INSE filing — read by section

Item 2. Management’s Discussion and Analysis

ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

 The
following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial
statements and related notes thereto included elsewhere in this report. This discussion contains forward-looking statements that involve
risks and uncertainties. Our actual future results could differ materially from the historical results discussed below. Factors that
could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section
titled “Risk Factors” included herein and in our annual report on Form 10-K for the fiscal year ended December 31, 2020. 

 Forward-Looking
Statements 

 We
make forward-looking statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
For definitions of the term Forward-Looking Statements, see the definitions provided in the Cautionary Note Regarding Forward-Looking
Statements at the start of the Quarterly Report on Form 10-Q for the period ended June 30, 2021. 

 COVID-19
Update 

 Governments in all of the major jurisdictions
in which our land-based customers operate have now reopened land-based venues. As of April 12, 2021, in the United Kingdom, licensed
betting offices in England and Wales have reopened with certain restrictions including operating two of four gaming machines per
venue, limited dwell time of 15 minutes, as well as a maximum of two visits per day per patron and an 8:00pm curfew. These restrictions
remained in place until May 17, 2021. Gaming machines
in pubs, holiday parks, motorway services, Scottish betting offices and adult gaming centers across the United Kingdom reopened on
May 17, 2021 with social distancing restrictions in place. All social distancing restrictions were removed in England as of July 19,
2021. As of August 9, 2021 no restrictions remain in the United Kingdom. There
remains an element of social distancing in venues in Greece and in Italy, there are restrictions in place that state only fully vaccinated
people can enter our venues. It remains uncertain as to whether and when further restrictions or closures could happen in each jurisdiction
and how long they may last.

 Segment
Reporting Recharacterizations 

 For
full information on this, see Part IV, Item 15 of the Annual Report on Form 10-K for the year ended December 31, 2020, ‘Exhibits,
Financial Statement Schedules’ Note 26 ‘Segment Reporting and Geographic Information’. 

 Revenue 

 We
generate revenue in four principal ways: i) on a participation basis, ii) on a fixed rental fee basis, iii) through product sales and
iv) through software license fees. Participation revenue generally includes a right to receive a share of our customers’ gaming
revenue, typically as a share of net win but sometimes as a share of the handle or “coin in” which represents the total amount
wagered. 

 Geographic
Range 

 Geographically,
a majority of our revenue is derived from, and majority of our non-current assets are attributable to our UK operations. The remainder
of our revenue is derived from, and non-current assets attributable to, Greece, Canada, Italy and the rest of the world. 

 For
the three months ended June 30, 2021, we earned approximately 72% of our revenue in the UK, 9% in Greece, 2% in Italy and the remaining
17% across the rest of the world. During the three months ended June 30, 2020, we earned approximately 59%, 17%, 9% and 15% of our revenue
in those regions, respectively. 

 For
the six months ended June 30, 2021, we earned approximately 64% of our revenue in the UK, 10% in Greece, 3% in Italy and the remaining
23% across the rest of the world. During the three months ended June 30, 2020, we earned approximately 70%, 11%, 5% and 14% of our revenue
in those regions, respectively. 

 22 

 As
of June 30, 2021, our non-current assets (excluding goodwill) attribution approximately 79% in the UK, 11% in Greece, 2% in Italy, and
8% across the rest of the world. 

 Foreign
Exchange 

 Our
results are affected by changes in foreign currency exchange rates as a result of the translation of foreign functional currencies into
our reporting currency and the re-measurement of foreign currency transactions and balances. The impact of foreign currency exchange
rate fluctuations represents the difference between current rates and prior-period rates applied to current activity. The largest geographic
region in which we operate is the UK and the British pound (“GBP”) is considered to be our functional currency. Our reporting
currency is the U.S. dollar (“USD”). Our results are translated from our functional currency of GBP into the reporting currency
of USD using average rates for profit and loss transactions and applicable spot rates for period-end balances. The effect of translating
our functional currency into our reporting currency, as well as translating the results of foreign subsidiaries that have a different
functional currency into our functional currency, is reported separately in Accumulated Other Comprehensive Income. 

 During
the three months ended June 30, 2021, we derived approximately 28% of our revenue from sales to customers outside the UK, compared to
41% during the three months ended June 30, 2020. 

 During
the six months ended June 30, 2021, we derived approximately 36% of our revenue from sales to customers outside the UK, compared to 30%
during the six months ended June 30, 2020. 

 In
the section “Results of Operations” below, currency impacts shown have been calculated as the current-period average GBP:USD
rate less the equivalent average rate in the prior period, multiplied by the current period amount in our functional currency (GBP).
The remaining difference, referred to as functional currency at constant rate, is calculated as the difference in our functional currency,
multiplied by the prior-period average GBP:USD rate. This is not a U.S. GAAP measure, but is one which management believes gives a clearer
indication of results. In the tables below, variances in particular line items from period to period exclude currency translation movements,
and currency translation impacts are shown independently. 

 Non-GAAP
Financial Measures 

 We
use certain financial measures that are not compliant with U.S. GAAP (“Non-GAAP financial measures”), including EBITDA and
Adjusted EBITDA, to analyze our operating performance. In this discussion and analysis, we present certain non-GAAP financial measures,
define and explain these measures and provide reconciliations to the most comparable U.S. GAAP measures. See “Non-GAAP Financial
Measures” below. 

 Results
of Operations 

 Our
results are affected by changes in foreign currency exchange rates, primarily between our functional currency (GBP) and our reporting
currency (USD). During the three-month periods ended June 30, 2021 and June 30, 2020, the average GBP:USD rates were 1.40 and 1.24, respectively.
During the six-month periods ended June 30, 2021 and June 30, 2020, the average GBP:USD rates were 1.39 and 1.27, respectively. 

 The
following discussion and analysis of our results of operations has been organized in the following manner: 

 ● 
 a
 discussion and analysis of the Company’s results of operations for the three-month period and six-month period ended June 30,
 2021, compared to the same periods in 2020; 

 ● 
 a discussion and analysis of the results of operations of our Gaming business segment for the three-month period and six-month period ended June 30, 2021, compared to the same periods in 2020, including KPI analysis; 

 23 

 ● 
 a
 discussion and analysis of the results of operations of our Virtual Sports business segment for the three-month period and six-month
 period ended June 30, 2021, compared to the same periods in 2020, including KPI analysis; 

 ● 
 a
 discussion and analysis of the results of operations of our Interactive business segment for the three-month period and six-month
 period ended June 30, 2021, compared to the same periods in 2020, including KPI analysis; and 

 ● 
 a
 discussion and analysis of the results of operations of our Leisure business segment for the three-month period and six-month period
 ended June 30, 2021, compared to the same periods in 2020, including KPI analysis. 

 In
the discussion and analysis below, certain data may vary from the amounts presented in our consolidated financial statements due to rounding. 

 Three
Months ended June 30, 2021, compared to Three Months ended June 30, 2020 

 For
 the Three-Month

 Period ended
 
 Total 
 
 Unaudited June 30, 
 
 Unaudited June 30, 
 
 Variance 
 
 Functional

 Currency
 
 Total Variance 
 
 (In millions) 
 
 2021 
 
 2020 
 
 2021 vs 2020 
 
 % 
 
 % 
 
 Revenue: 
 
 Service 
 
 $ 
 37.5 
 
 $ 
 15.3 
 
 $ 
 22.2 
 
 117.8 
 % 
 
 145.5 
 % 

 Product 
 
 4.0 
 
 0.3 
 
 3.7 
 
 1090.4 
 % 
 
 1249.6 
 % 

 Total revenue 
 
 41.5 
 
 15.6 
 
 25.9 
 
 136.3 
 % 
 
 166.4 
 % 

 Cost of Sales, excluding depreciation and amortization: 
 
 Cost of Service 
 
 (8.0 
 ) 
 
 (2.5 
 ) 
 
 (5.5 
 ) 
 
 184.5 
 % 
 
 220.3 
 % 

 Cost of Product 
 
 (2.7 
 ) 
 
 (0.3 
 ) 
 
 (2.4 
 ) 
 
 662.3 
 % 
 
 760.4 
 % 

 Selling, general and administrative expenses 
 
 (25.1 
 ) 
 
 (11.2 
 ) 
 
 (14.0 
 ) 
 
 99.5 
 % 
 
 125.0 
 % 

 Stock-based compensation 
 
 (3.4 
 ) 
 
 (1.0 
 ) 
 
 (2.4 
 ) 
 
 207.8 
 % 
 
 249.0 
 % 

 Acquisition and integration related transaction expenses 
 
 (0.1 
 ) 
 
 (1.2 
 ) 
 
 1.1 
 
 (91.5 
 )% 
 
 (90.4 
 )% 

 Depreciation and amortization 
 
 (11.9 
 ) 
 
 (13.3 
 ) 
 
 1.4 
 
 (20.7 
 )% 
 
 (10.7 
 )% 

 Net operating Income (Loss) 
 
 (9.7 
 ) 
 
 (13.9 
 ) 
 
 4.2 
 
 (38.2 
 )% 
 
 (30.1 
 )% 

 Other income (expense) 
 
 Interest income 
 
 0.1 
 
 0.1 
 
 0.0 
 
 14.8 
 % 
 
 66.0 
 % 

 Interest expense 
 
 (22.2 
 ) 
 
 (8.1 
 ) 
 
 (14.1 
 ) 
 
 142.4 
 % 
 
 173.7 
 % 

 Change in fair value of warrant liability 
 
 (10.5 
 ) 
 
 (1.7 
 ) 
 
 (8.8 
 ) 
 
 444.9 
 % 
 
 517.4 
 % 

 Other finance income (expense) 
 
 (1.2 
 ) 
 
 (2.5 
 ) 
 
 1.3 
 
 (59.0 
 )% 
 
 (52.9 
 )% 

 Total other income (expense), net 
 
 (33.8 
 ) 
 
 (12.2 
 ) 
 
 (21.5 
 ) 
 
 143.3 
 % 
 
 175.7 
 % 

 Net Income (loss) from continuing operations before income
 taxes 
 
 (43.5 
 ) 
 
 (26.1 
 ) 
 
 (17.3 
 ) 
 
 46.9 
 % 
 
 66.3 
 % 

 Income tax expense 
 
 (0.3 
 ) 
 
 (0.1 
 ) 
 
 (0.3 
 ) 
 
 427.4 
 % 
 
 439.0 
 % 

 Net Income (Loss) 
 
 $ 
 (43.8 
 ) 
 
 $ 
 (26.2 
 ) 
 
 $ 
 (17.6 
 ) 
 
 47.8 
 % 
 
 67.2 
 % 

 Exchange Rate - $ to £ 
 
 1.40 
 
 1.24 
 
 24 

 Revenue 

 Total
reported revenue for the three months ended June 30, 2021, increased by $25.9 million, or 166%, to $41.5 million on a reported basis.
This included an increase from Gaming of $12.0 million, Leisure of $10.9 million, Interactive of $2.4 million and Virtual Sports of $0.6
million. Favorable currency movements accounted for a $4.7 million impact. On a functional currency (at constant rate) basis, revenue
increased by $21.2 million, or 136%, as detailed below: 

 ● 
 Gaming
 revenue increased by $10.2 million, comprised of an increase in Service revenue of $7.3 million and an increase in Product sales
 of $2.9 million. The increase in Service revenue was primarily due to reopening of retail venues. 

 ● 
 Virtual
 Sports revenue decreased by $0.4 million, or 4.6%. This decrease included a $1.0 million decrease in Online Virtuals, $0.7 million
 of which was due to a one-time sales in the prior period, which itself was driven by the lack of live sports. This
 was partially offset by growth in Retail Virtuals of $0.6 million as retail venues reopened during the period. 

 ● 
 Interactive
 revenue increased by $1.7 million, or 50.0%. This growth was driven by the addition of new customers and territories and the consistent
 launches of new high-quality content. 

 ● 
 Leisure
 revenue increased by $9.7 million, comprised of an increase in Service revenue of $9.3 million and an increase in Product sales of
 $0.4 million. The increase in revenue was due to the reopening of venues during the period. 

 Cost
of Sales, excluding depreciation and amortization 

 Cost
of Sales, excluding depreciation and amortization, increased by $7.9 million, or 280%, on a reported basis, to $10.7 million, including
the impact of $1.2 million from unfavorable currency movements. Of this increase, $5.5 million was attributable to cost of Service and
$2.4 million was attributable to cost of Product sales. On a functional currency (at constant rate) basis, cost of sales increased by
$6.7 million, or 238%, as detailed below: 

 ● 
 Gaming
 cost of sales increased by $4.1 million, comprised of an increase in Service costs of $2.2 million and a $1.9 million increase in
 Product costs. This increase was driven primarily by the reopening of retail venues. 

 ● 
 Virtual
 Sports cost of sales decreased by $0.4 million, or 45.0%, driven by a one-off sale in the prior period comparable. 

 ● 
 Interactive
 cost of sales increased by $0.4 million, or 112%. This increase was driven by the revenue growth in Interactive. 

 ● 
 Leisure
 cost of sales increased by $2.5 million, comprised of an increase in Service costs of $2.4 million and an increase in Product costs
 of $0.2 million, which was driven primarily by the reopening of retail venues. 

 Selling,
general and administrative expenses 

 Selling, general and administrative (“SG&A”)
expenses increased by $14.0 million, or 125%, on a reported basis, to $25.1 million. This included $2.9 million of unfavorable currency
movements. On a functional currency (at constant rate basis), SG&A increased by $11.1 million, or 100%. This increase was driven
by staff returning from furlough as retail venues began to reopen ($6.6 million), additional fleet costs as staff returned to work ($0.7
million), additional distribution costs as markets started to reopen ($0.6 million), plus an increase in costs of $1.2 million
for the provision following settlement with the Italian Tax Authorities in respect of an audit of the Italian Branch of Inspired Gaming
(International) Limited for the period 2015-2017 in respect of the historic VAT treatment of supplies. The settlement includes an amount
of $1.5 million in relation to VAT (of which $0.9 million had previously been provided for) plus interest of $0.3 million and penalties
in the amount of $0.3 million which were levied at the lowest rate applicable under the relevant regime. As well as refinancing costs
of $0.6 million.

