%) | (200%) |
| Income tax expense | 0.2 | (0.1) | (0.0) | 0.3 | (300.0%) | (300.0%) |
| **Net Income (Loss)** | **$(1.4)** | **$1.5** | **$(0.0)** | **$(2.9)** | **(193.3%)** | **(193.3%)** |
| Exchange Rate - $ to £ | 1.21 | 1.34 |  |  |  |  |

See “Segments Results” below for a more detailed explanation of the significant changes in our components of revenue within the individual segment results of operations.

### Revenue

### Consolidated Reported Revenue by Segment (As Restated)

- There was no VAT-related revenue for the three-months ended March 31, 2023. For the three-months ended March 31, 2022 VAT-related revenue was $0.9 million.

“VAT-related revenue” are payments from UK customers related to our contractual revenue share of their value-added tax rebate.

For the three months ended March 31, 2023, revenue on a functional currency (at constant rate) basis increased by $11.3 million, or 19%.

For the three-month period, Gaming service revenue grew by $1.2 million predominantly due to an increase in UK markets of $1.4 million. Gaming Product revenue increased by $3.9 million predominately due to UK product sales. Virtual Sports and Interactive grew by $5.1 million and $2.0 million, respectively, with $4.6 million of the Virtuals Sports increase from Online and $0.5 million from Retail. Interactive growth was driven by revenue growth in the UK, US and Canada. These increases were offset by Leisure service revenue reduction of $0.8 million predominately driven by the reduction in the number of machines operated in the Pubs sector primarily due to the structured withdrawal of non-core low-margin amusement and prize vend machines as recognized in the third quarter of 2022 as well as the reduction in the number of gaming machines.

### Cost of Sales, excluding depreciation and amortization

Cost of sales, excluding depreciation and amortization, for the three months ended March 31, 2023, increased by $4.6 million, or 24%. The increase was driven a $4.9 million increase in cost of product, predominately driven by the increase in Product sales.

### Selling, general and administrative expenses

Selling, general and administrative (“SG&A”) expenses for the three months ended March 31, 2023 increased by $8.7 million, or 43%.

The increase was driven primarily by the costs of group restructure of $2.9 million (removed from Adjusted EBITDA), an increase in non-staff costs of $3.0 million, of which the largest proportion was driven by exhibition costs of $0.8 million that were not incurred in the prior period, and an increase in staff cost of $2.4 million, driven by an increase in heads predominantly from an investment in the technology and commercial areas of our business.

### Stock-based compensation

During the three months ended March 31, 2023, the Company recorded expenses of $2.9 million compared to expenses of $2.8 million for the three months ended March 31, 2022. All expenses were related to outstanding awards. The three months ended March 31, 2023 included an expense of $0.7 million relating to the group restructure.

### Depreciation and amortization

Depreciation and amortization decreased for the three-month period by $0.6 million. This was driven by Leisure with a reduction of $0.2 million due to assets being fully written down, partly offset by $0.1 and $0.3 million increases in both Virtual Sports and Interactive respectively for depreciation and amortization expenses.

### Net operating income/(loss)

During the three-month period, net operating income was $4.6 million, a decrease of $1.6 million compared to the prior year period. The decrease was attributable primarily to the increase in Selling, general and administrative expenses and in Stock-based compensation (including the cost of group restructure). This was partially offset by the increase in gross margin as well as the decrease in depreciation and amortization expenses.

### Net Income/ (loss)

For the three-months ended March 31, 2023 net loss was $1.4 million, compared to a net income of $1.5 million in the prior period. The $2.9 million decline year-over-year, was primarily due to the cost of group restructure driving the decline in net operating income, an increase in interest expense, net of $0.5 million, due to $0.4 million increase in charges relating to a discounted unwind on provisions for dilapidations linked to various properties, as well as decreases in other finance income of $0.2 million and gain on disposal of trade and assets of $0.9 million compared to the prior year period.

### Deferred Tax

We recorded a valuation allowance against all of our deferred tax assets as of both March 31, 2023, and March 31, 2022. We intend to continue maintaining a full valuation allowance on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. However, given our current earnings and anticipated future earnings, we believe that there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of the valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve.

### Segment Results (for the three months ended March 31, 2023, compared to the three months ended March 31, 2022)

### Gaming

We generate revenue from our Gaming segment through the 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

| Gaming | For the Three-Month Period ended March 31, 2023 As Restated | March 31, 2022 As restated% | Variance 2023 vs 2022 |  |
| --- | ---: | ---: | ---: | ---: |
| End of period installed base (# of terminals) (2) | 34,711 | 34,401 | 310 | 0.9% |
| Total Gaming - Average installed base (# of terminals) (2) | 34,778 | 34,593 | 185 | 0.5% |
| Participation - Average installed base (# of terminals) (2) | 30,793 | 31,420 | (627) | (2.0%) |
| Fixed Rental - Average installed base (# of terminals) | 3,985 | 3,173 | 812 | 25.6% |
| Service Only - Average installed base (# of terminals) | 14,160 | 17,915 | (3,755) | (21.0%) |
| Customer Gross Win per unit per day (1) (2) | £98.3 | £86.7 | £11.6 | 13.4% |
| Customer Net Win per unit per day (1) (2) | £71.5 | £63.5 | £8.0 | 12.6% |
| Inspired Blended Participation Rate | 5.8% | 5.6% | 0.2% |  |
| Inspired Fixed Rental Revenue per Gaming Machine per week | £49.6 | £42.7 | £6.9 | 16.2% |
| Inspired Service Rental Revenue per Gaming Machine per week | £5.1 | £4.6 | £0.5 | 10.9% |
| Gaming Long term license amortization (£’m) | £0.8 | £1.2 | £(0.4) | (33.3%) |
| Number of Machine sales | 688 | 419 | 269 | 64.2% |
| Average selling price per terminal | £7,880 | £6,467 | £1,413 | 21.8% |

(1) Includes all SBG terminals in which the Company takes a participation revenue share across all territories.

(2) Includes circa 2,500 of lottery terminals where the share is on handle instead of net win.

25

In the table above:

“End of Period Installed Base” is equal to the number of deployed Gaming terminals at the end of each period that have been placed on a participation or fixed rental basis. Gaming participation revenue, which comprises the majority of Gaming Service revenue, is directly related to the participation terminal installed base. This is the medium by which our customers generate revenue and distribute a revenue share to the Company. To the extent all other KPIs and certain other factors remain constant, the larger the installed base, the higher the Company’s revenue would be for a given period. Management gives careful consideration to this KPI in terms of driving growth across the segment. This does not include Service Only terminals.

Revenue is derived from the performance of the installed base as described by the Gross and Net Win KPIs.

If the End of Period Installed Base is materially different from the Average Installed Base (described below), we believe this gives an indication as to potential future performance. We believe the End of Period Installed Base is particularly useful for assessing new customers or markets, to indicate the progress being made with respect to entering new territories or jurisdictions.

