Inspired(INSE) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's financial performance, condition, and cash flows, along with management's analysis, market risk disclosures, and internal control assessments FINANCIAL STATEMENTS The company's financial statements for the period ended June 30, 2022, show a significant year-over-year improvement, with revenue increasing substantially and a shift from net loss to net income Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and stockholders' deficit as of June 30, 2022, and December 31, 2021 Condensed Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash | $31.8 | $47.8 | | Total current assets | $112.2 | $126.4 | | Total assets | $300.3 | $331.7 | | Liabilities and Stockholders' Deficit | | | | Total current liabilities | $63.4 | $81.5 | | Long-term debt | $279.2 | $309.0 | | Total liabilities | $357.4 | $409.7 | | Total stockholders' deficit | $(57.1) | $(78.0) | Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income This section outlines the company's revenue, operating income, net income, and earnings per share for the three and six months ended June 30, 2022 and 2021 Statement of Operations Highlights (in millions, except per share data) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $71.3 | $41.5 | $131.9 | $64.3 | | Net operating income (loss) | $13.4 | $(9.7) | $20.3 | $(21.9) | | Net income (loss) | $7.5 | $(43.8) | $9.0 | $(60.5) | | Net income (loss) per share - diluted | $0.26 | $(1.94) | $0.31 | $(2.68) | Condensed Consolidated Statements of Cash Flows This section details the company's cash flows from operating, investing, and financing activities for the six months ended June 30, 2022 and 2021 Cash Flow Summary for Six Months Ended June 30 (in millions) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $15.9 | $(12.8) | | Net cash used in investing activities | $(22.0) | $(12.2) | | Net cash (used in) provided by financing activities | $(5.4) | $1.0 | | Net decrease in cash | $(16.0) | $(22.6) | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the condensed consolidated financial statements, including business description, significant transactions, and customer concentration - The company is a global gaming technology company supplying B2B content and products to regulated lottery, betting, and gaming operators[27] - In January 2022, the Company sold its Italian VLT business for €1.1 million, recognizing a profit on disposal of €0.8 million[33] - On May 10, 2022, the Board authorized a Share Repurchase Program of up to $25.0 million; during Q2 2022, the company repurchased 485,848 shares for approximately $5.1 million[54][55] - For the six months ended June 30, 2022, one customer, served by the Virtual Sports and Interactive segments, represented 13% of the Company's revenues[84] MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The company experienced significant revenue growth and a return to profitability in the first half of 2022, largely due to the recovery of its land-based operations from COVID-19 restrictions and continued strength in its online businesses Overall Company Results This section provides an overview of the company's financial performance, highlighting significant improvements in revenue and profitability for the period Overall Company Performance vs. Prior Year (in millions) | Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $71.3 | $41.5 | $131.9 | $64.3 | | Net Operating Income (Loss) | $13.4 | $(9.7) | $20.3 | $(21.9) | | Net Income (Loss) | $7.5 | $(43.8) | $9.0 | $(60.5) | - The significant increase in net income for Q2 2022 was driven by a $24.6 million increase in net operating income, a $15.4 million decrease in interest expense, and a $10.4 million reduction from the change in fair value of warrant liability which no longer exists[125] Segment Results This section details the financial performance of each operating segment, including Gaming, Virtual Sports, Interactive, and Leisure, highlighting revenue growth drivers - Gaming revenue increased 75% in Q2 (functional currency basis), driven by post-COVID recovery and a new lottery business[162][165] - Virtual Sports revenue grew 90% in Q2 (functional currency basis), with strong performance in both online (+99%) and retail (+62%) channels[175][185] - Interactive revenue grew 11.7% in Q2 (functional currency basis), supported by expansion into North American markets including Pennsylvania[194][195] - Leisure revenue surged 157% in Q2 (functional currency basis) as holiday parks and pubs reopened without restrictions[213][216] Non-GAAP Financial Measures This section presents non-GAAP financial measures, specifically