 Stock-based
compensation 

 During
the three months ended June 30, 2021, the Company recorded an expense of $3.4 million with respect to outstanding awards. Of this expense,
$1.9 million related to awards made under the 2021 Plan (including $1.4 million of upfront recognition) and $1.5 million related
to awards made under the 2018 Plan. During the three months ended June 30, 2020, the charge for stock-based compensation was $1.0 million.
Of this expense, $0.9 million was related to awards made under the 2018 Plan and $0.1 million was related to costs from awards made under
a 2016 long term incentive plan. 

 Acquisition
and integration related transaction expenses 

 Acquisition
and integration related transaction expenses decreased by $1.1 million to $0.1 million, on a reported basis. Both the 2021 and 2020 expenses
were primarily integration costs in relation to the NTG acquisition. 

 Depreciation
and amortization 

 Depreciation
and amortization decreased by $1.4 million, or 10.7%, to $11.9 million on a reported basis. This included the impact of unfavorable currency
movements of $1.3 million. On a functional currency (at constant rate) basis, depreciation and amortization decreased by $2.7 million,
or 20.7%, driven primarily by a decrease of $1.9 million in Gaming and $0.8 million in Leisure. 

 25 

 Net
operating loss 

 During
the period, net operating loss was $9.7 million compared to a net operating loss of $13.9 million in the prior period. The net operating
loss improvement of $4.2 million was attributable to the increase in revenue due to the reopening of retail venues across the business
as well as growth in Interactive. This net operating loss variance also included a $1.1 million unfavorable impact from foreign currency
translation. 

 Interest
expense 

 Net
interest expense increased by $14.1 million in the three months ended June 30, 2021, to $22.2 million, on a reported basis
due to a $14.4 million write-off of previously capitalized debt fees following the refinancing in May 2021, a $0.7 million increase
in debt interest and a $0.3 million exchange rate impact. These were offset by a $1.0m write-off of debt fees in the three months
ended June 30, 2020 and a $0.4 million reduction in revolver interest. 

 Change
in fair value of warrant liability 

 Change
in fair value of warrant liability for the three months ended June 30, 2021, resulted in a $10.5 million charge. The charge was related
to changes in liability accounting pursuant to the statement made by the Office of Chief Accountant of the SEC, released on April 12,
2021, informing market participants that warrants issued by special purpose acquisition companies may require classification as a liability
of the entity measured at fair value, with changes in fair value each period reported in earnings. The $10.5 million charge reflects
the increase in the value of the warrants, driven by increases in the Company’s share price from $9.29 on March 31 st ,
2021 to $12.75 on June 30 th , 2021.For the three months ended June 30, 2020, the change in fair value resulted in a $1.7 million
charge. 

 Other
finance income 

 Other
finance income for the three months ended June 30, 2021, resulted in a $1.2 million charge compared to a $2.5 million charge in
the three months ended June 30, 2020. This variance was driven by movements in the retranslation with respect to the principal balance
of our senior debt facilities. 

 Income
tax expense 

 Our
effective tax rate for the period ended June 30, 2021, was 0.8% and our effective tax rate for the period ended June 30, 2020, was 0.2%. 

 Net
loss 

 During
the period, net loss was $43.8 million compared to a net loss of $26.2 million in the prior period. On a functional currency (at constant
rate) basis, net loss increased by $12.6 million, primarily due to the increase in interest expense ($11.5 million) and
increase in change in fair value of warrant liability ($7.6 million), partly offset by the decrease in net operating loss
($5.3 million). 

 Three
Months ended June 30, 2021, compared to Three Months ended June 30, 2020 – Gaming Segment 

 We
generate revenue from our Gaming segment through the selling and rental of our gaming machines. We receive rental fees for machines,
typically on a long-term contract basis, on both a participation and fixed fee basis. Our participation contracts are typically structured
to pay us a percentage of net win (defined as net revenue to our operator customers, after deducting player winnings, free bets or plays
and any relevant regulatory levies) from gaming terminals placed in our customers’ facilities. Typically, we recognize revenue
from these arrangements on a daily basis over the term of the contract. 

 Revenue
growth for our Gaming business is principally driven by the number of operator customers we have, the number of Gaming machines in operation,
the net win performance of the machines and the net win percentage that we receive pursuant to our contracts with our customers. 

 26 

 Gaming
Segment, Key Performance Indicators 

 For the Three-Month Period ended 
 Variance 

 Unaudited

 Jun 30,
 
 Unaudited

 Jun 30,
 
 2021 vs 2020 

 Gaming 
 2021 
 2020 
 
 % 

 End of period installed base (# of terminals) 
 32,203 
 32,325 
 (122 ) 
 (0.4 )% 

 Total Gaming - Average installed base (# of terminals) 
 31,868 
 32,259 
 (391 ) 
 (1.2 )% 

 Participation - Average installed base (# of terminals) 
 29,180 
 30,392 
 (1,212 ) 
 (4.0 )% 

 Fixed Rental - Average installed base (# of terminals) 
 2,687 
 1,867 
 821 
 44.0 % 

 Service Only - Average installed base (# of terminals) 
 21,515 
 21,668 
 (153 ) 
 (0.7 )% 

 Customer Gross Win per unit per day (1) (2) 
 £ 47.2 
 £ 12.2 
 £ 35.1 
 288 % 

 Customer Net Win per unit per day (1) (2) 
 £ 36.7 
 £ 8.9 
 £ 27.8 
 313 % 

 Inspired Blended Participation Rate 
 6.0 % 
 6.6 % 
 (0.6 )% 
 (9.3 )% 

 Inspired Fixed Rental Revenue per Gaming Machine per week 
 £ 15.4 
 £ 0.0 
 £ 15 
 N/A 

 Inspired Service Rental Revenue per Gaming Machine per week 
 £ 4.1 
 £ 1.3 
 £ 2.8 
 222 % 

 Gaming Long term license amortization (£’m) 
 £ 1.2 
 £ 1.3 
 (£ 0.0 ) 
 (2.7 )% 

 Number of Machine sales 
 396 
 13 
 383 
 2946 % 

 Average selling price per terminal 
 £ 5,449 
 £ 5,672 
 (£ 223 ) 
 (3.9 )% 

 (1) 
 Includes
 all Gaming terminals in which the company takes a participation revenue share across all territories 

 (2) 
 Includes
 all days of the period, including the days during which the Gaming terminals were not operating due to COVID-19, as many of our customers’
 venues were closed during a portion of the period (the “COVID-19 closures”). 

 Please
refer to our Annual Report on Form 10-K for the year ended December 31, 2020, for definitions of terms used in the above table. 

 Gaming
Segment, Recurring Revenue 

 Set
forth below is a breakdown of our Gaming recurring revenue. Gaming recurring revenue consists principally of Gaming participation revenue
and fixed rental revenue. 

 For the Three-Month Period ended 
 Variance 

 Unaudited

 June 30,
 
 Unaudited

 June 30,
 
 2021 vs 2020 

 (In £ millions) 
 2021 
 2020 
 
 % 

 Gaming Recurring Revenue 
 
 Total Gaming Revenue 
 £ 11.6 
 £ 3.4 
 £ 8.2 
 241.5 % 

 Gaming Participation Revenue 
 £ 6.0 
 £ 1.6 
 £ 4.5 
 285.6 % 

 Gaming Other Fixed Fee Recurring Revenue 
 £ 1.6 
 £ 0.3 
 £ 1.2 
 350.0 % 

 Gaming Long-term license amortization 
 £ 1.2 
 £ 1.3 
 (£ 0.0 ) 
 (2.7 )% 

 Total Gaming Recurring Revenue 
 £ 8.8 
 £ 3.2 
 £ 5.6 
 176.5 % 

 Gaming Recurring Revenue as a % of Total Gaming Revenue 
 76.2 % 
 94.1 % 
 (17.9 )% 
 
 27 

 Note:-
There was no VAT-related income in the period 

 Please
refer to our Annual Report on Form 10-K for the year ended December 31, 2020, for definitions of terms used in the above table. 

 Gaming
Segment, Service Revenue by Region 

 Set
forth below is a breakdown of our Gaming service revenue by geographic region. Gaming Service revenue consists principally of Gaming
participation revenue, Gaming other fixed fee revenue, Gaming long-term license amortization and Gaming other non-recurring revenue.
See “Gaming Segment Revenue” below for a discussion of gaming service revenue between the periods under review. 

 Gaming
Service Revenue by Region 

 For the Three-Month Period ended 
 
 (In millions) 
 Unaudited June 30,

 2021
 
 Unaudited June 30,

 2020
 
 Variance 2021 vs 2020 
 Total Functional Currency % 
 Total Variance % 

 Service Revenue: 
 
 UK LBO 
 $ 8.2 
 $ 1.4 
 $ 6.8 
 405.6 % 
 466.8 % 

 UK Other 
 1.3 
 0.1 
 1.2 
 1458.0 % 
 1656.7 % 

 Italy 
 0.2 
 0.2 
 0.0 
 4.9 % 
 17.8 % 

 Greece 
 3.1 
 2.3 
 0.8 
 18.3 % 
 33.1 % 

 Rest of the World 
 0.0 
 0.1 
 (0.0 ) 
 (98.4 )% 
 (98.2 )% 

 Total Service revenue 
 $ 12.8 
 $ 4.1 
 $ 8.7 
 179.0 % 
 213.6 % 

 Exchange Rate - $ to £ 
 1.40 
 1.25 
 
 28 

 Note:
Exchange rate in the table is calculated by dividing the USD total service revenue by the GBP total service revenue, therefore this could
be slightly different from the average rate during the period depending on timing of transactions. 

 Gaming
Segment, key events that affected results for the Three Months ended June 30, 2021 

 Total
Gaming Customer Gross Win per unit per day (in our functional currency, GBP) increased by £35.08, or 288% which was due to the
impact of COVID-19. In the UK, retail venues were closed for the majority of the quarter ended June 30, 2020, as compared to the current
period when retail venues reopened in April and May 2021 (for further detail see segment revenue discussion below). In Greece, retail
venues reopened in late May 2021 while in Italy retail venues began reopening in June 2021. The participation rate decreased from 6.6%
to 6.0% primarily due to a higher proportion of UK venues operating in 2021 when compared to the same quarter in 2020 as UK share terms
are lower (due to the fact we have higher gross win levels in the UK) than the total blended Gaming average. 

 During
the period, Inspired sold 71 “Valor™” terminals to a number of customers in Illinois, increasing the total number of
North American unit sales since launch in December 2019 to 540. 

 In
the UK market, momentum was gained with our new “Community King” three-player product. 

 In
addition, we have been upgrading our UK Gaming estate with the installation of 134 “Flex” and 57 “Prismatic”
terminals on three-year lease agreements. 

 Three
Months ended June 30, 2021, compared to Three Months ended June 30, 2020 – Gaming Segment 

 For the Three-Month Period ended 
 
 (In millions) 
 Unaudited June 30,

 2021
 
 Unaudited June 30,

 2020
 
 Variance

 2021 vs 2020
 
 Total Functional Currency % 
 Total Variance % 

 Revenue: 
 
 Service 
 $ 12.8 
 $ 4.1 
 $ 8.7 
 179.0 % 
 213.6 % 

 Product 
 3.4 
 0.1 
 3.2 
 2141.8 % 
 2464.0 % 

 Total revenue 
 16.2 
 4.2 
 12.0 
 241.5 % 
 283.9 % 

 Cost of Sales, excluding depreciation and amortization: 
 
 Cost of Service 
 (3.6 ) 
 (1.0 ) 
 (2.6 ) 
 229.8 % 
 270.3 % 

 Cost of Product 
 (2.4 ) 
 (0.2 ) 
 (2.2 ) 
 845.3 % 
 969.2 % 

 Total cost of sales 
 (6.0 ) 
 (1.2 ) 
 (4.8 ) 
 345.5 % 
 400.8 % 

 Selling, general and administrative expenses 
 (6.7 ) 
 (3.0 ) 
 (3.6 ) 
 95.6 % 
 120.6 % 

 Stock-based compensation 
 (0.4 ) 
 (0.1 ) 
 (0.3 ) 
 67.4 % 
 300.0 % 

 Depreciation and amortization 
 (5.8 ) 
 (7.0 ) 
 1.2 
 (27.1 )% 
 (17.1 )% 

 Net operating Income (Loss) 
 $ (2.7 ) 
 $ (7.1 ) 
 $ 4.4 
 (68.4 )% 
 (62.4 )% 

 Exchange Rate - $ to £ 
 1.40 
 1.25 
 
 29 

 Note:
Exchange rate in the table is calculated by dividing the USD total revenue by the GBP total revenue, therefore this could be slightly
different from the average rate during the period depending on timing of transactions. 

 Gaming
Segment Revenue 

 During
the period, Gaming revenue increased by $12.0 million, or 284%, to $16.2 million on a reported basis. This increase included a favorable
currency impact of $1.8 million. On a functional currency (at constant rate) basis, Gaming revenue increased by $10.2 million, or 242%
as Gaming retail venues reopened during the period (see market information below for more detail) albeit with some restrictions for some
of the period. 

 Service
revenue increased by $8.7 million to $12.8 million on a reported basis. This increased included favorable currency movements of $1.4
million. On a functional currency (at constant rate) basis, Gaming Service revenue increased by $7.3 million, or 179%. This was driven
by an increase in UK sales (including Licensed Betting Offices (“LBO”) and UK other) of $6.9 million primarily driven by
the reopening of retail venues. UK LBO had additional two months trading verses quarter two 2020, albeit with one of these months at
fifty percent capacity and UK other venues had an additional one month trading verses quarter two 2020. Greece revenue increased by $0.4
million, driven by the reopening of retail venues, Greece trading for an additional two weeks verses last period. Italy service revenue
was unchanged as COVID-19 restrictions mostly remained in place during the period. 

 Product
revenue increased by $3.2 million to $3.4 million on a reported basis. On a functional currency (at constant rate) basis, revenue increased
by $2.9 million. This was driven by Product sales of $1.7 million in the UK markets, $1.1 million of Valor terminal sales in North America
and $0.6 million of spare part sales. 

 Gaming
Segment Operating Income 

 Cost
of sales (excluding depreciation and amortization) increased by $4.8 million to $6.0 million on a reported basis, which included adverse
currency movements of $0.7 million. On a functional currency (at constant rate) basis, Gaming cost of sales increased by $4.1 million,
or 346%. Cost of Service increased by $2.2 million driven by the reopening of retail venues. Cost of Product increased by $1.9 million
driven by the increase in Product revenue. 