“Total Gaming - Average Installed Base” is the average number of deployed Gaming terminals during the period split by Participation terminals and Fixed Rental terminals. Therefore, it is more closely aligned to revenue in the period. We believe this measure is particularly useful for assessing existing customers or markets to provide comparisons of historical size and performance. This does not include Service Only terminals.

“Participation - Average Installed Base” is the average number of deployed Gaming terminals that generated revenue on a participation basis.

“Fixed Rental - Average Installed Base” is the average number of deployed Gaming terminals that generated revenue on a fixed rental basis.

“Service Only - Average Installed Base” is the average number of terminals that generated revenue on a Service only basis.

“Customer Gross Win per unit per day” is a KPI used by our management to (i) assess impact on the Company’s revenue, (ii) determine changes in the performance of the overall market and (iii) evaluate the impacts of regulatory change and our new content releases on our customers. Customer Gross Win per unit per day is the average per unit cash generated across all Gaming terminals in which the Company takes a participation revenue share across all territories in the period, defined as the difference between the amounts staked less winnings to players divided by the Average Installed Base in the period, then divided by the number of days in the period.

Gaming revenue accrued in the period is derived from Customer Gross Win accrued in the period after deducting gaming taxes (defined as a regulatory levy paid by the Customer to government bodies) and applying the Company’s contractual revenue share percentage.

Our management believes Customer Gross Win measures are meaningful because they represent a view of customer operating performance that is unaffected by our revenue share percentage and allow management to (1) readily view operating trends, (2) perform analytical comparisons and benchmarking between customers and (3) identify strategies to improve operating performance in the different markets in which we operate.

“Customer Net Win per unit per day” is Customer Gross Win per unit per day after giving effect to the deduction of gaming taxes.

“Inspired Blended Participation Rate” is the Company’s average revenue share percentage across all participation terminals where revenue is earned on a participation basis, weighted by Customer Net Win per unit per day.

“Inspired Fixed Rental Revenue per Gaming Machine per week” is the Company’s average fixed rental amount across all fixed rental terminals where revenue is generated on a fixed fee basis, per unit per week.

“Inspired Service Rental Revenue per Gaming Machine per week” is the Company’s average service rental amount across all service only rental terminals where revenue is generated on a service only fixed fee basis, per unit per week.

“Gaming Long term license amortization” is the upfront license fee per terminal which is typically spread over the life of the terminal.

Our overall Gaming revenue from terminals placed on a participation basis can therefore be calculated as the product of the Participation - Average Installed Base, the Customer Net Win per unit per day, the number of days in the period, and the Inspired Blended Participation Rate, which is equal to “Participation Revenue”.

“Number of Machine sales” is the number of terminals sold during the period.

“Average selling price per terminal” is the total revenue in GBP of the Gaming terminals sold divided by the “number of Machine sales”.

### Gaming, Recurring Revenue

| (In £ millions) Gaming Recurring Revenue | For the Three-Month Period ended March 31, 2023 As Restated | March 31, 2022 As Restated% | Variance 2023 vs 2022 |  |
| --- | ---: | ---: | ---: | ---: |
| Total Gaming Revenue | £22.3 | £18.5 | £3.8 | 20.5% |
| Gaming Participation Revenue | £11.5 | £10.3 | £1.2 | 11.7% |
| Gaming Other Fixed Fee Recurring Revenue | £3.6 | £3.0 | £0.6 | 20.0% |
| Gaming Project Recurring Revenue | £0.2 | £0.2 | £0.0 | 0.0% |
| Gaming Long-term license amortization | £0.8 | £1.2 | £(0.4) | (33.3)% |
| Total Gaming Recurring Revenue \* | £16.1 | £14.7 | £1.4 | 9.5% |
| Gaming Recurring Revenue as a % of Total Gaming Revenue † | 72.2% | 79.5% | (7.3) |  |
| Total Gaming excluding VAT-related revenue | £22.3 | £17.8 |  |  |
| Gaming Recurring Revenue as a % of Total Gaming Revenue (excluding VAT-related revenue) | 72.2% | 82.6% |  |  |

Set forth below is a breakdown of our Gaming recurring revenue. Gaming recurring revenue principally consists of Gaming participation revenue and fixed rental revenue.

|  |  |
| --- | --- |
| \* | Does not reflect VAT-related revenue. |
| † | Total Gaming Revenue for the three-month period ended March 31, 2023 has no VAT-related revenue, for the three-month period ended March 31, 2022, includes £0.7 million of VAT-related revenue, which is not reflected in Gaming Recurring Revenue for that period. Excluding VAT-related revenue, Gaming Recurring Revenue was 72% and 83%, respectively of Total Gaming Revenue for such period. |
|  | Note – For the three-months ending March 31, 2022, there has been some recharacterization between Gaming Participation Revenue and Other Fixed fee revenue to ensure consistency with similar items across the Group. |

27

In the table above:

“Gaming Participation Revenue” includes our share of revenue generated from (i) our Gaming terminals placed in gaming and lottery venues; and (ii) licensing of our game content and intellectual property to third parties.

“Gaming Other Fixed Fee Recurring Revenue” includes service revenue in which the Company earns a periodic fixed fee on a contracted basis.

“Gaming Long term license amortization” – see the definition provided above.

“Total Gaming Recurring Revenue” is equal to Gaming Participation Revenue plus Gaming Other Fixed Fee Recurring Revenue.

### Gaming, Service Revenue by Region

Set forth below is a breakdown of our Gaming service revenue by geographic region. Gaming Service revenue consists principally of Gaming participation revenue, Gaming other fixed fee revenue, Gaming long-term license amortization and Gaming other non-recurring revenue. See “Gaming Segment Revenue” below for a discussion of gaming service revenue between the periods under review.

*(In millions)*

| Service Revenue: | For the Three-Month Period ended March 31, 2023 | March 31, 2022 | Variance 2023 vs 2022 |  | Total Functional Currency % |
| --- | ---: | ---: | ---: | ---: | ---: |
| UK LBO | $9.7 | $10.2 | $(0.5) | (4.9)% | 5.7% |
| UK VAT - Related Income | - | 0.9 | $(0.9) | (100.0)% | (100.0)% |
| UK Other | 3.4 | 3.0 | 0.4 | 13.3% | 25.6% |
| Italy | 0.8 | 0.7 | 0.1 | 14.3% | 36.0% |
| Greece | 4.3 | 4.8 | (0.5) | (10.4%) | (2.2)% |
| Rest of the World | 0.6 | 0.2 | 0.4 | 200.0% | 228.1% |
| Lotteries | 1.4 | 1.3 | 0.1 | 7.7% | 20.2% |
| **Total Service revenue** | **$20.2** | **$21.1** | **$(0.9)** | **(4.3%)** | **6.0%** |
| Exchange Rate - $ to £ | 1.21 | 1.34 |  |  |  |

Note: Exchange rate in the table is calculated by dividing the USD total service revenue by the GBP total service revenue, therefore this could be slightly different from the average rate during the period depending on timing of transactions.

