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, 2024

☐ 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

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 7, 2024, there were 26,571,308 shares of the Company’s common stock issued and outstanding.

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION	1

ITEM 1.	FINANCIAL STATEMENTS	1

	Condensed Consolidated Balance Sheets	1

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

	Condensed Consolidated Statement of Stockholders’ Deficit	3

	Condensed Consolidated Statements of Cash Flows	5

	Notes to Condensed Consolidated Financial Statements	6

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	14

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	33

ITEM 4.	CONTROLS AND PROCEDURES	34

PART II.	OTHER INFORMATION	35

ITEM 1.	LEGAL PROCEEDINGS	35

ITEM 1A.	RISK FACTORS	35

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	35

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	35

ITEM 4.	MINE SAFETY DISCLOSURES	35

ITEM 5.	OTHER INFORMATION	35

ITEM 6.	EXHIBITS	35

SIGNATURES		36

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

References in this report to “we,” “us,” “our,” the “Company” and “Inspired” refer to Inspired Entertainment, Inc. and its subsidiaries unless the context suggests otherwise.

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

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

	●	government regulation of our industries;

	●	our ability to compete effectively in our industries;

	●	the effect of evolving technology on our business;

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

	●	our ability to maintain relationships with suppliers;

	●	our ability to protect our intellectual property;

	●	our ability to protect our business against cybersecurity threats;

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

	●	fluctuations due to seasonality;

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

	●	our need for working capital;

	●	our ability to secure capital for growth and expansion;

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

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

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

	●	other factors described in the reports and documents we file from time to time with the U.S. Securities and Exchange Commission (the “SEC”).

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

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INSPIRED ENTERTAINMENT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share data)

	March 31, 2024			December 31, 2023
	(Unaudited)
Assets
Cash	$	35.3		$	40.0
Accounts receivable, net		37.5			40.6
Inventory, net		31.7			32.3
Prepaid expenses and other current assets		39.6			39.6
Total current assets		144.1			152.5

Property and equipment, net		63.2			62.8
Software development costs, net		21.9			21.8
Other acquired intangible assets subject to amortization, net		12.9			13.4
Goodwill		58.3			58.8
Operating lease right of use asset		15.2			14.2
Costs of obtaining and fulfilling customer contracts, net		9.7			9.4
Other assets		5.8			8.0
Total assets	$	331.1		$	340.9

Liabilities and Stockholders’ Deficit
Current liabilities
Accounts payable and accrued expenses	$	57.6		$	60.8
Corporate tax and other current taxes payable		3.2			6.3
Deferred revenue, current		4.9			5.6
Operating lease liabilities		5.1			4.7
Current portion of long-term debt		18.9			19.1
Other current liabilities		4.4			4.2
Total current liabilities		94.1			100.7

Long-term debt		293.3			295.6
Finance lease liabilities, net of current portion		2.5			1.6
Deferred revenue, net of current portion		8.0			7.1
Operating lease liabilities		10.5			9.8
Other long-term liabilities		3.9			4.1
Total liabilities		412.3			418.9

Commitments and contingencies		-			-

Stockholders’ deficit
Preferred stock; $0.0001 par value; 1,000,000 shares authorized, no shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively.		—			—
Common stock; $0.0001 par value; 49,000,000 shares authorized; 26,559,756 shares and 26,219,021 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively		—			—
Additional paid in capital		387.3			386.1
Accumulated other comprehensive income		45.8			44.5
Accumulated deficit		(514.3	)		(508.6	)
Total stockholders’ deficit		(81.2	)		(78.0	)
Total liabilities and stockholders’ deficit	$	331.1		$	340.9

The accompanying notes are an integral part of these unaudited 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)

	2024			2023
	Three Months Ended March 31,
	2024			2023
Revenue:
Service	$	57.1		$	57.5
Product sales		6.0			7.4
Total revenue		63.1			64.9

Cost of sales:
Cost of service ⁽¹⁾		(15.9	)		(15.0	)
Cost of product sales		(4.5	)		(6.7	)
Selling, general and administrative expenses		(34.2	)		(29.2	)
Depreciation and amortization		(9.9	)		(9.4	)
Net operating (loss) income		(1.4	)		4.6

Other expense
Interest expense, net		(6.6	)		(6.3	)
Other finance income		0.1			0.1

Total other expense, net		(6.5	)		(6.2	)

Loss before income taxes		(7.9	)		(1.6	)
Income tax benefit		2.2			0.2
Net loss		(5.7	)		(1.4	)

