Inspired Entertainment, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The filing is an annual report; it does not provide a clear standalone fourth-quarter financial summary. Unless stated otherwise, amounts are U.S. dollars.
Business context
Inspired supplies gaming content, platforms, terminals and services to regulated land-based and online operators. Its four segments are Gaming, Virtual Sports, Interactive and Leisure. The business relies substantially on recurring participation and licensing revenue. The UK generated approximately 71% of 2021 revenue; Greece generated 9% and the rest of the world 20%.
Key financial metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $208.9 million | $199.8 million |
| Operating income (loss) | $(0.6) million | $6.4 million |
| Net loss | $(36.7) million | $(32.4) million |
| Adjusted EBITDA (non-GAAP) | $64.0 million | $72.1 million |
| Net cash from operating activities | $6.2 million | $52.9 million |
| Cash at year-end | $47.8 million | $47.1 million |
Reported revenue increased 4.6%; on management’s functional-currency, constant-rate basis it declined 1.4%. The company reported an Adjusted EBITDA margin of approximately 31% (calculated from reported revenue); this non-GAAP measure is not directly comparable across companies. Basic and diluted loss per share was $1.60.
Revenue by segment was Gaming $81.4 million, Virtual Sports $36.0 million, Interactive $22.8 million and Leisure $68.7 million. Adjusted EBITDA by segment was $26.1 million, $28.4 million, $13.0 million and $15.7 million, respectively; corporate costs were $(19.2) million.
At December 31, 2021, working capital was $44.9 million and total current assets were $126.4 million against current liabilities of $81.5 million. The company reported $316.7 million of senior secured notes principal, bearing fixed interest at 7.875% and due June 2026; the notes’ balance-sheet carrying value was $309.0 million. The $27.0 million revolving facility was undrawn. Total liabilities were $409.7 million and stockholders’ deficit was $78.0 million.
Material changes versus the prior comparable period
- Revenue growth was led by Interactive (+$9.5 million reported), Leisure (+$25.1 million) and Virtual Sports (+$3.6 million); Gaming revenue fell to $81.4 million from $110.5 million.
- The Gaming comparison was substantially affected by VAT-related revenue: approximately $3 million was recorded in 2021 versus $42.2 million in 2020. Excluding VAT-related revenue, management said Gaming revenue increased by $5.2 million on a constant-currency basis.
- Virtual Sports benefited from online growth: online revenue rose to $26.1 million from $20.2 million, while retail activity remained affected by restrictions.
- Operating cash flow fell by $46.7 million. Management cited higher cash interest payments ($30.8 million versus $13.3 million) and lower VAT-related receipts, among other working-capital movements.
- Adjusted EBITDA declined by $8.1 million, while net loss widened by $4.3 million. Net interest expense rose to $44.3 million, including a $14.4 million write-off of previously capitalized debt fees associated with the May 2021 refinancing.
Outlook, risks and unusual items
- Management believed available cash, expected operating cash flows and the ability to control or defer capital projects would fund net cash needs through March 2023, absent a long-term COVID-19 impact. It continued to manage working capital and capital spending; no numerical revenue or earnings guidance was provided.
- COVID-19 closures and restrictions affected land-based operations during both years. Further restrictions remained uncertain; online gaming adoption supported growth in Interactive and online Virtual Sports.
- Key risks include gaming regulation and taxation, customer and contract concentration, competition, supplier and labor constraints, cybersecurity and data privacy, foreign-exchange exposure, and access to capital. The top ten customers accounted for approximately 60% of 2021 revenue, although no individual customer exceeded 10%.
- The company acquired Sportech Lotteries on December 31, 2021 for approximately $12.5 million, accounting for the customer contract as an intangible asset. In January 2022 it sold its Italian VLT business for approximately $1.4 million and retained platform and game services to those markets.
- Warrant exercises generated $30.5 million of cash proceeds in 2021 and increased shares outstanding. The company recorded $13.0 million of stock-based compensation expense.
- Management identified a material weakness in internal control over financial reporting, involving process and management-review controls over estimates, reconciliations and approvals. The auditor issued an adverse opinion on internal controls; it issued an unqualified opinion on the financial statements. Remediation was underway but was not yet considered complete.
- Legal matters were described as arising in the ordinary course and not currently material. The company reported no off-balance-sheet arrangements and no expected cash dividends.
Important facts for investors to verify
- Whether operating cash generation improves from $6.2 million and supports liquidity, debt service and management’s March 2023 funding assessment.
- Whether COVID-related trading effects, online growth and the sharp reduction in VAT-related revenue explain the underlying revenue and EBITDA trends.
- Progress in remediating the material weakness, including whether redesigned controls operate effectively over a sufficient period.
- Debt covenant headroom and the implications of the 7.875% notes, refinancing costs and future principal maturity; the filing states covenant compliance but does not give a clear year-end leverage ratio.
- Execution and returns from the Sportech lottery acquisition and the Italian VLT business transition, plus customer concentration and contract renewals.