Inspired Entertainment, Inc.

Good afternoon, everyone, and welcome to the Inspired Entertainment second quarter 2026 conference call. All participant lines have been placed on mute to prevent any background noise. After the speaker's prepared remarks, we will open the call for a question and answer session. Please note that today's event is being recorded. Before we begin, please refer to the company's forward-looking statements that appear in the second quarter 2026 earnings press release and in the accompanying slide presentation, both of which are available in the investors section of the company's website at www.inseinc.com. These also apply to today's conference call. Thank you for joining us. For a discussion on these risks and uncertainties, please refer to the company's filings with the Securities and Exchange Commission. During today's call, the company will discuss both gap and non-gap financial measures. Reconciliations of these non-gap measures to the most directly comparable gap measures can be found in today's earnings release and slide presentation, which are both available on the website. With that, I would now like to turn the call over to Lorne Weil, the company's executive chairman. Mr. Weil, please go ahead.

Thank you, operator. Good afternoon. And thank you for joining our second quarter conference call. I'll begin with some overarching comments and we'll then hand it over to Brooks, who will discuss the business in significantly more detail. As you'll hear in a few minutes, there was a lot going on in the first half of the year. and there's even more in the second half. Revenue and EBITDA of $61 million and $27 million respectively in the quarter were about where we expected and EBITDA was a little ahead of consensus. Comparison to the second quarter of 2025 isn't too meaningful because of the exclusion in 2026 of the divested holiday park revenue and income, which were seasonally strong in 2025. as well as the impact of pub restructuring. At the same time, however, it's instructive to compare the first and second quarters of 2026 to each other to get a sense of sequential momentum. In that case, second quarter revenue and EBITDA were 6% and 14% respectively from the first quarter, despite the impact of the near doubling of the UK remote gaming duty beginning in April, a subject to which I will return in a moment. As a result of the combined Holly Park sale and pub restructuring, together with the momentum in our continuing digital and retail businesses, our EBITDA margin expanded by 1,000 basis points year-over-year to 45%. In parallel, we have year-to-date retired $23 million in debt, repurchased over 700,000 shares, and reduced our net leverage to three. Slide 4 confirms our 2026 EBITDA target range of $112 to $118 million and guides to free cash flow conversion for the year of 20% plus of EBITDA. For reasons I will explain more fully later on the call, the true operating free cash flow of the business in 2026 has in fact been significantly better than what can be seen from the reported results. And for the year, we expect that on a pro forma basis, it will be in excess of 25% versus the 20% shown on the slide. The impact of the increase in the UK gaming duty, which went into effect on April the 1st, is something we need to unpack a little more fully in order to fully understand how the rest of the year will unfold. As illustrated in slide five, worldwide year-over-year growth in interactive revenue and EBITDA and the second quarter were 15% and 13% respectively. A decent but totally anomalous result in that historically interactive EBITDA has consistently grown meaningfully faster than revenue due to operating leverage in the business. The cause of the second quarter anomaly is, of course, the UK remote gaming duty. On slide five, we illustrate that our UK gross gaming revenue in the second quarter was 40% up year over year. I should emphasize this was our gross gaming revenue, not the gross gaming revenue of the UK market itself. But the near doubling of the tax largely negated this growth, thereby depressing the margin. The compounding effect of the increase in our GGR of 40% with the doubling of the tax rate meant that in absolute terms, our tax impact went up two and a half times from year to year. For the balance of the year, the anomaly will continue to distort year-to-year comparisons, but sequentially the situation will be quite different. In a moment, Brooks will show how in each of the last three years, consecutive second half interactive volume growth was well ahead of first half, with EBITDA growth even faster. Since the increased tax was fully in effect in this year's second quarter, we can anticipate that as we move through the balance of this year, The sequential relationship between EBITDA and revenue will revert to the historic pattern showing operating leverage. And with that, I'll hand it over to Brooks.

