Inspired Entertainment, Inc. 10-K

ITEM 7. 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 elsewhere in this report. 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 this Annual Report on Form 10-K for the twelve-month period ended December 31, 2024. Seasonality Our results of operations can fluctuate due to seasonal trends and other factors. Sales of our gaming machines can vary quarter on quarter due to both supply and demand factors. Player activity for our holiday parks is generally higher in the second and third quarters of the year, particularly during the summer months and slower during the first and fourth quarters of the year. 38 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, the majority of our revenue is derived from, and the 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 and the rest of the world (including North America). For the twelve-months ended December 31, 2024, we derived approximately 73% of our revenue from the UK (including customers headquartered in the UK but whose revenue is generated globally), 7% from Greece, and the remaining 20% across the rest of the world. For the twelve-months ended December 31, 2023, we derived approximately 78% of our revenue from the UK (including customers headquartered in the UK but whose revenue is generated globally), 8% from Greece, and the remaining 14% across the rest of the world. The UK percentage was impacted by specific Hardware sales, which generally result in a lower margin (“Low Margin sales”), this increased UK revenue for the twelve-month period by 13%. As of December 31, 2024, our non-current assets (excluding goodwill) were attributable as follows: 80% to the UK, 7% to Greece and 13% across the rest of the world. As of December 31, 2023, our non-current assets (excluding goodwill) were attributable as follows: 70% to the UK, 12% to Greece and 18% 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 geographic region in which the largest portion of our business is operated 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 twelve-months ended December 31, 2024, we derived approximately 27% of our revenue from sales to customers outside the UK, compared to 22% during the twelve months ended December 31, 2023. 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 periods ended December 31, 2024 and December 31, 2023, the average GBP:USD rates were for the twelve-month period 1.28 and 1.25, 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 twelve-month period ended December 31, 2024, compared to the same period in 2023; and ● a discussion and analysis of the results of operations for each of the Company’s segments (Gaming, Virtual Sports, Interactive and Leisure) for the twelve-month periods ended December 31, 2024, compared to the same period in 2023, including key performance indicator (“KPI”) analysis. A discussion and analysis of the Company’s consolidated results of operation and results of operations for each of the Company’s segments for the twelve-month period ended December 31, 2023, compared to the same period in 2022, can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on April 15, 2024. There were no significant changes in the trends, discussions and analyses included therein. In the discussion and analysis below, certain data may vary from the amounts presented in our consolidated financial statements due to rounding. For all reported variances, refer to the overall company and segment tables shown below. All variances discussed in the overall company and segment results are on a functional currency (at constant rate) basis, which excludes the impact of any changes in foreign currency exchange rates. Key Events During the twelve-month period ended December 31, 2024 in the Gaming segment, William Hill committed to leasing 5,000 new Vantage® terminals. Deployment of these new terminals began in the fourth quarter of 2024, with expected completion in the first half of 2025. OPAP in Greece ordered 4,000 new VLT’s, with an expected delivery of 2,400 machines in the first half of 2025, with the balance of 1,600 machines in the fourth quarter of 2025. We also successfully delivered 720 Valor terminals to Western Canada Lottery Corporation (“WCLC”). During the twelve-month period ended December 31, 2024 the Virtual Sports segment established partnerships with key sporting organizations, including the NBA, NFL and NHL. These collaborations have enabled the creation of unique products featuring official players and teams from these leagues. During the twelve-month period ended December 31, 2024 the Interactive segment went live with 41 new operators, including Winmasters, Midnite, Favbet, OLG and bet365 in New Jersey. The total number of customers at the end of the period increased by 26 due to the closure of several smaller-scale customers. In addition, Inspired licensed its remote gaming server (“RGS”) to an operator customer, allowing the customer to host its own instance of the most recent version of our RGS. Inspired also launched Hybrid Dealer, a US-patented online product category that offers players casino and gameshow content. During the twelve-month period ended December 31, 2024 we joined the Scientific Games Content Hub Partner Program, the global lottery industry’s premier content delivery platform, enabling Inspired to distribute Virtual Sports products to Scientific Games iLottery customers around the world. During the twelve-month period ended December 31, 2024, as part of a strategic reorganization, Inspired exited its lease at the in-house manufacturing facility in Bridgend, Wales. This has enabled us to outsource our manufacturing to our new long-term manufacturing partner Trio, in order to optimize our cost structure and enhance production efficiency. Inspired also announced the engagement of Tunley Environmental to conduct a thorough business carbon assessment, with the goal of reducing the company’s carbon footprint aligning with the Company’s commitment to reduce its environmental footprint as required by UK laws and regulations. Key agreements made in the twelve-month period ended December 31, 2024 include a new contract with Kambi Group to integrate Inspired Virtual Sports products into the Kambi sportsbook platform. In addition, in the Leisure segment Inspired won a new multi-year contract with Parkdean Resorts for the sole supply of amusement and gaming machines to their holiday park estate of 64 sites nationwide in the UK and a new multi-year contract with Away Resorts for sole supply to 19 sites nationwide in the UK. 39 Overall Company Results Twelve Months ended December 31, 2024, compared to Twelve Months ended December 31, 2023 For the Twelve-Month Variance Period ended December 31, 2024 vs December 31, 2023 (In millions) December 31, 2024 December 31, 2023 Variance Attributable to Currency Movement Variance on a Functional currency basis Total Functional Currency Variance % Total Reported Variance % Revenue: Service $ 258.6 $ 257.8 $ 6.9 $ (6.1 ) (2 )% - Product 38.5 65.1 0.4 (27.0 ) (41 )% (41 )% Total revenue 297.1 322.9 7.3 (33.1 ) (10 )% (8 )% Cost of Sales, excluding depreciation and amortization: Cost of Service (70.3 ) (75.1 ) (1.9 ) 6.7 (9 )% (6 )% Cost of Product (22.0 ) (53.5 ) (0.4 ) 31.9 (60 )% (59 )% Staff-related selling, general and administrative expenses (65.5 ) (62.5 ) (1.6 ) (1.4 ) 2 % 5 % Non-staff related selling, general and administrative expenses (51.0 ) (44.3 ) (1.3 ) (5.4 ) 12 % 15 % Labor costs capitalized 11.9 11.8 0.2 (0.1 ) (1 )% 1 % Other