 SG&A
expense increased by $3.6 million on a reported basis. This increase included the impact of unfavorable currency movements of $0.7 million.
On a functional currency (at constant rate) basis, Gaming SG&A increased by $2.9 million, or 95.6%. This was driven by staff returning
from furlough as retail venues and markets reopened. 

 Depreciation
and amortization declined by $1.2 million on a reported basis, or 17.1%. This included the impact of unfavorable currency movements of
$0.7 million. On a functional currency (at constant rate basis), Gaming depreciation and amortization decreased by $1.9 million, or 27.1%.
This was driven by a decrease in depreciation in the UK LBO and Greece markets. 

 Operating
Loss improved by $4.4 million on a reported basis, from a loss of $7.1 million to a loss of $2.7 million. This was primarily due to the
increase in revenue as retail venues reopened, partly offset by increased costs as staff returned from furlough as well as unfavorable
currency movements of $0.5 million. 

 30 

 Three
Months ended June 30, 2021, compared to Three Months ended June 30, 2020 – Virtual Sports Segment 

 We
generate revenue from our Virtual Sports segment through the licensing of our products. We receive fees in exchange for the licensing
of our products, typically on a long-term contract basis, on a participation basis. Our participation contracts are typically structured
to pay us a percentage of net win (defined as net revenue to our operator customers, after deducting player winnings, free bets or plays
and other promotional costs and any relevant regulatory levies) from Virtual Sports content placed on our customers’ websites or
in our customers’ facilities. Typically, we recognize revenue from these arrangements on a daily basis over the term of the contract. 

 Revenue
growth for our Virtual Sports segment is principally driven by the number of customers we have, the net win performance of the games
and the net win percentage that we receive pursuant to our contracts with our customers. 

 Virtual
Sports Segment, Key Performance Indicators 

 For the Three-Month Period ended 
 Variance 

 Unaudited

 Jun 30,
 
 Unaudited

 Jun 30,
 
 2021 vs 2020 

 Virtuals 
 2021 
 2020 
 
 % 

 No. of Live Customers at the end of the period 
 60 
 57 
 3 
 5.3 % 

 Average No. of Live Customers 
 59 
 58 
 1 
 1.7 % 

 Total Revenue (£’m) 
 £ 5.9 
 £ 6.1 
 (£ 0.3 ) 
 (4.6 )% 

 Total Revenue £’m - Retail 
 £ 1.5 
 £ 1.0 
 £ 0.5 
 54.5 % 

 Total Revenue £’m - Online Virtuals 
 £ 4.3 
 £ 5.2 
 (£ 0.8 ) 
 (15.8 )% 

 Please
refer to our Annual Report on Form 10-K for the year ended December 31, 2020, for definitions of terms used in the above table. 

 Virtual
Sports Segment, Recurring Revenue 

 Set
forth below is a breakdown of our Virtual Sports recurring revenue, which consists of Retail Virtuals and Online Virtuals recurring revenue
as well as long-term license amortization. See “Virtual Sports Segment Revenue” below for a discussion of Virtual Sports
Service revenue between the periods under review. 

 For the Three-Month Period ended 
 Variance 

 Unaudited

 June 30,
 
 Unaudited

 June 30,
 
 2021 vs 2020 

 (In £ millions) 
 2021 
 2020 
 
 % 

 Virtual Sports Recurring Revenue 
 
 Total Virtual Sports Revenue 
 £ 5.9 
 £ 6.1 
 (£ 0.3 ) 
 (4.6 )% 

 Recurring Revenue - Retail Virtuals 
 £ 1.4 
 £ 0.8 
 £ 0.6 
 81.0 % 

 Recurring Revenue - Online Virtuals 
 £ 4.2 
 £ 4.5 
 (£ 0.3 ) 
 (6.3 )% 

 Total Virtual Sports Long-term license amortization 
 £ 0.2 
 £ 0.2 
 (£ 0.1 ) 
 (29.7 )% 

 Total Virtual Sports Recurring Revenue 
 £ 5.8 
 £ 5.5 
 £ 0.3 
 4.9 % 

 Virtual Sports Recurring Revenue as a Percentage of Total Virtual Sports Revenue 
 99.0 % 
 90.0 % 
 9.0 % 
 
 31 

 Please
refer to our Annual Report on Form 10-K for the year ended December 31, 2020, for definitions of terms used in the above table. 

 Virtual
Sports Segment, key events that affected results for the Three Months ended June 30, 2021 

 During
the three months ended June 30, 2021, our key retail territories in the UK, Ireland, Italy and Greece reopened at different stages in
the quarter. In the prior year period, only Greece and Italy had reopened during June of 2020. As a result, retail recurring revenues
increased by $0.9 million. 

 During
the three months ended June 30, 2021, we launched three channels of our V-Play Soccer 3.0 product with Stoiximan, the largest online
operator in Greece, using our cloud streaming solution. 

 In
Turkey we launched our new Euro Soccer Marbles product alongside a new Parlay Boost feature with Misli via our proprietary Virtual Plug
& Play TM (“VPP”) platform. 

 A
suite of new products including Marbles, Matchday Soccer Ultra and the new Penalty shootout soccer product were launched in Italy on
both retail and online channels. 

 We
signed an extension to our existing agreement with Entain enabling betMGM, Borgata and PartyCasino to launch VPP into multiple U.S. states. 

 Updates
to V-Play Soccer 3.0 and V-Play Matchday Soccer were launched in OPAP venues in Greece along with a new Euro Tournament product enabling
bets to be placed on a Virtual Soccer tournament which was launched alongside the European soccer tournament in June. 

 A
contract extension was signed with Boylesports covering the continued provision of Virtual Sports across retail betting shops in the
UK and Ireland. 

 Three
Months ended June 30, 2021, compared to Three Months ended June 30, 2020 – Virtual Sports Segment 

 For the Three-Month Period ended 
 
 (In millions) 
 Unaudited June 30,

 2021
 
 Unaudited June 30,

 2020
 
 Variance

 2021 vs 2020
 
 Total Functional Currency % 
 Total Variance % 

 Service Revenue 
 $ 8.2 
 $ 7.6 
 $ 0.6 
 (4.6 )% 
 7.5 % 

 Cost of Service 
 (0.5 ) 
 (0.8 ) 
 0.3 
 (45.0 )% 
 (38.1 )% 

 Selling, general and administrative expenses 
 (2.7 ) 
 (0.7 ) 
 (1.9 ) 
 222.8 % 
 264.2 % 

 Stock-based compensation 
 (0.1 ) 
 (0.1 ) 
 - 
 68.0 % 
 0.0 % 

 Depreciation and amortization 
 (0.7 ) 
 (0.9 ) 
 0.2 
 (28.0 )% 
 (22.2 )% 

 Net operating Income (Loss) 
 $ 4.2 
 $ 5.1 
 $ (0.9 ) 
 (28.0 )% 
 (17.2 )% 

 Exchange Rate - $ to £ 
 1.40 
 1.24 
 
 Note:
Exchange rate in the table is calculated by dividing the USD service revenue by the GBP service revenue, therefore this could be slightly
different from the average rate during the period depending on timing of transactions. 

 32 

 Virtual
Sports Segment revenue 

 During
the period, revenue increased by $0.6 million, or 7.5%, on a reported basis. This increase included the impact of favorable currency
movements of $0.9 million. On a functional currency (at constant rate) basis, revenue decreased by $0.4 million, or 4.6%. This decrease
was driven by a $1.0 million decline in Online Virtuals of which $0.7 million stemmed from one-time sales of Virtual Sports events in
the prior year period and a $0.4 million decline in Online recurring revenue resulting from the high activity on Online Virtuals in the
prior year period, both of which were due to the limited live sports betting available during COVID-19 lockdowns. Despite
the decline in the quarter, Online revenues remain significantly higher than pre-COVID-19 levels. This was partially offset by growth
in recurring Retail Virtuals of $0.9 million as retail venues reopened during the period. 

 Virtual
Sports Segment operating income 

 Cost
of Service decreased by $0.3 million to $0.5 million on a reported basis. This decrease included the impact of $0.1 million from adverse
currency movements. On a functional currency (at constant rate) basis, cost of Service decreased by $0.4 million, or 45.0%, driven by
the decrease in Online Virtuals revenue. 

 SG&A
expenses increased by $1.9 million on a reported basis. On a functional currency (at constant rate) basis, SG&A expenses increased
by $1.6 million, or 223%. This was driven by a $1.2 million increase for the provision following settlement with the Italian Tax Authorities
in respect of an audit of the Italian Branch of Inspired Gaming (International) Limited for the period 2015-2017 in respect of the historic
VAT treatment of supplies, as well as increase in costs as staff returning from furlough as retail venues. 

 Depreciation
and amortization decreased by $0.2 million on a reported and functional currency (at constant rate) basis. 

 Operating
profit decreased by $0.9 million on a reported basis which included the impact of favorable currency movements of $0.6
million. On a functional currency (at constant rate) basis, operating profit decreased by $1.4 million. This was primarily due
to the $1.6 million increase in SG&A following the settlement with the Italian Tax Authorities. 

 33 

 Three
Months ended June 30, 2021, compared to Three Months ended June 30, 2020 – Interactive Segment 

 We
generate revenue from our Interactive segment through the licensing of our products. We receive fees in exchange for the licensing of
our products, typically on a long-term contract basis, on a participation basis. Our participation contracts are typically structured
to pay us a percentage of net win (defined as net revenue to our operator customers, after deducting player winnings, free bets or plays
and other promotional costs and any relevant regulatory levies) from Interactive content placed on our customers’ websites. Typically,
we recognize revenue from these arrangements on a daily basis over the term of the contract. 

 Revenue
growth for our Interactive segment is principally driven by the number of customers we have, the number of live games, the net win performance
of the games and the net win percentage that we receive pursuant to our contracts with our customers. 

 Interactive
Segment, Key Performance Indicators 

 For the Three-Month Period ended 
 Variance 

 Unaudited

 Jun 30,
 
 Unaudited

 Jun 30,
 
 2021 vs 2020 

 Interactive 
 2021 
 2020 
 
 % 

 No. of Live Customers at the end of the period 
 100 
 70 
 30 
 42.9 % 

 Average No. of Live Customers 
 99 
 70 
 30 
 42.6 % 

 No. of Live Games at the end of the period 
 218 
 189 
 29 
 15.3 % 

 Average No. of Live Games 
 216 
 187 
 28 
 15.1 % 

 Total Revenue (£’m) 
 £ 4.2 
 £ 2.8 
 £ 1.4 
 50.1 % 

 Please
refer to our Annual Report on Form 10-K for the year ended December 31, 2020, for definitions of terms used in the above table. 

 Interactive
Segment, Recurring Revenue 

 Set
forth below is a breakdown of our Interactive recurring revenue which consists principally of Interactive participation revenue. See
“Interactive Segment Revenue” below for a discussion of Interactive service revenue between the periods under review. 

 For the Three-Month Period ended 
 Variance 

 Unaudited

 June 30,
 
 Unaudited

 June 30,
 
 2021 vs 2020 

 (In £ millions) 
 2021 
 2020 
 
 % 

 Interactive Recurring Revenue 
 
 Total Interactive Revenue 
 £ 4.2 
 £ 2.8 
 £ 1.4 
 50.0 % 

 Total Recurring Revenue - Interactive 
 £ 4.2 
 £ 2.7 
 £ 1.4 
 51.4 % 

 Interactive Recurring Revenue as a Percentage of Total Interactive Revenue 
 100.0 % 
 99.1 % 
 0.9 % 
 
 34 

 Interactive
Segment, key events that affected results for the Three Months ended June 30, 2021 

 During
the period, the North American market has grown 265% or $0.4 million in the quarter. There were seven new brand launches including BetMGM
and Golden Nugget in Michigan. 

 We
deployed seven new games in the quarter across the estate including “Big Spin Bonus” and “Cops and Robbers Megaways”.
Big Spin Bonus is the biggest launch in Inspired’s history and is the first game to generate 20 million plays in a week. The product
is expected to launch in all markets. 

 Three
Months ended June 30, 2021, compared to Three Months ended June 30, 2020 – Interactive Segment 

 For the Three-Month 

Period ended 
 
 (In millions) 
 Unaudited June 30,

 2021
 
 Unaudited June 30,

 2020
 
 Variance

 2021 vs 2020
 
 Total Functional Currency % 
 Total Variance
 % 

 Service Revenue 
 $ 5.8 
 $ 3.4 
 $ 2.4 
 50.0 % 
 69.0 % 

 Cost of Service 
 (0.9 ) 
 (0.4 ) 
 (0.5 ) 
 111.6 % 
 133.1 % 

 Selling, general and administrative
 expenses 
 (1.3 ) 
 (0.6 ) 
 (0.7 ) 
 100.2 % 
 125.9 % 

 Stock-based compensation 
 (0.1 ) 
 (0.1 ) 
 - 
 177.7 % 
 0.0 % 

 Depreciation and amortization 
 (0.9 ) 
 (0.6 ) 
 (0.3 ) 
 40.4 % 
 47.5 % 

 Net operating Income (Loss) 
 $ 2.6 
 $ 1.7 
 $ 0.8 
 21.4 % 
 46.8 % 

 Exchange Rate - $ to £ 
 1.40 
 1.24 
 
 Note:
Exchange rate in the table is calculated by dividing the USD service revenue by the GBP service revenue, therefore this could be slightly
different from the average rate during the period depending on timing of transactions. 

 Interactive
Segment revenue 

 During
the period, revenue increased by $2.4 million, or 69.0%, on a reported basis. On a functional currency (at constant rate) basis, revenue
increased by $1.7 million, or 50.0%. This was driven by recurring revenue growth due to the consistent launch of new content across the
estate, growth in the customer base in new, emerging and core markets and increased promotional activity through exclusive deals with
tier-one customers. 

 35 

 Interactive
Segment operating income 

 Cost
of Service increased by $0.5 million to $0.9 million on a reported basis. On a functional currency (at constant rate) basis, cost of
Service increased by $0.4 million due to increased third party platform provider costs, in line with the revenue increase for the period. 

 SG&A
expenses increased by $0.7 million on a reported basis. This increase included the impact of unfavorable currency movements of $0.1 million.
On a functional currency (at constant rate) basis, SG&A increased by $0.6 million driven by the investment in the segment to help
drive the increasing revenues. 

 Depreciation
and amortization increased by $0.3 million on a reported basis. On a functional currency (at constant rate) basis, depreciation and amortization
increased by $0.2 million. 

