Inspired Entertainment, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; this is an annual report, not a standalone Q4 filing. Comparisons below are primarily with FY2022. Amounts are in U.S. dollars unless otherwise stated.
Business context
Inspired is a global business-to-business gaming technology provider operating Gaming, Virtual Sports, Interactive and Leisure segments. Its products include gaming terminals, games, platforms and managed services. The UK generated approximately 78% of FY2023 revenue, Greece 8% and the rest of the world 14%. About 79% of revenue was recurring, down from approximately 86% in 2022.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $323.0 million | $281.6 million |
| Operating income | $39.9 million | $46.0 million |
| Net income | $7.6 million | $20.6 million |
| Adjusted EBITDA (non-GAAP) | $100.5 million | $99.0 million |
| Cash from operating activities | $45.5 million | $24.7 million |
| Cash used in investing activities | $48.4 million | $32.6 million |
| Cash and cash equivalents at year-end | $40.0 million | $25.0 million |
Revenue increased 15% as reported. However, FY2023 included $30.6 million of low-margin Gaming hardware sales; excluding these, management’s non-GAAP Adjusted Revenue was $292.4 million versus $281.6 million in 2022. Product sales rose to $61.8 million from $33.2 million, while service revenue increased to $261.2 million from $248.4 million. Higher product costs and SG&A contributed to lower operating income and net income. Net margin was approximately 2.4%, versus 7.3% in 2022; operating margin was approximately 12.4%, versus 16.3%.
Cash from operations improved mainly due to working-capital movements, including lower inventory cash use and timing of receivables and payables. Investing outflows increased with higher terminal and software spending. The cash-flow statement reports purchases of property and equipment of $32.8 million and capital software of $15.0 million.
At year-end, current assets were $152.5 million and current liabilities $100.7 million. The company reported $40.0 million cash and $6.4 million of undrawn revolver capacity. Management stated that cash on hand, expected operating cash flows and control or deferral of capital projects should fund net cash requirements through April 2025. The filing also separately describes $11.8 million of working capital in addition to cash; this differs from the $51.8 million current-assets-minus-current-liabilities calculation and merits reconciliation.
Debt included £235.0 million of 7.875% senior secured notes due June 2026 and £15.0 million ($19.1 million) drawn on a £20.0 million revolving facility. The balance sheet shows $314.7 million of debt carrying value, excluding finance leases; finance lease liabilities were $2.4 million. The filing’s debt summary reports net debt of approximately $283.1 million. The RCF covenant leverage limit steps down to 5.50x from March 31, 2024; the company reported covenant compliance at December 31, 2023. No dividends have been paid, and the company does not currently expect to pay cash dividends.
Segments and material changes
| Segment | FY2023 revenue | FY2022 revenue | FY2023 Adjusted EBITDA |
|---|---|---|---|
| Gaming | $142.6 million | $111.3 million | $44.0 million in reconciliation; $44.5 million in business overview |
| Virtual Sports | $56.2 million | $54.2 million | $47.7 million |
| Interactive | $27.9 million | $20.6 million | $15.4 million |
| Leisure | $96.3 million | $95.5 million | $19.4 million |
- Gaming: Growth was driven primarily by terminal sales, including $30.6 million of low-margin sales, and a full Vantage terminal rollout. Service revenue grew modestly; the average participation terminal base declined 3.1%, while customer net win per unit per day rose 6%.
- Virtual Sports: Revenue and Adjusted EBITDA increased modestly. Retail revenue grew, while online revenue was broadly flat; live customers declined from 66 to 56, mainly as smaller customers were turned off.
- Interactive: Revenue grew about 35% as reported, supported by new content and customer additions. Live customers increased from 130 to 149. Segment spending on staff and IT also increased.
- Leisure: Revenue was nearly flat and operating income declined from $9.9 million to $6.8 million, reflecting higher service costs and SG&A. Holiday parks revenue increased, offset by lower pub revenue and a smaller estate.
Consolidated operating income fell $6.1 million and net income fell $13.0 million. Management cited higher SG&A, including $5.0 million of restatement-related costs and $3.6 million of group restructuring costs, higher interest expense, lower disposal gains and higher tax expense. Adjusted EBITDA rose only slightly, to $100.5 million from $99.0 million. Segment Adjusted EBITDA figures are non-GAAP and should not be treated as GAAP profit.
Outlook, risks and unusual items
- No formal quantitative revenue or earnings guidance is provided in the supplied filing text. Management’s liquidity outlook extends through April 2025 and depends on operating cash generation and managing or deferring capital spending.
- The company restated previously issued financial statements for 2020, 2021 and 2022, and 2023 first- and second-quarter interim periods. Restatement-related expenses were $5.0 million in 2023.
- Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end because of material weaknesses involving risk assessment and control design, monitoring, accounting/reporting competencies, IT change management and access controls, and segregation of duties. The auditor issued an adverse opinion on internal control; the financial-statement audit opinion was unmodified. Remediation is underway but was not yet considered complete.
- On March 12, 2024, the company received an SEC subpoena seeking information related, among other matters, to the restated financial statements and is cooperating. Management said the outcome and timing are uncertain and not estimable; substantial penalties or settlement costs are possible.
- Customer concentration is significant: the top ten customers accounted for approximately 57% of revenue, and two customers represented 12% and 11%, respectively.
- Other material risks include regulatory and gaming-tax changes, customer contract renewal and concentration, foreign-exchange exposure, cybersecurity and service disruptions, supply constraints, competition, capital needs and the £235 million notes maturity in 2026. The UK remains the principal geographic exposure.
- Management maintained a full valuation allowance against deferred tax assets of $81.2 million. It said positive evidence could support a release within 12 months, but timing and amount depend on achieved profitability.
Key facts investors should verify
- Review the restatement disclosures and the SEC inquiry, including any subsequent filings, findings, penalties or settlement developments.
- Track remediation and independent testing of the material weaknesses; the auditor’s adverse ICFR opinion is a significant reporting-control concern.
- Reconcile the Gaming Adjusted EBITDA amount ($44.0 million in the reconciliation versus $44.5 million in the business overview) and the filing’s different working-capital figures.
- Assess recurring-revenue quality and growth excluding the $30.6 million of low-margin hardware sales, alongside segment margins and cash conversion.
- Monitor liquidity, RCF availability and leverage covenant headroom, capital spending, and refinancing plans for the 2026 notes.
- Evaluate concentration and renewal exposure for major customers, particularly given the top ten’s 57% revenue share, and monitor UK, Greek and other regulatory or tax changes.