### Gaming, key events

Total Gaming Customer Gross Win per unit per day (in our functional currency, GBP) for the three-months ended March 31, 2023, increased by £11.6, or 13%, to £98.3. The increase was driven by a combination of new content in the UK LBO and Greek markets, removal of all remaining COVID-19 restrictions in Greece, and some shop redistribution of revenue from low performing venue closures in the UK LBO market.

The new “Vantage” terminal, 200 of which have now been on trial for 45 weeks across two major customers, showed 13% growth compared to the current estate terminals. The full rollout of 6,500 “Vantage” terminals into these two major customers is expected to be complete by the end of 2023.

The overall participation rate for our installed base increased to 5.8% for the three months ended March 31, 2023 from 5.6% for the three months ended March 31, 2022. The increase was driven by a shift in customer mix.

In the Non-LBO UK gaming estate, Inspired recorded outright sales of 200 “Flex” terminals to a major customer during the three-month period, delivering revenue of $2.0 million. The new terminals were a combination of replacement and new venue installs. In addition to the product sale component, these new terminals generate additional recurring rental fees. Inspired also delivered the first significant sales volume of the “Community Cops & Robbers” triple player product.

During the first quarter of 2023, Inspired agreed to refresh the Greek estate with 2,000 new “Valor” and 500 new “Vantage” terminals. These terminals are expected to be delivered by the end of 2023 which are expected to be installed into venues during the early part of 2024.

In the North American market, Inspired recorded service revenue in Illinois from 475 game pack sales, the first of this type. Each game pack includes seven new titles, two of which were delivered in the first quarter of 2023 and the remainder by the end of 2023.

### Gaming, Results of Operations

*(In millions)*

| Revenue: | For the Three-Month Period ended March 31, 2023 As Restated | March 31, 2022 As Restated | Variance 2023 vs 2022 Variance Attributable to Currency Movement | Variance on a Functional currency basis | Total Functional Currency Variance % | Total Reported Variance % |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Service | $20.2 | $21.1 | $(2.1) | $1.2 | 5.7% | (4.3%) |
| Product | 6.9 | 3.7 | $(0.7) | $3.9 | 105.4% | 86.5% |
| **Total revenue** | **27.1** | **24.8** | **(2.8)** | **5.1** | **20.6%** | **9.3%** |
| **Cost of Sales, excluding depreciation and amortization:** |  |  |  |  |  |  |
| Cost of Service | (5.9) | (6.0) | $0.6 | (0.5) | 8.3% | (1.7%) |
| Cost of Product | (5.8) | (2.3) | $0.6 | (4.1) | 178.3% | 152.2% |
| **Total cost of sales** | **(11.7)** | **(8.3)** | **1.2** | **(4.6)** | **55.4%** | **41.0%** |
| Selling, general and administrative expenses | (5.7) | (5.0) | $0.6 | (1.3) | 26.0% | 14.0% |
| Stock-based compensation | (0.3) | (0.3) | $0.0 | (0.0) | 0.0% | 0.0% |
| Acquisition and integration related transaction expenses | - | (0.1) | - | 0.1 | N/A | N/A |
| Depreciation and amortization | (4.5) | (5.2) | $0.7 | - | 0.0% | (13.5%) |
| **Net operating Income (Loss)** | **$4.9** | **$5.9** | **$(0.3)** | **$(0.7)** | **(11.9%)** | **(16.9%)** |
| Profit on disposal of trade & assets | - | 0.9 | - | (0.9) | N/A | N/A |
| **Net Income (Loss)** | **$4.9** | **$6.8** | **$(0.3)** | **$(1.6)** | **(23.5%)** | **(27.9%)** |
| Exchange Rate - $ to £ | 1.21 | 1.34 |  |  |  |  |

Note: Exchange rate in the table is calculated by dividing the USD total revenue by the GBP total revenue, therefore this could be slightly different from the average rate during the period depending on timing of transactions.

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

### Gaming Revenue

During the three-month period, Gaming revenue increased by $5.1 million, or 21%. This was driven by a $1.2 million increase in Service revenue and a $3.9 million increase in Product revenue.

The increase in Gaming Service revenue was driven by $1.4 million from the UK market, $0.7 million from the rest of the world and $0.3 million from Lotteries. This was partially offset by lower VAT-related revenue of $0.9 million.

Product revenue increase was primarily driven by higher Product sales of $3.5 million of UK sales and $0.5 million of mainland Europe sales.

### Gaming Operating Income

Operating income decreased for the three-month period by $0.7 million. This decrease was primarily due to the increase in revenues of $5.1 million. This was offset by an increase in cost of sales of $4.6 million and increase of $1.3 million in SG&A, driven by exhibition costs that were not incurred in the prior year.

### Gaming Net Income

For the three-month period, Net income decreased by $1.6 million. This was due to the increase in Operating income, offset by the $0.9 million profit from the disposal of trade and assets from the sale of part of the Italian VLT operations in prior year.

### Virtual Sports

We generate revenue from our Virtual Sports segment through the 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

| Virtuals | For the Three-Month Period ended March 31, 2023 As Restated | March 31, 2022 As Restated% | Variance 2023 vs 2022 |  |
| --- | ---: | ---: | ---: | ---: |
| No. of Live Customers at the end of the period | 58 | 62 | (4) | (6.5)% |
| Average No. of Live Customers | 58 | 62 | (4) | (6.5%) |
| Total Revenue (£’m) | £12.2 | £8.4 | £3.8 | 45.2% |
| Total Revenue £’m - Retail | £2.5 | £2.2 | £0.3 | 13.6% |
| Total Revenue £’m - Online Virtuals | £9.7 | £6.2 | £3.5 | 56.5% |

In the table above:

“No. of Live Customers at the end of the period” and “Average No. of Live Customers” represent the number of customers from which there is Virtual Sports revenue at the end of the period and the average number of customers from which there is Virtual Sports revenue during the period, respectively.

“Total Revenue (£m)” represents total revenue for the Virtual Sports segment, including recurring and upfront service revenue. Total revenue is also divided between “Total Revenue (£m) – Retail,” which consists of revenue earned through players wagering at Virtual Sports venues, “Total Revenue (£m) – Online Virtuals,” which consists of revenue earned through players wagering on Virtual Sports online.