 Operating
profit increased by $0.8 million on a reported basis. On a functional currency (at constant rate) basis operating profit increased by
$0.4 million. This was primarily due to the increase in revenue, partly offset by the increase in cost of sales and SG&A. 

 Three
Months ended June 30, 2021, compared to Three Months ended June 30, 2020 – Leisure Segment 

 We
generate revenue from our Leisure segment through the rental of our gaming and amusement machines. We receive rental fees for machines,
typically on a long-term contract basis, on both a participation and fixed fee basis, with our newer digital pub machines typically contracted
on a fixed fee basis. Our participation contracts are typically structured to pay us a percentage of net win (defined as net revenue
to our operator customers, after deducting player winnings, free bets or plays and any relevant regulatory levies) from gaming terminals
placed in our customers’ facilities. Typically, we recognize revenue from these arrangements on a daily basis over the term of
the contract. 

 Revenue
growth for our Leisure segment is principally driven by the number of customers we have, the number of gaming machines in operation,
the net win performance of the machines and the net win percentage that we receive pursuant to our contracts with our customers. 

 Leisure
segment, Key Performance Indicators 

 For the Three-Month Period ended 
 Variance 

 Unaudited

 Jun 30,
 
 Unaudited

 Jun 30,
 
 2021 vs 2020 

 Leisure 
 2021 
 2020 
 
 % 

 End of period installed base Gaming machines (# of terminals) 
 11,723 
 12,262 
 (539 ) 
 (4.4 )% 

 Average installed base Gaming machines (# of terminals) 
 11,679 
 12,267 
 (588 ) 
 (4.8 )% 

 End of period installed base Other (# of terminals) 
 7,244 
 8,224 
 (980 ) 
 (11.9 )% 

 Average installed base Other (# of terminals) 
 7,188 
 8,231 
 (1,043 ) 
 (12.7 )% 

 Pub Digital Gaming Machines - Average installed base (# of terminals) 
 5,895 
 5,773 
 122 
 2.1 % 

 Pub Analogue Gaming Machines - Average installed base (# of terminals) 
 2,233 
 2,690 
 (458 ) 
 (17.0 )% 

 MSA and Bingo Gaming Machines - Average installed base (# of terminals) (1) 
 3,293 
 3,517 
 (224 ) 
 (6.4 )% 

 Inspired Leisure Revenue per Gaming Machine per week 
 £ 24.4 
 NM 
 NM 
 NM 

 Inspired Pub Digital Revenue per Gaming Machine per week 
 £ 26.0 
 NM 
 NM 
 NM 

 Inspired Pub Analogue Revenue per Gaming Machine per week 
 £ 13.2 
 NM 
 NM 
 NM 

 Inspired MSA and Bingo Revenue per Gaming Machine per week 
 £ 30.0 
 £ 0.2 
 £ 29.8 
 15859 % 

 Inspired Other Revenue per Machine per week 
 £ 4.7 
 NM 
 NM 
 NM 

 Total Leisure Parks Revenue (Gaming and Non Gaming) (£’m) 
 £ 3.3 
 NM 
 NM 
 NM 

 (1) 
 Motorway
 Service Area machines 

 36 

 Please
refer to our Annual Report on Form 10-K for the year ended December 31, 2020, for definitions of terms used in the above table. 

 Leisure
Segment, Recurring Revenue 

 Set
forth below is a breakdown of our Leisure recurring revenue which consists principally of Leisure participation revenue and Leisure other
fixed fee revenue. See “Leisure Segment Revenue” below for a discussion of leisure service revenue between the periods under
review. 

 Set
forth below is a breakdown of our Leisure recurring revenue. 

 For the Three-Month Period ended 
 Variance 

 Unaudited

 June 30,
 
 Unaudited

 June 30,
 
 2021 vs 2020 

 (In £ millions) 
 2021 
 2020 
 
 % 

 Leisure Recurring Revenue 
 
 Total Leisure Revenue 
 £ 8.1 
 £ 0.3 
 £ 7.8 
 2691.7 % 

 Total Leisure Recurring Revenue 
 £ 7.6 
 £ 0.1 
 £ 7.5 
 6323.0 % 

 Leisure Recurring Revenue as a Percentage of Total Leisure Revenue 
 94.8 % 
 41.2 % 
 53.6 % 
 
 Leisure
Segment, key events that affected results for the Three Months ended June 30, 2021 

 During
the three months ended June 30, 2021, all major sectors of the Leisure segment (Pubs, Holiday Parks, Motorway Service Areas and Bingo
Halls) remained closed due to the COVID-19 closures in the UK until May 17 th . 

 From
May 17, 2021, venues reopened with social distancing and other restrictions imposed due to COVID-19. These restrictions remained in place
for the rest of the period. 

 37 

 Three
Months ended June 30, 2021, compared to Three Months ended June 30, 2020 – Leisure Segment 

 For the Three-Month Period ended 
 
 (In millions) 
 Unaudited June 30,

 2021
 
 Unaudited June 30,

 2020
 
 Variance

 2021 vs 2020
 
 Total Functional Currency % 
 Total Variance % 

 Revenue: 
 
 Service 
 $ 10.7 
 $ 0.2 
 $ 10.5 
 4733.4 % 
 5334.6 % 

 Product 
 0.6 
 0.2 
 0.4 
 221.2 % 
 261.0 % 

 Total revenue 
 11.3 
 0.4 
 10.9 
 2691.7 % 
 3045.9 % 

 Cost of Sales, excluding depreciation and amortization: 
 
 Cost of Service 
 (3.0 ) 
 (0.3 ) 
 (2.7 ) 
 731.1 % 
 837.5 % 

 Cost of Product 
 (0.3 ) 
 (0.1 ) 
 (0.2 ) 
 202.3 % 
 239.3 % 

 Total cost of sales 
 (3.3 ) 
 (0.4 ) 
 (2.9 ) 
 614.4 % 
 705.4 % 

 Selling, general and administrative expenses 
 (8.2 ) 
 (2.6 ) 
 (5.6 ) 
 177.6 % 
 217.9 % 

 Stock-based compensation 
 (0.1 ) 
 (0.0 ) 
 (0.1 ) 
 251.3 % 
 352.0 % 

 Depreciation and amortization 
 (4.1 ) 
 (4.4 ) 
 0.3 
 (17.3 )% 
 (6.8 )% 

 Net operating Income (Loss) 
 (4.4 ) 
 (7.0 ) 
 $ 2.7 
 (45.7 )% 
 (38.2 )% 

 Exchange Rate - $ to £ 
 1.40 
 1.25 
 
 Note:
Exchange rate in the table is calculated by dividing the USD total revenue by the GBP total revenue, therefore this could be slightly
different from the average rate during the period depending on timing of transactions. 

 38 

 Leisure
Segment Revenue 

 During
the period, revenue increased by $10.9 million to $11.3 million on a reported basis, including a $1.3 million impact from favorable currency
movements. On a functional currency (at constant rate) basis revenue increased by $9.7 million. 

 Service
revenue increased by $10.5 million on a reported basis and $9.3 million on a functional currency (at constant rate) basis to $10.7 million.
This was driven by the reopening of venues in May although with some COVID-19 restriction remaining for the rest of the period. 

 Product
revenue increased by $0.4 million to $0.6 million on a reported and functional currency (at constant rate) basis. This increase was driven
by the reopening of venues. 

 Leisure
Segment Operating Income 

 Operating
loss improved by $2.7 million on a reported basis from a loss of $7.0 million to a loss of $4.4 million, which included the impact of
unfavorable currency movements of $0.5 million. On a functional currency (at constant rate) basis operating loss improved by $3.2 million.
This was primarily due to the increase in revenue as venues reopened. 

 Six
Months ended June 30, 2021, compared to Six Months ended June 30, 2020 

 For
 the Six-Month

 Period ended
 
 Total 
 
 Unaudited June 30, 
 
 Unaudited June 30, 
 
 Variance 
 
 Functional Currency
 
 Total Variance 
 
 (In millions) 
 
 2021 
 
 2020 
 
 2021 vs 2020 
 
 % 
 
 % 
 
 Revenue: 
 
 Service 
 
 $ 
 54.6 
 
 $ 
 58.1 
 
 $ 
 (3.5 
 ) 
 
 (14.1 
 )% 
 
 (6.0 
 )% 

 Product 
 
 9.7 
 
 9.8 
 
 (0.1 
 ) 
 
 (8.9 
 )% 
 
 (0.9 
 )% 

 Total revenue 
 
 64.3 
 
 67.9 
 
 (3.6 
 ) 
 
 (13.3 
 )% 
 
 (5.3 
 )% 

 Cost of Sales, excluding depreciation and amortization: 
 
 Cost of Service 
 
 (10.1 
 ) 
 
 (11.0 
 ) 
 
 0.8 
 
 (15.3 
 )% 
 
 (7.6 
 )% 

 Cost of Product 
 
 (5.9 
 ) 
 
 (6.5 
 ) 
 
 0.6 
 
 (17.7 
 )% 
 
 (9.6 
 )% 

 Selling, general and administrative expenses 
 
 (38.9 
 ) 
 
 (39.2 
 ) 
 
 0.3 
 
 (9.3 
 )% 
 
 (0.7 
 )% 

 Stock-based compensation 
 
 (4.8 
 ) 
 
 (2.0 
 ) 
 
 (2.8 
 ) 
 
 118.3 
 % 
 
 138.6 
 % 

 Acquisition and integration related transaction expenses 
 
 (1.5 
 ) 
 
 (4.4 
 ) 
 
 2.9 
 
 (69.7 
 )% 
 
 (66.3 
 )% 

 Depreciation and amortization 
 
 (25.0 
 ) 
 
 (25.9 
 ) 
 
 0.9 
 
 (12.4 
 )% 
 
 (3.5 
 )% 

 Net operating Income (Loss) 
 
 (21.9 
 ) 
 
 (21.1 
 ) 
 
 (0.8 
 ) 
 
 (6.8 
 )% 
 
 3.7 
 % 

 Other income (expense) 
 
 Interest income 
 
 0.1 
 
 0.4 
 
 (0.3 
 ) 
 
 (86.7 
 )% 
 
 (86.0 
 )% 

 Interest expense 
 
 (30.8 
 ) 
 
 (14.2 
 ) 
 
 (16.6 
 ) 
 
 95.3 
 % 
 
 117.1 
 % 

 Change in fair value of warrant liability 
 
 (13.5 
 ) 
 
 5.9 
 
 (19.4 
 ) 
 
 (301.4 
 )% 
 
 (328.1 
 )% 

 Other finance income (expense) 
 
 5.2 
 
 (6.2 
 ) 
 
 11.4 
 
 (176.4 
 )% 
 
 (184.6 
 )% 

 Loss from equity method investee 
 
 - 
 
 (0.5 
 ) 
 
 0.5 
 
 (100.0 
 )% 
 
 (100.0 
 )% 

 Total other income (expense), net 
 
 (39.0 
 ) 
 
 (14.6 
 ) 
 
 (24.4 
 ) 
 
 139.6 
 % 
 
 166.7 
 % 

 Net Income (loss) from continuing operations before income
 taxes 
 
 (60.9 
 ) 
 
 (35.7 
 ) 
 
 (25.1 
 ) 
 
 52.9 
 % 
 
 70.4 
 % 

 Income tax expense 
 
 0.4 
 
 (0.3 
 ) 
 
 0.7 
 
 (205.8 
 )% 
 
 (225.7 
 )% 

 Net Income (Loss) 
 
 $ 
 (60.5 
 ) 
 
 $ 
 (36.0 
 ) 
 
 $ 
 (24.5 
 ) 
 
 50.9 
 % 
 
 67.9 
 % 

 Exchange Rate - $ to £ 
 
 1.39 
 
 1.27 
 
 39 

 Revenue 

 Total
reported revenue for the six months ended June 30, 2021, decreased by $3.6 million, or 5.3%, to $64.3 million on a reported basis. This
included an increase from Interactive of $5.5 million, offset by declines in Gaming of $2.2 million, Virtual Sports of $0.9 million,
and Leisure of $6.0 million. Favorable currency movements accounted for a $5.5 million impact. On a functional currency (at constant
rate) basis, revenue decreased by $9.1 million, or 13.3%, as detailed below: 

 ● 
 Gaming
 revenue decreased by $4.3 million, comprised of a decrease in Service revenue of $3.8 million and a decrease in Product sales of
 $0.6 million. The decrease in Service revenue includes VAT-related revenue of $2.9 million generated in the current period (using
 prior year exchange rate). Excluding the VAT-related revenue, Service revenue would have declined by $6.7 million. This was primarily
 due to the COVID-19 closures, which effected a longer closure during the period than during the comparable prior period. 

 ● 
 Virtual
 Sports revenue decreased by $2.2 million, or 14.5%. This decrease included a $2.9 million decrease in retail revenue primarily as
 a result of the COVID-19 closures, particularly in the first quarter of 2021. This was partially offset by growth in Online Virtuals
 of $0.6 million. 

 ● 
 Interactive
 revenue increased by $4.3 million, or 78.2%. This growth was driven by the addition of new customers and territories and the consistent
 launch of new high-quality content 

 ● 
 Leisure
 revenue decreased by $7.0 million, comprised of a decrease in Service revenue of $6.7 million and a decrease in Product sales of
 $0.3 million. The decline in revenue was due to the impact of the COVID-19 closures, as venues were closed during a longer portion
 of the period than in the prior comparable period. 

 Cost
of sales, excluding depreciation and amortization 

 Cost
of sales, excluding depreciation and amortization, decreased by $1.5 million, or 8.4%, on a reported basis, to $16.0 million, including
the impact of $1.4 million from unfavorable currency movements. Of this decrease, $0.8 million was attributable to cost of Service and
$0.6 million was attributable to cost of Product sales. On a functional currency (at constant rate) basis, cost of sales decreased by
$2.8 million, or 16.2%, reflecting the revenue reductions resulting from the COVID-19 closures. 

 Selling,
general and administrative expenses 

 Selling,
general and administrative (“SG&A”) expenses remained unchanged from the prior year on a reported basis at $38.9 million.
This included $3.4 million of unfavorable currency movements. On a functional currency (at constant rate basis), SG&A decreased by
$3.7 million, or 9.3%. This decrease was driven primarily by permanent synergy and other savings. 