segment items: Stock-based compensation (7.6 ) (11.2 ) (0.1 ) 3.7 (33 )% (32 )% Depreciation and amortization (43.3 ) (39.6 ) (1.1 ) (2.6 ) 7 % 9 % Other selling, general and administrative expenses (18.6 ) (9.6 ) (0.5 ) (8.5 ) 89 % 94 % Net operating Income 30.7 38.9 0.6 (8.8 ) (22 )% (21 )% Other income (expense) Interest expense, net (29.4 ) (27.4 ) (0.4 ) (1.6 ) 6 % 7 % Other finance income (expense) 0.5 0.4 - 0.1 25 % 25 % Total other income (expense), net (28.9 ) (27.0 ) (0.4 ) (1.5 ) 6 % 7 % Net Income from continuing operations before income taxes 1.8 11.9 0.2 (10.3 ) (87 )% (85 )% Income tax income (expense) 63.0 (5.0 ) 0.7 67.3 (1346 )% (1360 )% Net Income $ 64.8 $ 6.9 $ 0.9 $ 57.0 826 % 839 % Exchange Rate - $ to £ 1.28 1.25 See “Segments Results” below for a more detailed explanation of the significant changes in our components of revenue within the individual segment results of operations. Revenue (for the twelve-months ended December 31, 2024, compared to the twelve-months ended December 31, 2023) Consolidated Reported Revenue by Segment ● There were no Low Margin-related sales for the twelve-month period ended December 31, 2024. For the twelve-month period ended December 31, 2023 Low Margin-related revenue was $30.6 million. For the twelve-month period ended December 31, 2024, revenue on a functional currency (at constant rate) basis decreased by $33.1 million, or 10%. For the twelve-month period ended December 31, 2024 Gaming revenue declined by $34.0 million, predominantly due to a decrease in product sales of $27.1 million, as the prior year period contained $30.6 million of Low Margin sales compared to no Low Margin sales in the current period. Gaming service revenue decreased by $6.9 million, predominantly due to declines in mainland Europe and Greece. Virtual Sports declined by $12.0 million, with $10.9 million of the reduction coming from online sales, while Interactive grew by $10.6 million due to growth driven in the UK and North American markets. Leisure revenue grew by $3.0 million predominantly due to growth in the Holiday Parks and Pubs sectors. 40 Cost of Sales, excluding depreciation and amortization Cost of sales, excluding depreciation and amortization, for the twelve-month period ended December 31, 2024, decreased by $38.6 million, or 30%. This was driven by a decrease in cost of service of $6.7 million and a $31.9 million decrease in cost of product, predominantly driven by the decrease in low margin product sales. Non-staff related selling, general and administrative expenses Non-Staff related selling, general and administrative expenses for the twelve-month period ended December 31, 2024 increased by $5.4 million, or 12%. The increase in the twelve-month period was predominantly driven by increases in storage and distribution of $1.6 million, IT of $1.1 million, facility costs of $1.0 million, and audit and accountancy costs of $1.1 million. Stock-based compensation During the twelve-month period ended December 31, 2024, the Company recorded expenses of $7.6 million, compared to expenses of $11.2 million, for the twelve-month period ended December 31, 2023. All expenses related to outstanding awards, but the twelve-months ended December 31, 2023, included $0.4 million of shares that fully vested on the date of grant. Depreciation and amortization Depreciation and amortization for the twelve-month period ended December 31, 2024, increased by $2.6 million, driven mainly by increases in Virtuals of $2.1 million and Interactive of $1.7 million for increased software development and intangible assets, and Leisure of $0.9 million for increase of machine assets, offset by reductions in Gaming of $2.2 million as machine assets reach full depreciation. Other selling, general and administrative expenses Other selling, general and administrative expenses for the twelve-month period ended December 31, 2024 increased by $8.5 million, or 89%. The increase in the twelve-month period was driven primarily by the costs of the restatement of previously issued financial statements and costs relating to restructuring costs. Net operating income During the twelve-month period ended December 31, 2024, net operating income was $30.7 million, a decrease of $8.8 million, compared to the prior year period. This decrease was primarily driven by the increase in non-staff related selling, general and administrative expenses, depreciation and amortization, along with other selling general and administrative expenses, partially offset by an increase in gross margin and reduction in stock-based compensation. Net Income For the twelve-month period ended December 31, 2024, net income was $64.8 million, compared to net income of $6.9 million in the prior year period. The increase was primarily driven by an increase of income tax income of $67.3 million, due to the reversal of the majority of the company’s valuation allowance on its deferred tax assets , partially offset by the decrease in net operating income and increases in interest expense and income tax expense. Deferred Tax The Company has not recognized deferred tax liabilities in respect of unremitted earnings that are considered indefinitely reinvested in foreign subsidiaries. We do not provide for taxes on our undistributed earnings of foreign subsidiaries that have not been previously taxed because we intend to invest such undistributed earnings indefinitely outside of the United States. Segment Results ( for the twelve months ended December 31, 2024, compared to the twelve months ended December 31, 2023) Gaming We generate revenue from our Gaming segment through the delivery of our gaming terminals preloaded with proprietary gaming software, server-based content, as well as services such as terminal repairs, maintenance, software updates and upgrades on a when and if available basis and content development. We receive rental fees for machines, typically in conjunction with long-term contracts, 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 changes in (i) the number of operator customers we have, (ii) the number of Gaming machines in operation, (iii) the net win performance of the machines and (iv) the net win percentage that we receive pursuant to our contracts with our customers. Gaming, Key Performance Indicators For the Twelve-Month Period ended Variance December 31, 2024 vs December 31, 2023 Gaming December 31, 2024 December 31, 2023 % End of period installed base (# of terminals) (2) 34,916 34,500 416 1.2 % Total Gaming - Average installed base (# of terminals) (2) 34,863 34,563 300 0.9 % Participation - Average installed base (# of terminals) (2) 29,897 30,305 (408 ) (1.3) % Fixed Rental - Average installed base (# of terminals) 4,971 4,290 681 15.9 % Service Only - Average installed base (# of terminals) 5,770 11,688 (5,918 ) (50.6) % Customer Gross Win per unit per day (1) (2) £ 96.6 £ 96.6 £ - - Customer Net Win per unit per day (1) (2) £ 70.8 £ 70.6 £ 0.2 0.3 % Inspired Blended Participation Rate 5.4 % 5.6 % (0.2 )% Inspired Fixed Rental Revenue per Gaming Machine per week £ 28.6 £ 35.5 £ (6.9 ) (19.4 )% Inspired Service Rental Revenue per Gaming Machine per week £ 5.3 £ 5.1 £ 0.2 3.9 % Gaming Long term license amortization (£’m) £ 2.1 £ 2.6 £ (0.5 ) (19.2 )% Number of Machine sales 3,118 9,741 (6,623 ) (68.0 )% Average selling price per terminal £ 8,044 £ 5,866 £ 2,178 37.1 % (1) Includes all SBG terminals in which the Company takes a participation revenue share across all territories. (2) Includes approximately 2,500 lottery terminals