### Virtual Sports, Recurring Revenue

Set forth below is a breakdown of our Virtual Sports recurring revenue, which consists of Retail Virtuals and Online Virtuals recurring revenue as well as long-term license amortization. See “Virtual Sports Segment Revenue” below for a discussion of Virtual Sports Service revenue between the periods under review.

| (In £ millions) Virtual Sports Recurring Revenue | For the Three-Month Period ended March 31, 2023 As Restated | March 31, 2022 As Restated% | Variance 2023 vs 2022 |  |
| --- | ---: | ---: | ---: | ---: |
| Total Virtual Sports Revenue | £12.2 | £8.4 | £3.8 | 45.2% |
| Recurring Revenue - Retail Virtuals | £2.5 | £2.2 | £0.3 | 13.6% |
| Recurring Revenue - Online Virtuals | £9.6 | £6.1 | £3.5 | 57.4% |
| Total Virtual Sports Long-term license amortization | £- | £- | £- | - |
| Total Virtual Sports Recurring Revenue | £12.1 | £8.3 | £3.8 | 45.8% |
| Virtual Sports Recurring Revenue as a Percentage of Total Virtual Sports Revenue | 99.1% | 98.8% | 0.3 |  |

“Recurring Revenue” includes our share of revenue generated from (i) our Virtual Sports products placed with operators; (ii) licensing our game content and intellectual property to third parties; and (iii) our games on third-party online gaming platforms that are interoperable with our game servers.

“Virtual Sports Long term license amortization” is the upfront license fee which is typically spread over the life of the contract.

### Virtual Sports, key events

During the period, we launched a full suite of games including V-Play Soccer™ and V-Play Basketball™ in Ontario with multiple operators and V-Play Tie-Break Tennis™ with bet365. We launched Online Virtuals via the VPP platform in Turkey with Milli Piyango, in partnership with leading operator SisalSans.

We signed a new contract and went live with Mozzarbet for V-Play Plug & Play™ in three new African territories.

We launched two new products, Virtual Motor Racing and U.S Horses into Entain’s U.K. retail estate. We also launched V-Play Horses™ with Eurobet in Italy.

We have also announced a new partnership with Aristocrat Gaming™ to bring a new virtual sports experience to football fans worldwide through their global licensing agreement with the National Football League (NFL).

### Virtual Sports, Results of Operations

*(In millions)*

|  | For the Three-Month Period ended March 31, 2023 As Restated | March 31, 2022 As Restated | Variance 2023 vs 2022 Variance Attributable to Currency Movement | Variance on a Functional currency basis | Total Functional Currency Variance % | Total Reported Variance % |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| **Service Revenue** | $14.8 | $11.3 | $(1.6) | $5.1 | 45.1% | 31.0% |
| Cost of Service | (0.4) | (0.4) | 0.1 | (0.1) | 25.0% | 0.0% |
| Selling, general and administrative expenses | (1.7) | (1.7) | 0.2 | (0.2) | (11.8)% | 0.0% |
| Stock-based compensation | (0.2) | (0.1) | 0.0 | (0.1) | 100.0% | 100.0% |
| Depreciation and amortization | (0.8) | (0.8) | 0.1 | (0.1) | 12.5% | - |
| **Net operating Income (Loss)** | **$11.7** | **$8.3** | **$(1.2)** | **$4.6** | **55.4%** | **41.0%** |
| Exchange Rate - $ to £ | 1.21 | 1.34 |  |  |  |  |

Note: Exchange rate in the table is calculated by dividing the USD service revenue by the GBP service revenue, therefore this could be slightly different from the average rate during the period depending on timing of transactions.

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

### Virtual Sports revenue

During the three-month period, revenue increased by $5.1 million, or 45%. This increase was driven by a $4.6 million increase in Online Virtuals, primarily driven by the growth from our existing online customers along with expanding jurisdictions, as well as increases in Retail Virtuals of $0.5 million.

### Virtual Sports operating income

Operating income increased by $4.6 million in the three-month period. This increase was primarily due to the increase in revenue of $5.1 million, partly offset by an increase of $0.2 million in SG&A costs and an increase in depreciation and amortization of $0.1 million.

### Interactive

We generate revenue from our Interactive segment through the various games content made available via third party aggregation platforms with Inspired’s 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.

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.

### Interactive, Key Performance Indicators

|  | For the Three-Month Period ended March 31, | Variance March 31, 2023 vs 2022 |
| --- | ---: | ---: |
| **Interactive** | **2023** | **2022%** |
| No. of Live Customers at the end of the period | 138 | 112 26 23.2% |
| Average No. of Live Customers | 135 | 111 24 21.6% |
| No. of Games available at the end of the period | 271 | 242 29 12.0% |
| Average No. of Games available | 270 | 239 31 13.0% |
| No. of Live Games at the end of the period | 247 | 242 5 2.1% |
| Average No. of Live Games | 246 | 239 7 2.9% |
| Total Revenue (£’m) | £4.9 | £3.4 £1.5 44.2% |

In the table above:

“No. of Live Customers at the end of the period” and “Average No. of Live Customers” represent the number of customers from which there is Interactive revenue at the end of the period and the average number of customers from which there is Interactive revenue during the period, respectively.

“No. of Games available at the end of the period” and “Average No. of Games available” represents the number of games that are available for operators to deploy at the end of the period (including inactive legacy games still available and inactive new games that are available but have not yet gone live with any operators) and the average number of games that are available for operators to deploy during the period, respectively. This incorporates both live games and inactive games.

“No. of Live Games at the end of the period” and “Average No. of Live Games” represents the number of games from which there is Interactive revenue at the end of the period and the average number of games from which there is Interactive revenue during the period, respectively.

“Total Revenue (£m)” represents total revenue for the Interactive segment, including recurring and upfront service revenue.

### Interactive, key events

During the period ended March 2023, we went live with seven new operators, including 32Red, AGLC and theScore. In addition, we entered new markets with five operators, including The Stars Group in Italy and bet365 in Spain.

During the period we deployed five new games, including a new online game with the Terminator™ licensed brand. Our B2B Game software permit was approved in Sweden, permitting us to continue to deploy iGaming and Virtual Sports software in the country. We also signed a contract with Alchemybet to build a new Slingo Gold Cash Free Spins.

Subsequent to the period end, we launched iGaming content with Fanduel in Michigan.

### Interactive, Results of Operations

*(In millions)*

|  | For the Three-Month Period ended March 31, 2023 As Restated | March 31, 2022 As Restated | Variance 2023 vs 2022 Variance Attributable to Currency Movement | Variance on a Functional currency basis | Total Functional Currency Variance % | Total Reported Variance % |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| **Service Revenue** | $5.9 | $4.6 | $(0.7) | $2.0 | 43.5% | 28.3% |
| Cost of Service | (0.3) | (0.3) | 0.0 | 0.0 | 0.0% | 0.0% |
| Selling, general and administrative expenses | (2.5) | (1.4) | 0.3 | (1.4) | 100.0% | 78.6% |
| Stock-based compensation | (0.2) | (0.1) | 0.0 | (0.1) | 100.0% | 100.0% |
| Depreciation and amortization | (0.6) | (0.6) | 0.3 | (0.3) | 50.0% | - |
| **Net operating Income (Loss)** | **$2.3** | **$2.2** | **$(0.1)** | **$0.2** | **9.1%** | **4.5%** |
| Exchange Rate - $ to £ | 1.21 | 1.35 |  |  |  |  |

Note: Exchange rate in the table is calculated by dividing the USD service revenue by the GBP service revenue, therefore this could be slightly different from the average rate during the period depending on timing of transactions.