 40 

 Stock-based
compensation 

 During
the six months ended June 30, 2021, the Company recorded an expense of $4.8 million with respect to outstanding awards. Of this expense,
$1.9 million related to awards made under the 2021 Plan (including $1.4 million of upfront recognition) and $2.9 million related
to awards made under the 2018 Plan. During the six months ended June 30, 2020, the charge for stock-based compensation was $2.0 million.
Of this expense, $1.8 million related to awards made under the 2018 Plan and $0.2 million related to costs from awards made under a 2016
long term incentive plan. 

 Acquisition
and integration related transaction expenses 

 Acquisition
and integration related transaction expenses decreased by $2.9 million to $1.5 million on a reported basis. Both the 2021 and 2020 expenses
were primarily integration costs in relation to the NTG acquisition. 

 Depreciation
and amortization 

 Depreciation
and amortization decreased by $0.9 million, or 3.5%, to $25.0 million on a reported basis. This included the impact of unfavorable currency
movements of $2.3 million. On a functional currency (at constant rate) basis, depreciation and amortization decreased by $3.2 million,
or 12.4%, driven primarily by a decrease of $3.2 million in Gaming due to certain assets being fully written down. 

 Net
operating loss 

 During
the period, net operating loss was $21.9 million compared to a net operating loss of $21.1 million in the prior period. The increase
of $0.8 million in operating loss on a reported basis was attributable to a $2.2 million unfavorable impact from foreign currency
translation. On a functional currency (at constant rate) basis, net operating loss improved by $1.5 million, or 6.8%. This was attributable
to the cost savings across our Gaming, Virtual Sports and Leisure segments as well as the decrease in acquisition and integration related
transaction expenses. This was partly offset by the decrease of revenue driven by the COVID-19 closures. 

 Interest
expense 

 Net
interest expense increased by $16.6 million in the six months ended June 30, 2021, to $30.8 million, on a reported basis,
due to a $14.4 million write-off of capitalized debt fees on refinancing, a $2.1 million increase in debt interest due
to capitalization of debt interest in 2020 increasing debt levels and debt margin and $0.9 million exchange rate impact. 

 41 

 Change
in fair value of warrant liability 

 Change
in fair value of warrant liability for the six months ended June 30, 2021, resulted in a $13.5 million charge. This charge reflects the
increase in the value of the warrants, driven by increases in the Company’s share price from $6.58 on December 31 st ,
2020 to $12.75 on June 30 th , 2021.For the six months ended June 30, 2020, the change in fair value resulted in a $5.9 million
credit. 

 Other
finance income 

 Other
finance income for the six months ended June 30, 2021, resulted in a $5.2 million credit compared to a $6.2 million charge in
the six months ended June 30, 2020. This variance was driven by movements in the retranslation with respect to the principal balance
of the senior debt facilities. 

 Income
tax expense 

 Our
effective tax rate for the period ended June 30, 2021, was (0.6%) and our effective tax rate for the period ended June 30, 2020, was
0.8%. 

 Net
loss 

 During
the period, net loss was $60.5 million compared to a net loss of $36.0 million in the prior period. On a functional currency (at constant
rate) basis, net loss increased by $18.6 million, primarily due to the decline in revenue, increase in interest expense and the
increase in change in fair value of warrant liability. 

 Six
Months ended June 30, 2021, compared to Six Months ended June 30, 2020 – Gaming Segment 

 Gaming
Segment, Key Performance Indicators 

 For the Six-Month Period ended 
 Variance 

 Unaudited

 Jun 30,
 
 Unaudited

 Jun 30,
 
 2021 vs 2020 

 Gaming 
 2021 
 2020 
 
 % 

 End of period installed base (# of terminals) 
 32,203 
 32,325 
 (122 ) 
 (0.4 )% 

 Total Gaming - Average installed base (# of terminals) 
 31,688 
 32,218 
 (530 ) 
 (1.6 )% 

 Participation - Average installed base (# of terminals) 
 29,372 
 30,387 
 (1,015 ) 
 (3.3 )% 

 Fixed Rental - Average installed base (# of terminals) 
 2,316 
 1,831 
 485 
 26.5 % 

 Service Only - Average installed base (# of terminals) 
 21,626 
 20,607 
 1,020 
 4.9 % 

 Customer Gross Win per unit per day (1) (2) 
 £ 23.9 
 £ 38.3 
 £ (14.4 ) 
 (37.6 )% 

 Customer Net Win per unit per day (1) (2) 
 £ 18.5 
 £ 28.2 
 £ (9.7 ) 
 (34.3 )% 

 Inspired Blended Participation Rate 
 6.0 % 
 6.6 % 
 (0.5 )% 
 (8.3 )% 

 Inspired Fixed Rental Revenue per Gaming Machine per week 
 £ 9.7 
 £ 21.2 
 £ (11.5 ) 
 (54.4 )% 

 Inspired Service Rental Revenue per Gaming Machine per week 
 £ 2.4 
 £ 2.5 
 £ (0.0 ) 
 (1.8 )% 

 Gaming Long term license amortization (£’m) 
 £ 2.5 
 £ 2.5 
 £ 0.0 
 0.8 % 

 Number of Machine sales 
 878 
 1,198 
 (320 ) 
 (26.7 )% 

 Average selling price per terminal 
 £ 6,270 
 £ 4,375 
 £ 1,895 
 43.3 % 

 (1) Includes all SBG terminals in which the company takes a participation revenue share across all territories 
 
 (1) 
 Includes
 all Gaming terminals in which the company takes a participation revenue share across all territories 

 (2) 
 Includes
 all days of the period, including the days during which the Gaming terminals were not operating due to COVID-19 closures. 

 42 

 Please
refer to our Annual Report on Form 10-K for the year ended December 31, 2020, for definitions of terms used in the above table. 

 Gaming
Segment, Recurring Revenue 

 Set
forth below is a breakdown of our Gaming recurring revenue. Gaming recurring revenue consists principally of Gaming participation revenue
and fixed rental revenue. 

 For the Six-Month Period ended 
 Variance 

 Unaudited

 June 30,
 
 Unaudited

 June 30,
 
 2021 vs 2020 

 (In £ millions) 
 2021 
 2020 
 
 % 

 Gaming Recurring Revenue 
 
 Total Gaming Revenue 
 £ 19.4 
 £ 22.8 
 £ (3.4 ) 
 (14.9 )% 

 Gaming Participation Revenue 
 £ 6.2 
 £ 10.3 
 £ (4.1 ) 
 (39.8 )% 

 Gaming Other Fixed Fee Recurring Revenue 
 £ 1.8 
 £ 2.8 
 £ (0.9 ) 
 (34.1 )% 

 Gaming Long-term license amortization 
 £ 2.5 
 £ 2.5 
 £ 0.0 
 0.5 % 

 Total Gaming Recurring Revenue * 
 £ 10.5 
 £ 15.5 
 £ (5.0 ) 
 (32.2 )% 

 Gaming Recurring Revenue as a % of Total Gaming Revenue † 
 54.2 % 
 68.1 % 
 (13.8 )% 
 
 Total Gaming excluding VAT 
 £ 17.1 
 
 Gaming Recurring Revenue as a % of Total Gaming Revenue (excluding VAT) 
 61.5 % 
 
 * 
 Does
 not reflect VAT-related revenue 

 † 
 Total
 Gaming Revenue for the six-month period ended June 30, 2021, includes the £2.3 million for VAT-related revenue, which is not
 reflected in Gaming Recurring Revenue for that period. Excluding VAT-related revenue, Gaming Recurring Revenue was 61.5% of Total
 Gaming Revenue for such period. 

 43 

 Please
refer to our Annual Report on Form 10-K for the year ended December 31, 2020, for definitions of terms used in the above table. 

 Gaming
Segment, Service Revenue by Region 

 Set
forth below is a breakdown of our Gaming service revenue by geographic region. Gaming service revenue consists principally of Gaming
participation revenue, Gaming other fixed fee revenue, Gaming long term license amortization and Gaming other non-recurring revenue.
See “Gaming Segment Revenue” below for a discussion of gaming service revenue between the periods under review. 

 Gaming
Service Revenue by Region 

 For the Six-Month Period ended 
 
 (In millions) 
 Unaudited June 30,

 2021
 
 Unaudited June 30,

 2020
 
 Variance

 2021 vs 2020
 
 Total Functional Currency % 
 Total Variance % 

 Service Revenue: 
 
 UK LBO 
 $ 8.8 
 $ 8.8 
 $ 0.0 
 (8.5 )% 
 0.0 % 

 UK VAT - Related Income 
 3.1 
 - 
 $ 3.1 
 N/A 
 N/A 

 UK Other 
 1.4 
 $ 4.3 
 (2.9 ) 
 (70.8 )% 
 (68.2 )% 

 Italy 
 0.3 
 $ 0.9 
 (0.6 ) 
 (70.6 )% 
 (68.1 )% 

 Greece 
 4.8 
 $ 6.5 
 (1.6 ) 
 (31.9 )% 
 (25.4 )% 

 Rest of the World 
 0.0 
 $ 0.2 
 (0.2 ) 
 (89.9 )% 
 (88.3 )% 

 Total Service revenue 
 $ 18.4 
 $ 20.7 
 $ (2.3 ) 
 (18.3 )% 
 (11.1 )% 

 Exchange Rate - $ to £ 
 1.39 
 1.28 
 
 Note:
Exchange rate in the table is calculated by dividing the USD total service revenue by the GBP total service revenue, therefore this could
be slightly different from the average rate during the period depending on timing of transactions. 

 44 

 Gaming
Segment, key events that affected results for the Six Months ended June 30, 2021 

 Total
Gaming Customer Gross Win per unit per day (in our functional currency, GBP) decreased by £14.39, or 37.6%, which was due to the
impact of COVID-19. During the six month period ended June 30, retail venues were in operation for approximately 35% in 2021, compared
to approximately 50% in 2020. The participation rate decreased from 6.6% to 6.0% primarily due to a higher proportion of UK venues operating
in 2021 when compared to the same quarter in 2020 as UK share terms are lower than the total blended Gaming average. 

 Inspired
received VAT-related revenue of $3.1 million in January 2021 from a major UK customer. This payment has been recorded as revenue in our
results. 

 During
the period, Inspired sold 111 “Valor™” terminals to a number of customers in Illinois, increasing the total number
of North American unit sales since launch in December 2019 to 540. Retail venues in Illinois were shut down during January 2021, which
negatively impacted sales during this period. As of February 2021, all eleven regions in Illinois had reopened. 

 During
the period, Inspired delivered our first sales to Western Canada Lottery Corporation (“WCLC”), our second jurisdiction in
North America. Inspired recorded the sale of 100 “Valor™” terminals to WCLC during March 2021, generating revenue of
$1.6 million. 

 Inspired
furthered its relationship with a major customer in the Dutch market with the sale and delivery of an additional 222 “Analogue”
terminals during the period. 

 In
the UK market, Inspired continued to upgrade the UK Gaming estate with the installation of over 220 “Flex” and 140 “Prismatic”
terminals through a combination of outright sales and lease agreements. These sales also include content agreements which deliver recurring
revenues for the next four to five years. 

 Six
Months ended June 30, 2021, compared to Six Months ended June 30, 2020 – Gaming Segment 

 For the Six-Month Period ended 
 
 (In millions) 
 Unaudited June 30,

 2021
 
 Unaudited June 30,

 2020
 
 Variance

 2021 vs 2020
 
 Total Functional Currency % 
 Total Variance % 

 Revenue: 
 
 Service 
 $ 18.4 
 $ 20.7 
 $ (2.3 ) 
 (18.3 )% 
 (11.1 )% 

 Product 
 8.6 
 8.4 
 0.1 
 (6.6 )% 
 1.7 % 

 Total revenue 
 27.0 
 29.1 
 (2.2 ) 
 (14.9 )% 
 (7.4 )% 

 Cost of Sales, excluding depreciation and amortization: 
 
 Cost of Service 
 (4.2 ) 
 (5.3 ) 
 1.0 
 (26.7 )% 
 (20.0 )% 

 Cost of Product 
 (5.3 ) 
 (5.6 ) 
 0.3 
 (13.3 )% 
 (5.1 )% 

 Total cost of sales 
 (9.5 ) 
 (10.9 ) 
 1.3 
 (19.7 )% 
 (12.3 )% 

 Selling, general and administrative expenses 
 (10.8 ) 
 (11.9 ) 
 1.1 
 (17.2 )% 
 (9.5 )% 

 Stock-based compensation 
 (0.6 ) 
 (0.2 ) 
 (0.4 ) 
 60.1 % 
 172.7 % 

 Depreciation and amortization 
 (12.4 ) 
 (14.4 ) 
 2.0 
 (22.0 )% 
 (13.9 )% 

 Net operating Income (Loss) 
 $ (6.3 ) 
 $ (8.3 ) 
 $ 1.9 
 (33.4 )% 
 (23.5 )% 

 Exchange Rate - $ to £ 
 1.39 
 1.28 
 
 45 

 Note:
Exchange rate in the table is calculated by dividing the USD total revenue by the GBP total revenue, therefore this could be slightly
different from the average rate during the period depending on timing of transactions. 

 Gaming
Segment Revenue 

 During
the period, Gaming revenue decreased by $2.2 million, or 7.4%, to $27.0 million on a reported basis. On a functional currency (at constant
rate) basis, Gaming revenue decreased by $4.3 million, or 14.9%. This was partially offset by favorable currency movements of $2.2 million. 

 Service
revenue decreased by $2.3 million on a reported basis. On a functional currency (at constant rate) basis, Gaming Service revenue decreased
by $3.8 million, or 18.3%, to $18.4 million. This was driven by a decline in UK sales (including LBO and UK other) of $3.8 million primarily
driven by the COVID-19 closures, with UK LBO having an additional three weeks of lockdown and a further four weeks at 50% capacity versus
the prior period and UK other being closed for an additional two months in the current period. Greece and Italy experienced revenue declines
of $2.1 million and $0.7 million, respectively, driven by the COVID-19 closures as both markets experienced additional three months of
additional lockdowns compared to the prior period. This was partially offset by $2.9 million of VAT-related revenue and favorable currency
movements of $1.5 million. 

 Product
revenue increased by $0.1 million to $8.6 million on a reported basis. On a functional currency (at constant rate) basis, revenue decreased
by $0.6 million, or 6.6%. 

