Inspired(INSE) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's analysis of the company's financial condition and results of operations Financial Statements (Unaudited) The unaudited condensed consolidated financial statements for the six months ended June 30, 2025, show a total revenue of $140.7 million and a net loss of $7.9 million, with total assets increasing to $486.8 million and operating cash flow at $40.7 million Condensed Consolidated Balance Sheets As of June 30, 2025, total assets were $486.8 million, an increase from $438.4 million at December 31, 2024, driven by a rise in cash and long-term debt, resulting in a total stockholders' deficit of $9.5 million Condensed Consolidated Balance Sheet Highlights (in millions) | Balance Sheet Item | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash | $46.3 | $29.3 | | Total current assets | $165.7 | $159.9 | | Total assets | $486.8 | $438.4 | | Liabilities & Stockholders' Deficit | | | | Total current liabilities | $98.3 | $104.0 | | Long-term debt | $349.6 | $292.2 | | Total liabilities | $496.3 | $441.7 | | Total stockholders' deficit | $(9.5) | $(3.3) | Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income For Q2 2025, total revenue was $80.3 million with a net loss of $7.8 million, while for H1 2025, revenue increased to $140.7 million, and net loss widened to $7.9 million Statement of Operations Summary (in millions, except per share data) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $80.3 | $74.8 | $140.7 | $137.0 | | Net Operating Income | $7.9 | $8.7 | $9.5 | $6.6 | | Net (Loss) Income | $(7.8) | $1.4 | $(7.9) | $(5.0) | | Net (Loss) Income per Share - Diluted | $(0.27) | $0.05 | $(0.27) | $(0.18) | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities significantly increased to $40.7 million for H1 2025, with a net increase in cash of $17.0 million, ending the period with $46.3 million Cash Flow Summary for Six Months Ended June 30 (in millions) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $40.7 | $3.6 | | Net cash used in investing activities | $(31.2) | $(19.2) | | Net cash provided by (used in) financing activities | $4.1 | $(0.5) | | Net increase (decrease) in cash | $17.0 | $(16.5) | | Cash, end of period | $46.3 | $23.5 | Notes to Condensed Consolidated Financial Statements Key notes detail a major debt refinancing in June 2025, segment revenue growth in Interactive, declines in Virtual Sports, and a correction of immaterial errors in 2024 interim financials - On June 9, 2025, the company issued £270.0 million ($370.0 million) in new Series B Senior Notes due 2030, bearing a variable interest rate of SONIA plus a margin of 5.50% to 6.00%[43][47] - The proceeds from the new Senior Notes were used to refinance existing £235.0 million notes and £15.0 million in revolving credit loans[45] Revenue by Segment - Six Months Ended June 30 (in millions) | Segment | 2025 | 2024 | | :--- | :--- | :--- | | Gaming | $48.9 | $49.4 | | Virtual Sports | $17.9 | $24.1 | | Interactive | $25.7 | $17.5 | | Leisure | $48.2 | $46.0 | | Total | $140.7 | $137.0 | - The company identified and corrected immaterial errors in its 2024 interim financial statements related to the classification of leases between operating and sales type, which resulted in a revision of previously reported revenue and net income[105][106] Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion highlights a 7% increase in reported revenue for Q2 2025, driven by strong performance in Interactive and Leisure segments, offset by declines in Gaming and Virtual Sports, alongside a significant debt refinancing and improved liquidity Overall Company Results Q2 2025 saw a 7% revenue increase to $80.3 million but a 9% decrease in net operating income, while H1 2025 revenue grew 3% to $140.7 million with a 44% increase in net operating income Overall Company Performance - Q2 2025 vs Q2 2024 (in millions) | Metric | Q2 2025 | Q2 2024 | Reported Variance % | Functional Currency Variance % | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $80.3 | $74.8 | 7% | 2% | | Net Operating Income | $7.9 | $8.7 | (9)% | (7)% | | Net (Loss) Income | $(7.8) | $1.4 | (657)% | (571)% | - The decline in net operating income for Q2 2025 was predominantly due to increased depreciation and amortization expense, which rose by $3.4 million on a constant currency basis[146][149] - For the six-month period, the growth in net operating income was mainly due to lower cost of product and non-staff related SG&A expenses, partially offset by higher depreciation[150] Segment Results Q2 2025 saw strong constant currency revenue growth in Interactive (38%) and