Okay, thanks, Lorne. As usual, I'll provide more detail on our business segments in the second quarter and share an update on the key initiatives we're focused on for the second half of the year. Our Q2 results demonstrate continued progress in transforming the business into a more digital-led, less capital-intensive model while increasing adjusted EBITDA, expanding EBITDA margins, generating stronger cash flow, and giving us the flexibility to continue deleveraging and repurchasing the shares where appropriate. We've discussed these priorities for some time and we're pleased to see the benefits coming through, particularly with EBITDA margin reaching 45% by the end of the second quarter, tracking in line with our full year guidance. Moving over to slide seven, retail solutions performed very well in the quarter, executing against our margin expansion strategy following last year's sale, the holiday parks business, and the restructuring of our pub segment. And as a result, the business delivered EBITDA margins before corporate allocation of more than 50% for the first time. Performance was driven by continued cash box growth across our UK retail businesses, including the licensed betting offices, MSAs, pubs, AGCs, and bingo. As previously discussed, William Hill closed just over 200 shops during the quarter. and these closures were largely their lower performing locations, which improved the performance of the remaining William Hill estate. At the same time, we successfully redeployed the removed terminals across our broader estate with further placement opportunities still ahead. In Greece, we delivered year over year cash box growth and further expanded our market leading share, supported by our latest vantage cabinets and our best in class content. The Vantage Flank Cabinet has delivered particularly strong gains in grease, which were reinforced by Alwyn's additional order of more than 2,000 replacement machines. We expect to begin delivering those units in the fourth quarter of this year as part of the ongoing refresh of our Greek estate, with 32% of our 9,000 terminals yet to be refreshed. We also installed 125 terminals for AGLC in Alberta this quarter. further strengthening our position in the important Canadian VLT market. A key part of our retail solution strategy is continually refreshing content to keep players engaged. And during the quarter, we sold subscription game packs to both AGLC and to more than 92% of our Illinois terminal base, which has driven the best performance in that market we've seen to date. We're also leveraging our omnichannel strategy by bringing successful online titles into retail and early results are encouraging. Wolf It Up has proven to be a top game in multiple retail markets in the UK and North America, demonstrating our ability to translate online game success into retail performance. Moving over to slide eight, the interactive business continued to perform well with adjusted EBITDA growing Approximately 13% year over year, despite the impact of the UK remote gaming taxes nearly doubling from 21% to 40% beginning on April 1st. We continued to gain market share in the UK, which helped offset some of the tax impact we had previously guided to. And as Lorne mentioned, UK gross gaming revenue grew 40% year over year in the second quarter, underscoring the strength of our content and the continued demand for our games. On this slide, you'll see the pattern of interactive plays over the last four years and how each year the lines overlay one another in virtually the same way. As you can see, that pattern didn't change in 2026, despite the introduction of the UK tax changes on April 1st. If this historical pattern continues for the remainder of 2026, as it has in prior years, we expect the second half of the year to grow in a similar trajectory, giving us confidence in our second half targets. We've also continued to gain share in North America, led by the performance of our cash bank family of games across operator customers. We took advantage of the World Cup fever and released several soccer-themed skins on our most popular franchise brands, and these games kept players as engaged as the World Cup did for fans across the globe. In July, we launched on day one of Alberta's newly regulated market with all major operators, and we're very excited about this market. as we see further opportunity to leverage content that has already proven successful throughout Alberta through AGLC and also Ontario and expand our presence over time. Hybrid dealers also gaining momentum with turnover increasing 13% and GGR increasing 25% from Q1 to Q2. In Q2, we launched our branded Wolf It Up roulette game with DraftKings and added key UK operators such as Betfred which contributed to this growth. We're also developing a bespoke BetMGM game based on the Price is Right license for delivery by the end of the year. While hybrid dealer may not become as large as we originally anticipated, it certainly represents a focused opportunity within Interactive and we continue to see attractive growth potential as we expand our offerings and add new customers. And finally, we've committed significant resources to expanding our iLottery eInstance capabilities and expect to begin delivering games into that vertical next year with plans that further leverage our content creation capabilities in all of these areas. Moving over to slide nine, we continue to invest in our content creation capabilities, including the building out of our newest content studio in Manchester. Be Real Games is generating a lot of buzz. Sorry about that, I couldn't help it. It's expected to launch its first game by year end. As I've said before, the feedback we hear most often from operator customers is that they love our content. They just want more of it. So our new studio is expected to produce one additional game per month with a focus on developing more market-specific content that complements and expands our portfolio of franchise brands. We anticipate moving to slide 10. We anticipate stronger momentum across Interactive in the second half. which is traditionally higher than the first half due to our seasonal holiday game release is one of our key strengths. The fourth quarter in particular has been our strongest period with last year's revenue increasing by over 17% and adjusted to EBITDA increasing 23% compared with the third quarter. And we expect a similar seasonal uplift in 2026. In addition, we have several upfront custom game development payments scheduled for the fourth quarter which we expect will provide and additional incremental benefit. Moving over to slide 11, a virtual sports segment delivered another quarter of stable results supported by several key initiatives launched late in the quarter that we expect to drive growth in the second half of the year. BetMGM now has a fully integrated sportsbook solution in New Jersey and Ontario and turnover increased 50% from Q1 to Q2 with early July results showing continued growth. We also launched with BetMGM in Alberta and with other key customers there, including Bet365. Overall virtual sports revenue increased 3% sequentially, driven in part by the rollout of our Soccer 4.0 with the BetBuilder feature to key customers, as you can see in the slide, including Allwin in Greece and Betano across Latin America. During the World Cup period, these customers saw a 6% increase in turnover generated from this product. and we'll continue to roll this product out to additional customers on a worldwide basis. Momentum is also building through the broader distribution of our virtual sports portfolio to sportsbook providers such as Playtech, where we recently just went live with the Malta lottery. Moving over to Latin America, our partnership with Altanard delivered significant growth with turnover up 55% and GGR up 61%. We're also expanding in the lottery space with a Q3 launch anticipated with the Mass Lottery through our partnership with Aristocrat Interactive, which will bring us to being live in four lottery states. We expect to update the market later this year on a few key customer additions and product enhancements. Thanks Brooks. That was a great deep dive into the range of initiatives going on throughout the company.