where the revenue share is on handle instead of net win. In the table above: “End of Period Installed Base” is equal to the number of deployed Gaming terminals at the end of each period that have been placed on a participation or fixed rental basis. Gaming participation revenue, which comprises the majority of Gaming Service revenue, is directly related to the participation terminal installed base. This is the medium by which our customers generate revenue and distribute a revenue share to the Company. To the extent all other KPIs and certain other factors remain constant, the larger the installed base, the higher the Company’s revenue would be for a given period. Management gives careful consideration to this KPI in terms of driving growth across the segment. This does not include Service Only terminals. Revenue is derived from the performance of the installed base as described by the Gross and Net Win KPIs. 41 If the End of Period Installed Base is materially different from the Average Installed Base (described below), we believe this gives an indication as to potential future performance. We believe the End of Period Installed Base is particularly useful for assessing new customers or markets, to indicate the progress being made with respect to entering new territories or jurisdictions. “Total Gaming - Average Installed Base” is the average number of deployed Gaming terminals during the period consisting of both participation terminals and fixed rental terminals. Therefore, it is more closely aligned to revenue in the period. We believe this measure is particularly useful for assessing existing customers or markets to provide comparisons of historical size and performance. This does not include Service Only terminals. “Participation - Average Installed Base” is the average number of deployed Gaming terminals that generated revenue on a participation basis. “Fixed Rental - Average Installed Base” is the average number of deployed Gaming terminals that generated revenue on a fixed rental basis. “Service Only - Average Installed Base” is the average number of terminals that generated revenue on a Service only basis. “Customer Gross Win per unit per day” is a KPI used by our management to (i) assess impact on the Company’s revenue, (ii) determine changes in the performance of the overall market and (iii) evaluate the impact of regulatory change and our new content releases on our customers. Customer Gross Win per unit per day is the average per unit cash generated across all Gaming terminals in which the Company takes a participation revenue share across all territories in the period, defined as the difference between the amounts staked less winnings to players divided by the Average Installed Base in the period, then divided by the number of days in the period. Gaming revenue accrued in the period is derived from Customer Gross Win accrued in the period after deducting gaming taxes (defined as a regulatory levy paid by the Customer to government bodies) and applying the Company’s contractual revenue share percentage. Our management believes Customer Gross Win measures are meaningful because they represent a view of customer operating performance that is unaffected by our revenue share percentage and allow management to (1) readily view operating trends, (2) perform analytical comparisons and benchmarking between customers and (3) identify strategies to improve operating performance in the different markets in which we operate. “Customer Net Win per unit per day” is Customer Gross Win per unit per day after giving effect to the deduction of gaming taxes. “Inspired Blended Participation Rate” is the Company’s average revenue share percentage across all participation terminals where revenue is earned on a participation basis, weighted by Customer Net Win per unit per day. “Inspired Fixed Rental Revenue per Gaming Machine per week” is the Company’s average fixed rental amount across all fixed rental terminals where revenue is generated on a fixed fee basis, per unit per week. “Inspired Service Rental Revenue per Gaming Machine per week” is the Company’s average service rental amount across all service only rental terminals where revenue is generated on a service only fixed fee basis, per unit per week. “Gaming Long term license amortization” is the upfront license fee per terminal which is typically spread over the life of the terminal. Our overall Gaming revenue from terminals placed on a participation basis can therefore be calculated as the product of the Participation - Average Installed Base, the Customer Net Win per unit per day, the number of days in the period, and the Inspired Blended Participation Rate, which is equal to “Participation Revenue”. “Number of Machine sales” is the number of terminals sold during the period. “Average selling price per terminal” is the total revenue in GBP of the Gaming terminals sold divided by the “number of Machine sales”. 42 Gaming, Recurring Revenue Set forth below is a breakdown of our Gaming recurring revenue. Gaming recurring revenue principally consists of Gaming participation revenue and fixed rental revenue. For the Twelve-Month Period ended Variance December 31, 2024 vs December 31, 2023 (In £ millions) December 31, 2024 December 31, 2023 % Gaming Recurring Revenue Total Gaming Revenue £ 86.7 £ 114.0 £ (27.3 ) (24) % Gaming Participation Revenue £ 41.7 £ 44.3 £ (2.6 ) (6) % Gaming Project Recurring Revenue £ 0.7 £ 0.9 £ (0.2 ) (22) % Other Fixed Fee Recurring Revenue £ 9.1 £ 16.3 £ (7.2 ) (44) % Gaming Long-term license amortization £ 2.2 £ 2.7 £ (0.5 ) (19) % Total Gaming Recurring Revenue * £ 53.7 £ 64.2 £ (10.5 ) (16) % Gaming Recurring Revenue as a % of Total Gaming Revenue † 62 % 56 % 6 % Total Gaming revenue excluding Low Margin Sales 86.7 89.7 (3.0 ) - Gaming Recurring Revenue as a % of Total Gaming Revenue (excluding Low Margin Sales) * 62 % 72 % (10 )% * Does not reflect Low Margin-related revenue. † Total Gaming Revenue for the twelve-month period ended December 31, 2024 includes no Low Margin sales. Total Gaming Revenue for the twelve-month period ended December 31, 2023 includes £24.3 million of Low Margin sales. In the table above: “Gaming Participation Revenue” includes our share of revenue generated from (i) our Gaming terminals placed in gaming and lottery venues; and (ii) licensing of our game content and intellectual property to third parties. “Gaming Other Fixed Fee Recurring Revenue” includes service revenue in which the Company earns a periodic fixed fee on a contracted basis. “Gaming Project Recurring Revenue” relates specifically to a single customer for machine estate upgrades and distribution. “Gaming Long term license amortization” – see the definition provided above. “Total Gaming Recurring Revenue” is equal to Gaming Participation Revenue plus Gaming Other Fixed Fee Recurring Revenue. Gaming, 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. 