Inspired(INSE) - 2020 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's analysis for Q1 2020 ITEM 1. FINANCIAL STATEMENTS This section presents the company's unaudited condensed consolidated financial statements for the three months ended March 31, 2020, including balance sheets, statements of operations, stockholders' deficit, and cash flows, along with detailed notes explaining significant accounting policies, financial instruments, and segment performance Condensed Consolidated Balance Sheets The company's condensed consolidated balance sheets show an increase in total assets from $327.4 million at December 31, 2019, to $330.5 million at March 31, 2020. Total liabilities also increased from $376.9 million to $390.0 million, leading to an expanded stockholders' deficit Balance Sheet Snapshot (in millions) | Metric | March 31, 2020 | December 31, 2019 | | :-------------------------------- | :------------- | :---------------- | | Total Assets | $330.5 | $327.4 | | Total Liabilities | $390.0 | $376.9 | | Total Stockholders' Deficit | $(59.5) | $(49.5) | | Cash | $48.5 | $29.1 | | Current Portion of Long-Term Debt | $24.8 | $2.6 | | Accounts Receivable, net | $32.3 | $24.2 | | Accounts Payable | $25.6 | $22.2 | Condensed Consolidated Statements of Operations and Comprehensive Loss For the three months ended March 31, 2020, the company reported a net loss of $17.4 million, significantly higher than the $5.0 million loss in the prior-year period. Total revenue increased by 55.4% to $52.3 million, primarily driven by the Acquired Businesses segment, but this was offset by substantial increases in cost of sales, SG&A, and other expenses Statements of Operations (in millions) | Metric | 3 Months Ended Mar 31, 2020 | 3 Months Ended Mar 31, 2019 | Change (YoY) | | :------------------------------------------ | :-------------------------- | :-------------------------- | :----------- | | Total Revenue | $52.3 | $33.7 | +55.4% | | Cost of Sales (excl. D&A) | $(13.6) | $(7.0) | +93.6% | | Selling, General & Administrative Expenses | $(29.1) | $(14.7) | +97.5% | | Depreciation and Amortization | $(12.6) | $(9.7) | +29.6% | | Net Operating Loss | $(7.2) | $(0.7) | +893.5% | | Total Other Expense, net | $(10.0) | $(4.4) | +129.6% | | Net Loss | $(17.4) | $(5.0) | +250.1% | | Basic and Diluted EPS | $(0.78) | $(0.24) | - | Condensed Consolidated Statement of Stockholders' Deficit The stockholders' deficit increased from $49.5 million at December 31, 2019, to $59.5 million at March 31, 2020, primarily due to the net loss of $17.4 million during the quarter, partially offset by foreign currency translation adjustments and actuarial gains on the pension plan Stockholders' Deficit (in millions) | Metric | March 31, 2020 | December 31, 2019 | | :-------------------------- | :------------- | :---------------- | | Total Stockholders' Deficit | $(59.5) | $(49.5) | | Accumulated Deficit | $(458.6) | $(441.2) | | Additional Paid-in Capital | $347.6 | $346.6 | | Accumulated Other Comprehensive Income | $51.5 | $45.1 | - Net loss for the three months ended March 31, 2020, was $17.4 million, contributing to the increase in accumulated deficit[14] - Foreign currency translation adjustments and actuarial gains on the pension plan positively impacted comprehensive income by $3.1 million and $4.4 million, respectively[14] Condensed Consolidated Statements of Cash Flows The company reported a net increase in cash of $19.4 million for the three months ended March 31, 2020, driven by $22.2 million in cash provided by financing activities (primarily revolver drawdowns) and $11.1 million from operating activities, partially offset by $11.0 million used in investing activities Cash Flow Summary (in millions) | Metric | 3 Months Ended Mar 31, 2020 | 3 Months Ended Mar 31, 2019 | Change (YoY) | | :------------------------------------ | :-------------------------- | :-------------------------- | :----------- | | Net Cash Provided by Operating Activities | $11.1 | $8.3 | +$2.8 | | Net Cash Used in Investing Activities | $(11.0) | $(5.2) | $(5.8) | | Net Cash Provided by Financing Activities | $22.2 | $(0.2) | +$22.4 | | Net Increase in Cash | $19.4 | $3.0 | +$16.4 | | Cash, End of Period | $48.5 | $19.0 | +$29.5 | - Proceeds from issuance of revolver contributed $22.3 million to financing activities in Q1 2020[20] - Purchases of property and equipment increased to $8.4 million in Q1 2020 from $1.5 million in Q1 2019[20] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of the company's significant accounting policies, financial instruments, and segment performance, supporting the condensed consolidated financial statements Note 1. Nature of Operations, Management's Plans and Summary of Significant Accounting Policies Inspired Entertainment, Inc. is a global B2B gaming technology company providing SBG and Virtual Sports systems. The company's liquidity plan relies on cash on hand, operating cash flows, capital project control, and external borrowings, which management believes will be sufficient through May 2021, despite significant adverse impacts from the COVID-19 pandemic leading to venue closures and liquidity preservation measures - Global business-to-business gaming technology company supplying Server Based Gaming (SBG) and Virtual Sports systems to regulated lottery, betting, and gaming operators worldwide through an "omni-channel" distribution strategy[22] Liquidity Position (as of March 31, 2020) | Metric | Amount (in millions) | | :---------------- | :------------------- | | Cash on Hand | $48.5 | | Working Capital | $5.5 | - The COVID-19 pandemic is adversely affecting operations due to governmental mandates closing land-based gaming venues, potential decrease in consumer gambling, and impacts on product supply, development, and customer payments. To preserve liquidity, the company drew remaining $22.3 million from its revolving credit facility, deferred 2019 bonuses, waived Board retainers, and furloughed over 80% of its workforce[24][25] Note 2. Inventory Total inventory decreased from $18.8 million at December 31, 2019, to $16.4 million at March 31, 2020, primarily due to reductions in component parts and finished goods Inventory Breakdown (in millions) | Category | March 31, 2020 | December 31, 2019 | | :--------------- | :------------- | :---------------- | | Component parts | $11.1 | $12.7 | | Work in progress | $2.0 | $2.1 | | Finished goods | $3.3 | $4.0 | | Total inventories | $16.4 | $18.8 | - Reserves for excess and slow-moving inventory increased slightly from $0.9 million to $1.0 million[28] Note 3. Contract Liabilities and Other Disclosures Contract-related balances show an increase in accounts receivable and customer prepayments, while unbilled accounts receivable and deferred income decreased from December 31, 2019, to March 31, 2020 Contract Related Balances (in millions) | Metric | March 31, 2020 | December 31, 2019 | December 31, 2018 | | :------------------------ | :------------- | :---------------- | :---------------- | | Accounts Receivable | $33.3 | $24.5 | $11.5 | | Unbilled Accounts Receivable | $8.3 | $15.3 | $11.0 | | Deferred Income | $(25.3) | $(27.8) | $(32.0) | | Customer Prepayments and Deposits | $(2.2) | $(1.9) | $(3.6) | - Revenue recognized from the beginning-of-period deferred income balance amounted to $3.5 million for the three months ended March 31, 2020[29] Note 4. Derivatives and Hedging Activities The company entered into two interest rate swaps in January 2020 to hedge against floating rate debt, fixing rates for £95 million at 0.9255% and €60 million at 0.102% until October 2023. As of March 31, 2020, these derivatives resulted in a net liability of $1.4 million - Entered into two interest rate swaps on January 15, 2020, to protect against adverse fluctuations in interest rates on floating rate debt facilities[31] Interest Rate Swaps (as of January 15, 2020) | Currency | Notional Amount | Fixed Rate | Based On | | :------- | :-------------- | :--------- | :------- | | GBP | £95 million | 0.9255% | 6-month LIBOR | | EUR | €60 million | 0.102% | 6-month EUROLIBOR | Effective until maturity on October 1, 2023. Derivative Fair Value (as of March 31, 2020, in millions) | Classification | Fair Value | | :------------------------------------ | :--------- | | Derivative Liability (Interest Rate Products) | $(1.4) | Note 5. Fair Value Measurements The company uses a three-level hierarchy for fair value measurements. As of March 31, 2020, derivative liabilities were $1.4 million (Level 2) and long-term receivables were $1.2 million (Level 2). There were no transfers in or out of Level 3 during the period Fair Value of Financial Instruments (in millions) | Instrument | Level | March 31, 2020 | December 31, 2019 | | :------------------------------------ | :---- | :------------- | :---------------- | | Derivative liability | 2 | $1.4 | $0.0 | | Long term receivable (included in other assets) | 2 | $1.2 | $1.5 | - Level 3 financial liabilities, such as earnout liability, use unobservable inputs requiring significant judgment, but there were no Level 3 transfers in or out during the period[49][50] Note 6. Stock-Based Compensation The company's stock-based compensation plans include RSUs, stock options, and an ESPP. As of March 31, 2020, 1,769,766 RSUs were unvested, and total unrecognized compensation expense was $7.1 million, expected to be recognized over 2.1 years RSU Activity (3 months ended March 31, 2020) | Metric | Number of Shares | | :-------------------------- | :--------------- | | Unvested Outstanding at January 1, 2020 | 1,571,964 | | Granted | 247,405 | | Forfeited | (37,754) | | Vested | (11,849) | | Unvested Outstanding at March 31, 2020 | 1,769,766 | - Stock-based compensation expense recognized was $1.0 million for Q1 2020, down from $2.1 million in Q1 2019[56] - Total unrecognized compensation expense related to unvested stock awards and RSUs at March 31, 2020, amounts to $7.1 million and is expected to be recognized over a weighted average period of 2.1 years[56] Note 7. Accumulated Other Comprehensive Loss (Income) Accumulated other comprehensive income shifted from a loss of $45.1 million at December 31, 2019, to a loss of $51.5 million at March 31, 2020, primarily due to foreign currency translation adjustments and changes in the fair value of hedging instruments, partially offset by actuarial gains on the pension plan Accumulated Other Comprehensive Income (in millions) | Category | March 31, 2020 | December 31, 2019 | | :-------------------------------- | :------------- | :---------------- | | Foreign Currency Translation Adjustments | $(79.6) | $(76.5) | | Change in Fair Value of Hedging Instrument | $2.5 | $1.4 | | Unrecognized Pension Benefit Costs | $25.6 | $30.0 | | Total Accumulated Other Comprehensive (Income) / Loss | $(51.5) | $(45.1) | - An amount of $1.0 million relating to the change in fair value of discontinued hedging instruments will be amortized as a charge to income over the life of the original instrument, to August 2021[58] Note 8. Net Loss per Share Basic and diluted net loss per common share was $(0.78) for the three months ended March 31, 2020, compared to $(0.24) in the prior-year period. Dilutive securities were excluded from the calculation as their effect was anti-dilutive Net Loss per Common Share | Metric | 3 Months Ended Mar 31, 2020 | 3 Months Ended Mar 31, 2019 | | :------------------------------------------------- | :-------------------------- | :-------------------------- | | Net loss per common share – basic and diluted | $(0.78) | $(0.24) | | Weighted average number of shares outstanding | 22,384,268 | 20,959,626 | - Potentially dilutive securities, including RSUs, unvested restricted stock, and stock warrants, totaling 13,118,174 in Q1 2020, were excluded from diluted EPS calculation due to their anti-dilutive effect[61] Note 9. Other Finance Income (Costs) Other finance income (costs) resulted in a net charge of $3.7 million for the three months ended March 31, 2020, a significant shift from a $1.1 million credit in the prior-year period, primarily due to adverse foreign currency translation on senior bank debt Other Finance Income (Costs) (in millions) | Metric | 3 Months Ended Mar 31, 2020 | 3 Months Ended Mar 31, 2019 | | :---------------------------------------- | :-------------------------- | :-------------------------- | | Pension interest cost | $(0.6) | $(0.7) | | Expected return on pension plan assets | $0.8 | $0.9 | | Foreign currency translation on senior bank debt | $(3.9) | $2.8 | | Foreign currency remeasurement on hedging instrument | $(1.9) | $0.0 | | Total Other Finance Income (Costs) | $(3.7) | $1.1 | Note 10. Income Taxes The effective income tax rate for the three months ended March 31, 2020, was 1.2%, resulting in a $0.2 million expense, compared to a (1.8)% rate and a ($0.1) million credit in the prior-year period. Fluctuations are mainly due to the income mix across jurisdictions and pre-tax losses with no recorded tax benefit Effective Income Tax Rate | Period | Effective Tax Rate | Income Tax (Expense) Benefit (in millions) | | :-------------------------- | :----------------- | :----------------------------------------- | | 3 Months Ended Mar 31, 2020 | 1.2% | $(0.2) | | 3 Months Ended Mar 31, 2019 | (1.8)% | $0.1 | - The difference from the U.S. federal statutory rate is primarily due to pre-tax losses for which no tax benefit can be recorded and foreign earnings taxed at different rates[64] Note 11. Related Parties Macquarie UK, an affiliate of a significant common stock owner (MIHI LLC), is a lender under the company's senior facilities agreement, holding $26.8 million of loans as of March 31, 