Other comprehensive income (loss):
Foreign currency translation gain (loss)		1.0			(2.9	)
Reclassification of loss on hedging instrument to comprehensive income		—			0.2
Actuarial gains on pension plan		0.3			0.2
Other comprehensive income (loss)		1.3			(2.5	)

Comprehensive loss	$	(4.4	)	$	(3.9	)

Net loss per common share – basic and diluted	$	(0.20	)	$	(0.05	)

Weighted average number of shares outstanding during the period – basic and diluted		28,603,734			27,974,182
Supplemental disclosure of stock-based compensation expense
Stock-based compensation included in:
Selling, general and administrative expenses	$	(2.3	)	$	(2.9	)

⁽¹⁾	Excluding depreciation and amortization

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

INSPIRED ENTERTAINMENT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

THREE MONTHS ENDED MARCH 31, 2024

(in millions, except share data)

(Unaudited)

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

Balance as of December 31, 2023		26,219,021		—		386.1			44.5		(508.6	)		(78.0	)
Foreign currency translation adjustments		—		—		—			1.0		—			1.0
Actuarial gains on pension plan		—		—		—			0.3		—			0.3
Issuances under stock plans		340,735		—		(0.8	)		—		—			(0.8	)
Stock-based compensation expense		—		—		2.0			—		—			2.0
Net loss		—		—		—			—		(5.7	)		(5.7	)
Balance as of March 31, 2024		26,559,756	$	—	$	387.3		$	45.8	$	(514.3	)	$	(81.2	)

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

INSPIRED ENTERTAINMENT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

THREE MONTHS ENDED MARCH 31, 2023

(in millions, except share data)

(Unaudited)

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

Balance as of December 31, 2022		25,909,516		—		378.2		50.8			(514.6	)		(85.6	)
Balance		25,909,516		—		378.2		50.8			(514.6	)		(85.6	)

Foreign currency translation adjustments		—		—		—		(2.9	)		—			(2.9	)
Actuarial gains on pension plan		—		—		—		0.2			—			0.2
Reclassification of loss on hedging instrument to comprehensive income		—		—		—		0.2			—			0.2
Issuances under stock plans		353,554		—		—		—			—			—
Stock-based compensation expense		—		—		3.0		—			—			3.0
Net loss		—		—		—		—			(1.4	)		(1.4	)
Balance as of March 31, 2023		26,263,070	$	—	$	381.2	$	48.3		$	(516.0	)	$	(86.5	)
Balance		26,263,070	$	—	$	381.2	$	48.3		$	(516.0	)	$	(86.5	)

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

INSPIRED ENTERTAINMENT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(Unaudited)

	2024			2023
	Three Months Ended March 31,
	2024			2023
Cash flows from operating activities:
Net loss	$	(5.7	)	$	(1.4	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		9.9			9.4
Amortization of right of use asset		1.1			0.8
Stock-based compensation expense		2.3			2.9
Contract cost expense		(2.4	)		(2.6	)
Reclassification of loss on hedging instrument to comprehensive income		—			0.2
Non-cash interest expense relating to senior debt		0.2			0.3
Changes in assets and liabilities:
Accounts receivable		2.7			8.3
Inventory		0.4			(3.5	)
Prepaid expenses and other assets		4.3			1.0
Corporate tax and other current taxes payable		(6.3	)		(6.2	)
Accounts payable and accrued expenses		(2.6	)		3.5
Deferred revenues and customer prepayment		0.6			(0.2	)
Operating lease liabilities		(1.0	)		(0.9	)
Other long-term liabilities		0.1			—
Net cash provided by operating activities		3.6			11.6

Cash flows from investing activities:
Purchases of property and equipment		(4.4	)		(5.5	)
Acquisition of third-party company trade and assets		—			(0.6	)
Purchases of capital software		(3.3	)		(2.8	)
Net cash used in investing activities		(7.7	)		(8.9	)

Cash flows from financing activities:
Repayments of finance leases		(0.2	)		(0.5	)
Net cash used in financing activities		(0.2	)		(0.5	)

Effect of exchange rate changes on cash		(0.4	)		0.6
Net (decrease) increase in cash		(4.7	)		2.8
Cash, beginning of period		40.0			25.0
Cash, end of period	$	35.3		$	27.8

Supplemental cash flow disclosures
Cash paid during the period for interest	$	0.1		$	0.1
Cash paid during the period for income taxes	$	—		$	0.1
Cash paid during the period for operating leases	$	2.1		$	2.1