 Gaming
Segment Operating Income 

 Operating
loss improved by $1.9 million on a reported basis, from a loss of $8.3 million to a loss of $6.3 million, including unfavorable currency
movements of $0.9 million On a functional currency (at constant rate) basis, Gaming operating loss improved by $2.9 million. This was
primarily due to the decrease in revenue, cost of sales, SG&A expenses driven by the COVID-19 closures, as well as a reduction in
depreciation particularly in UK LBO as certain assets have been fully written down. 

 46 

 Six
Months ended June 30, 2021, compared to Six Months ended June 30, 2020 – Virtual Sports Segment 

 Virtual
Sports Segment, Key Performance Indicators 

 For the Six-Month Period ended 
 Variance 

 Unaudited

 Jun 30,
 
 Unaudited

 Jun 30,
 
 2021 vs 2020 

 Virtuals 
 2021 
 2020 
 
 % 

 No. of Live Customers at the end of the period 
 60 
 57 
 3 
 5.3 % 

 Average No. of Live Customers 
 59 
 57 
 2 
 3.8 % 

 Total Revenue (£’m) 
 £ 10.4 
 £ 12.2 
 £ (1.8 ) 
 (14.5 )% 

 Total Revenue £’m - Retail 
 £ 2.1 
 £ 4.3 
 £ (2.2 ) 
 (51.3 )% 

 Total Revenue £’m - Online Virtuals 
 £ 8.3 
 £ 7.9 
 £ 0.4 
 5.7 % 

 Please
refer to our Annual Report on Form 10-K for the year ended December 31, 2020, for definitions of terms used in the above table. 

 Virtual
Sports Segment, Recurring Revenue 

 Set
forth below is a breakdown of our Virtual Sports recurring revenue. 

 For the Six-Month Period ended 
 Variance 

 Unaudited

 June 30,
 
 Unaudited

 June 30,
 
 2021 vs 2020 

 (In £ millions) 
 2021 
 2020 
 
 % 

 Virtual Sports Recurring Revenue 
 
 Total Virtual Sports Revenue 
 £ 10.4 
 £ 12.2 
 £ (1.8 ) 
 (14.5 )% 

 Recurring Revenue - Retail Virtuals 
 £ 1.9 
 £ 3.7 
 £ (1.8 ) 
 (48.0 )% 

 Recurring Revenue - Online Virtuals 
 £ 8.1 
 £ 7.1 
 £ 1.0 
 14.5 % 

 Total Virtual Sports Long-term license amortization 
 £ 0.3 
 £ 0.7 
 £ (0.3 ) 
 (50.9 )% 

 Total Virtual Sports Recurring Revenue 
 £ 10.4 
 £ 11.4 
 £ (1.1 ) 
 (9.3 )% 

 Virtual Sports Recurring Revenue as a Percentage of Total Virtual Sports Revenue 
 99.4 % 
 93.7 % 
 5.7 % 
 
 Please
refer to our Annual Report on Form 10-K for the year ended December 31, 2020, for definitions of terms used in the above table. 

 Virtual
Sports Segment, key events that affected results for the Six Months ended June 30, 2021 

 During
the six months ended June 30, 2021, our key retail territories in the United Kingdom, Ireland, Italy, Greece, and Belgium were in full
lockdown due to the COVID-19 closures for the first quarter, with Greece reopening mid-April, the UK and Ireland opening mid-May and
a staged reopening in Italy throughout June. In the same period in the prior year only half of March 2020 was impacted by land-based
closures in the first quarter with Greece and Italy reopening in June 2020. All periods were affected by closures during the six months
ended June 30, 2021 whereas only three and a half months were affected during the six months ended June 30, 2020. In addition,
the six months ended June 30, 2021 was in recovery from the previous lockdown period. As a result, retail recurring revenues declined
by $2.4 million. 

 47 

 Six
Months ended June 30, 2021, compared to Six Months ended June 30, 2020 – Virtual Sports Segment 

 For the Six-Month Period ended 
 
 (In millions) 
 Unaudited June 30,

 2021
 
 Unaudited June 30,

 2020
 
 Variance

 2021 vs 2020
 
 Total Functional Currency % 
 Total Variance % 

 Service Revenue 
 $ 14.5 
 $ 15.4 
 $ 0.9 ) 
 (14.5 )% 
 (5.7 )% 

 Cost of Service 
 (0.8 ) 
 (1.5 ) 
 0.7 
 (51.6 )% 
 (46.6 )% 

 Selling, general and administrative expenses 
 (3.8 ) 
 (1.9 ) 
 (1.9 ) 
 71.4 % 
 98.2 % 

 Stock-based compensation 
 (0.2 ) 
 (0.2 ) 
 - 
 45.0 % 
 0.0 % 

 Depreciation and amortization 
 (1.8 ) 
 (1.7 ) 
 (0.1 ) 
 0.5 % 
 5.9 % 

 Net operating Income (Loss) 
 $ 7.9 
 $ 10.1 
 $ (2.2 ) 
 (29.1 )% 
 (21.4 )% 

 Exchange Rate - $ to £ 
 1.39 
 1.26 
 
 Note:
Exchange rate in the table is calculated by dividing the USD service revenue by the GBP service revenue, therefore this could be slightly
different from the average rate during the period depending on timing of transactions. 

 Virtual
Sports Segment revenue. 

 During
the period, revenue decreased by $0.9 million, or 5.7%, on a reported basis. This decrease included the impact of favorable currency
movements of $1.4 million. On a functional currency (at constant rate) basis, revenue decreased by $2.2 million, or 14.5%. This decrease
was driven by a $2.9 million decrease in retail revenue due to the COVID-19 closures and a decline of $0.5 million from historical license
fee amortization contracts reaching their expiration. This decline was partially offset by growth in recurring Online Virtuals of $1.4
million. Online revenues continue to be significantly higher than pre Covid levels. 

 48 

 Virtual
Sports Segment operating income 

 Operating
profit decreased by $2.2 million on a reported basis which included the impact of favorable currency movements of $0.8 million.
On a functional currency (at constant rate) basis operating profit decreased by $3.0 million. This was primarily due to the decrease
in revenues and cost of sales resulting from COVID-19 closures and the increase in SG&A from the settlement with the Italian Tax
Authorities . 

 Six
Months ended June 30, 2021, compared to Six Months ended June 30, 2020 – Interactive Segment 

 Interactive
Segment, Key Performance Indicators 

 For the Six-Month Period ended 
 Variance 

 Unaudited

 Jun 30,
 
 Unaudited

 Jun 30,
 
 2021 vs 2020 

 Interactive 
 2021 
 2020 
 
 % 

 No. of Live Customers at the end of the period 
 100 
 70 
 30 
 42.9 % 

 Average No. of Live Customers 
 96 
 67 
 29 
 43.3 % 

 No. of Live Games at the end of the period 
 218 
 189 
 29 
 15.3 % 

 Average No. of Live Games 
 211 
 186 
 25 
 13.4 % 

 Total Revenue (£’m) 
 £ 7.9 
 £ 4.4 
 £ 3.5 
 78.2 % 

 Please
refer to our Annual Report on Form 10-K for the year ended December 31, 2020, for definitions of terms used in the above table. 

 Interactive
Segment, Recurring Revenue 

 Set
forth below is a breakdown of our Interactive recurring revenue which consists principally of Interactive participation revenue. See
“Interactive Segment Revenue” below for a discussion of Interactive service revenue between the periods under review. 

 For the Six-Month Period ended 
 Variance 

 Unaudited

 June 30,
 
 Unaudited

 June 30,
 
 2021 vs 2020 

 (In £ millions) 
 2021 
 2020 
 
 % 

 Interactive Recurring Revenue 
 
 Total Interactive Revenue 
 £ 7.9 
 £ 4.4 
 £ 3.5 
 78.2 % 

 Total Recurring Revenue - Interactive 
 £ 7.9 
 £ 4.4 
 £ 3.5 
 79.2 % 

 Interactive Recurring Revenue as a Percentage of Total Interactive Revenue 
 100.0 % 
 99.4 % 
 0.6 % 
 
 49 

 Interactive
Segment, key events that affected results for the Six Months ended June 30, 2021 

 There
were sixteen new brand launches including BetMGM in New Jersey and Michigan, Golden Nugget in Michigan, Gamesys and Interwetten. We also
launched with our first new operators in Spain, Luckia and 888. 

 We
deployed twenty-nine new games in the period across the estate including Vegas Cash Spins, Fruity Bonanza Scatterdrops (both of
which were developed with brand new game mechanics), Big Spin Bonus and Cops and Robbers Megaways. 

 Six
Months ended June 30, 2021, compared to Six Months ended June 30, 2020 – Interactive Segment 

 For the Six-Month Period ended 
 
 (In millions) 
 Unaudited June 30,

 2021
 
 Unaudited June 30,

 2020
 
 Variance

 2021 vs 2020
 
 Total Functional Currency % 
 Total Variance % 

 Service Revenue 
 $ 11.0 
 $ 5.5 
 $ 5.5 
 78.2 % 
 98.5 % 

 Cost of Service 
 (1.7 ) 
 (0.6 ) 
 (1.1 ) 
 141.9 % 
 168.1 % 

 Selling, general and administrative expenses 
 (2.3 ) 
 (1.8 ) 
 (0.5 ) 
 23.7 % 
 28.9 % 

 Stock-based compensation 
 (0.2 ) 
 (0.1 ) 
 (0.1 ) 
 103.1 % 
 100.0 % 

 Depreciation and amortization 
 (1.6 ) 
 (1.2 ) 
 (0.4 ) 
 20.6 % 
 33.3 % 

 Net operating Income (Loss) 
 $ 5.2 
 $ 1.8 
 $ 3.4 
 141.3 % 
 185.2 % 

 Exchange Rate - $ to £ 
 1.39 
 1.25 
 
 Note:
Exchange rate in the table is calculated by dividing the USD service revenue by the GBP service revenue, therefore this could be slightly
different from the average rate during the period depending on timing of transactions. 

 Interactive
Segment revenue 

 During
the period, revenue increased by $5.5 million, or 98.5%, on a reported basis. On a functional currency (at constant rate) basis, revenue
increased by $4.3 million, or 78.2%. This was driven by recurring revenue growth due to the increase in online demand attributable to
the addition of new customers and territories and the consistent launch of quality content. 

 50 

 Interactive
Segment operating income 

 Operating
profit increased by $3.4 million on a reported basis. On a functional currency (at constant rate) basis operating profit increased by
$2.7 million. This was primarily due to the increase in revenue, partly offset by the increase in cost of sales from third party royalty
costs and increase in SG&A expenses from driven by the investment in Interactive to help increase revenues. 

 Six
Months ended June 30, 2021, compared to Six Months ended June 30, 2020 – Leisure Segment 

 Leisure
segment, Key Performance Indicators 

 For the Six-Month Period ended 
 Variance 

 Unaudited

 Jun 30,
 
 Unaudited

 Jun 30,
 
 2021 vs 2020 

 Leisure 
 2021 
 2020 
 
 % 

 End of period installed base Gaming machines (# of terminals) 
 11,723 
 12,262 
 (539 ) 
 (4.4 )% 

 Average installed base Gaming machines (# of terminals) 
 11,655 
 12,271 
 (617 ) 
 (5.0 )% 

 End of period installed base Other (# of terminals) 
 7,244 
 8,224 
 (980 ) 
 (11.9 )% 

 Average installed base Other (# of terminals) 
 7,190 
 8,252 
 (1,062 ) 
 (12.9 )% 

 Pub Digital Gaming Machines - Average installed base (# of terminals) 
 5,848 
 5,759 
 88 
 1.5 % 

 Pub Analogue Gaming Machines - Average installed base (# of terminals) 
 2,234 
 2,714 
 (480 ) 
 (17.7 )% 

 MSA and Bingo Gaming Machines - Average installed base (# of terminals) (1) 
 3,316 
 3,514 
 (198 ) 
 (5.6 )% 

 Inspired Leisure Revenue per Gaming Machine per week 
 £ 12.2 
 £ 26.8 
 £ (14.6 ) 
 (54.5 )% 

 Inspired Pub Digital Revenue per Gaming Machine per week 
 £ 13.1 
 £ 30.1 
 £ (17.0 ) 
 (56.6 )% 

 Inspired Pub Analogue Revenue per Gaming Machine per week 
 £ 6.5 
 £ 19.1 
 £ (12.6 ) 
 (65.9 )% 

 Inspired MSA and Bingo Revenue per Gaming Machine per week 
 £ 15.0 
 £ 28.4 
 £ (13.4 ) 
 (47.2 )% 

 Inspired Other Revenue per Machine per week 
 £ 2.3 
 £ 9.5 
 £ (7.1 ) 
 (75.4 )% 

 Total Leisure Parks Revenue (Gaming and Non Gaming) (£’m) 
 £ 3.3 
 £ 0.9 
 £ 2.4 
 285 % 

 (1) 
 Motorway
 Service Area machines 

 Please
refer to our Annual Report on Form 10-K for the year ended December 31, 2020, for definitions of terms used in the above table. 

 51 

 Leisure
Segment, Recurring Revenue 

 Set
forth below is a breakdown of our Leisure recurring revenue which consists principally of Leisure participation revenue and Leisure other
fixed fee revenue. See “Leisure Segment Revenue” below for a discussion of leisure service revenue between the periods under
review. 

 Set
forth below is a breakdown of our Leisure recurring revenue. 

 For the Six-Month Period ended 
 Variance 

 Unaudited

 June 30,
 
 Unaudited

 June 30,
 
 2021 vs 2020 

 (In £ millions) 
 2021 
 2020 
 
 % 

 Leisure Recurring Revenue 
 
 Total Leisure Revenue 
 £ 8.4 
 £ 13.8 
 £ (5.4 ) 
 (39.0 )% 

 Total Leisure Recurring Revenue 
 £ 7.6 
 £ 12.8 
 £ (5.1 ) 
 (40.2 )% 

 Leisure Recurring Revenue as a Percentage of Total Leisure Revenue 
 90.4 % 
 92.2 % 
 (1.8 %) 
 
 Leisure
Segment, key events that affected results for the Six Months ended June 30, 2021 

 From
Jan 1, 2021, to May 17, 2021, all major sectors of the Leisure segment (Pubs, Holiday Parks, Motorway Service Areas and Bingo Halls)
remained closed due to the COVID-19 closures in the UK. 

 From
May 17, 2021, venues reopened with social distancing and certain other restrictions imposed. These restrictions remained in place for
the remainder of the period. 