2020. The company also had a 40% non-controlling equity interest in Innov8 Gaming Limited, which was disposed of in April 2020, resulting in a $0.7 million impairment - Macquarie UK, an affiliate of MIHI LLC (beneficial owner of ~16.75% of common stock), is a lender under the senior facilities agreement, holding $26.8 million of loans at March 31, 2020[65] - Interest expense payable to Macquarie UK for the three months ended March 31, 2020, amounted to $0.5 million[65] - The company disposed of its 40% non-controlling equity interest in Innov8 Gaming Limited in April 2020, leading to a $0.7 million impairment to $Nil at March 31, 2020[66][81] Note 12. Leases The company leases various gaming machines, with lease income for the three months ended March 31, 2020, totaling $1.2 million, primarily from operating lease income Lease Income (in millions) | Metric | 3 Months Ended Mar 31, 2020 | 3 Months Ended Mar 31, 2019 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Operating lease income | $1.0 | $0.0 | | Variable income from sales type leases | $0.2 | $0.0 | | Total | $1.2 | $0.0 | Note 13. Commitments and Contingencies The company is involved in legal matters arising in the ordinary course of business but currently believes none are material - The company may become involved in lawsuits and legal matters arising in the ordinary course of business, but currently believes no such matters are material[69][254] Note 14. Pension Plan The company operates defined benefit and defined contribution pension schemes in the UK. The defined benefit scheme is closed to new entrants and future accruals. The net periodic pension benefit cost for Q1 2020 was a benefit of $(0.2) million. The plan's funded status improved from an unfunded $(3.1) million at December 31, 2019, to an overfunded $1.4 million at March 31, 2020 Net Periodic Pension Benefit Cost (in millions) | Component | 3 Months Ended Mar 31, 2020 | 3 Months Ended Mar 31, 2019 | | :-------------------------- | :-------------------------- | :-------------------------- | | Interest cost | $0.6 | $0.7 | | Expected return on plan assets | $(0.8) | $(0.9) | | Net periodic (benefit) cost | $(0.2) | $(0.2) | Pension Plan Funded Status (in millions) | Metric | March 31, 2020 | December 31, 2019 | | :-------------------------------- | :------------- | :---------------- | | Benefit obligation at end of period | $95.1 | $110.4 | | Fair value of assets at end of period | $96.5 | $107.3 | | Overfunded (Unfunded) status | $1.4 | $(3.1) | Note 15. Segment Reporting and Geographic Information The company operates in three segments: Server Based Gaming (SBG), Virtual Sports (including Interactive), and Acquired Businesses. For Q1 2020, total revenue was $52.3 million, with Acquired Businesses contributing the largest share. The UK remains the largest geographic market, accounting for 73.5% of revenue - Operates along three operating segments: Server Based Gaming (SBG), Virtual Sports (which includes Interactive), and Acquired Businesses (Gaming Technology Group of Novomatic UK Ltd., acquired October 1, 2019)[73][90] Segment Revenue (3 Months Ended Mar 31, 2020, in millions) | Segment | Service Revenue | Hardware Revenue | Total Revenue | | :----------------- | :-------------- | :--------------- | :------------ | | Server Based Gaming | $13.4 | $3.3 | $16.7 | | Virtual Sports | $9.0 | $0.0 | $9.0 | | Acquired Businesses | $21.4 | $6.0 | $27.4 | | Intergroup Eliminations | $(0.6) | $(0.2) | $(0.8) | | Total | $43.2 | $9.1 | $52.3 | Geographic Revenue (3 Months Ended Mar 31, 2020, in millions) | Region | 2020 Revenue | 2019 Revenue | | :------------ | :----------- | :----------- | | UK | $38.4 | $22.2 | | Greece | $4.8 | $4.8 | | Italy | $2.2 | $4.2 | | Rest of world | $6.9 | $2.5 | | Total | $52.3 | $33.7 | Note 16. Customer Concentration For the three months ended March 31, 2020, no single customer represented 10% or more of the company's revenues or accounts receivable. This is a change from Q1 2019, where three customers each accounted for over 10% of revenues - No customer represented at least 10% of the company's revenues or accounts receivable for the three months ended March 31, 2020[78][79] - During the three months ended March 31, 2019, three customers represented 23%, 14%, and 11% of the company's revenues[78] Note 17. Subsequent Events In April 2020, the company disposed of its 40% equity interest in Innov8 Gaming Limited, resulting in a $0.7 million impairment. Additionally, on April 6, 2020, an Extended Grace Period Letter Agreement was entered into for the Senior Facilities Agreement, increasing the grace period for interest payment defaults to 75 days and imposing additional reporting and liquidity covenants, following a default on April 1, 2020 - Disposed of its 40% non-controlling equity interest in Innov8 Gaming Limited in April 2020, resulting in a $0.7 million impairment to $Nil at March 31, 2020[81] - Entered into an Extended Grace Period Letter Agreement on April 6, 2020, for the Senior Facilities Agreement, extending the grace period for interest payment defaults from three business days to 75 calendar days[82] - The company defaulted on interest payments of £5.7 million and €3.1 million on April 1, 2020, which could lead to acceleration of obligations if not remedied during the extended grace period[83] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial condition and results of operations for the three months ended March 31, 2020, compared to the prior year. It covers overall performance, segment-specific results, non-GAAP measures, liquidity, debt, and critical accounting policies, highlighting the significant impact of the COVID-19 pandemic and recent acquisitions Forward-Looking Statements This section highlights that the report contains forward-looking statements regarding future financial performance, business strategies, and acquisitions, which are based on current expectations and involve risks and uncertainties, particularly concerning the impact of the COVID-19 pandemic - Forward-looking statements relate to expectations for future financial performance, business strategies, expansion plans, and acquisitions[86] - These statements are subject to known and unknown risks and uncertainties, including the effect and impact of the ongoing global coronavirus (COVID-19) pandemic, competition, evolving technology, contract renewals, supplier relationships, intellectual property protection, cybersecurity threats, government regulation, and economic conditions[87][88] Overview Inspired Entertainment is a global B2B gaming technology company operating in SBG, Virtual Sports, and Acquired Businesses segments. Its strategic priorities include developing new omni-channel products, investing in games and technology, expanding into new markets, and pursuing targeted M&A. The Acquired Businesses