Inspired(US:INSE)2025-05-08 20:20PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) Inspired Entertainment reported Q1 2025 revenue of $60.4 million, significantly reduced net loss, and achieved strong operating cash flow Condensed Consolidated Balance Sheets Total assets increased to $458.9 million as of March 31, 2025, while total liabilities also rose, and the stockholders' deficit improved Condensed Consolidated Balance Sheet Highlights (in millions) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash | $39.0 | $29.3 | | Total current assets | $161.8 | $159.9 | | Total assets | $458.9 | $438.4 | | Liabilities & Stockholders' Deficit | | | | Total current liabilities | $113.1 | $104.0 | | Long-term debt | $301.5 | $292.2 | | Total liabilities | $461.1 | $441.7 | | Total stockholders' deficit | $(2.2) | $(3.3) | Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income Q1 2025 total revenue was $60.4 million, a decrease from prior year, but net operating income turned positive, and net loss significantly narrowed Q1 2025 vs Q1 2024 Statement of Operations (in millions, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Total Revenue | $60.4 | $62.3 | | Net Operating Income (Loss) | $1.6 | $(2.1) | | Net Loss | $(0.1) | $(6.4) | | Net Loss per Share (basic and diluted) | $0.00 | $(0.22) | Condensed Consolidated Statements of Cash Flows In Q1 2025, the company generated $25.5 million in operating cash flow, a significant increase, ending the quarter with $39.0 million cash Q1 2025 vs Q1 2024 Cash Flow Summary (in millions) | Cash Flow Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $25.5 | $6.0 | | Net cash used in investing activities | $(15.1) | $(10.1) | | Net cash used in financing activities | $(1.7) | $(0.2) | | Net increase (decrease) in cash | $9.7 | $(4.7) | | Cash, end of period | $39.0 | $35.3 | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, liquidity outlook, segment reporting, fixed-rate debt, debt covenant compliance, and a revision for immaterial lease classification errors - Management believes cash on hand, expected cash flows from operations, and available borrowings will be sufficient to fund requirements through May 202627 - Long-term debt consists of £235.0 million ($303.4 million) of Senior Secured Notes with a fixed interest rate of 7.875%, maturing on June 1, 202637 - The company was in compliance with its RCF Financial Covenant as of March 31, 2025, with a net leverage of 2.9x against a maximum of 5.50x38 - The company identified and corrected immaterial errors in its 2024 financial statements related to the classification of leases between operating and sales type7273 Management's Discussion and Analysis of Financial Condition and Results of Operations Q1 2025 consolidated revenue decreased by 3% to $60.4 million, but net operating income improved, net loss narrowed, and Adjusted EBITDA reached $18.4 million, with solid liquidity Overall Company Results Q1 2025 total revenue decreased by 3% due to lower product sales, but reduced costs led to improved net operating income and a 95% reduction in net loss Overall Company Results - Q1 2025 vs Q1 2024 (in millions) | Metric | Q1 2025 | Q1 2024 | Variance (Functional Currency) | Variance % (Functional Currency) | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $60.4 | $62.3 | $(1.6) | (3)% | | Net Operating Income / (Loss) | $1.6 | $(2.1) | $3.6 | 171% | | Net Loss | $(0.1) | $(6.4) | $6.1 | 95% | - The decrease in revenue was driven by a $2.8 million decline in product sales, while service revenue saw a modest increase of $1.2 million96100 - Cost of sales decreased by $2.5 million (12%), driven by lower cost of product sales linked to decreased hardware sales102 Segment Results Q1 2025 segment performance was mixed, with Interactive revenue up 51%, Gaming down 6%, Virtual Sports down 29%, and Leisure down 3% Segment Revenue - Q1 2025 vs Q1 2024 (in millions) | Segment | Q1 2025 Revenue | Q1 2024 Revenue | Change (Functional Currency) | | :--- | :--- | :--- | :--- | | Gaming | $21.7 | $23.2 | $(1.5) | | Virtual Sports | $8.7 | $12.4 | $(3.6) | | Interactive | $12.1 | $8.1 | $4.1 | | Leisure | $17.9 | $18.6 | $(0.6) | Segment Operating Income (Loss) - Q1 2025 vs Q1 2024 (in millions) | Segment | Q1 2025 Operating Income (Loss) | Q1 2024 Operating Income (Loss) | Change (Functional Currency) | | :--- | :--- | :--- | :--- | | Gaming | $4.2 | $2.1 | $1.9 | | Virtual Sports | $4.9 | $9.4 | $(4.3) | | Interactive | $6.9 | $3.1 | $4.0 | | Leisure | $(1.7) | $(1.3) | $(0.2) | Non-GAAP Financial Measures The company uses non-GAAP measures like Adjusted EBITDA, which increased to $18.4 million in Q1 2025, with reconciliation including standard adjustments Adjusted EBITDA Reconciliation Summary (in millions) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Loss | $(0.1) | $(6.4) | | Adjustments (D&A, Interest, Tax, etc.) | $18.5 | $21.9 | | Adjusted EBITDA | $18.4 | $15.5 | - Adjusted EBITDA is defined as net income (loss) excluding D&A, interest, taxes, and other adjustments like stock-based compensation, restructuring costs, and M&A costs178 Liquidity and Capital Resources The company's liquidity improved in Q1 2025, with cash increasing to $39.0 million and operating cash flow rising to $25.5 million, with management believing liquidity is sufficient through May 2026 - Net cash inflow from operating activities increased to $25.5 million in Q1 2025 from $6.0 million in Q1 2024, a $19.5 million improvement189190 - As of March 31, 2025, the company had liquidity of $39.0 million in cash and a $6.5 million undrawn revolver facility197 - The Board authorized a $25.0 million share repurchase program, with $13.0 million remaining available as of March 31, 2025205 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is foreign currency exchange rate fluctuations between GBP and USD, with minimal interest rate risk due to fixed-rate debt - The primary market risk is foreign currency exchange rate fluctuation, as the company's functional currency is GBP but it reports in USD211213 - Interest rate risk is low because the company's £235.0 million in external borrowings are at a fixed rate212 Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of March 31, 2025, due to material weaknesses, though financial statements are believed to be fairly presented - Certifying Officers concluded that disclosure controls and procedures were not effective as of March 31, 2025218 - The ineffectiveness is due to material weaknesses described in the Annual Report on Form 10-K for the year ended December 31, 2024218 - Notwithstanding the material weaknesses, management believes the interim financial statements are fairly presented in all material respects219 PART II. OTHER INFORMATION Legal Proceedings The SEC concluded its investigation into the company's restated financial statements without recommending enforcement action, and other legal matters are not currently material - On January 28, 2025, the SEC staff notified the Company that it had concluded its investigation regarding restated financial statements and did not intend to recommend an enforcement action221 Risk Factors No new risk factors are presented in this report, with the company referring to those discussed in its Annual Report on Form 10-K - The company directs investors to consider the risk factors discussed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2024223 Unregistered Sales of Equity Securities and Use of Proceeds None - None224 Defaults Upon Senior Securities None - None225 Mine Safety Disclosures Not applicable - Not applicable226 Other Information None - None227 Exhibits This section lists exhibits filed with the Form 10-Q, including executive employment agreements and required certifications by officers - Exhibits filed include addendums to employment agreements for A. Lorne Weil and Brooks H. Pierce, and a new employment agreement for James Richardson228 - Required certifications under Rule 13a-14(a) and 13a-14(b) by the Principal Executive Officer and Principal Financial Officer are filed as exhibits228