Business Context and Reporting Period
Company: Inspired Entertainment, Inc. (INSE)
Filing Type: Form 8-K (Current Report)
Date: May 10, 2021
Context: The filing discloses a private offering of senior secured notes and provides unaudited monthly financial data for 2019 and 2020 to support the offering memorandum. The company operates in Gaming, Leisure, Virtual Sports, and Interactive segments.
Key Financial Metrics (2019 vs. 2020)
Financial data is presented in millions of U.S. dollars (unaudited).
| Metric | 2019 Total | 2020 Total |
|---|---|---|
| Total Revenue | $153.4 | $199.8 |
| Adjusted EBITDA | $49.0 | $72.1 |
| Further Adjusted EBITDA | $53.0 | $37.4 |
| Net Income/(Loss) | $(41.1) | $(32.4) |
| Capital Expenditures | $25.2 | $30.0 |
Note: The filing does not provide specific data for cash flow, debt balances, or liquidity ratios as of the filing date, other than the proposed refinancing details below.
Material Changes and Segment Performance
- Revenue Growth: Total revenue increased 30% from $153.4 million in 2019 to $199.8 million in 2020. This was driven primarily by the Gaming segment, which grew from $91.5 million to $110.5 million, and the Leisure segment, which grew from $23.8 million to $43.6 million.
- Volatility in 2020: The 2020 results were significantly impacted by the pandemic and a one-time VAT-related income event. Gaming revenue dropped to $1.0 million in April 2020 before recovering to $36.2 million in November 2020.
- Non-GAAP Adjustments: While Adjusted EBITDA increased to $72.1 million in 2020, Further Adjusted EBITDA decreased to $37.4 million. This divergence is largely due to the exclusion of $41.0 million in net VAT-related income (a one-time tax ruling benefit) in the Further Adjusted EBITDA calculation for 2020.
- Segment Margins: The Gaming segment remained the primary profit driver, generating $57.9 million in Adjusted EBITDA in 2020 compared to $32.8 million in 2019.
Guidance, Outlook, and Material Events
Private Offering of Senior Secured Notes
On May 10, 2021, the Company commenced a private offering of £235.0 million aggregate principal amount of senior secured notes due 2026.
- Use of Proceeds: Repay existing £145.8 million and €93.1 million senior secured term loan facilities, pay transaction fees, close out derivative contracts, and fund general corporate purposes.
- New Facility: The company intends to establish a new 4.5-year £20 million super priority senior secured revolving credit facility.
- Status: The offering is subject to market conditions and is not yet completed.
Risks and Contingencies
- One-Time Revenue: The 2020 financials include significant VAT-related revenue ($42.2 million total) resulting from a UK tax ruling. Management states this is not expected to be recurring.
- Derivatives and Liabilities: The reconciliation of net income to Adjusted EBITDA includes significant adjustments for changes in the fair value of warrant liabilities and derivative liabilities, indicating volatility in financing costs.
- Restructuring: The company incurred costs related to group restructuring and acquisition integration (specifically the NTG Acquisition in October 2019).
Investor Verification Checklist
- Recurring Revenue Quality: Verify the sustainability of the Gaming and Leisure revenue streams excluding the one-time VAT-related income of $42.2 million recognized in 2020.
- Debt Refinancing Terms: Confirm the final terms, interest rates, and covenants of the proposed £235.0 million Senior Secured Notes offering.
- Non-GAAP Reconciliation: Review the specific adjustments made to reach Further Adjusted EBITDA, particularly the treatment of unrealized cost-related synergies from the NTG Acquisition.
- Liquidity Position: Assess the company's current cash position and ability to service debt prior to the completion of the new note offering.
- FX Exposure: Note that the company's functional currency is the British Pound, while reporting is in USD; verify the impact of exchange rate fluctuations on future results.