segment was established following the acquisition of Novomatic UK's Gaming Technology Group in October 2019 - Inspired Entertainment, Inc. is a global business-to-business gaming technology company, supplying Server Based Gaming (SBG) and Virtual Sports (which includes Interactive) systems to regulated lottery, betting and gaming operators worldwide[89] - Key strategic priorities include extending strong positions in Virtual Sports, Interactive, and SBG by developing new omni-channel products; investing in games and technology to grow existing customer revenues; adding new customers by expanding into underpenetrated and newly regulated jurisdictions; and pursuing targeted mergers and acquisitions[91] - The company reports operations in three business segments: SBG, Virtual Sports (which includes Interactive), and Acquired Businesses (comprised of the Gaming Technology Group of Novomatic UK Ltd., acquired on October 1, 2019)[90] Geographic Range Over half of the company's revenue and non-current assets are derived from the UK. For Q1 2020, the UK accounted for 73.5% of revenue, followed by Greece (9.1%) and Italy (4.2%) Revenue by Geography (3 Months Ended Mar 31, 2020) | Region | Revenue Percentage | | :------------ | :----------------- | | UK | 73.5% | | Greece | 9.1% | | Italy | 4.2% | | Rest of the world | 13.2% | - Revenue from sales to customers outside the UK decreased from 34% during the three months ended March 31, 2019, to 27% during the three months ended March 31, 2020[100] Foreign Exchange The company's results are impacted by foreign currency exchange rate fluctuations, particularly between its functional currency (GBP) and reporting currency (USD). The average GBP:USD rate was 1.28 in Q1 2020, down from 1.30 in Q1 2019 - The company's functional currency is the British pound (GBP), and its reporting currency is the U.S. dollar (USD)[99] - The average GBP:USD rates were 1.28 for the three months ended March 31, 2020, and 1.30 for the three months ended March 31, 2019[105] - Currency impacts are 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 GBP[101] Non-GAAP Financial Measures The company uses non-GAAP financial measures like EBITDA and Adjusted EBITDA to analyze operating performance, believing they offer expanded insight into the business. Adjusted EBITDA excludes non-cash items and non-recurring costs, while Adjusted Revenue excludes nil margin hardware sales - EBITDA is defined as net loss excluding depreciation and amortization, interest expense, interest income, and income tax expense[198] - Adjusted EBITDA is defined as net loss excluding depreciation and amortization, interest expense, interest income, income tax expense, stock-based compensation (settled in stock), changes in earnout liabilities, legacy business income/expenditure, restructuring costs, merger and acquisition costs, and non-ordinary course gains or losses (excluding COVID-19 losses)[199] - Adjusted Revenue (Revenue Excluding Nil Margin Hardware Sales) is defined as revenue excluding hardware sales that are sold at nil margin with the intention of securing longer term recurring revenue streams[201] Results of Operations This section details the company's financial performance for the three months ended March 31, 2020, analyzing revenue, expenses, and net loss, with a focus on segment-specific contributions and impacts from key events Three Months ended March 31, 2020 compared to Three Months ended March 31, 2019 (Overall) The company experienced a significant increase in net loss to $17.4 million in Q1 2020 from $5.0 million in Q1 2019. Total revenue grew by 55.4% to $52.3 million, primarily due to the Acquired Businesses segment, but this was largely offset by increased operating expenses and other finance costs, exacerbated by the COVID-19 pandemic and the UK Triennial Implementation Overall Financial Performance (in millions) | Metric | 3 Months Ended Mar 31, 2020 | 3 Months Ended Mar 31, 2019 | Variance | % Change | | :------------------------------------------ | :-------------------------- | :-------------------------- | :------- | :--------- | | Total Revenue | $52.3 | $33.7 | $18.6 | 55.4% | | Net Operating Loss | $(7.2) | $(0.7) | $(6.4) | 893.5% | | Total Other Expense, net | $(10.0) | $(4.4) | $(5.6) | 129.6% | | Net Loss | $(17.4) | $(5.0) | $(12.4) | 250.1% | - The results for Q1 2020 were impacted by the temporary closure of most non-essential businesses globally due to the COVID-19 pandemic, with shutdowns mandated in key operating jurisdictions (UK, Italy, Greece, US) in March 2020[106] - Adverse currency movements accounted for a $0.8 million impact on total revenue[108] Revenue Total revenue increased by $18.6 million (55.4%) to $52.3 million, primarily driven by $27.4 million from the newly acquired businesses, which offset decreases in SBG ($7.0 million) and Virtual Sports ($1.0 million) revenues - Total reported revenue increased by $18.6 million, or 55.4%, to $52.3 million, with adverse currency movements accounting for a $0.8 million impact[110] - The change in total revenue was comprised of a decrease of $7.0 million in SBG revenue and $1.0 million in Virtual Sports revenue, offset by an increase of $27.4 million from the newly-established Acquired Businesses segment[110] - SBG service revenue decreased by $7.3 million (35.0%) due to the UK LBO market ($4.4M), increased Italy taxes ($0.4M), Italy player card requirement ($0.5M), and COVID-19 retail venue closures ($2.1M)[112] Cost of sales, excluding depreciation and amortization Cost of sales increased by $6.6 million (93.6%) to $13.6 million, primarily due to $7.9 million from the Acquired Businesses, partially offset by a decrease in SBG service costs - Cost of sales, excluding depreciation and amortization, increased by $6.6 million, or 93.6%, to $13.6 million[117] - Of this increase, $7.9 million was attributable to the acquisition of the Acquired Businesses ($2.7 million in service costs and $5.2 million in hardware costs)[118] - This was partly offset by a $0.8 million decrease in SBG service costs due to reduced consumable usage in line with reduced machine estate and COVID-19 impact[118] Selling, general and administrative expenses SG&A expenses increased by $14.4 million (97.5%) to $29.1 million, mainly driven by $16.9 million from the Acquired Businesses, partially offset by reductions in SBG and Virtual Sports - SG&A expenses increased by $14.4 million, or 97.5%, to $29.1 million[119] - The reported increase was driven by incremental SG&A expenses of $16.9 million from the Acquired Businesses[119] - This was partially offset by a $2.0 million decrease in selling, general and administrative expenses in SBG and Virtual Sports[119] Stock-based compensation Stock-based compensation expense decreased by $1.1 million (50.9%) to $1.0 million in Q1 2020, with the prior year