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

### Interactive revenue

During three-month period, revenue increased by $2.0 million, or 44%, primarily driven by revenue growth in the UK, US and Canada due to the consistent launch of new content across the estate and increased promotional activity through exclusive deals with tier-one customers.

### Interactive operating income

Operating income for the three-month period increased by $0.2 million. This increase was driven by the increase in revenue, partially offset by a $1.4 million increase in SG&A expenses driven by exhibition costs that were not incurred during the prior year period as well and increase in staff costs due to an investment in new technology and commercial heads.

### 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 March 31, | Variance March 31, 2023 vs 2022 |
| --- | ---: | ---: |
| **Leisure** | **2023** | **2022%** |
| End of period installed base Gaming machines (# of terminals) | 10,811 | 11,060 (249) (2.3)% |
| Average installed base Gaming machines (# of terminals) | 10,821 | 11,248 (427) (3.8)% |
| End of period installed base Other (# of terminals) | 4,546 | 6,356 (1,810) (28.5)% |
| Average installed base Other (# of terminals) | 4,519 | 6,524 (2,005) (30.7)% |
| Pub Digital Gaming Machines - Average installed base (# of terminals) | 6,028 | 6,326 (298) (4.7)% |
| Pub Analogue Gaming Machines - Average installed base (# of terminals) | 499 | 1,720 (1,221) (71.0)% |
| MSA and Bingo Gaming Machines - Average installed base (# of terminals)(1) | 3,089 | 3,189 (100) (3.1)% |
| Inspired Leisure Revenue per Gaming Machine per week | £66.4 | £64.2 £2.2 3.4% |
| Inspired Pub Digital Revenue per Gaming Machine per week | £70.3 | £66.1 £4.2 6.4% |
| Inspired Pub Analogue Revenue per Gaming Machine per week | £36.8 | £39.2 £(2.4) (6.1)% |
| Inspired MSA and Bingo Revenue per Gaming Machine per week | £89.4 | £87.3 £2.1 2.4% |
| Inspired Other Revenue per Machine per week | £20.1 | £20.2 £(0.1) (0.4)% |
| Total Holiday Parks Revenue (Gaming and Non Gaming) (£’m) | £2.9 | £2.5 £0.4 16.0% |

(1) Motorway Service Area machines

In the table above:

“End of period installed base Gaming” and “Average installed base Gaming” represent the number of gaming machines installed (excluding Holiday Park machines) that are Category B and Category C only, from which there is participation or rental revenue at the end of the period or as an average over the period.

“End of period installed base Other” and “Average installed base Other” represent the number of all other category machines installed (excluding Holiday Park machines) from which there is participation or rental revenue at the end of the period or as an average over the period.

“Revenue per machine unit per week” represents the average weekly participation or rental revenue recognized during the period.

### Leisure, key events

During the three months ended March 31, 2023 we successfully installed 370 machines (a mixture of Amusement and Gaming) and commenced operations at holiday park operator Butlins in Bognor Regis with initial performance being strong. Holiday Parks performance across all other sites has been strong in the quarter.

In the Pubs business we signed a new 4-year agreement with Stonegate Group, one of the largest UK operators of Pubs in the managed, leased and tenanted sectors.

Our Prismatic Cat C estate saw the release of Bonus Fruits, Burning Hot Deluxe and Bullion Bars Pub edition. Our Prismatic performance is the number one cabinet and product across UK Pubs.

In the Bingo sector we deployed sixty new Prismatic Fortune community machines to 15 Mecca Bingo sites nationwide in the UK as well as released new content Clockwork Orange Fortune Community.

Performance was strong in the quarter across our MSA estate, with successful launches of Anubis Gold and Super Bonus Joker Free Spins. One of our largest customers, Moto completed major AGC refurbishments and new layouts at two of its highest revenue earning sites (Medway and Thurrock) which included investment in Flex and Prismatic machines.

### Leisure, Results of Operations

*(In millions)*

| Revenue: | For the Three-Month Period ended March 31, 2023 As Restated | March 31, 2022 As Restated | Variance 2023 vs 2022 Variance Attributable to Currency Movement | Variance on a Functional currency basis | Total Functional Currency Variance % | Total Reported Variance % |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Service | $16.6 | $19.0 | $(1.6) | $(0.8) | (4.2)% | (12.6)% |
| Product | 0.5 | 0.6 | (0.1) | (0.0) | (0.0)% | (16.7)% |
| **Total revenue** | **17.1** | **19.6** | **(1.7)** | **(0.8)** | **(4.1)%** | **(12.8)%** |
| **Cost of Sales, excluding depreciation and amortization:** |  |  |  |  |  |  |
| Cost of Service | (8.4) | (10.1) | 0.8 | 0.9 | (8.9)% | (16.8)% |
| Cost of Product | (0.9) | (0.2) | 0.1 | (0.8) | 400.0% | 350.0% |
| **Total cost of sales** | **(9.3)** | **(10.3)** | **0.9** | **0.1** | **(1.0)%** | **(9.7)%** |
| Selling, general and administrative expenses | (6.9) | (6.6) | 0.8 | (1.1) | 16.7% | (4.5%) |
| Stock-based compensation | (0.1) | (0.2) | 0.0 | 0.1 | (50.0)% | (50.0)% |
| Depreciation and amortization | (3.1) | (3.6) | 0.3 | 0.2 | (5.6)% | (13.9)% |
| **Net operating Income (Loss)** | **(2.3)** | **(1.1)** | **$0.3** | **$(1.5)** | **136.4%** | **109.1%** |
| Exchange Rate - $ to £ | 1.21 | 1.34 |  |  |  |  |

Note: Exchange rate in the table is calculated by dividing the USD total revenue by the GBP total revenue, therefore this could be slightly different from the average rate during the period depending on timing of transactions.

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

### Leisure Revenue

For the three-month period, revenue decreased by $0.8 million, primarily due to the structured withdrawal of non-core low-margin amusement and prize vend machines as recognized in the third quarter of 2022 as well as the reduction in the number of gaming machines.

Service revenue decreased by $0.8 million, driven by the decline in Pubs of $1.0 million and Bingo Halls of $0.3 million, partly offset by the increase in Holiday parks of $0.5 million.