In slide 12, we summarize the transformation we anticipate playing out through the end of 2027. The midpoint of EBITDA and EBITDA margins are expected to reach 130 million and 47% respectively. Leverage is projected to decline to under two and a half, and free cash flow conversion should comfortably be between 25 and 30%. Let me now return to the subject of pro forma free cash flow that I referenced earlier on. As a result of the contractual working capital adjustments associated with the restructuring of our pubs business, we had a one-time non-recurring cash outflow in the first half of 2026 of approximately $7 million, which is fully reflected in the reported free cash flow numbers. In that case, the free cash flow projection for the year of $23 million, shown in slide 13, becomes $30 million on a pro forma basis, or over 25% of EBITDA. As our business mix swings more towards less capital intensity and our declining leverage generates interest savings, we can expect that the conversion percentage will continue to improve from 25%. And then finally on slide 14, Not to beat a dead horse, but all this comes together in the slide where we reprise the elements of the 26-27 plan. I think that speaks for itself and that really doesn't require much comment. And with that, we can turn operator to Q&A, please.

We will now begin the question and answer session. Please limit yourself to one question and one follow up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Ryan Sigdahl with Craig Hallam Capital Group. Your line is now open. Please go ahead.

Hey, good afternoon, guys. I want to start on interactive, staring at slide five, but the growth decelerated pretty substantially. You explained it, UK tax increase and the flow through of that. just given your share of gaming revenue there. But curious if you can double-click into that what the UK revenue performance was versus elsewhere or what the mix of the UK is or somehow to try and get a better underlying performance of ex-US or ex-UK, excuse me, from an interactive standpoint.