43 For the Twelve-Month Period ended Variance (In millions) December 31, 2024 December 31, 2023 December 31, 2024 vs December 31, 2023 Total Functional Currency % Service Revenue: UK LBO $ 34.5 $ 37.0 $ (2.5 ) (7 )% (18) % UK Other 16.1 13.9 2.2 16 % 13 % Italy 1.7 2.8 (1.1 ) (39 )% (43) % Greece 15.2 18.7 (3.5 ) (19 )% (20 )% Rest of the World 1.8 2.1 (0.3 ) (14 )% (19 )% Lotteries 5.4 5.2 0.2 4 % 4 % Total Service revenue $ 74.7 $ 79.6 $ (4.9 ) (6 )% (13 )% Exchange Rate - $ to £ 1.28 1.25 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, Results of Operations For the Twelve-Month Period ended Variance December 31, 2024 vs December 31, 2023 (In millions) December 31, 2024 December 31, 2023 Variance Attributable to Currency Movement Variance on a Functional currency basis Total Functional Currency Variance % Total Reported Variance % Revenue: Service $ 74.7 $ 79.6 $ 2.0 $ (6.9 ) (9 )% (6 )% Product 35.9 62.9 0.1 (27.1 ) (43 )% (43 )% Total revenue 110.6 142.5 2.1 (34.0 ) (24 )% (22 )% Cost of Sales, excluding depreciation and amortization: Cost of Service (20.0 ) (24.6 ) (0.2 ) 4.8 (20 )% (19 )% Cost of Product (21.2 ) (52.4 ) (0.2 ) 31.4 (60 )% (60 )% Total cost of sales (41.2 ) (77.0 ) (0.4 ) 36.2 (47 )% (46 )% Staff-related selling, general and administrative expenses (18.1 ) (17.9 ) (0.4 ) 0.2 (1 )% 1 % Non-staff related selling, general and administrative expenses (10.5 ) (9.3 ) (0.4 ) (0.8 ) 9 % 13 % Labor costs capitalized 4.5 4.5 0.1 (0.1 ) (2 )% - Other segment items: Stock-based compensation (0.9 ) (1.5 ) (0.1 ) 0.7 (47 )% (40 )% Depreciation and amortization (16.8 ) (18.7 ) (0.4 ) 2 .3 (12 )% (10 )% Other selling, general and administrative expenses (3.7 ) - (0.1 ) (3.6 ) 97 % 100 % Net operating Income $ 23.9 $ 22.6 $ 0.4 $ 0.9 4 % 6 % Exchange Rate - $ to £ 1.28 1.25 44 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. All variances discussed in the Gaming results below are on a functional currency (at a constant rate) basis, which excludes the impact of any changes in foreign currency exchange rates. Gaming Revenue During the twelve-month period ended December 31, 2024, Gaming revenue decreased by $34.0 million, or 24%. This was driven by a $6.9 million decrease in Service revenue and $27.1 million decrease in Product revenue. The decrease in Gaming Service revenue was driven by a $3.8 million decline in Greece, predominantly due to the reduction in Gross Win per day and expiry of historical amortized license revenues, and $3.4 million in the UK market inclusive of shop closures in UK Licensed Betting Offices (“LBO”), which was mostly offset by growth in Other UK of $1.8 million driven by one-off license sales. The Product revenue decrease was primarily driven by lower Product sales of $27.1 million, as the prior year period contained $30.6 million of Low Margin sales. This was partially offset by $12.8 million in revenue growth in North America. Gaming Operating / Net Income Net income for the twelve-month period ended December 31, 2024 increased by $0.9 million. The increase was primarily due to an increase in gross margin of $2.2 million (as the $34.0 million revenue decrease was offset by a $36.2 million decrease in total costs of sales primarily driven by the decrease in Low Margin sales in the current period) and a decrease in depreciation and amortization of $2.3 million due to the full depreciation of machine assets, partially offset by an increase in non-staff related selling, general and administrative expenses of $0.8 million driven by lower overhead recoveries of $0.8 million, and an increase in other selling, general and administrative expenses costs of $3.6 million relating to restructuring costs for the closure of the Bridgend manufacturing facility. Virtual Sports We generate revenue from our Virtual Sports segment through our on-premise licensing solution and hosting of our products. We primarily receive fees 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. 45 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, Key Performance Indicators For the Twelve-Month Period ended Variance December 31, 2024 vs December 31, 2023 December 31, 2024 December 31, 2023 % Virtuals No. of Live Customers at the end of the period 58 56 2 (3.6 )% Average No. of Live Customers 56 57 (1 ) (1.8 )% Total Revenue (£’m) £ 35.6 £ 45.3 £ (9.7 ) (21.4 )% Total Revenue £’m - Retail £ 9.2 £ 10.2 £ (1.0 ) (9.8 )% Total Revenue £’m - Online Virtuals £ 26.4 £ 35.2 £ (8.8 ) (25.0 )% In the table above: “No. of Live Customers at the end of the period” and “Average No. of Live Customers” represent the number of customers from which there is Virtual Sports revenue at the end of the period and the average number of customers from which there is Virtual Sports revenue during the period, respectively. “Total Revenue (£m)” represents total revenue for the Virtual Sports segment, including recurring and upfront service revenue. Total revenue is also divided between “Total Revenue (£m) – Retail,” which consists of revenue earned through players wagering at Virtual Sports venues, “Total Revenue (£m) – Online Virtuals,” which consists of revenue earned through players wagering on Virtual Sports online. Virtual Sports, 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 Twelve-Month Period ended Variance December 31, 2024 vs December 31,2023 (In £ millions) December 31, 2024 December 31, 2023 % Virtual Sports Recurring Revenue Total Virtual Sports Revenue £ 35.6 £ 45.3 £ (9.7 ) (21.4 )% Recurring Revenue - Retail Virtuals £ 9.0 £ 9.9 £ (0.9 ) (9.1 )% Recurring Revenue - Online Virtuals £ 25.6 £ 34.6 £ (9.0 ) (26.0 )% Total Virtual Sports Long-term license amortization £ 0.1 £ 0.2 £ (0.1 ) (50.0 )% Total Virtual Sports Recurring Revenue £ 34.7 £ 44.7 £ (10.0 ) (22.4 )% Virtual Sports Recurring Revenue as a Percentage of Total Virtual Sports Revenue 97.5 % 98.7 % (1.2 )% 46 “Recurring Revenue” includes our share of revenue generated from (i) our Virtual Sports products placed with operators; (ii) licensing our game content and intellectual property to third parties; and (iii) our games on third-party online gaming platforms that are interoperable with our game servers. “Virtual Sports Long term license amortization” is the upfront license fee which is typically spread over the life of the contract. Virtual Sports, Results of Operations For the Twelve-Month Period ended Variance December 31, 2024 vs December 31, 2023 (In millions) December 31, 2024 December 31, 2023 Variance Attributable to Currency Movement Variance on a Functional currency basis Total Functional Currency Variance % Total Reported Variance % Service Revenue $ 45.4 $ 56.2 $ 1.2 $ (12.0 ) (21 )% (19 )% Cost of Service (1.7 ) (1.4 ) - (0.3 ) (21 )% (21 )% Staff-related selling, general and administrative expenses (9.2 ) (8.3 ) (0.3 ) (0.6 ) 7 % 11 % Non-staff related selling, general and administrative expenses (2.7 ) (2.4 ) (0.1 ) (0.2 ) 8 % 13 % Labor costs capitalized 4.3 3.5 - 0.8 23 % 23 % Other segment items: Stock-based compensation (0.5 ) (0.4 ) - (0.1 ) 25 % 25 % Depreciation and amortization (5.6 ) (3.2 ) (0.2 ) (2.2 ) 69 % 75 % Net operating Income $ 30.0 $ 44.0 $ 0.6 $ (14.6 ) (33 )% (32 )% Exchange Rate - $ to £ 1.28 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. All variances discussed in the Virtual Sports results below are on a functional currency (at constant rate) basis, which excludes the impact of any changes in foreign currency exchange rates. Virtual Sports revenue During the twelve-month period ended December 31, 2024 revenue decreased by $12.0 million, or 21% driven by a major customer optimizing its customer base. Virtual Sports operating income During the twelve-month period ended December 31, 2024, net operating income decreased by $14.5 million. These declines were primarily due to the decrease in gross margin of $12.3 million, an increase in non-staff related selling, general and administrative expenses of $0.2 million predominantly driven by higher external consultant and recruitment costs, and an increase in depreciation and amortization of $2.2 million for increased software development and intangible assets. Interactive We generate revenue from our Interactive segment through various gaming content made available via third-party aggregation platforms integrated with our remote gaming server or directly on the Company’s remote gaming server platform, and services such as customer support, platform maintenance, updates and upgrades. Typically, we receive fees on a participation basis. Our participation contracts are usually 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. 