### Leisure Operating Income/ (Loss)

Operating loss for the three-month period was a loss of $2.3 million compared to a loss of $1.1 million during the prior year period. This was primarily due to the decrease in revenue driven by the decline in the Pubs business and the increase in SG&A expenses driven by the increase in headcount from the investment in technology and service areas of the business as well as exhibitions costs that were not incurred in the prior year period. This was partially offset by a decrease in cost of sales of 0.1 million and a decrease in depreciation and amortization of $0.2 million.

### Non-GAAP Financial Measures

We use certain non-GAAP financial measures, including EBITDA and Adjusted EBITDA, to analyze our operating performance. We use these financial measures to manage our business on a day-to-day basis. We believe that these measures are also commonly used in our industry to measure performance. For these reasons, we believe that these non-GAAP financial measures provide expanded insight into our business, in addition to standard U.S. GAAP financial measures. There are no specific rules or regulations for defining and using non-GAAP financial measures, and as a result the measures we use may not be comparable to measures used by other companies, even if they have similar labels. The presentation of non-GAAP financial information should not be considered in isolation from, or as a substitute for, or superior to, financial information prepared and presented in accordance with U.S. GAAP. You should consider our non-GAAP financial measures in conjunction with our U.S. GAAP financial measures.

We define our non-GAAP financial measures as follows:

***EBITDA*** is defined as net income (loss) excluding depreciation and amortization, interest expense, interest income and income tax expense.

***Adjusted EBITDA*** is defined as net income (loss) excluding depreciation and amortization, interest expense, interest income and income tax expense, and other additional exclusions and adjustments (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, management changes, restructuring, dual running costs, costs related to facility closures and integration costs, (2) merger and acquisition costs and (3) gains or losses not in the ordinary course of business. This does not include any adjustments related to COVID-19.

We believe Adjusted EBITDA, when considered along with other performance measures, is a particularly useful performance measure, because it focuses on certain operating drivers of the business, including sales growth, operating costs, selling and administrative expense and other operating income and expense. We believe Adjusted EBITDA can provide a more complete understanding of our operating results and the trends to which we are subject, and an enhanced overall understanding of our financial performance and prospects for the future. Adjusted EBITDA is not intended to be a measure of liquidity or cash flows from operations or a measure comparable to net income or loss, because it does not take into account certain aspects of our operating performance (for example, it excludes non-recurring gains and losses which are not deemed to be a normal part of underlying business activities). Our use of Adjusted EBITDA may not be comparable to the use by other companies of similarly termed measures. Management compensates for these limitations by using Adjusted EBITDA as only one of several measures for evaluating our operating performance. In addition, capital expenditures, which affect depreciation and amortization, interest expense, and income tax benefit (expense), are evaluated separately by management.

***Functional Currency at Constant rate.*** Currency impacts discussed have been calculated as the current-period average GBP: USD rate less the equivalent average rate in the prior period, multiplied by the current period amount in our functional currency (GBP). The remaining difference, referred to as functional currency at constant rate, is calculated as the difference in our functional currency, multiplied by the prior-period average GBP: USD rate, as a proxy for functional currency at constant rate movement.

***Currency Movement*** represents the difference between the results in our reporting currency (USD) and the results on a functional currency (at constant rate) basis.

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

### Reconciliation to Adjusted EBITDA by segment for the Three Months ended March 31, 2023

*(In millions)*

|  | For the Three-Month Period ended March 31, 2023 As Restated Total | Gaming | Virtual Sports | Interactive | Leisure | Corporate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net Income/ (loss) | $(1.4) | $4.9 | $11.7 | $2.3 | $(2.3) | $(18.0) |
| **Items Relating to Legacy Activities:** |  |  |  |  |  |  |
| Pension charges (1) | 0.2 |  |  |  |  | 0.2 |
| **Items outside the normal course of business:** |  |  |  |  |  |  |
| Costs of group restructure (3) | 3.0 |  |  |  |  | 3.0 |
| Stock-based compensation expense (4) | 2.9 | 0.3 | 0.2 | 0.2 | 0.1 | 2.1 |
| Depreciation and amortization (4) | 9.4 | 4.5 | 0.8 | 0.6 | 3.1 | 0.4 |
| Interest expense net (4) | 6.3 |  |  |  |  | 6.3 |
| Other finance expenses / (income) (4) | (0.1) |  |  |  |  | (0.1) |
| Income tax (4) | (0.2) |  |  |  |  | (0.2) |
| **Adjusted EBITDA** | **$20.1** | **$9.7** | **$12.7** | **$3.1** | **$0.9** | **$(6.3)** |
| **Adjusted EBITDA** | **£16.5** | **£8.0** | **£10.4** | **£2.5** | **£0.8** | **£(5.2)** |
| Exchange Rate - $ to £ (5) | 1.21 |  |  |  |  |  |

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

### Reconciliation to Adjusted EBITDA by segment for the Three Months ended March 31, 2022

*(In millions)*

|  | For the Three-Month Period ended March 31, 2022 As Restated Total | Gaming | Virtual Sports | Interactive | Leisure | Corporate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net Income/ (loss) | $1.5 | $6.8 | $8.3 | $2.2 | $(1.1) | $(14.7) |
| **Items Relating to Legacy Activities:** |  |  |  |  |  |  |
| Pension charges (1) | 0.1 |  |  |  |  | 0.1 |
| **Items outside the normal course of business:** |  |  |  |  |  |  |
| Acquisition and integration related transaction expenses (2) | 0.2 | 0.1 |  |  |  | 0.1 |
| Stock-based compensation expense (4) | 2.8 | 0.3 | 0.1 | 0.1 | 0.2 | 2.1 |
| Depreciation and amortization (4) | 10.7 | 5.2 | 0.8 | 0.6 | 3.6 | 0.5 |
| Interest expense net (4) | 6.5 |  |  |  |  | 6.5 |
| Profit on disposal of business (6) | (0.9) | (0.9) |  |  |  | - |
| Other finance expenses / (income) (4) | (0.3) |  |  |  |  | (0.3) |
| Income tax (4) | 0.1 |  |  |  |  | 0.1 |
| **Adjusted EBITDA** | **$20.7** | **$11.5** | **$9.2** | **$2.9** | **$2.7** | **$(5.6)** |
| **Adjusted EBITDA** | **£15.5** | **£8.6** | **£6.9** | **£2.1** | **£2.0** | **£(4.1)** |
| Exchange Rate - $ to £ (5) | 1.34 |  |  |  |  |  |

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

Notes to Adjusted EBITDA reconciliation tables above:

(1) “Pension charges” are profit and loss charges included within selling, general and administrative expenses, relating to a defined benefit scheme which was closed to new entrants in 1999 and to future accrual in 2010. As well as the amortization of net loss, the figure also includes charges relating to the Pension Protection Fund (which were historically borne by the pension scheme) and a small amount of associated professional services expenses. These costs are included within Corporate Functions.

(2) Acquisition and integration related transaction expenses, are as described above in the Results of Operations line item discussions.

