UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period _______________

Commission File Number: 001-36689

INSPIRED ENTERTAINMENT, INC.

(Exact name of registrant as specified in its charter)

Delaware		47-1025534
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

250 West 57th Street, Suite 415
New York, NY		10107
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (646) 565-3861

(Former name or former address, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐		Accelerated filer ☒
Non-accelerated filer ☐		Smaller reporting company ☒
		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common stock, par value $0.0001 per share		INSE		The NASDAQ Stock Market LLC

As of May 6, 2022, there were 26,891,266 shares of the Company’s common stock issued and outstanding.

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS

	Condensed Consolidated Balance Sheets	1

	Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income	2

	Condensed Consolidated Statement of Stockholders’ Deficit	3

	Condensed Consolidated Statements of Cash Flows	5

	Notes to Condensed Consolidated Financial Statements	6

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	16

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	42

ITEM 4.	CONTROLS AND PROCEDURES	43

PART II.	OTHER INFORMATION	43

ITEM 1.	LEGAL PROCEEDINGS	43

ITEM 1A.	RISK FACTORS	43

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	44

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	44

ITEM 4.	MINE SAFETY DISCLOSURES	44

ITEM 5.	OTHER INFORMATION	44

ITEM 6.	EXHIBITS	45

SIGNATURES		46

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements and other information set forth in this report, including in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein, may relate to future events and expectations, and as such constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”). Our forward-looking statements include, but are not limited to, statements regarding our business strategy, plans and objectives and our expected or contemplated future operations, results, financial condition, beliefs and intentions. In addition, any statements that refer to projections, forecasts or other characterizations or predictions of future events or circumstances, including any underlying assumptions on which such statements are expressly or implicitly based, are forward-looking statements. The words “anticipate”, “believe”, “continue”, “can”, “could”, “estimate”, “expect”, “intend”, “may”, “might”, “plan”, “possible”, “potential”, “predict”, “project”, “scheduled”, “seek”, “should”, “would” and similar expressions, among others, and negatives expressions including such words, may identify forward-looking statements.

Our forward-looking statements reflect our current expectations about our future results, performance, liquidity, financial condition, prospects and opportunities, and are based upon information currently available to us, our interpretation of what we believe to be significant factors affecting our business and many assumptions regarding future events. Actual results, performance, liquidity, financial condition, prospects and opportunities could differ materially from those expressed in, or implied by, our forward-looking statements. This could occur as a result of various risks and uncertainties, including the following:

	●	the persistence of the ongoing global coronavirus (COVID-19) pandemic on our business with respect to the potential duration and frequency of the various government-ordered emergency measures including travel restrictions, social distancing and/or shelter in place orders and closure of retail and leisure, resurgences in various regions and appearances of new variants requiring ongoing reinstitution of such government-ordered emergency measures;

	●	government regulation of our industries;

	●	our ability to compete effectively in our industries;

	●	the effect of evolving technology on our business;

	●	our ability to renew long-term contracts and retain customers, and secure new contracts and customers;

	●	our ability to maintain relationships with suppliers;

	●	our ability to protect our intellectual property;

	●	our ability to protect our business against cybersecurity threats;

	●	our ability to successfully grow by acquisition as well as organically;

	●	fluctuations due to seasonality;

	●	our ability to attract and retain key members of our management team;

	●	our need for working capital;

	●	our ability to secure capital for growth and expansion;

	●	changing consumer, technology and other trends in our industries;

	●	our ability to successfully operate across multiple jurisdictions and markets around the world;

	●	changes in local, regional and global economic and political conditions; and

	●	other factors.

In light of these risks and uncertainties, and others discussed in this report, there can be no assurance that any matters covered by our forward-looking statements will develop as predicted, expected or implied. Readers should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason. We advise you to carefully review the reports and documents we file from time to time with the U.S. Securities and Exchange Commission (the “SEC”).

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INSPIRED ENTERTAINMENT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share data)

	March 31, 2022			December 31, 2021
	(Unaudited)
Assets
Cash	$	40.8		$	47.8
Accounts receivable, net		33.0			31.7
Inventory, net		28.9			16.9
Prepaid expenses and other current assets		28.6			29.7
Corporate tax and other current taxes receivable		0.6			0.3
Total current assets		131.9			126.4

Property and equipment, net		48.5			50.9
Software development costs, net		36.1			35.6
Other acquired intangible assets subject to amortization, net		17.2			18.9
Goodwill		80.7			82.7
Operating lease right of use asset		9.3			10.1
Other assets		8.5			7.1
Total assets	$	332.2		$	331.7

Liabilities and Stockholders’ Deficit
Current liabilities
Accounts payable	$	24.3		$	20.8
Accrued expenses		38.1			32.6
Corporate tax and other current taxes payable		5.3			12.3
Deferred revenue, current		7.2			7.7
Operating lease liabilities		3.0			3.3
Other current liabilities		4.0			3.9
Current portion of finance lease liabilities		0.8			0.9
Total current liabilities		82.7			81.5