47 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, Key Performance Indicators For the Twelve-Month Period ended Variance December 31, 2024 vs December 31, 2023 Interactive December 31, 2024 December 31, 2023 % No. of Live Customers at the end of the period 175 149 26 17.4 % Average No. of Live Customers 167 142 25 17.6 % No. of Games available at the end of the period 323 290 33 11.4 % Average No. of Games available 311 279 32 11.5 % No. of Live Games at the end of the period 303 275 28 10.2 % Average No. of Live Games 292 259 33 12.7 % Total Revenue (£’m) £ 30.8 £ 22.4 £ 8.4 37.5 % In the table above: “No. of Live Customers at the end of the period” and “Average No. of Live Customers” represent the number of customers from which there is Interactive revenue at the end of the period and the average number of customers from which there is Interactive revenue during the period, respectively. “No. of Games available at the end of the period” and “Average No. of Games available” represents the number of games that are available for operators to deploy at the end of the period (including inactive legacy games still available in inactive new games that are available but have not yet gone live with any operators) and the average number of games that are available for operators to deploy during the period, respectively. This incorporated live games and inactive games. “No. of Live Games at the end of the period” and “Average No. of Live Games” represents the number of games from which there is Interactive revenue at the end of the period and the average number of games from which there is Interactive revenue during the period, respectively. “Total Revenue (£m)” represents total revenue for the Interactive segment, including recurring and upfront service revenue. 48 Interactive, Results of Operations For the Twelve-Month Period ended Variance December 31, 2024 vs December 31, 2023 (In millions) December 31, 2024 December 31, 2023 Variance Attributable to Currency Movement Variance on a Functional currency basis Total Functional Currency Variance % Total Reported Variance % Service Revenue $ 39.3 $ 27.9 $ 0.8 $ 10.6 38 % 41 % Cost of Service (1.7 ) (1.7 ) - - - - Staff-related selling, general and administrative expenses (8.9 ) (8.4 ) (0.3 ) (0.2 ) 2 % 6 % Non-staff related selling, general and administrative expenses (5.4 ) (4.9 ) (0.2 ) (0.3 ) 6 % 10 % Labor costs capitalized 2.3 2.5 (0.2 ) - - (8) % Other segment items: Stock-based compensation (0.4 ) (0.6 ) - 0.2 (33 )% (33) % Depreciation and amortization (5.5 ) (3.7 ) 0.1 (1.7 ) 46 % 49 % Net operating Income $ 19.7 $ 11.1 $ 0.2 $ 8.4 76 % 77 % Exchange Rate - $ to £ 1.28 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. All variances discussed in the Interactive results below are on a functional currency (at constant rate) basis, which excludes the impact of any changes in foreign currency exchange rates. Interactive revenue During the twelve-month period ended December 31, 2024 revenue increased by $10.6 million, or 38%, driven by recurring revenue growth in the UK, North America and mainland Europe due to the launch of new content across the estate and increased promotional activity through exclusive deals with tier-one customers. Interactive operating income Operating income for the twelve-month period ended December 31, 2024 increased by $8.6 million. This increase was driven by the increase in gross margin, partially offset by increases in staff related selling, general and administrative expenses of $0.3 million driven by annual salary increases and additional headcount, non-staff related selling, general and administrative expenses of $0.3 million predominantly due to increased IT network costs supporting revenues, and depreciation and amortization of $1.7 million for increased software development and intangible assets. Leisure We typically generate revenue from our Leisure segment through the supply 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. Our participation contracts are usually 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, any relevant regulatory levies and minimum fixed incomes where applicable) from machines placed in our customers’ facilities. We generally 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 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. 49 Leisure, Key Performance Indicators For the Twelve-Month Period ended Variance December 31, 2024 vs December 31, 2023 Leisure December 31, 2024 December 31, 2023 % End of period installed base Gaming machines (# of terminals) 10,103 10,741 (638 ) (5.9) % Average installed base Gaming machines (# of terminals) 10,367 10,761 (394 ) (3.7 )% End of period installed base Other (# of terminals) 3,595 4,209 (614 ) (14.6 )% Average installed base Other (# of terminals) 3,892 4,371 (479 ) (11.0 )% Pub Digital Gaming Machines - Average installed base (# of terminals) 6,200 6,175 25 0.4 % Pub Analogue Gaming Machines - Average installed base (# of terminals) 124 367 (243 ) (66.2 )% MSA and Bingo Gaming Machines - Average installed base (# of terminals) (1) 2,944 3,048 (104 ) (3.4 )% Inspired Leisure Revenue per Gaming Machine per week £ 72.6 £ 67.7 £ 4.9 7.2 % Inspired Pub Digital Revenue per Gaming Machine per week £ 74.1 £ 70.0 £ 4.1 5.9 % Inspired Pub Analogue Revenue per Gaming Machine per week £ 31.3 £ 34.7 £ (3.4 ) (9.8 )% Inspired MSA and Bingo Revenue per Gaming Machine per week £ 97.7 £ 93.5 £ 4.2 4.5 % Inspired Other Revenue per Machine per week £ 24.1 £ 21.4 £ 2.7 12.6 % Total Holiday Parks Revenue (Gaming and Non Gaming) (£’m) £ 33.4 £ 32.2 £ 1.2 3.7 % (1) Motorway Service Area machines In the table above: “End of period installed base Gaming” and “Average installed base Gaming” represent the number of gaming machines installed (excluding Holiday Park machines) that are Category B and Category C only (UK Gambling Act 2005 places machines into categories dependent on maximum stake and prize available), from which there is participation or rental revenue at the end of the period or as an average over the period. “End of period installed base Other” and “Average installed base Other” represent the number of all other category machines installed (excluding Holiday Park machines) from which there is participation or rental revenue at the end of the period or as an average over the period. “Revenue per machine unit per week” represents the average weekly participation or rental revenue recognized during the period. 