(3) “Costs of group restructure” include redundancy costs, Payments In Lieu of Notice costs and any associated employer taxes. To qualify as being an adjusting item, costs must be part of a large restructuring project, which will net save ongoing future costs.

(4) Stock-based compensation expense, Depreciation and amortization, Total other expense, net and Income tax are as described above in the Results of Operations line item discussions. Total expense, net includes interest income, interest expense, change in fair value of earnout liability, change in fair value of derivative liability and other finance income.

(5) Exchange rate in the table is calculated by dividing the USD Adjusted EBITDA by the GBP Adjusted EBITDA, therefore this could be slightly different from the average rate during the period depending on timing of transactions.

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(6) “Profit on disposal of trade & assets” — In January 2022, the Company sold its Italian VLT business, including all terminals and other assets, staff costs and facilities and contracts to a non-connected party, recognizing a profit on this disposal.

### Liquidity and Capital Resources

### Three Months ended March 31, 2023, compared to Three Months ended March 31, 2022

*(in millions)*

|  | Three Months ended Mar 31, 2023 | Mar 31, 2022 | Variance 2023 to 2022 |
| --- | ---: | ---: | ---: |
| Net (loss)/profit | $(1.4) | $1.5 | $(2.9) |
| Amortization of debt fees | 0.3 | 0.4 | (0.1) |
| Change in fair value of derivative liabilities and stock-based compensation expense | 3.1 | 3.0 | 0.1 |
| Depreciation and amortization (incl RoU assets) | 10.2 | 11.7 | (1.5) |
| Profit on sale of Italian VLT business | 0.0 | (0.9) | 0.9 |
| Contract cost additions | (2.6) | (1.6) | (1.0) |
| Other net cash generated/(utilized) by operating activities | 2.0 | (11.4) | 13.4 |
| Net cash provided by operating activities | 11.6 | 2.7 | 8.9 |
| Net cash used in investing activities | (8.9) | (8.8) | (0.1) |
| Net cash used by financing activities | (0.5) | (0.1) | (0.4) |
| Effect of exchange rates on cash | 0.6 | (0.8) | 1.4 |
| Net increase/(decrease) in cash and cash equivalents | $2.8 | ($ 7.0) | $9.8 |

### Net cash provided by operating activities

For the three months ended March 31, 2023, net cash inflow provided by operating activities was $11.6 million, compared to a $2.7 million inflow for the three months ended March 31, 2022, representing a $8.9 million increase in cash generation from operating activities. This increase was driven primarily through improved working capital levels with the three months ended March 31, 2023 benefitting from favorable receipts due to the timing of sales and the three months ended March 31, 2022 showing significant inventory increases after the Company made the strategic decision to secure components and protect sales in a challenging global supply chain market.

Depreciation and amortization decreased by $1.5 million, to $10.2 million, with reductions of $1.0 million in machine depreciation and $0.2 million for both amortization of intangible assets and amortization of right of use assets.

Contract cost additions increased by $1.0 million to $2.6 million for the three months ended March 31,2023 compared to the three months ended March 31, 2022.

Other net cash generated/(utilized) by operating activities increased by $13.4 million, to a $2.0 million inflow. The relative movements between the three months ended March 31, 2023 and the three months ended March 31, 2022 resulted in a $10.5 million increase from receivables due to timing of sales, a $8.0 million inventory increase due to a smaller rise in inventory in the three months ended March 31, 2023 compared to the prior year when the Company made the strategic decision to secure components and protect sales in a challenging global supply chain market and a $1.0 million favorable movement in payroll and trading taxes. This was partly offset by a $6.3 million adverse movement in accounts payable due to timing and the prior year movement being impacted by the increase in inventory levels and a $0.3 million adverse movement in deferred revenue creditors.

### Net cash used in investing activities

Net cash utilized in investing activities increased by $0.1 million, to $8.9 million during the three months ended March 31, 2023. This was due to the prior year including $1.3 million relating to the sale of the gaming business in Italy, which has been offset by lower spend on plant, property and equipment (a $0.1 million decrease compared to 2022) and a $1.2 million reduction of spend on capitalized software.

### Net cash (used)/generated by financing activities

During the three months ended March 31, 2023, net cash utilized by financing activities was $0.5 million relating to finance lease spend compared to $0.1 million during the three months ended March 31, 2022.

### Funding Needs and Sources

To fund our obligations, we have historically relied on a combination of cash flows provided by operations and the incurrence of additional debt or the refinancing of existing debt. As of March 31, 2023, we had liquidity consisting of $27.8 million in cash and cash equivalents and a further $24.7 million of undrawn revolver facility. This compares to $40.8 million of cash and cash equivalents as of March 31, 2022, with a further $26.3 million of revolver facilities undrawn. We had a working capital inflow of $2.0 million for the three months ended March 31, 2023, compared to a $11.4 million outflow for the three months ended March 31, 2022.

The level of our working capital surplus or deficit varies with the level of machine production we are undertaking and our capitalization as well as the seasonality evident in some of the businesses. In periods with minimal machine volumes and capital spend, our working capital is typically more stable. In periods where significant numbers of machines are being produced, the levels of inventory and creditors are typically higher and there is a natural timing difference between converting the stock into sellable or capitalized plant and settling payments to suppliers. These factors, along with movements in trading activity levels can result in significant working capital volatility. In periods of low activity, our working capital volatility is reduced. Working capital is reviewed and managed with the aim of ensuring that current liabilities are covered by the level of cash held and the expected level of short-term receipts.

Some of our business operations require cash to be held within the machines. As of March 31, 2023, $5.5 million of our $27.8 million of cash and cash equivalents were held as operational floats within the machines. At March 31, 2022, $4.9 million of our $40.8 million of cash and cash equivalents were held as operational floats within the machines

Management currently believes that the Company’s cash balances on hand, cash flows expected to be generated from operations, and the ability to control and defer capital projects will be sufficient to fund the Company’s net cash requirements through May 2024.

### Long Term and Other Debt

*(In millions)*

|  | March 31, 2023 |  | March 31, 2022 |  |
| --- | ---: | ---: | ---: | ---: |
| Cash held | £22.5 | $27.8 | £31.0 | $40.8 |
| Original principal senior debt | (235.0) | (290.6) | (235.0) | (309.3) |
| Cash interest accrued | (6.1) | (7.6) | (6.1) | (8.1) |
| Finance lease creditors | (1.4) | (1.7) | (2.0) | (2.7) |
| Total | £(220.0) | $(272.1) | £(212.2) | $(279.3) |

### Debt Covenants

Under our debt facilities in place as of March 31, 2023, we are not subject to covenant testing on the Senior Secured Notes. We are, however, subject to covenant testing at the level of Inspired Entertainment Inc., the ultimate holding company, on our Super Senior Revolving Credit Facility which requires the Company to maintain a maximum consolidated senior secured net leverage ratio of 6.0x on March 31, 2022, stepping down to 5.75x on March 31, 2023 and 5.50x from March 31, 2024 and thereafter (the “RCF Financial Covenant”). The RCF Financial Covenant is calculated as the ratio of consolidated senior secured net debt to consolidated pro forma EBITDA (defined as net loss excluding depreciation and amortization, interest expense, interest income and income tax expense) for the 12-month period preceding the relevant quarterly testing date and is tested quarterly on a rolling basis, subject to the Initial Facility (as defined in the RCF Agreement) being drawn on the relevant test date. The RCF Financial Covenant does not include a minimum interest coverage ratio or other financial covenants. Covenant testing at March 31, 2023 showed covenant compliance with a net leverage of 2.6x.