Adjusted EBITDA, providing a segment-level view of operational profitability Adjusted EBITDA by Segment - Q2 2022 vs Q2 2021 (in millions) | Segment | Q2 2022 Adj. EBITDA | Q2 2021 Adj. EBITDA | | :--- | :--- | :--- | | Gaming | $9.5 | $3.5 | | Virtual Sports | $12.0 | $6.4 | | Interactive | $3.1 | $3.6 | | Leisure | $7.7 | $(0.2) | | Corporate | $(6.2) | $(5.3) | | Total | $26.1 | $8.0 | Liquidity and Capital Resources This section discusses the company's financial liquidity, capital resources, and contractual obligations, including cash position and credit facility availability - As of June 30, 2022, the company had liquidity of $31.8 million in cash and $24.3 million available under its undrawn revolver facility[240] - The company was in compliance with its RCF Financial Covenant, which requires maintaining a maximum consolidated senior secured net leverage ratio[244] Contractual Obligations as of June 30, 2022 (in millions) | Obligation | Total | Less than 1 yr | 1-3 years | 3-5 years | More than 5 yrs | | :--- | :--- | :--- | :--- | :--- | :--- | | Interest on long term debt | $89.8 | $22.4 | $44.9 | $22.5 | $ - | | Senior bank debt - principal | $285.4 | $ - | $ - | $285.4 | $ - | | Finance lease payments | $2.5 | $1.0 | $1.1 | $0.4 | $ - | | Operating lease payments | $8.8 | $2.7 | $3.2 | $1.3 | $1.6 | | Total | $387.7 | $26.4 | $49.9 | $309.8 | $1.6 | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company's main market risks are foreign currency exchange rate fluctuations (primarily GBP:USD) and interest rate risk, with external debt at a fixed rate mitigating current interest rate exposure - The company's external borrowings of £235.0 million are at a fixed rate, mitigating interest rate risk[253] - The company's functional currency is GBP, but its reporting currency is USD; a hypothetical 10% weakening of GBP against the USD would result in an unfavorable impact to trading operational results of approximately $0.7 million[256] CONTROLS AND PROCEDURES Management concluded that the company's disclosure controls and procedures were not effective as of June 30, 2022, due to an un-remediated material weakness, though financial statements are believed to be fairly presented - Certifying Officers concluded that disclosure controls and procedures were not effective as of June 30, 2022, due to a material weakness identified in the Annual Report on Form 10-K filed on March 31, 2022[259] - Management believes the interim consolidated financial statements included in this report fairly present the company's financial condition and results of operations, notwithstanding the identified material weakness[260] PART II. OTHER INFORMATION This section details legal matters, updated risk factors, equity sales, and required regulatory exhibits LEGAL PROCEEDINGS The company states that it is not currently involved in any material legal proceedings or lawsuits that have arisen outside the ordinary course of its business - As of the report date, the Company has no material legal matters arising in the ordinary course of business[263] RISK FACTORS This section provides an update to existing risk factors, highlighting the potential adverse effects of the uncertain global economic climate on the company's business, including slower consumer spending and supply chain volatility - The company identifies several risks related to global economic conditions, including slower consumer spending, reduced demand, and potential impacts on capital and credit markets from the conflict between Russia and Ukraine[265] - Other specified risks include volatility in foreign currency exchange rates, commodity prices, and potential financial difficulties for operators, distributors, or manufacturers in the supply chain[266] UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The company details its share repurchase activities for the second quarter of 2022 under a program authorized on May 10, 2022, repurchasing 485,848 shares for approximately $5.1 million Share Repurchase Activity - Q2 2022 | Period | Number of shares purchased | Average price paid per share | Maximum dollar value remaining under program | | :--- | :--- | :--- | :--- | | May 1-31, 2022 | 136,376 | $10.30 | $23,598,399 | | June 1-30, 2022 | 349,472 | $10.67 | $19,875,729 | | Total | 485,848 | $10.57 | $19,875,729 | EXHIBITS This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including certifications from the Principal Executive and Financial Officers and Inline XBRL documents - The report includes required certifications from the Principal Executive Officer (31.1, 32.1) and Principal Financial Officer (31.2, 32.2)[272]