 Six
Months ended June 30, 2021, compared to Six Months ended June 30, 2020 – Leisure Segment 

 For the Six-Month Period ended 
 
 (In millions) 
 Unaudited June 30,

 2021
 
 Unaudited June 30,

 2020
 
 Variance

 2021 vs 2020
 
 Total Functional Currency % 
 Total Variance % 

 Revenue: 
 
 Service 
 $ 10.7 
 $ 16.5 
 $ (5.7 ) 
 (40.3 )% 
 (34.9 )% 

 Product 
 1.1 
 1.4 
 (0.3 ) 
 (23.3 )% 
 (20.0 )% 

 Total revenue 
 11.8 
 17.9 
 (6.0 ) 
 (39.0 )% 
 (33.7 )% 

 Cost of Sales, excluding depreciation and amortization: 
 
 Cost of Service 
 (3.4 ) 
 (3.6 ) 
 0.2 
 (12.5 )% 
 (4.4 )% 

 Cost of Product 
 (0.6 ) 
 (0.9 ) 
 0.4 
 (44.4 )% 
 (40.0 )% 

 Total cost of sales 
 (4.0 ) 
 (4.5 ) 
 0.5 
 (19.1 )% 
 (11.8 )% 

 Selling, general and administrative expenses 
 (11.4 ) 
 (13.6 ) 
 2.2 
 (24.0 )% 
 (16.0 )% 

 Stock-based compensation 
 (0.2 ) 
 (0.0 ) 
 (0.2 ) 
 208.9 % 
 445.2 % 

 Depreciation and amortization 
 (8.3 ) 
 (7.8 ) 
 (0.5 ) 
 (3.4 )% 
 7.0 % 

 Net operating Income (Loss) 
 (12.1 ) 
 (8.0 ) 
 $ (4.1 ) 
 30.6 % 
 50.4 % 

 Exchange Rate - $ to £ 
 1.40 
 1.29 
 
 52 

 Note:
Exchange rate in the table is calculated by dividing the USD total revenue by the GBP total revenue, therefore this could be slightly
different from the average rate during the period depending on timing of transactions. 

 Leisure
Segment Revenue 

 During
the period, revenue decreased by $6.0 million, or 33.7%, to $11.8 million on a reported basis. On a functional currency (at constant
rate) basis, revenue decreased by $7.0 million, or 39.0%. 

 Service
revenue decreased by $5.7 million on a reported basis to $10.7 million. This included an adverse currency impact of $0.9 million. On
a functional currency (at constant rate) basis service revenue decreased by $6.7 million. This was driven by the COVID-19 closures, with
all of the major sectors of the Leisure segment experiencing closures for a portion of the period as well as social distancing restrictions
once they had reopened. 

 Leisure
Segment Operating Income 

 Operating
loss increased by $4.1 million on a reported basis from a loss of $8.0 million to a loss of $12.1 million, which included
the impact of unfavorable currency movements of $1.4 million. On a functional currency (at constant rate) basis operating loss
increased by $2.6 million. This was primarily due to the decrease in revenue, offset by cost of sales and SG&A savings all
driven by COVID-19 closures. 

 Non-GAAP
Financial Measures 

 We
use certain non-GAAP financial measures, including EBITDA and Adjusted EBITDA, to analyze our operating performance. We use these financial
measures to manage our business on a day-to-day basis. We believe that these measures are also commonly used in our industry to measure
performance. For these reasons, we believe that these non-GAAP financial measures provide expanded insight into our business, in addition
to standard U.S. GAAP financial measures. There are no specific rules or regulations for defining and using non-GAAP financial measures,
and as a result the measures we use may not be comparable to measures used by other companies, even if they have similar labels. The
presentation of non-GAAP financial information should not be considered in isolation from, or as a substitute for, or superior to, financial
information prepared and presented in accordance with U.S. GAAP. You should consider our non-GAAP financial measures in conjunction with
our U.S. GAAP financial measures. 

 53 

 We
define our non-GAAP financial measures as follows: 

 EBITDA
 is defined as net loss excluding depreciation and amortization, interest expense, interest income and income tax expense. 

 Adjusted
EBITDA is defined as net loss excluding depreciation and amortization, interest expense, interest income and income tax expense,
and other additional exclusions and adjustments . Such additional excluded amounts include stock-based compensation U.S. GAAP charges
where the associated liability is expected to be settled in stock, and changes in the value of earnout liabilities and income and expenditure
in relation to legacy portions of the business (being those portions where trading no longer occurs) including closed defined benefit
pension schemes. Additional adjustments are made for items considered outside the normal course of business, including (1) restructuring
costs, which include charges attributable to employee severance, management changes, restructuring, dual running costs, costs related
to facility closures and integration costs, (2) merger and acquisition costs and (3) gains or losses not in the ordinary course of business.
This does not include any adjustments related to COVID-19. 

 We
believe Adjusted EBITDA, when considered along with other performance measures, is a particularly useful performance measure, because
it focuses on certain operating drivers of the business, including sales growth, operating costs, selling and administrative expense
and other operating income and expense. We believe Adjusted EBITDA can provide a more complete understanding of our operating results
and the trends to which we are subject, and an enhanced overall understanding of our financial performance and prospects for the future.
Adjusted EBITDA is not intended to be a measure of liquidity or cash flows from operations or a measure comparable to net income or loss,
because it does not take into account certain aspects of our operating performance (for example, it excludes non-recurring gains and
losses which are not deemed to be a normal part of underlying business activities) . Our use of Adjusted EBITDA may not be comparable
to the use by other companies of similarly termed measures. Management compensates for these limitations by using Adjusted EBITDA as
only one of several measures for evaluating our operating performance. In addition, capital expenditures, which affect depreciation and
amortization, interest expense, and income tax benefit (expense), are evaluated separately by management. 

 Functional
Currency at Constant rate. Currency impacts discussed have been calculated as the current-period average GBP: USD rate less the
equivalent average rate in the prior period, multiplied by the current period amount in our functional currency (GBP). The remaining
difference, referred to as functional currency at constant rate, is calculated as the difference in our functional currency, multiplied
by the prior-period average GBP: USD rate, as a proxy for functional currency at constant rate movement. 

 Currency
Movement represents the difference between the results in our reporting currency (USD) and the results on a functional currency
(at constant rate) basis. 

 Reconciliations
from net loss, as shown in our Consolidated Statements of Operations and Comprehensive Loss, to Adjusted EBITDA are shown below. 

 54 

 Reconciliation
to Adjusted EBITDA by segment for the Three Months ended June 30, 2021 

 For
 the Three-Month Period ended 
 
 Unaudited 
 
 (In millions) 
 
 June
 30, 2021 
 
 Virtual 
 
 Total 
 
 Gaming 
 
 Sports 
 
 Interactive 
 
 Leisure 
 
 Corporate 
 
 Net Income/ (loss) 
 
 $ 
 (43.8 
 ) 
 
 $ 
 (2.7 
 ) 
 
 $ 
 4.2 
 
 $ 
 2.6 
 
 $ 
 (4.4 
 ) 
 
 $ 
 (43.5 
 ) 

 Items Relating to Legacy Activities: 
 
 Pension charges (1) 
 
 0.2 
 
 0.2 
 
 Items outside the normal course of business: 
 
 Costs of group restructure
 (2) 
 
 - 
 
 - 
 
 Acquisition and integration related transaction expenses
 (3) 
 
 0.1 
 
 0.1 
 
 Refinancing of Company Debt (4) 
 
 0.8 
 
 0.8 
 
 Italian tax related costs relating to prior years (5) 
 
 1.4 
 
 1.4 
 
 - 
 
 Stock-based compensation expense 
 
 3.4 
 
 0.4 
 
 0.1 
 
 0.1 
 
 0.1 
 
 2.7 
 
 Depreciation and amortization 
 
 11.9 
 
 5.8 
 
 0.7 
 
 0.9 
 
 4.1 
 
 0.4 
 
 Interest Income 
 
 (0.1 
 ) 
 
 (0.1 
 ) 

 Interest Expense 
 
 22.2 
 
 22.2 
 
 Change in fair value of warrant liability 
 
 10.5 
 
 10.5 
 
 Other finance expenses / (income) 
 
 1.2 
 
 1.2 
 
 Income tax 
 
 0.3 
 
 0.3 
 
 Adjusted EBITDA 
 
 $ 
 8.0 
 
 $ 
 3.5 
 
 $ 
 6.4 
 
 $ 
 3.6 
 
 $ 
 (0.2 
 ) 
 
 $ 
 (5.3 
 ) 

 Adjusted EBITDA 
 
 £ 
 5.7 
 
 Exchange Rate - $ to £ (5) 
 
 1.40 
 
 Note:
Certain unallocated corporate function costs have not been allocated to the Company’s reportable operating segments because these
costs are not allocable and to do so would not be practical, these are shown in the Corporate category. 

 55 

 Reconciliation
to Adjusted EBITDA by segment for the Three Months ended June 30, 2020 

 For
 the Three-Month Period ended 
 
 (In
 millions) 
 
 Unaudited

 June 30, 2020 
 
 Virtual 
 
 Total 
 
 Gaming 
 
 Sports 
 
 Interactive 
 
 Leisure 
 
 Corporate 
 
 Net Income/ (loss) 
 
 $ 
 (26.2 
 ) 
 
 $ 
 (7.1 
 ) 
 
 $ 
 5.1 
 
 $ 
 1.7 
 
 $ 
 (7.0 
 ) 
 
 $ 
 (18.9 
 ) 

 Items Relating to Legacy Activities: 
 
 Pension charges (1) 
 
 0.2 
 
 0.2 
 
 Items outside the normal course of business: 
 
 Costs of group restructure
 (2) 
 
 0.3 
 
 0.3 
 
 Acquisition and integration related transaction
 expenses (3) 
 
 1.2 
 
 1.2 
 
 Stock-based compensation expense 
 
 1.0 
 
 0.1 
 
 0.1 
 
 0.1 
 
 0.0 
 
 0.7 
 
 Depreciation and amortization 
 
 13.3 
 
 7.0 
 
 0.9 
 
 0.6 
 
 4.4 
 
 0.4 
 
 Interest Income 
 
 (0.1 
 ) 
 
 (0.1 
 ) 

 Interest Expense 
 
 8.1 
 
 8.1 
 
 Change in fair value of warrant liability 
 
 1.7 
 
 1.7 
 
 Other finance expenses / (income) 
 
 2.5 
 
 2.5 
 
 Income tax 
 
 0.1 
 
 0.1 
 
 Adjusted EBITDA 
 
 $ 
 2.1 
 
 $ 
 (0.0 
 ) 
 
 $ 
 6.1 
 
 $ 
 2.4 
 
 $ 
 (2.6 
 ) 
 
 $ 
 (3.8 
 ) 

 Adjusted EBITDA 
 
 £ 
 1.7 
 
 Exchange Rate - $ to £ (5) 
 
 1.26 
 
 56 

 Reconciliation
to Adjusted EBITDA by segment for the Six Months ended June 30, 2021 

 For the Six-Month Period ended 
 
 (In millions) 
 
 Unaudited

 June 30, 2021 
 
 Virtual 
 
 Total 
 
 Gaming 
 
 Sports 
 
 Interactive 
 
 Leisure 
 
 Corporate 
 
 Net Income/ (loss) 
 
 $ 
 (60.5 
 ) 
 
 $ 
 (6.3 
 ) 
 
 $ 
 7.9 
 
 $ 
 5.2 
 
 $ 
 (12.1 
 ) 
 
 $ 
 (55.2 
 ) 

 Items Relating to Legacy Activities: 
 
 Pension charges (1) 
 
 0.4 
 
 0.4 
 
 Items outside the normal course of business: 
 
 Costs of group restructure (2) 
 
 - 
 
 - 
 
 Acquisition and integration related transaction expenses (3) 
 
 1.5 
 
 1.5 
 
 Refinancing of Company Debt (4) 
 
 0.8 
 
 0.8 
 
 Italian tax related costs relating to prior years (5) 
 
 1.4 
 
 1.4 
 
 - 
 
 Impairment on interest in equity method investee(6) 
 
 - 
 
 - 
 
 Stock-based compensation expense 
 
 4.8 
 
 0.6 
 
 0.2 
 
 0.2 
 
 0.2 
 
 3.6 
 
 Depreciation and amortization 
 
 25.0 
 
 12.4 
 
 1.8 
 
 1.6 
 
 8.3 
 
 0.9 
 
 Interest Income 
 
 (0.1 
 ) 
 
 (0.1 
 ) 

 Interest Expense 
 
 30.8 
 
 30.8 
 
 Change in fair value of warrant liability 
 
 13.5 
 
 13.5 
 
 Other finance expenses / (income) 
 
 (5.2 
 ) 
 
 (5.2 
 ) 

 Income tax 
 
 (0.4 
 ) 
 
 (0.4 
 ) 

 Adjusted EBITDA 
 
 $ 
 11.9 
 
 $ 
 6.7 
 
 $ 
 11.3 
 
 $ 
 7.0 
 
 $ 
 (3.6 
 ) 
 
 $ 
 (9.5 
 ) 

 Adjusted EBITDA 
 
 £ 
 8.5 
 
 Exchange Rate - $ to £ (5) 
 
 1.40 
 
 Note:
Certain unallocated corporate function costs have not been allocated to the Company’s reportable operating segments because these
costs are not allocable and to do so would not be practical, these are shown in the Corporate category. 