There were no breaches of the debt covenants in the periods ended March 31, 2023 or March 31, 2022.

### Liens and Encumbrances

As of March 31, 2023, our senior bank debt was secured by the imposition of a fixed and floating charge in favor of the lender over all the assets of the Company and certain of the Company’s subsidiaries.

### Share Repurchases

The Board of Directors has authorized that the Company may use up to $25.0 million to repurchase Inspired shares of common stock, subject to repurchases being effected on or before May 10, 2025. Management has discretion as to whether to repurchase shares of the Company. There were no repurchases in the three months ended March 31, 2023 but at this point an aggregate of $10.5 million of our shares of common stock had been repurchased.

### Contractual Obligations

As of March 31, 2023, our contractual obligations were as follows:

| Contractual Obligations (in millions) Operating activities | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years |
| --- | ---: | ---: | ---: | ---: | ---: |
| Interest on long term debt | $80.1 | $22.9 | $45.7 | $11.5 | $- |
| **Financing activities** |  |  |  |  |  |
| Senior bank debt - principal repayment | 290.6 | - | - | 290.6 | - |
| Finance lease payments | 1.7 | 0.5 | 1.2 | - | - |
| Operating lease payments | 15.9 | 4.0 | 6.0 | 2.6 | 3.3 |
| Interest on non-utilization fees | 0.9 | 0.3 | 0.6 | - | - |
| Total | $389.2 | $27.7 | $53.5 | $304.7 | $3.3 |

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### Off-Balance Sheet Arrangements

As of March 31, 2023, there were no off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, promulgated by the U.S. Securities and Exchange Commission.

### Critical Accounting Policies and Accounting Estimates

The preparation of our audited consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions. We exercise considerable judgment with respect to establishing sound accounting policies and in making estimates and assumptions that affect the reported amounts of our assets and liabilities, our recognition of revenue and expenses, and our disclosure of commitments and contingencies at the date of the consolidated financial statements. On an on-going basis, we evaluate our estimates and judgments. We base our estimates and judgments on a variety of factors, including our historical experience, knowledge of our business and industry and current and expected economic conditions, that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We periodically re-evaluate our estimates and assumptions with respect to these judgments and modify our approach when circumstances indicate that modifications are necessary. While we believe that the factors we evaluate provide us with a meaningful basis for establishing and applying sound accounting policies, we cannot guarantee that the results will always be accurate. Since the determination of these estimates requires the exercise of judgment, actual results could differ from such estimates.

A description of our critical accounting estimates was provided in the MD&A section of the 2022 Form 10-K. There were no changes in the determination of these estimates during the first three months of 2023.

### QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our principal market risks are our exposure to changes in foreign currency exchange rates.

### Interest Rate Risk

Following the Company’s refinancing of its debt in May 2021, the external borrowings of £235.0 million ($290.6 million) are provided at a fixed rate. Therefore, movements in rates such as LIBOR do not impact on the current borrowings and the only fluctuation that is expected to be reported will be that solely caused by movements in the exchange rates between the Company’s functional currency and its reporting currency.

### Foreign Currency Exchange Rate Risk

Our operations are conducted in various countries around the world, and we receive revenue and pay expenses from these operations in a number of different currencies. As such, our earnings are subject to movements in foreign currency exchange rates when transactions are denominated in (i) currencies other than GBP, which is our functional currency, or (ii) the functional currencies of our subsidiaries, which is not necessarily GBP. To estimate our foreign currency exchange rate risk, we identify material Euro and US Dollar trading and balance sheet amounts and recalculate the result using a 10% movement in the GBP:US Dollar exchange rate. For the trading figures the 10% movement is based on the average exchange rate throughout the reported period and for the balance sheet figures the 10% movement is based on the exchange rate used at March 31, 2023.

Excluding intercompany balances, our Euro functional currency net assets total approximately $8.6 million, and our US Dollar functional currency net assets total approximately $4.1 million. We use a sensitivity analysis model to measure the impact of a 10% adverse movement of foreign currency exchange rates against the US Dollar. A hypothetical 10% adverse change in the value of the Euro and the US Dollar relative to GBP as of March 31, 2023, would result in favorable translation adjustments of approximately $0.8 million and $0.4 million, respectively, recorded in other comprehensive loss.

Included within our trading results are earnings outside of our functional currency. Retained gains from Euro based entities earned in Euros and retained losses from USD based entities earned in US Dollars in the three months ended March 31, 2023, were €3.1 million and $5.6 million, respectively. A hypothetical 10% adverse change in the value of the Euro and the US Dollar relative to GBP as of March 31, 2023, would result in translation adjustments of approximately $0.3 million favorable and $0.5 million unfavorable, respectively, recorded in trading operations.

The majority of the Company’s trading is in GBP, the functional currency, although the reporting currency of the Company is the US Dollar. As such, changes in the GBP:USD exchange rate have an effect on the Company’s results. A 10% weakening of GBP against the US Dollar would change the trading operational results unfavorably by approximately $0.2 million and would result in unfavorable translation adjustments of approximately $6.4 million, recorded in other comprehensive loss.

## Controls and procedures

As filed, 2,610 characters.

### Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Certifying Officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer (together, the “Certifying Officers”), we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on the foregoing, our Certifying Officers concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of March 31, 2023, due to the material weaknesses described in Item 9A of the Company’s restated Annual Report on Form 10-K/A for the year ended December 31, 2022, filed with the SEC on February 27, 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 March 31, 2023, management believes that the interim consolidated financial statements and footnote disclosures included in this Quarterly Report on Form 10-Q/A 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.

## Risk factors

As filed, 520 characters.

*Our business is subject to a high degree of risk. You should carefully consider the risk factors discussed in our Annual Report on Form 10-K/A for our fiscal year ended December 31, 2022. You should carefully read and assess all of these risk factors. Any of these risks could materially and adversely affect our business, operating results, financial condition and prospects, and cause the value of our common stock to decline, which could cause investors in our common stock to lose all or part of their investments.*

Filed Feb 27, 2024.
Source: SEC EDGAR, the filing index for accession 0001493152-24-007974. Last ingested by Listed: Nov 5, 2026, 19:56 ET. No prices; not investment advice.