Long-term debt		302.2			309.0
Finance lease liabilities, net of current portion		1.9			1.9
Deferred revenue, net of current portion		6.4			6.8
Operating lease liabilities		6.9			7.4
Other long-term liabilities		2.6			3.1
Total liabilities		402.7			409.7

Commitments and contingencies

Stockholders’ deficit
Preferred stock; $0.0001 par value; 1,000,000 shares authorized		—			—
Common stock; $0.0001 par value; 49,000,000 shares authorized; 26,880,622 shares and 26,433,562 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively		—			—
Additional paid in capital		375.0			372.3
Accumulated other comprehensive income		47.1			43.8
Accumulated deficit		(492.6	)		(494.1	)
Total stockholders’ deficit		(70.5	)		(78.0	)
Total liabilities and stockholders’ deficit	$	332.2		$	331.7

The accompanying notes are an integral part of these condensed consolidated financial statements.

INSPIRED ENTERTAINMENT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in millions, except share and per share data)

(Unaudited)

	2022			2021
	Three Months Ended March 31,
	2022			2021
Revenue:
Service	$	57.0		$	17.1
Product sales		3.6			5.7
Total revenue		60.6			22.8

Cost of sales, excluding depreciation and amortization:
Cost of service		(11.8	)		(2.1	)
Cost of product sales		(2.1	)		(3.2	)
Selling, general and administrative expenses		(29.6	)		(15.2	)
Acquisition and integration related transaction expenses		(0.1	)		(1.4	)
Depreciation and amortization		(10.1	)		(13.1	)
Net operating income (loss)		6.9			(12.2	)

Other expense
Interest expense, net		(6.5	)		(8.6	)
Change in fair value of warrant liability		—			(3.0	)
Gain on disposal of business		0.9			—
Other finance income (expense)		0.3			6.4

Total other expense, net		(5.3	)		(5.2	)

Net income (loss) before income taxes		1.6			(17.4	)
Income tax (expense) benefit		(0.1	)		0.7
Net income (loss)		1.5			(16.7	)

Other comprehensive income:
Foreign currency translation gain (loss)		2.4			(1.1	)
Change in fair value of hedging instrument		—			0.6
Reclassification of loss on hedging instrument to comprehensive income		0.2			0.5
Actuarial gains on pension plan		0.7			4.6
Other comprehensive income		3.3			4.6

Comprehensive income (loss)	$	4.8		$	(12.1	)

Net income (loss) per common share – basic	$	0.06		$	(0.74	)
Net income (loss) per common share - diluted	$	0.05			(0.74	)

Weighted average number of shares outstanding during the period – basic		26,850,326			22,584,609
Weighted average number of shares outstanding during the period – diluted		29,294,973			22,584,609
Supplemental disclosure of stock-based compensation expense
Stock-based compensation included in:
Selling, general and administrative expenses	$	(2.8	)	$	(1.4	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

INSPIRED ENTERTAINMENT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

THREE MONTHS ENDED MARCH 31, 2022

(in millions, except share data)

(Unaudited)

	Shares		Amount		capital		income		deficit			deficit
	Common stock				Additional paid in		Accumulated other comprehensive		Accumulated			Total stockholders’
	Shares		Amount		capital		income		deficit			deficit

Balance as of December 31, 2021		26,433,562		—		372.3		43.8		(494.1	)		(78.0	)
Foreign currency translation adjustments		—		—		—		2.4		—			2.4
Actuarial gains on pension plan		—		—		—		0.7		—			0.7
Reclassification of loss on hedging instrument to comprehensive income		—		—		—		0.2		—			0.2
Shares issued in settlement of RSUs		447,060		—		—		—		—			—
Stock-based compensation expense		—		—		2.7		—		—			2.7
Net income		—		—		—		—		1.5			1.5
Balance as of March 31, 2022		26,880,622	$	—	$	375.0	$	47.1	$	(492.6	)	$	(70.5	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

INSPIRED ENTERTAINMENT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

THREE MONTHS ENDED MARCH 31, 2021

(in millions, except share data)

(Unaudited)

	Common stock				Additional paid in		Accumulated other comprehensive			Accumulated			Total stockholders’
	Shares		Amount		capital		income			deficit			deficit

Balance as of December 31, 2020		22,430,475		—		324.6		31.1			(457.4	)		(101.7	)
Foreign currency translation adjustments		—		—		—		(1.1	)		—			(1.1	)
Actuarial gains on pension plan		—		—		—		4.6			—			4.6
Change in fair value of hedging instrument		—		—		—		0.6			—			0.6
Reclassification of loss on hedging instrument to comprehensive income		—		—		—		0.5			—			0.5
Shares issued in settlement of RSUs		163,732		—		—		—			—			—
Stock-based compensation expense		—		—		1.4		—			—			1.4
Net loss		—		—		—		—			(16.7	)		(16.7	)
Net income (loss)		—		—		—		—			(16.7	)		(16.7	)
Balance as of March 31, 2021		22,594,207	$	—	$	326.0	$	35.7		$	(474.1	)	$	(112.4	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