Supplemental disclosure of noncash investing and financing activities
Additional paid in capital from net settlement of RSUs	$	(0.8	)	$	—
Lease liabilities arising from obtaining right of use assets	$	(2.2	)	$	(0.1	)
Property and equipment acquired through finance lease	$	1.3		$	—

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

Liquidity Discussions

As of March 31, 2024, the Company’s cash on hand was $35.3 million, and the Company had working capital in addition to cash of $14.7 million. The Company recorded a net loss of $5.7 million and $1.4 million for the three months ended March 31, 2024 and 2023, respectively. Net income/losses include non-cash stock-based compensation of $2.3 million and $2.9 million for the three months ended March 31, 2024 and 2023, respectively. 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 $3.6 million and $11.6 million for the three months ended March 31, 2024 and 2023, respectively.

Management currently believes that the Company’s cash balances on hand, cash flows expected to be generated from operations, ability to control and defer capital projects and amounts available from the Company’s external borrowings will be sufficient to fund the Company’s net cash requirements through May 2025.

Basis of Presentation

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

The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the years ended December 31, 2023 and 2022. The financial information as of December 31, 2023 is derived from the audited consolidated financial statements presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on April 15, 2024. The financial information for the three months ended March 31, 2023 is derived from the unaudited consolidated financial statements presented in the Company’s Annual Report on Form 10-Q/A for the three months ended March 31, 2023 filed with the SEC on February 27, 2024. The interim results for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024 or for any future interim periods.

2. Allowance for Credit Losses

Changes in the allowance for credit losses are as follows:

	March 31, 2024			December 31, 2023
	(in millions)
Beginning balance	$	(1.1	)	$	(1.4	)
Additional allowance for credit losses		—			(0.2	)
Recoveries		—			0.2
Write offs		—			0.4
Foreign currency translation adjustments		—			(0.1	)
Ending balance	$	(1.1	)	$	(1.1	)

3. Inventory

Inventory consists of the following:

Schedule of Inventory

	March 31, 2024		December 31, 2023
	(in millions)
Component parts	$	22.5	$	23.3
Work in progress		1.0		0.4
Finished goods		8.2		8.6
Total inventories	$	31.7	$	32.3

Component parts include parts for gaming terminals. Our finished goods inventory primarily consists of gaming terminals which are ready for sale.

4. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:

	March 31, 2024		December 31, 2023
	(in millions)
Accounts payable	$	35.2	$	41.9
Interest payable		8.4		—
Payroll and related costs		5.1		5.5
Cost of sales including inventory		5.0		6.4
Other creditors		3.9		7.0
	$	57.6	$	60.8

5. Contract Related Disclosures

The following table summarizes contract related balances:

Schedule of Contract Related Balances

	Accounts Receivable		Unbilled Accounts Receivable		Right to recover asset		Deferred Income			Customer Prepayments and Deposits
	(in millions)
At March 31, 2024	$	36.7	$	20.5	$	0.6	$	(12.9	)	$	(3.1	)
At December 31, 2023	$	42.8	$	24.0	$	0.6	$	(12.7	)	$	(2.9	)

Revenue recognized that was included in the deferred income balance at the beginning of the period amounted to $1.9 million and $1.2 million for the three months ended March 31, 2024 and 2023, respectively.

For the periods ended March 31, 2024 and 2023 respectively, there was no significant amounts of revenue recognized as a result of changes in contract transaction price related to performance obligations that were satisfied in the respective prior periods.

Transaction Price Allocated to Remaining Performance Obligations

At March 31, 2024, the transaction price allocated to unsatisfied performance obligations for contracts expected to be greater than one year, or performance obligations for which we do not have a right to consideration from the customer in the amount that corresponds to the value to the customer for our performance completed to date, variable consideration which is not accounted for in accordance with the sales-based or usage-based royalties guidance, or contracts which are not wholly unperformed, is approximately $102.6 million. Of this amount, we expect to recognize as revenue approximately 30% through December 31, 2024, approximately 50% through December 31, 2026, and the remaining 20% through December 31, 2029.

6. Stock-Based Compensation

A summary of the Company’s restricted stock unit (“RSU”) activity during the three months ended March 31, 2024 is as follows:

	Number of Shares

Unvested Outstanding at January 1, 2024 ⁽¹⁾		1,242,175
Granted ⁽²⁾

SEC Form 10-Q filed by Inspired Entertainment Inc.