including costs from both 2016 and 2018 plans, some impacted by stock price movements - The company recorded a stock-based compensation expense of $1.0 million during the three months ended March 31, 2020, compared to $2.1 million in the prior-year period[121] - The Q1 2020 expense included $0.1 million from the 2016 Long Term Incentive Plan and $0.9 million from the 2018 Plan[121] Acquisition and integration related transaction expenses Acquisition and integration related transaction expenses increased by $2.3 million to $3.2 million, primarily due to group reorganization and integration costs following the Novomatic UK acquisition - Acquisition related transaction expenses increased by $2.3 million to $3.2 million on a reported basis[122] - The 2020 expenses related to group reorganization and integration costs following the acquisition of Novomatic UK's Gaming Technology Group[122] Depreciation and amortization Depreciation and amortization increased by $2.9 million (29.6%) to $12.6 million, driven by $4.8 million from the Acquired Businesses, partially offset by a $1.4 million decrease in SBG and Virtual Sports due to fully depreciated UK and Italy machine estates - Depreciation and amortization increased by $2.9 million, or 29.6%, to $12.6 million[123] - This increase was driven by incremental depreciation and amortization of $4.8 million from the Acquired Businesses[124] - This was partially offset by a $1.4 million decrease of depreciation and amortization in SBG and Virtual Sports, due primarily to UK and Italy machine estates reaching full depreciation status[124] Net operating loss Net operating loss increased significantly by $6.4 million to $7.2 million, mainly due to increased cost of sales and SG&A expenses from Acquired Businesses, and the impact of the Triennial Implementation and COVID-19, partially offset by higher revenues - Net operating loss increased by $6.4 million from a loss of $0.7 million to a loss of $7.2 million[125] - The increase was mainly due to the increase in cost of sales and SG&A expenses, as well as a $0.3 million adverse currency movement, offset by higher revenues attributable to the Acquired Businesses[125] - The net impact of the Triennial Implementation in the UK for the period was $1.8 million[125] Interest expense Interest expense increased by $1.7 million (38.1%) to $6.1 million in Q1 2020, primarily due to the refinancing of the business in October 2019 - Interest expense increased by $1.7 million, or 38.1%, to $6.1 million in Q1 2020[108] - The increase is primarily due to the business refinancing in October 2019[220] Change in fair value of earnout liability There was no change in the fair value of earnout liability in Q1 2020, as the shares related to the earnout liability were issued in March 2019, which had resulted in a $2.3 million charge in Q1 2019 - There was no change in the fair value of earnout liability in the three months ended March 31, 2020[128] - A charge of $2.3 million was recorded in the three months ended March 31, 2019, due to changes in the share price before the earnout shares were issued on March 25, 2019[128] Change in fair value of derivative liability There was no change in the fair value of derivative liabilities in Q1 2020 following the termination of cross-currency swaps in October 2019, compared to a $1.2 million credit in Q1 2019 - Following the termination of the cross-currency swaps on October 1, 2019, there was no change in the fair values of derivative liabilities in the three months ended March 31, 2020[129] - For the three months ended March 31, 2019, the change in fair value of derivative liability was a $1.2 million credit[129] Other finance income Other finance income shifted from a $1.1 million credit in Q1 2019 to a $3.7 million charge in Q1 2020, primarily due to an adverse foreign exchange impact on debt retranslation - Other finance income for the three months ended March 31, 2020, was a charge of $3.7 million, compared to a $1.1 million credit in the three months ended March 31, 2019[130] - This was primarily due to an adverse foreign exchange impact of $6.8 million in retranslating the debt balance[130] Income tax expense Income tax expense was $0.2 million in Q1 2020, compared to a $0.1 million credit in Q1 2019, with effective tax rates of 1.3% and (1.8)% respectively - The effective tax rate for the period ended March 31, 2020, was 1.3%, resulting in an income tax expense of $0.2 million[131] - The effective tax rate for the period ended March 31, 2019, was (1.8%), resulting in an income tax credit of $0.1 million[131] Net loss Net loss increased by $12.4 million to $17.4 million in Q1 2020, driven by the Triennial Implementation, COVID-19 shutdowns, increased operating expenses from Acquired Businesses, and higher interest/finance costs, partially offset by a reduction in earnout liability - Net loss increased by $12.4 million, from a loss of $5.0 million to a loss of $17.4 million in the three months ended March 31, 2020[133] - The increase was mainly due to the impact of the Triennial Implementation and COVID-19 shutdowns, as well as increases in operating expenses attributable to the Acquired Businesses, in addition to increases in interest expense and other finance costs, offset by a reduction in earnout liability[133] Three Months ended March 31, 2020 compared to Three Months ended March 31, 2019 – Server Based Gaming Segment The SBG segment experienced a $7.0 million (29.5%) decrease in total revenue to $16.7 million in Q1 2020, primarily due to the UK Triennial Implementation, increased Italian taxes, player card requirements, and COVID-19 venue closures. Operating income declined by $3.1 million, resulting in a $0.1 million operating loss SBG Segment Financial Performance (in millions) | Metric | 3 Months Ended Mar 31, 2020 | 3 Months Ended Mar 31, 2019 | Variance | % Change | | :------------------------------------------ | :-------------------------- | :-------------------------- | :------- | :--------- | | Total Revenue | $16.7 | $23.7 | $(7.0) | (29.5)% | | Total Cost of Sales (excl. D&A) | $(5.4) | $(6.0) | $0.7 | (11.1)% | | Selling, General & Administrative Expenses | $(5.0) | $(6.6) | $1.5 | (23.3)% | | Depreciation and Amortization | $(6.2) | $(7.7) | $1.5 | (19.1)% | | Net Operating Income (Loss) | $(0.1) | $3.0 | $(3.1) | (102.0)% | SBG Segment, Key Performance Indicators The SBG segment saw a 7.1% decrease in end-of-period installed base and a 37.9% decrease in Customer Gross Win per unit per day, primarily due to the UK Triennial Implementation and COVID-19 shutdowns SBG Key Performance Indicators | Metric | Mar 31, 2020 | Mar 31, 2019 | Variance | % Change | | :------------------------------------ | :----------- | :----------- | :------- | :--------- | | End of period installed base ( of terminals) | 32,790 | 35,286 | (2,496) | (7.1)% | | Average installed base ( of terminals) | 32,814 | 35,022 | (2,207) | (6.3)% | | Customer Gross Win per unit per day (£) | £65.07 | £104.77 | (£39.69) | (37.9)% | | Customer Net Win per unit per day (£) | £48.42 | £73.11 | (£24.69) | (33.8)% | | Inspired Blended Participation Rate | 6.0% | 6.1% | (0.1)% | - | SBG Segment, key events that affected results for the Three Months ended March 31, 2020 Key events impacting SBG results included a 31.7% decrease in UK Customer Gross Win per unit per day due to the Triennial Implementation and COVID-19, a 61.7% decrease in Italy's Customer Net Win per unit per day due to tax increases, card reader implementation, and COVID-19, and an 18.5% decrease in Greece's Customer Gross Win per unit per day solely due to COVID-19 - Customer Gross Win per unit per day in the total UK market decreased by 31.7% due to the Triennial Implementation outcome and COVID-19 impact[145] - In Italy, Customer Net Win per unit per day decreased by 61.7% due to an increase in average revenue tax, card reader implementation, and COVID-19 retail venue closures[147] - Greece Customer Gross Win per unit per day (in EUR) decreased by 18.5% solely due to the closure of retail venues commencing March 14, 2020, due to COVID-19[148] SBG Segment, Three Months ended March 31, 2020 compared to Three Months ended March 31, 2019 (Financials) SBG total revenue decreased by $7.0 million (29.5%) to $16.7 million. Service revenue declined by $7.5 million (35.8%) due to regulatory changes and COVID-19, while hardware revenue increased by $0.5 million. Operating income shifted from a $3.0 million profit to a $0.1 million loss SBG Segment Financials (in millions) | Metric | 3 Months Ended Mar 31, 2020 | 3 Months Ended Mar 31, 2019 | Variance | % Change | | :------------------------------------------ | :-------------------------- | :-------------------------- | :------- | :--------- | | Service Revenue | $13.4 | $20.8 | $(7.5) | (35.8)% | | Hardware Revenue | $3.3 | $2.9 | $0.5 | 16.4% | | Total Revenue | $16.7 | $23.7 | $(7.0) | (29.5)% | | Net Operating Income (Loss) | $(0.1) | $3.0 | $(3.1) | (102.0)% | SBG Segment Revenue SBG service revenue decreased by $7.5 million (35.8%) to $13.4 million, primarily due to the UK Triennial Implementation ($4.4M), increased Italy taxes ($0.4M), player card implementation ($0.5M), and COVID-19 closures ($2.1M). Hardware revenue increased by $0.5 million, driven by new market sales in North America - SBG service revenue decreased by $7.5 million on a reported basis, or 35.8%, to $13.4 million[153] - This decrease was primarily due to a $4.4 million reduction in UK LBO market revenue (Triennial Implementation), $0.4 million from increased Italy taxes, $0.5 million from Italy player card introduction, and $2.1 million from COVID-19 retail venue closures[153] - Hardware revenue increased by $0.5 million to $3.3 million, driven by continued "Valor cabinet" new market sales in North America ($2.3 million) and "Flex cabinet" sales to a major UK Bingo market customer ($0.4 million)[155] SBG Segment Operating Income SBG operating income declined by $3.1 million to a $0.1 million loss. Cost of sales decreased by $0.7 million, SG&A declined by $1.5 million due to restructuring and synergies, and depreciation declined by $1.5 million as UK machines became fully depreciated - Operating income declined by $3.1 million, from a $3.0 million reported operating profit to a $0.1 million operating loss year over year[160] - Cost of sales (excluding depreciation and amortization) decreased by $0.7 million to $5.4 million[156] - SBG SG&A expense declined by $1.5 million, reflecting ongoing restructuring and synergies, with $1.0 million attributable to reduced staff costs. Depreciation declined by $1.5 million due to UK machines becoming fully depreciated[158][159] SBG Segment, Recurring Revenue Total SBG recurring revenue decreased by £5.5 million (38.2%) to £8.8 million, and its percentage of total SBG revenue declined from 78.7% to 68.0% SBG Recurring Revenue (in £ millions) | Metric | Mar 31, 2020 | Mar 31, 2019 | Variance | % Change | | :------------------------------------ | :----------- | :----------- | :------- | :--------- | | Total SBG Revenue | £13.0 | £18.2 | (£5.2) | (28.5)% | | SBG Participation Revenue | £8.6 | £14.0 | (£5.3) | (38.1)% | | SBG Other Fixed Fee Recurring Revenue | £0.2 | £0.3 | (£0.1) | (41.4)% | | Total SBG Recurring Revenue | £8.8 | £14.3 | (£5.5) | (38.2)% | | SBG Recurring Revenue as a % of Total SBG Revenue | 68.0% | 78.7% | (10.6)% | - | SBG Segment, Service Revenue by Region SBG service revenue declined across all regions except Greece, with the UK LBO market experiencing the largest decrease of $5.9 million (44.4%) and Italy declining by $1.2 million (62.0%). Greece saw a slight increase of $0.1 million (3.3%) SBG Service Revenue by Region (in millions) | Region | 3 Months Ended Mar 31, 2020 | 3 Months Ended Mar 31, 2019 | Variance | % Change | | :------------------ | :-------------------------- | :-------------------------- | :------- | :--------- | | UK LBO | $7.4 | $13.3 | $(5.9) | (44.4)% | | UK Other | $1.0 | $1.3 | $(0.3) | (26.2)% | | Italy | $0.8 | $2.0 | $(1.2) | (62.0)% | | Greece | $4.1 | $4.0 | $0.1 | 3.3% | | Rest of the World | $0.1 | $0.2 | $(0.1) | (44.9)% | | Total service revenue | $13.4 | $20.8 | $(7.5) | (35.8)% | Virtual Sports Segment, Three Months ended March 31, 2020 compared to Three Months ended March 31, 2019 The Virtual Sports segment's revenue decreased by $1.0 million (10.1%) to $9.0 million, primarily due to a one-time adjustment in 2019 and a decline in retail recurring revenue from COVID-19 shutdowns, partially offset by growth in Scheduled Online Virtuals and Interactive. Operating profit decreased by $0.1 million to $4.9 million Virtual Sports Segment Financials (in millions) | Metric | 3 Months Ended Mar 31, 2020 | 3 Months Ended Mar 31, 2019 | Variance | % Change | | :------------------------------------------ | :-------------------------- | :-------------------------- | :------- | :--------- | | Service Revenue | $9.0 | $10.0 | $(1.0) | (10.1)% | | Cost of Service | $(0.9) | $(1.0) | $0.1 | (9.0)% | | Selling, General & Administrative Expenses | $(1.7) | $(2.2) | $0.5 | (22.3)% | | Depreciation and Amortization | $(1.4) | $(1.5) | $0.1 | (7.1)% | | Net Operating Income (Loss) | $4.9 | $5.0 | $(0.1) | (1.7)% | Virtual Sports Segment, Key Performance Indicators The Virtual Sports segment saw an increase in the average number of live customers by 9.6% to 108, but total revenue in GBP decreased by 8.4% to £7.0 million. Average revenue per customer per day declined by 16.4% Virtual Sports Key Performance Indicators (in £ millions, except customer count) | Metric | Mar 31, 2020 | Mar 31, 2019 | Variance | % Change | | :------------------------------------------ | :----------- | :----------- | :------- | :--------- | | No. of Live Customers at the end of the period | 110 | 101 | 9 | 8.9% | | Average No. of Live Customers | 108 | 99 | 9 | 9.6% | | Total Revenue (£'m) | £7.0 | £7.7 | (£0.6) | (8.4)% | | Total Virtual Sports Recurring Revenue (£'m) | £6.4 | £7.0 | (£0.6) | (8.3)% | | Total Revenue £'m - Retail | £3.3 | £4.1 | (£0.8) | (18.7)% | | Total Revenue £'m - Scheduled Online Virtuals | £2.7 | £2.9 | (£0.2) | (6.4)% | | Total Revenue £'m - Interactive | £1.0 | £0.6 | (£0.3) | 50.2% | | Average Revenue Per Customer per day (£) | £705 | £844 | (£138) | (16.4)% | Virtual Sports Segment, Recurring Revenue Total Virtual Sports recurring revenue decreased by £0.6 million (8.6%) to £6.4 million, with recurring revenue from Retail and Scheduled Online Virtuals declining, while Interactive recurring revenue increased Virtual Sports Recurring Revenue (in £ millions) | Metric | Mar 31, 2020 | Mar 31, 2019 | Variance | % Change | | :------------------------------------------ | :----------- | :----------- | :------- | :--------- | | Total Virtual Sports Revenue | £7.0 | £7.7 | (£0.6) | (8.4)% | | Recurring Revenue - Retail and Scheduled Online Virtuals | £5.5 | £6.4 | (£0.9) | (14.3)% | | Recurring Revenue - Interactive | £0.9 | £0.6 | £0.3 | 49.4% | | Total Virtual Sports Recurring Revenue | £6.4 | £7.0 | (£0.6) | (8.6)% | | Virtual Sports Recurring Revenue as a Percentage of Total Virtual Sports Revenue | 91.8% | 92.0% | (0.2)% | - | Virtual Sports Segment, key events that affected results for the Three Months ended March 31, 2020 The COVID-19 pandemic negatively impacted retail recurring revenues, but Scheduled Online Virtuals and Interactive revenues saw significant growth. New V-Play Basketball and Cricket products launched with Bet365, and the Interactive division added four new customers and new proprietary content - The COVID-19 pandemic impacted retail recurring revenues in March, but Scheduled Online Virtuals and Interactive revenues saw significant growth[172] - Bet365 launched two streams of the new V-Play Basketball product and an additional stream of V-Play Cricket[173] - The Interactive division launched with four new customers (including 888, BCLC, and Resorts Casino New Jersey) and added the Sky Vegas brand, along with new proprietary content releases[174] Virtual Sports Segment, Three Months ended March 31, 2020 compared to Three Months ended March 31, 2019 (Financials) Virtual Sports service revenue decreased by $1.0 million (10.1%) to $9.0 million, primarily due to a 2019 one-time adjustment and COVID-19 shutdowns, partially offset by online and interactive growth. Operating profit decreased by $0.1 million to $4.9 million - Virtual Sports revenue decreased by $1.0 million, or 10.1%, to $9.0 million on a reported basis[179] - This decrease included a $0.7 million one-time adjustment in 2019 for under-reported revenue share and a $1.0 million decline in retail recurring revenue from COVID-19 national shutdowns[179] - Declines were partially offset by growth in Scheduled Online Virtuals of $0.5 million and Interactive of $0.4 million[179] Virtual Sports Segment operating income Virtual Sports operating profit decreased by $0.1 million to $4.9 million. Cost of service decreased by $0.1 million, and SG&A expenses decreased by $0.5 million due to staff and other cost savings - Operating profit decreased by $0.1 million on a reported basis, to $4.9 million[182] - Cost of service decreased by $0.1 million to $0.9 million[180] - SG&A expenses decreased by $0.5 million, driven by staff-related cost savings of $0.1 million and other cost savings of $0.6 million[181] Acquired Businesses segment, key events that affected results for the Three Months ended March 31, 2020 The Acquired Businesses segment, acquired on October 1, 2019, generates revenue from manufacturing, marketing, and rental of gaming machines and software, primarily through long-term contracts on participation or fixed fee bases. Revenue growth is driven by customer count, machine count, net win performance, and participation rates - The Acquired Businesses segment was established following the acquisition of the Gaming Technology Group of Novomatic UK Ltd. on October 1, 2019[190] - Revenue is generated through the manufacturing, marketing, and rental of gaming machines and gaming software, typically on a long-term contract basis, on both participation and fixed fee bases[184] - Revenue growth is principally driven by the number of operator customers, the number of gaming machines in operation, the net win performance of the machines, and the net win percentage received[185] Acquired Businesses segment, Key Performance Indicators The Acquired Businesses segment saw a 37.9% increase in the average installed base of Pub Digital Cat C Gaming Machines, while Pub Analogue machines decreased by 33.3%. Revenue per digital machine per week declined by 5.0% due to COVID-19 shutdowns Acquired Businesses Key Performance Indicators | Metric | Mar 31, 2020 | Mar 31, 2019 | Variance | % Change | | :---------------------------------------------------------------- | :----------- | :----------- | :------- | :--------- | | Pub Digital Cat C Gaming Machines - Average installed base ( of terminals) | 5,746 | 4,166 | 1,580 | 37.9% | | Inspired Pubs Revenue per Digital Cat C Gaming Machine per week (£) | £60.15 | £63.30 | (£3.14) | (5.0)% | | Pub Analogue Digital Cat C Gaming Machines - Average installed base ( of terminals) | 2,737 | 4,103 | (1,366) | (33.3)% | | Inspired Pubs Revenue per Analogue Cat C Gaming Machine per week (£) | £38.20 | £43.93 | (£5.72) | (13.0)% | | End of Period % of Digital Cat C Gaming Machines in Pub Market | 68.2% | 52.4% | 15.8% | - | | Total Leisure Parks Revenue (Gaming and Non Gaming) (£'m) | £1.5 | £1.6 | (£0.2) | (10.3)% | | AGC and MSA Gaming Machines - Average installed base ( of terminals) | 5,042 | 5,913 | (871) | (14.7)% | | Inspired AGC and MSA Revenue per Gaming Machine per week (£) | £68.86 | £59.76 | £9.10 | 15.2% | Acquired Businesses segment, Three Months ended March 31, 2020 (Financials) For Q1 2020, the Acquired Businesses segment generated $27.4 million in total revenue, comprising $21.4 million in service revenue and $6.0 million in hardware revenue, resulting in a net operating loss of $2.2 million Acquired Businesses Segment Financials (in millions) | Metric | 3 Months Ended Mar 31, 2020 | | :------------------------------------------ | :-------------------------- | | Service Revenue | $21.4 | | Hardware Revenue | $6.0 | | Total Revenue | $27.4 | | Total Cost of Sales (excl. D&A) | $(7.9) | | Selling, General & Administrative Expenses | $(16.9) | | Depreciation and Amortization | $(4.8) | | Net Operating Income (Loss) | $(2.2) | Acquired Businesses Segment Revenue Service revenue was $21.4 million, with $9.7 million from Pub customers and $1.9 million from Leisure parks. Digital gaming machines in pubs increased to 68.2% of the total, but revenue per digital terminal declined by 5.0% due to COVID-19. Hardware revenue was $6.0 million from 930 machine sales - Acquired Businesses service revenue was $21.4 million in Q1 2020, with $9.7 million generated from Pub customers and $1.9 million from UK leisure parks[192][193] - Digital gaming machines accounted for 68.2% of total Category C gaming machines in the UK Pub estate at period-end, an increase from 52.4% in the prior year[192] - Revenue per digital terminal declined by 5.0% for the quarter due to the shutdown of the UK market related to the COVID-19 pandemic. Hardware revenue was $6.0 million, including the sale of 930 machines[192][194] Acquired Businesses Segment Operating Income Acquired Businesses operating income reflects cost of sales of $7.9 million (manufacturing, royalties, distribution, taxes), SG&A expenses of $16.9 million (service network, facilities, staffing), and depreciation and amortization of $4.8 million (capitalized game development, machine deployment) - Acquired Businesses operating income reflects cost of sales of $7.9 million (manufacturing costs, content royalties, spare parts, distribution costs, and certain gaming taxes)[195] - SG&A expenses were $16.9 million, including service network costs, facilities, and staffing[195] - Depreciation and amortization amounted to $4.8 million, reflecting capitalized game development and machine deployment levels[195] Non-GAAP Financial Measures (Definitions and Reconciliations) The company provides reconciliations for its non-GAAP financial measures, Adjusted EBITDA and Adjusted Revenue, to U.S. GAAP measures. Adjusted EBITDA for Q1 2020 was $10.1 million, down from $13.7 million in Q1 2019. Adjusted Revenue was $52.3 million for Q1 2020 Reconciliation to Adjusted EBITDA (in millions) | Metric | 3 Months Ended Mar 31, 2020 | 3 Months Ended Mar 31, 2019 | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Net loss | $(17.4) | $(5.0) | | Pension charges | $0.2 | $0.2 | | Costs of group restructure | $0.1 | $1.5 | | Acquisition and integration related transaction expenses | $3.2 | $0.9 | | Impairment on interest in equity method investee | $0.7 | $0.0 | | Stock-based compensation expense | $1.0 | $2.1 | | Depreciation and amortization | $12.6 | $9.7 | | Total other expense, net | $9.5 | $4.4 | | Income tax | $0.2 | $(0.1) | | Adjusted EBITDA | $10.1 | $13.7 | Reconciliation to Adjusted Revenue (in millions) | Metric | 3 Months Ended Mar 31, 2020 | 3 Months Ended Mar 31, 2019 | | :---------------- | :-------------------------- | :-------------------------- | | Net revenues | $52.3 | $33.7 | | Less Nil Margin Sales | $0.0 | $0.0 | | Adjusted Revenue | $52.3 | $33.7 | Liquidity and Capital Resources Net cash provided by operating activities increased by $2.8 million to $11.1 million in Q1 2020. Net cash used in investing activities increased by $5.8 million to $11.0 million, while net cash generated by financing activities significantly increased by $22.4 million to $22.2 million, primarily from drawing on the revolving credit facility Cash Flow Summary (in millions) | Metric | 3 Months Ended Mar 31, 2020 | 3 Months Ended Mar 31, 2019 | Variance | | :------------------------------------------ | :-------------------------- | :-------------------------- | :------- | | Net cash provided by operating activities | $11.1 | $8.3 | $2.8 | | Net cash used in investing activities | $(11.0) | $(5.2) | $(5.8) | | Net cash generated by financing activities | $22.2 | $(0.2) | $22.4 | | Net increase in cash and cash equivalents | $19.4 | $3.0 | $16.4 | - Operating cash flow improvement was driven by favorable timing of supplier payments ($6.0M), favorable movements in accruals and prepayments ($6.1M), and deferred revenue movements ($1.9M), partly offset by an adverse movement in receivables ($6.5M)[214] - Net cash used in investing activities increased due to a $6.1 million higher spend on property and equipment following the acquisition of Novomatic UK's Gaming Technology Group[216] Funding Needs and Sources As of March 31, 2020, the company had $48.5 million in cash and cash equivalents and $5.5 million in working capital. Management believes current cash, operating cash flows, capital project control, and external borrowings will be sufficient to fund net cash requirements through May 2021 Liquidity (as of March 31, 2020) | Metric | Amount (in millions) | | :---------------- | :------------------- | | Cash and Cash Equivalents | $48.5 | | Working Capital | $5.5 | - Management believes the company's cash balances on hand, cash flows expected from operations, ability to control and defer capital projects, and external borrowings will be sufficient to fund net cash requirements through May 2021[220] Long Term and Other Debt As of March 31, 2020, the company had total bank facilities of approximately $297.2 million, consisting of £140.0 million and €90.0 million senior term loans and a £20.0 million revolving credit facility. The term loans mature on October 1, 2024, with interest rates of 7.25% + 3-month LIBOR and 6.75% + 3-month EUROLIBOR, respectively - As of March 31, 2020, the company had bank facilities of £160.0 million and €90.0 million (equivalent to approximately $297.2 million)[226] - Senior term loan facilities include £140.0 million ($173.6 million equivalent) at 7.25% + 3-month LIBOR (8.08% effective) and €90.0 million ($98.7 million equivalent) at 6.75% + 3-month EUROLIBOR (6.75% effective), both maturing October 1, 2024[226] - A £20.0 million ($24.8 million equivalent) revolving credit facility was drawn as of March 31, 2020, with a cash interest rate of 5.50% + 3-month LIBOR (6.18% effective), maturing September 1, 2024[228] Debt Covenants As of March 31, 2020, the company was subject to quarterly covenant testing on Leverage (Consolidated Total Net Debt/Consolidated Pro Forma EBITDA) and annual capital expenditure limits, with no breaches reported for Q1 2020 or Q1 2019 - Under debt facilities as of March 31, 2020, the company is subject to quarterly covenant testing on Leverage (Consolidated Total Net Debt/Consolidated Pro Forma EBITDA) and annual capital expenditure limits[232] - There were no breaches of the debt covenants in the periods ended March 31, 2020, and March 31, 2019[234] Liens and Encumbrances As of March 31, 2020, the company's senior bank debt was secured by a fixed and floating charge over all assets of the company and certain subsidiaries - As of March 31, 2020, the senior bank debt was secured by a fixed and floating charge in favor of the lender over all the assets of the company and certain of its subsidiaries[235] Recent US Tax Law Changes Due to recent US tax reforms, particularly GILTI, the company may be