50 Leisure, Results of Operations For the Twelve-Month Period ended Variance December 31, 2024 vs December 31, 2023 (In millions) December 31, 2024 December 31, 2023 Variance Attributable to Currency Movement Variance on a Functional currency basis Total Functional Currency Variance % Total Reported Variance % Revenue: Service $ 99.2 $ 94.1 $ 2.5 $ 2.6 3 % 5 % Product 2.6 2.2 - 0.4 18 % 18 % Total revenue 101.8 96.3 2.5 3.0 3 % 6 % Cost of Sales, excluding depreciation and amortization: Cost of Service (46.9 ) (47.4 ) (1.3 ) 1.8 (4 )% (1 )% Cost of Product (0.8 ) (1.1 ) - 0.3 (27 )% (27 )% Total cost of sales (47.7 ) (48.5 ) (1.3 ) 2.1 (4 )% (2 )% Staff-related selling, general and administrative expenses (16.8 ) (16.7 ) (0.5 ) 0.4 (2 )% 1 % Non-staff related selling, general and administrative expenses (14.8 ) (13.0 ) (0.4 ) (1.4 ) 11 % 14 % Labor costs capitalized 0.8 1.3 0.1 (0.6 ) (46 )% (38 )% Other segment items: Stock-based compensation (0.6 ) (1.0 ) - 0.4 (40 )% (40 )% Depreciation and amortization (12.9 ) (11.6 ) (0.4 ) (0.9 ) 8 % 11 % Net operating Income 9.8 6.8 $ - $ 2.9 44 % 44 % Exchange Rate - $ to £ 1.28 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. All variances discussed in the Leisure results below are on a functional currency (at constant rate) basis, which excludes the impact of any changes in foreign currency exchange rates. Leisure Revenue For the twelve-month period ended December 31, 2024 revenue increased by $3.0 million, or 3%. The increases were primarily due to increased service revenue of $2.6 million, primarily driven by the increase in Holiday Parks of $1.4 million due to new locations and higher bookings and Pubs of $1.0 million due to the roll out of Vantage machines throughout the current period. Leisure Operating Income Operating income for the twelve-month period ended December 31, 2024 increased by $2.9 million. This was primarily due to the increase in gross margin, partially offset by increases in non-staff related selling, general and administrative expenses of $1.4 million which mainly relates to increases in fleet expenses for increased vehicle leases, facility expenses due to increased rates and, storage and distribution costs for transporting machines around the business. 51 Non-GAAP Financial Measures We use certain non-GAAP financial measures, including 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. We define our non-GAAP financial measures as follows: EBITDA is defined as net income (loss) excluding depreciation and amortization, interest expense, interest income and income tax expense. Adjusted EBITDA is defined as net income (loss) excluding depreciation and amortization, interest expense, interest income and income tax expense, and other additional exclusions and adjustments (see Adjusted EBITDA reconciliation table). 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 but not limited to (1) restructuring costs, which include charges attributable to employee severance, impairments, 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 (4) the costs of the restatement of previously issued financial statements. 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. Adjusted Revenue (Revenue Excluding Low Margin Gaming Hardware Sales) is defined as revenue excluding Gaming hardware sales that are sold at Low Margin with the intention of securing longer term recurring revenue streams. 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. 52 Reconciliations from net loss, as shown in our Consolidated Statements of Operations and Comprehensive Income (Loss), to Adjusted EBITDA are shown below. Reconciliation to Adjusted EBITDA by segment for the Twelve Months ended December 31, 2024 For the Twelve-Month Period ended December 31, 2024 (In millions) Statutory Heading Total Gaming Virtual Sports Interactive Leisure Corporate Net Income/ (loss) Net Income $ 64.8 $ 23.9 $ 30.0 $ 19.7 $ 9.8 $ (18.6 ) Pension charges (1) Staff-related selling, general and administrative expenses $ 1.1 1.1 Cost of Group Restructure (2) Other selling, general and administrative expenses $ 5.1 3.7 1.4 Cost of Group Restatement (3) Other selling, general and administrative expenses $ 12.3 12.3 Stock-based compensation expense (4) Stock-based compensation expense $ 7.6 0.9 0.5 0.4 0.6 5.2 Depreciation and amortization (4) Depreciation and amortization $ 43.3 16.8 5.6 5.5 12.9 2.5 Interest expense net (4) Interest expense net $ 29.4 29.4 Other finance expenses / (income) (4) Other finance expenses / (income) $ (0.5 ) (0.5 ) Income Tax (4) Income Tax $ (63.0 ) (63.0 ) Adjusted EBITDA $ 100.1 $ 45.3 $ 36.1 $ 25.6 $ 23.3 $ (30.2 ) Adjusted EBITDA £ 78.4 £ 35.5 £ 28.0 £ 20.0 £ 18.2 £ (23.3 ) Exchange Rate - $ to £ (6) 1.28 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. 53 Reconciliation to Adjusted EBITDA by segment for the Twelve Months ended December 31, 2023 For the Twelve-Month Period ended December 31, 2023 (In millions) Statutory Heading Total Gaming Virtual Sports Interactive Leisure Corporate Net Income/ (loss) $ 6.9 $ 22.6 $ 44.0 $ 11.1 $ 6.8 $ (77.6 ) Pension charges (1) Staff-related selling, general and administrative expenses $ 0.9 0.9 Cost of Group Restructure (2) Other selling, general and administrative expenses $ 3.6 3.6 Cost of Group Restatement (3) Other selling, general and administrative expenses $ 5.0 5.0 Stock-based compensation expense (4) Stock-based compensation expense $ 11.2 1.5 0.4 0.6 1.0 7.7 Depreciation and amortization (4) Depreciation and amortization $ 39.6 18.7 3.2 3.7 11.6 2.4 Interest expense net (4) Interest expense net $ 27.4 27.4 Other finance expenses / (income) (4) Other finance expenses / (income) $ (0.4 ) (0.4 ) Income tax (4) Income tax $ 5.0 5.0 Adjusted EBITDA $ 99.2 $ 42.8 $ 47.6 $ 15.4 $ 19.4 $ (26.0 ) Adjusted EBITDA £ 79.6 £ 34.5 £ 38.2 £ 12.3 £ 15.6 £ (21.0 ) Exchange Rate - $ to £ (5) 1.25 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. 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. (2) “Cost of Group Restructure” include redundancy costs, payment in lieu of notice costs and any associated employer taxes. To qualify as an adjusting item, costs must be part of a large restructuring project, which will net save ongoing future costs or be in relation to the exit of an Executive. (3) “Cost of Group Restatement” includes accounting advice associated with the restatement of the 2020, 2021 and 2022 annual accounts and Q1 and Q2 2023 quarterly accounts. It also includes ongoing costs in 2024 relating to the SEC inquiry that was subsequently concluded in January 2025. To qualify as an adjusting item, costs must be specific to the event and be neither normal nor recurring in nature. 54 (4) 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. (5) 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. Reconciliation to Adjusted Revenue We believe that accounting for low margin hardware sales in conformance with U.S. GAAP can result in a distorted presentation of our revenue and growth. Therefore, we use Revenue Excluding Low Margin Sales, or Adjusted Revenue, to internally analyze our operating performance. A reconciliation from revenue, as shown in our Consolidated Statements of Operations and Comprehensive Loss included elsewhere in this report, to Adjusted Revenue is shown below. For the Twelve-Month Period ended (In millions) December 31, 2024 December 31 2023 Net revenue $ 297.1 $ 322.9 Less Low Margin Gaming Sales - (30.6 ) Adjusted Revenue $ 297.1 $ 292.3 Adjusted Revenue £ 232.4 £ 234.7 Exchange Rate - $ to £ 1.28 1.25 55 Liquidity and Capital Resources Twelve Months ended December 31, 2024, compared to Twelve Months ended December 31, 2023 Cash Flow Summary - A Two Year Comparative Twelve Months ended Variance (in millions) Dec 31, Dec 31, 2024 2023 2024 to 2023 Net profit $ 64.8 $ 6.9 $ 57.9 Non-cash interest expense relating to senior debt 1.1 2.0 (0.9 ) Change in fair value of derivative liabilities and stock-based compensation expense 7.6 11.5 (3.9 ) Depreciation and amortization (incl RoU assets) 47.7 43.4 4.3 Other net cash utilized by operating activities (89.5 ) (9.1 ) (80.4 ) Net cash provided by operating activities 31.7 54.7 (23.0 ) Net cash used in investing activities (40.1 ) (57.6 ) 17.5 Net cash (used)/generated by financing activities (1.6 ) 16.2 (17.8 ) Effect of exchange rates on cash (0.7 ) 1.7 (2.4 ) Net (decrease)/increase in cash and cash equivalents $ (10.7 ) $ 15.0 $ (25.7 ) Net cash provided by operating activities For the twelve months ended December 31, 2024, net cash inflow provided by operating activities was $31.7 million, compared to a $54.7 million inflow for the twelve months ended December 31, 2023, representing a $23.0 million decrease in cash generation. The decrease was driven primarily through trading levels and the working capital position with adverse movements in accounts receivable due to timing of sales recognition with high levels at the end of 2024 and in accounts payable due to varying levels of production activity with the end of 2023 seeing significant activity in Greece installing 2,500 machines during the last few months of the prior year. Amortization of debt fees decreased by $0.9 million, to $1.1 million, due to the marking to market for short term currency contracts held at the end of 2023. Change in the fair value of derivative and warrant liabilities and stock-based compensation expense decreased by $3.9 million from $11.5 million to $7.6 million due to lower stock-based compensation expense ($3.4 million) and 2023 having a gain relating to terminated cross currency swaps ($0.5 million) which terminated at the end of September 2023. Depreciation and amortization increased by $4.3 million, to $47.7 million, with increases of $1.7 in million amortization of intangible assets, $1.7 million contract costs amortization, $0.6 million in machine depreciation and $0.6 million in amortization of right of use assets offset by a $0.5 million decrease in software development cost amortization. Other net cash utilized by operating activities increased by $80.4 million to an outflow of $89.5 million. The relative movements between the twelve months ended December 31, 2024 and the twelve months ended December 31, 2023 resulted in unfavorable movements of $61.9 million in corporate tax and other current taxes, $23.9 million in accounts receivable and $15.0 million in accounts payable and accrued expenses. The movement in corporate tax and other current taxes was due to a reversal of the Company’s valuation allowance on their deferred tax assets in various jurisdictions as well as an inclusion for global low-taxed income. The movements in accounts receivable was due to timing of machine sales with the end of 2024 seeing high levels. There were fewer machine sales at the end of 2023 but 2023 includes the collection of a significant machine sale made at the end of 2022. The movements in accounts payable was due to different activity levels in Greece with 2023 also seeing higher accounts payable levels as a result of the restatement exercise. These unfavorable movements were partly offset by favorable movements in prepayments and accrued income $13.8 million, inventory $4.1 million and deferred revenue $2.4 million. 56 Net cash used in investing activities Net cash utilized in investing activities decreased by $17.5 million, to $40.1 million in the twelve months ended December 31, 2024. This was driven by a reduced spend on plant, property and equipment $15.0 million decrease compared to 2023, which included the updating of machines in Greece with 2,500 terminals installed, and capitalized software (a $2.9 million decrease to 2023). The twelve months ended December 31, 2023 included a $0.6 million acquisition relating to Lot.to. These were partly offset by a $1.0 million increase in contract cost additions. Net cash (used)/generated by financing activities During the twelve months ended December 31, 2024, net cash used by financing activities was $1.6 million all relating to finance lease spend. During the twelve months ended December 31, 2023, net cash generated by financing activities was $16.2 million due to the draw down of £15.0 million ($18.9 million) of the Company’s revolving facility. This was offset by the Company’s repurchase of its common shares under the Share Repurchase Program, $1.6 million, and finance lease spend of $1.1 million. Funding Needs and Sources To fund our obligations, historically we have relied on a combination of cash flows provided by operations and the incurrence of additional debt or the refinancing of existing debt. As of December 31, 2024, we had liquidity consisting of $29.3 million in cash and a further $6.3 million of undrawn revolver facility. This compares to $40.0 million of cash as of December 31, 2023, with a further $6.4 million of revolver facilities undrawn. We had a working capital outflow of $89.5 million for the twelve months ended December 31, 2024, compared to a $9.1 million outflow for the twelve months ended December 31, 2023. 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. In periods with minimal machine volumes and capital spend, our working capital is typically more stable. In periods where significant numbers of machines are being produced, the levels of inventory and creditors are typically higher and there is a natural timing difference between converting the stock into sellable or capitalized plant and settling payments to suppliers. These factors 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 December 31, 2024, $2.9 million of our $29.3 million of cash were held as operational floats within the machines. At December 31, 2023, $3.1 million of our $40.0 million of cash were held as operational floats within the machines Management currently believes that 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 April 2026. 57 Long Term and Other Debt (In millions) December 31, 2024 December 31, 2023 Cash held £ 23.4 $ 29.3 £ 31.4 $ 40.0 Revolver drawn (15.0 ) (18.8 ) (15.0 ) (19.1 ) Original principal senior debt (235.0 ) (294.4 ) (235.0 ) (299.6 ) Cash interest accrued (1.9 ) (2.4 ) (1.6 ) (2.0 ) Finance lease creditors (18.4 ) (23.0 ) (1.9 ) (2.4 ) Total £ (246.9 ) $ (309.3 ) £ (222.1 ) $ (283.1 ) Debt Covenants Under our debt facilities in place as of December 31, 2024, 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 ended 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. Covenant testing at December 31, 2024 showed covenant compliance. The Indenture contains covenants and certain reporting requirements including the requirement to provide the Lender, within 60 days after the close of the quarter, unaudited quarterly financial statements with footnote disclosures. The Company was unable to comply with this requirement as of September 30, 2023 due to the requirement to restate previously reported financial statements as reported in a Current Report on Form 8-K filed with the SEC on November 8, 2023. The debt agreement allows the Company a 30-day grace period to provide such financial information once they receive any notice of non-compliance. No such notice was received and concurrent with the filing of the September 30, 2023 10-Q with the SEC on February 27, 2024, the reporting requirement was met. There were no other breaches of the debt covenants in the twelve-month periods ended December 31, 2024 or December 31, 2023. Liens and Encumbrances As of December 31, 2024, our senior secured notes were 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. Share Repurchases The Board of Directors has authorized the Company to use up to $25.0 million to repurchase shares of Inspired common stock, subject to repurchases being effected on or before May 10, 2025. Management has discretion as to whether to repurchase shares of the Company and as of December 31, 2024, an aggregate of $12.0 million of our shares of common stock had been repurchased over the past three years. 