 57 

 Reconciliation
to Adjusted EBITDA by segment for the Six Months ended June 30, 2020 

 For the Six-Month Period ended 
 
 (In millions) 
 
 Unaudited

 June 30, 2020 
 
 Virtual 
 
 Total 
 
 Gaming 
 
 Sports 
 
 Interactive 
 
 Leisure 
 
 Corporate 
 
 Net Income/ (loss) 
 
 $ 
 (36.0 
 ) 
 
 $ 
 (8.3 
 ) 
 
 $ 
 10.1 
 
 $ 
 1.8 
 
 $ 
 (8.0 
 ) 
 
 $ 
 (31.6 
 ) 

 Items Relating to Legacy Activities: 
 
 Pension charges (1) 
 
 0.4 
 
 0.4 
 
 Items outside the normal course of business: 
 
 Costs of group restructure (2) 
 
 0.4 
 
 0.4 
 
 Acquisition and integration related transaction expenses (3) 
 
 4.4 
 
 4.4 
 
 Impairment on interest in equity method investee(6) 
 
 0.7 
 
 0.7 
 
 Stock-based compensation expense 
 
 2.0 
 
 0.2 
 
 0.2 
 
 0.1 
 
 0.0 
 
 1.5 
 
 Depreciation and amortization 
 
 25.9 
 
 14.4 
 
 1.7 
 
 1.2 
 
 7.8 
 
 0.8 
 
 Interest Income 
 
 (0.4 
 ) 
 
 (0.4 
 ) 

 Interest Expense 
 
 14.2 
 
 14.2 
 
 Change in fair value of warrant liability 
 
 (5.9 
 ) 
 
 (5.9 
 ) 

 Other finance expenses / (income) 
 
 6.2 
 
 6.2 
 
 Income tax 
 
 0.3 
 
 0.3 
 
 Adjusted EBITDA 
 
 $ 
 12.1 
 
 $ 
 6.3 
 
 $ 
 12.0 
 
 $ 
 3.1 
 
 $ 
 (0.2 
 ) 
 
 $ 
 (9.1 
 ) 

 Adjusted EBITDA 
 
 £ 
 9.5 
 
 Exchange Rate - $ to £ (5) 
 
 1.27 
 
 Notes
to Adjusted EBITDA reconciliation tables above: 

 (1) 
 “Pension
 charges” are profit and loss charges included within selling, general and administrative expenses, relating to a defined benefit
 scheme which was closed to new entrants in 1999 and to future accrual in 2010. As well as the amortization of net loss, the figure
 also includes charges relating to the Pension Protection Fund (which were historically borne by the pension scheme) and a small amount
 of associated professional services expenses. These costs are included within Corporate Functions. 

 58 

 (2) 
 “Costs
 of group restructure” include redundancy costs, Payments In Lieu of Notice costs, any associated employer taxes and costs associated
 with onerous property leases. To qualify as being an adjusting item, costs must be part of a large restructuring project, which will
 net save ongoing future costs. These costs were primarily incurred in connection with the property consolidation. 

 (3) 
 Acquisition
 and integration related transaction expenses, Stock-based compensation expense, Depreciation and amortization, Total other expense,
 net and Income tax are as described above in the Results of Operations line item discussions. Total expense, net includes interest
 income, interest expense, change in fair value of earnout liability, change in fair value of derivative liability and other finance
 income. 

 (4) 
 In
 May 2021, the Company refinanced its debt. These are the one-off fees as a result of the refinance. 

 (5)
 
 “Italian
 tax related costs relating to prior years invoicing” relate to a settlement with the Italian Tax Authorities in respect
 of an audit of the Italian Branch of Inspired Gaming (International) Limited for the period 2015-2017 in respect of the historic
 VAT treatment of supplies. 

 (6) 
 In
 April 2020, the Company disposed of its 40% non-controlling equity interest in Innov8 Gaming Limited which resulted in the investment
 of $0.7 million being written off. 

 (7) 
 Exchange
 rate in the table is calculated by dividing the USD Adjusted EBITDA by the GBP Adjusted EBITDA, therefore this could be slightly
 different from the average rate during the period depending on timing of transactions. 

 59 

 Liquidity
and Capital Resources 

 Six
Months ended June 30, 2021 compared to Six Months ended June 30, 2020 

 6 Months ended 
 Variance 

 (in millions) 
 Jun 30, 
 Jun 30, 
 
 2021 
 2020 
 2021 to 2020 

 Net loss 
 $ (60.5 ) 
 $ (36.0 ) 
 $ (24.5 ) 

 Amortization of debt fees 
 16.3 
 1.2 
 15.1 

 Change in fair value of derivative and warrant liabilities and stock-based compensation expense 
 19.3 
 (3.4 ) 
 22.7 

 Impairment expense 
 0.0 
 0.7 
 (0.7 ) 

 Foreign currency translation on senior bank debt and cross currency swaps 
 (4.6 ) 
 6.6 
 (11.2 ) 

 Depreciation and amortization (incl RoU assets) 
 26.2 
 27.9 
 (1.7 ) 

 Other net cash (utilized)/generated by operating activities 
 (9.5 ) 
 13.2 
 (22.7 ) 

 Net cash (used)/provided by operating activities 
 (12.8 ) 
 10.2 
 (23.0 ) 

 Net cash used in investing activities 
 (12.2 ) 
 (15.5 ) 
 3.3 

 Net cash generated/(used) by financing activities 
 1.0 
 18.6 
 (17.6 ) 

 Effect of exchange rates on cash 
 1.4 
 (2.5 ) 
 3.9 

 Net (decrease)/increase in cash and cash equivalents 
 $ (22.6 ) 
 $ 10.8 
 $ (33.4 ) 

 Net
cash (used)/provided by operating activities 

 For
the six months ended June 30, 2021, net cash outflow used by operating activities was $12.8 million, compared to a $10.2 million
inflow for the six months ended June 30, 2020, representing a $23.0 million decrease in cash generation driven by COVID-19 related
closures and interest expense timing differences resulting in payments of $17.5 million compared to $0.4 million in the prior period.
In addition, a larger VAT payment made in the three months ended March 31, 2021 resulted in an $7.7 million higher outflow compared to
the prior period. 

 Amortization
of debt fees increased by $15.1 million to $16.3 million due to the write-off in May 2021 of capitalized debt fees totaling $14.4
million following the Company refinancing. The remainder of the current year’s non-cash interest expense related to amortization
of debt fees incurred in relation to the business refinancing in October 2019 up to the refinancing. Post refinancing the amortization
of debt fees related to those incurred and capitalized as part of the May 2021 refinancing. The prior year’s non-cash interest
expense related to amortization of debt fees incurred in relation to the business refinancing in October 2019. 

 Change
in fair value of derivative and warrant liabilities and stock-based compensation expense increased by $22.7 million, from an outflow
of $3.4 million to an inflow of $19.3 million. Movements in the fair valuation of warrant liabilities increased the inflow by $19.3 million,
$2.8 million related to stock-based compensation expense and $0.4 million related to the movement in cross-currency swaps. 

 Foreign
currency translation on senior bank debt and cross currency swaps resulted in a loss in the six months ended June 30, 2021 of $4.6
million as a result of the movement in exchange rates during the period, compared to a $6.6 million gain in the six months ended
June 30, 2020. 

 Depreciation
and amortization decreased by $1.7 million to $26.2 million with reductions of a $1.5 million in amortization of intangible assets, $0.5
million in machine depreciation and $0.7 million relating to the amortization of Right of Use assets under ASC 842 offset through an
increase of $1.0 million in development costs and licenses amortization. 

 60 

 Other
net cash utilized by operating activities decreased by $22.7 million, to a $9.5 million outflow following the significant impact of the
COVID-19 closures. Movements in other creditor levels resulted in a $13.2 million higher outflow in the six months ended June
30, 2021 which was largely due to the different timing of interest payments becoming payable following the refinancing in May 2021. A
high tax accrual level at the start of 2021 resulted in a net $6.8 million adverse movement in the six months ended June 30, 2021. Further
adverse movements were also seen on deferred revenue creditors ($3.2 million) and accounts receivable ($4.8 million), caused by the variability
of trading levels caused by COVID-19, partly offset by improved inventory ($4.8 million). Many of the operating activity movements were
impacted by the COVID-19 closures, however, throughout the period, management have actively managed cash levels to seek to optimize our
liquidity position. 

 Net
cash used in investing activities 

 Net
cash used in investing activities decreased by $3.3 million to $12.2 million in the six months ended June 30, 2021, with lower spend
on gaming machines as a result of the COVID-19 closures. 

 Net
cash generated by financing activities 

 During
the six months ended June 30, 2021, net cash generated by financing activities was an inflow of $1.0 million, compared to a $18.6
million inflow in the six months ended June 30, 2020. The inflow in the six months ended June 30, 2021 related to the net movement from
the May 2021 refinancing. During the six months ended June 30, 2020, an increase in the amount drawn on the revolver provided a $22.3
million inflow which was partly offset by $3.1 million of debt fees incurred. 

 Funding
Needs and Sources 

 To
fund our obligations we have relied historically on a combination of cash flows provided by operations and the incurrence of additional
debt or the refinancing of existing debt. As of June 30, 2021, we had liquidity of $24.5 million in cash and cash equivalents
and a further $27.6 million of an undrawn revolver facility. This compares to $39.9 million of cash and cash equivalents as of
June 30, 2020 but $24.7 million drawn on the revolver facility. We had a working capital outflow of $9.5 million for the six months
ended June 30, 2021, compared to an $13.2 million inflow for the six months ended June 30, 2020. The level of our working capital surplus
or deficit varies with the level of machine production we are undertaking and our capitalization as well as the seasonality evident in
some of the businesses purchased as part of the NTG Acquisition. In periods with minimal machine volumes and capital spend, our working
capital is more stable. In periods where significant numbers of machines are being produced, the levels of inventory and creditors are
higher than typical and there is a natural timing difference between converting the stock into sellable or capitalized plant and settling
payments to suppliers. These factors, along with movements in trading activity levels which have been seen during 2020 and 2021 following
the COVID-19 closures, can result in significant working capital volatility. In periods of low activity, our working capital volatility
is reduced. Working capital is reviewed and managed with the aim of ensuring that current liabilities are covered by the level of cash
held and the expected level of short-term receipts. 

 Some
of our business operations require cash to be held within the machines. As of June 30, 2021, $4.6 million of our $24.5 million
of cash and cash equivalents were held as operational floats within the machines. 

 Management
currently believes that despite the reduced trading levels caused by the COVID-19 closures, the Company’s cash balances on hand,
cash flows expected to be generated from operations, and the ability to control and defer capital projects will be sufficient to fund
the Company’s net cash requirements through August 2022. 

 Long
Term and Other Debt 

 See
Note 4 Long Term and Other Debt of the Financial Statements for detail of the debts held during 2020 and 2021. 

 61 

 Debt
Covenants 

 Under
our debt facilities in place as of June 30, 2021 we are not subject to covenant testing on the Senior Secured Notes. We are, however,
subject to covenant testing at the level of Inspired Entertainment Inc., the ultimate holding company, on our Super Senior Revolving
Credit Facility which requires the Company to maintain a maximum consolidated senior secured net leverage ratio of 6.25x on the test
date for the relevant period ending June 30, 2021, stepping down to 6.0x on March 31, 2022, 5.75x on March 31, 2023 and 5.50x from March
31, 2024 and thereafter (the “RCF Financial Covenant”). The RCF Financial Covenant is calculated as the ratio of consolidated
senior secured net debt to consolidated pro forma EBITDA (defined as net loss excluding depreciation and amortization, interest expense,
interest income and income tax expense) for the 12-month period preceding the relevant quarterly testing date and is tested quarterly
on a rolling basis, subject to the Initial Facility (as defined in the RCF Agreement) being drawn on the relevant test date. The RCF
Financial Covenant does not include a minimum interest coverage ratio or other financial covenants. As the RCF has never been drawn at
any point since being in place, no covenant testing was required at June 30, 2021. 

 Under
our debt facilities in place as of June 30, 2020 we are subject to covenant testing on the Senior Secured Notes. The covenant testing
is set at the level of Inspired Entertainment Inc., the ultimate holding company, and consists of a test on Leverage (Consolidated Total
Net Debt/Consolidated Pro Forma EBITDA) and a test on the level of capital expenditure. These are measured under U.S. GAAP. Leverage
was tested at quarterly intervals commencing for the period ending June 30, 2020 and capital expenditure was tested annually commencing
on December 31, 2019. 

 Prior
to reaching our first leverage covenant test on June 30, 2020, the covenants were reset as a direct result of the COVID-19 closures and
subsequent loss of trading as a result of government lockdowns in many key trading countries around the world. Formal agreement of the
revised covenants was achieved on June 25, 2020. 

 There
were no breaches of the debt covenants in the periods ended June 30, 2021 and June 30, 2020. 

 Liens
and Encumbrances 

 As
of June 30, 2021, our senior bank debt was secured by the imposition of a fixed and floating charge in favor of the lender over all the
assets of the Company and certain of the Company’s subsidiaries. 

 Contractual
Obligations 

 As
of June 30, 2021, our contractual obligations were as follows: 

 Less than 
 
 More than 

 Contractual Obligations (in millions) 
 Total 
 1 yr 
 1-3 years 
 3-5 years 
 5 yrs 

 Operating activities 
 
 Interest on long term debt 
 $ 128.8 
 $ 26.3 
 $ 51.2 
 $ 51.2 
 $ - 

 Financing activities 
 
 Senior bank debt - principal repayment 
 324.7 
 - 
 - 
 324.7 
 - 

 Finance lease payments 
 1.9 
 0.9 
 0.6 
 0.4 
 - 

 Operating lease payments 
 11.6 
 3.6 
 3.8 
 2.1 
 2.2 

 Interest on non-utilization fees 
 1.8 
 0.4 
 0.8 
 0.6 
 - 

 Total 
 $ 468.8 
 $ 31.3 
 $ 56.3 
 $ 379.1 
 $ 2.2 

 Off-Balance
Sheet Arrangements 

 As
of June 30, 2021, there were no off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, promulgated by the
U.S. Securities and Exchange Commission. 

 62 

 Critical
Accounting Policies 

 The
preparation of our unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted
in the United States (“U.S. GAAP”) requires management to make estimates and assumptions. We exercise considerable judgment
with respect to establishing sound accounting policies and in making estimates and assumptions that affect the reported amounts of our
assets and liabilities, our recognition of revenue and expenses, and our disclosure of commitments and contingencies at the date of the
consolidated financial statements. On an on-going basis, we evaluate our estimates and judgments. We base our estimates and judgments
on a variety of factors, including our historical experience, knowledge of our business and industry and current and expected economic
conditions, that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from other sources. We periodically re-evaluate our estimates
and assumptions with respect to these judgments and modify our approach when circumstances indicate that modifications are necessary.
While we believe that the factors we evaluate provide us with a meaningful basis for establishing and applying sound accounting policies,
we cannot guarantee that the results will always be accurate. Since the determination of these estimates requires the exercise of judgment,
actual results could differ from such estimates. 

 For
a discussion of other recently issued accounting standards, and assessments as to their impacts on the Company, see Nature of Operations,
Management’s Plans and Summary of Significant Accounting Policies, Note 1 to the consolidated financial statements included elsewhere
in this report.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.
Inspired Entertainment, Inc. 10-Q

Item 2. Management’s Discussion and Analysis