Leisure (5%), offset by declines in Gaming (2%) and Virtual Sports (26%) due to regulatory changes - Gaming: Q2 revenue decreased 2% (constant currency) due to a $3.7 million decline in product sales, partially offset by a $3.1 million increase in service revenue. The average installed base of terminals decreased by 2.7% YoY[138][156][184] - Virtual Sports: Q2 revenue fell 26% (constant currency) primarily due to new regulations and levies in the Brazilian market, leading to a 39% drop in segment operating income[200][201] - Interactive: Q2 revenue surged 38% (constant currency) driven by growth in the UK and North America from new content and promotional activities. The number of live customers increased by 20.5% YoY[204][211] - Leisure: Q2 revenue increased 5% (constant currency), attributed to the timing of a key public holiday in the UK. Operating income grew 7% despite higher depreciation costs[223][225] Non-GAAP Financial Measures Adjusted EBITDA increased to $28.4 million for Q2 2025 and $46.8 million for H1 2025, primarily driven by the Interactive segment's performance Adjusted EBITDA by Segment (in millions) | Segment | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Gaming | $12.8 | $9.5 | $22.1 | $15.9 | | Virtual Sports | $6.6 | $9.6 | $12.9 | $20.0 | | Interactive | $9.1 | $6.1 | $16.8 | $10.5 | | Leisure | $7.7 | $6.1 | $9.4 | $7.9 | | Corporate | $(7.8) | $(6.6) | $(14.4) | $(14.3) | | Total Adjusted EBITDA | $28.4 | $24.7 | $46.8 | $40.0 | Liquidity and Capital Resources Liquidity improved with cash rising to $46.3 million, following a major debt refinancing in June 2025 that established new Senior Notes and a revolving credit facility with financial covenants - Cash provided by operating activities for H1 2025 was $40.7 million, a substantial increase from $3.6 million in H1 2024, driven by strong collections on prior-year sales and favorable timing of supplier payments[238][239] - In June 2025, the company refinanced its debt, issuing £270.0 million in Senior Notes and securing a new £17.8 million ($24.4 million) revolving credit facility, which was undrawn as of June 30, 2025[129][249][57] - New debt covenants require maintaining a maximum consolidated senior secured net leverage ratio of 5.0x for the Senior Notes and 5.50x for the RCF, tested quarterly starting Q3 2025[250][251] Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate risk from its new variable-rate debt and foreign currency exchange rate risk due to its GBP functional currency and USD reporting currency - The company's new £270.0 million debt is subject to a variable interest rate based on SONIA, exposing it to interest rate risk. A 1% increase in floating rates would have resulted in an additional $0.2 million in interest expense for H1 2025[262][263] - The company is exposed to foreign currency risk as its functional currency is GBP, but its reporting currency is USD. A 10% weakening of GBP against the USD would favorably impact trading results by approximately $0.9 million but result in unfavorable translation adjustments of approximately $4.9 million in other comprehensive loss[268] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of June 30, 2025, due to previously identified material weaknesses, yet the financial statements are fairly presented - The company's Certifying Officers concluded that disclosure controls and procedures were not effective as of June 30, 2025, due to previously disclosed material weaknesses[271] - Notwithstanding the ineffective controls, management asserts that the financial statements in this report are fairly presented in all material respects[272] PART II. OTHER INFORMATION This section provides information on legal proceedings, risk factors, and exhibits filed with the report Legal Proceedings The company is involved in routine legal matters, but management believes no current proceedings are material or will adversely affect financial condition or operations - The company states that it is not currently involved in any legal matters that it believes to be material[275] Risk Factors The company refers investors to the comprehensive risk factors detailed in its Annual Report on Form 10-K for the year ended December 31, 2024 - There are no new risk factors disclosed in this report; the company refers to the risk factors detailed in its 2024 Form 10-K[276] Exhibits This section lists exhibits filed with the Form 10-Q, including key agreements related to the June 2025 debt financing and officer certifications - Key exhibits filed include the Senior Notes Purchase Agreement and the Senior Facilities Agreement related to the June 2025 debt refinancing[282]