58 Contractual Obligations As of December 31, 2024, our contractual obligations were as follows: Contractual Obligations (in millions) Total Less than 1 year 1-2 years 3-5 years More than 5 years Operating activities Interest on long term debt $ 34.8 $ 23.2 $ 11.6 $ - $ - Purchase of Vantage machines 17.1 17.1 - - - Financing activities Revolver repayment 19.7 19.7 - - - Senior secured notes - principal repayment 294.4 - 294.4 - - Finance lease payments 23.0 4.4 4.7 13.9 - Operating lease payments 16.8 5.1 4.0 4.3 3.4 Interest on non-utilization fees 0.2 0.2 - - - Total $ 406.0 $ 69.7 $ 314.7 $ 18.2 $ 3.4 Off-Balance Sheet Arrangements As of December 31, 2024, 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. Critical Accounting Estimates The preparation of our audited consolidated financial statements in conformity with 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 Note 1 “Nature of Operations, Management’s Plans and Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report. 59 Revenue Application of GAAP related to the measurement and recognition of revenue requires us to make judgments and estimates. Specifically, complex arrangements with nonstandard terms and conditions may require significant contract interpretation to determine the appropriate accounting. The Company often enters into contracts with customers that consist of a combination of services and products that are accounted for as one or more distinct performance obligations. Management applies judgment in evaluating the contractual terms and conditions that impact the identification of performance obligations and the pattern of revenue recognition. For these arrangements that contain multiple promises, judgement is also required to determine the stand-alone selling price (“SSP”) for each distinct performance obligation. In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP using information that may include market conditions, size of the customer, geography and other observable inputs or, as necessary, unobservable considerations such as historical experience, knowledge of our business and industry and our current or expected selling practices. Revenue recognition is also impacted by our ability to estimate variable consideration, including, for example, estimates for income earned but unbilled prior to the reporting period end. We consider various factors when making these judgments, including a review of specific transactional data and contracted terms, information obtained subsequent to the reporting period end and historical experience. Evaluations are conducted each quarter to assess the adequacy of the estimates. Other significant judgments include determining whether the Company is acting as the principal or the agent in a transaction. The Company recognized service and product revenue of $258.6 million and $38.5 million, respectively, for the year ended December 31, 2024. The Company’s revenue recognition policy, which requires significant judgments and estimates, is fully described in Note 1 “Nature of Operations, Management’s Plans and Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report. Goodwill Impairment Assessment Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. Performance of the qualitative goodwill assessment requires judgment in identifying and considering the significance of relevant key factors, events and circumstances that affect the fair value or carrying amount of the reporting units. Such events and circumstances that we have considered include macroeconomic conditions, industry specific and market considerations, and reporting unit-specific factors such as overall actual and projected financial performance, among other factors. We also considered the results from the most recent date that a fair value measurement was performed as a part of a quantitative goodwill assessment and specifically the cushion between each reporting unit’s fair value and carrying value. The estimates used to calculate the fair value of a reporting unit as a part of a quantitative goodwill assessment change from year to year based on operating results, market conditions, and other factors. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment, if any, for each reporting unit. 60 Long-lived Assets and Finite-lived Intangible Assets We evaluate the recoverability of intangible assets and other long-lived assets with finite useful lives by comparing the carrying value of the asset group to the estimated undiscounted future cash flows that we expect the asset to generate if events or changes in circumstances indicate that these assets are not recoverable. If the asset group fails the recoverability test, an impairment loss is measured as the amount by which the carrying amount of the asset group exceeds its fair value. The fair value is determined using a discounted cash flow approach where projections of future cash flows generated by those assets are discounted using an estimated discount rate. Significant judgment is required to estimate the amount and timing of future cash flows and the relative risk of achieving those cash flows. We also make judgments about the remaining useful lives of intangible assets and other long-lived assets that have finite lives. While we believe our estimates of future operating results and projected cash flows are reasonable, any significant adverse changes in key assumptions (i.e., adverse change in the extent or manner in which an asset or asset group is being used or expectation that, more likely than not, an asset or asset group will be sold or otherwise disposed of before the end of its useful life) or adverse changes in economic and market conditions may cause a change in our evaluation of recoverability or our estimation of fair value and could result in an impairment charge that could be material to our financial statements. Any impairment loss shall be allocated to the long-lived assets of the group on a pro rata basis using the relative carrying amounts of those assets, except that the loss allocated to an individual long-lived asset of the group shall not reduce the carrying amount of that asset below its fair value. Software Development Costs The Company must apply judgement in determining the amount of software development costs that should be capitalized. Specifically, we must evaluate, on a project by project basis, whether the resultant product or platform will be completed and generate ongoing economic benefits, principally through revenue from our customers, which is subject to uncertainties. Once the software is substantially complete or available for general release, capitalized internal-use and external-use software costs are amortized on a straight-line basis over the estimated economic useful life of the software, which ranges from two to five years. There is judgement involved in estimating the useful life of developed software and the two-to-five-year period was determined based on factors such as the continuous development in the technology, obsolescence, and anticipated life of the service offering before significant upgrades. Management evaluates the useful lives of these assets on a recurring basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. 61