INSPIRED ENTERTAINMENT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(Unaudited)

	2022			2021
	Three Months Ended March 31,
	2022			2021
Cash flows from operating activities:
Net income (loss)	$	1.5		$	(16.7	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		10.1			13.1
Amortization of right of use asset		0.7			0.6
Stock-based compensation expense		2.8			1.4
Unrealized transactional currency gain/loss on senior bank debt		—			(6.1	)
Change in fair value of warrant liability		—			3.0
Reclassification of loss on hedging instrument to comprehensive income		0.2			0.2
Non-cash interest expense relating to senior debt		0.4			1.3
Changes in assets and liabilities:
Accounts receivable		(2.1	)		6.7
Inventory		(11.9	)		0.7
Prepaid expenses and other assets		0.9			4.3
Corporate tax and other current taxes payable		(7.2	)		(8.6	)
Accounts payable		4.3			3.0
Deferred revenues and customer prepayment		(0.3	)		(4.5	)
Accrued expenses		7.1			0.4
Operating lease liabilities		(0.7	)		(0.7	)
Other long-term liabilities		(0.7	)		0.1
Net cash provided by (used in) operating activities		5.1			(2.0	)

Cash flows from investing activities:
Purchases of property and equipment		(5.2	)		(2.0	)
Acquisition of subsidiary company assets		(0.6	)		—
Purchases of capital software		(5.1	)		(2.8	)
Net cash used in investing activities		(10.9	)		(4.8	)

Cash flows from financing activities:
Repayments of finance leases		(0.1	)		(0.2	)
Net cash used in financing activities		(0.1	)		(0.2	)

Effect of exchange rate changes on cash		(1.1	)		1.1
Net decrease in cash		(7.0	)		(5.9	)
Cash, beginning of period		47.8			47.1
Cash, end of period	$	40.8		$	41.2

Supplemental cash flow disclosures
Cash paid during the period for interest	$	0.2		$	6.8
Cash paid during the period for income taxes	$	—		$	—
Cash paid during the period for operating leases	$	0.9		$	0.3

Supplemental disclosure of noncash investing and financing activities
Property and equipment acquired through finance lease	$	—		$	1.3
Property and equipment transferred to inventory	$	0.6		$	—

The accompanying notes are an integral part of these condensed consolidated financial statements.

1. Nature of Operations, Management’s Plans and Summary of Significant Accounting Policies

Company Description and Nature of Operations

We are a global gaming technology company, supplying content, platform and other products and services to online and land-based regulated lottery, betting and gaming operators worldwide through a broad range of distribution channels, predominantly on a business-to-business basis. We provide end-to-end digital gaming solutions (i) on our own proprietary and secure network, which accommodates a wide range of devices, including land-based gaming machine terminals, mobile devices and online computer applications and (ii) through third party networks. Our content and other products can be found through the consumer-facing portals of our interactive customers and, through our land-based customers, in licensed betting offices, adult gaming centers, pubs, bingo halls, airports, motorway service areas and leisure parks.

Management Liquidity Plans

As of March 31, 2022, the Company’s cash on hand was $40.8 million, and the Company had working capital of $49.2 million. The Company recorded net income of $1.5 million and net losses of $16.7 million for the three months ended March 31, 2022 and 2021, respectively. Net income/losses include non-cash stock-based compensation of $2.8 million and $1.4 million for the three months ended March 31, 2022 and 2021, respectively, and non-cash changes in fair value of warrant liability of $3.0 million for the three months ended March 31, 2021. Historically, the Company has generally had positive cash flows from operating activities and has relied on a combination of cash flows provided by operations and the incurrence of debt and/or the refinancing of existing debt to fund its obligations. Cash flows provided by operations amounted to $5.1 million and cash flows used in operations amounted to $2.0 million for the three months ended March 31, 2022 and 2021, respectively with the change year on year due to land based operations being subject to full lockdown restrictions for the three months ended March 31, 2021. Working capital of $49.2 million includes a non-cash settled item of $7.2 million of deferred income. Management currently believes that, absent any unanticipated COVID-19 impact (see below), the Company’s cash balances on hand, cash flows expected to be generated from operations, ability to control and defer capital projects and amounts available from the Company’s external borrowings will be sufficient to fund the Company’s net cash requirements through May 2023.

There have been no COVID-19 restrictions in the United Kingdom since July 2021, however, there remains an element of social distancing in venues in Greece and in Italy. It remains uncertain as to whether and when further restrictions or closures could happen in each jurisdiction and how long they may last. We continue to protect our existing available liquidity by pro-actively managing capital expenditures and working capital as well as identifying both immediate and longer-term opportunities for cost savings.

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Certain information or footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is management’s opinion, however, that the accompanying unaudited interim condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.

The accompanying unaudited interim condensed consolidat

SEC Form 10-Q filed by Inspired Entertainment Inc.