Yeah, well, I'll try to answer the question and see if this is what you're looking for. Obviously, as we put with the statistics on here, the GGR in the UK specifically was up 40%, but obviously the impact of the tax had the negative impact that you've seen on the revenue and EBITDA performance. In terms of gaining, in essence, we think we gained share In the second quarter in the UK, the official UK GC numbers aren't out yet, but certainly in our conversation with some of our biggest operators, operator customers, they've said to us that we're continuing to kind of climb the ladder of performance with them. So even though the attacks had obviously a pretty negative impact, frankly, no more than what we had originally anticipated or guided to. But in essence, we're continuing to grow in both the North American and the U.K. markets.

Are you able to give what growth was ex-U.K.?

I don't think we – do we break that out, Eric?

We don't break it out, but we can get back to you.

Why don't we get back to you, Ryan, on that one? So we don't give you a number there.

Well, we know for sure that the revenue growth outside of the UK was significantly higher than it was in the UK, just because the increase in the tax, I mean, if the tax doubled from 5% to 10%, that would have been relatively insignificant. When the tax doubles from 20% to 40%, if you go through the algebra, What would have been a 20, I'm just indexing it, a $20 tax becomes almost a $60 tax. And that comes straight off the top in terms of revenue. So the revenue was positive in the UK, which is a miracle. Most operators had obviously significantly declining revenues, but it was less than the 15% and other global interactives. Now, the point that I was making in my remarks, Ryan, is that once we lap the second quarter, so when we get to next year, then the year-to-year comparisons will have the same tax rate. So if our GGR continues to grow 40%, our revenues will continue to grow 40% and we'll see A re-acceleration back to where we were before. But unfortunately, we have to suck it up for the balance of this year.

Sticking on taxes, a think tank in the UK, they've recommended increased tax on online gambling last year. Now they're backing an increase to B2 gaming machines in this year's budget. Curious what you guys are hearing, boots on the ground there, and any thoughts you may have around that?

Yeah, well, I think one of the things that we're hearing is that the industry, probably in the online gaming tax, you probably will know that there were a bunch of different factions. Horse racing had one view, the betting shops had another view, and the AGCs had yet another view. I think seeing how draconian the measures were and doubling of the tax rate, I think everyone in the industry now feels like they need to be aligned against this. And you've probably read, obviously read one side about increasing the taxes, but you obviously see on the industry side what the potential job loss and high street kind of decimation could be if the taxes were going up like this group had suggested. Look, it's impossible to predict, but we're certainly hearing and hopeful that if there's any increase in tax, it will be measured and not what that group has suggested.

Very good. Good luck, guys.

Thank you. Your next question comes from the line of Matthew Maus. With B. Reilly Securities. Your line is now open. Please go ahead.

Hi, this is Matt Dion for Josh. Thanks for taking my questions. So I had a similar kind of question on Interactive. I'm just wondering, you know, it's stepped down, revenue stepped down sequentially slightly. I'm wondering, is this more of the trough for the year? And how are you thinking about the sequential path from here into the seasonally strong fourth quarter?

Yeah, I mean, I think the... The view is that, and we tried to illustrate this in the slide with some of the histories that we think sequentially, you know, the interactive business historically over the last few years has grown. The third quarter is better than the second quarter. The fourth quarter is better than the third quarter. And we see nothing to change our views on that. So we expect it to grow sequentially quarter.

I mean, the key thing is, just to come back to your observation, is the The second quarter sequential observation you made is completely due to the tax. The underlying business is growing like crazy. So now that the tax is in the calculation in the second quarter, the third quarter will reflect the full growth in the GGR because there'll be no increase in the tax to offset it. So the second quarter is definitely Troth, and the third and fourth quarter should look very good.

Great. Sounds good. Last question for me is mainly just on free cash flow conversion. I mean, you're guiding to 20% plus this year. I'm wondering what carries the conversion higher in the back half. And as leverage approach is closer to 2.5 times, does that open a refinancing that brings down the cash interest you're paying?

Yeah, so the main difference is that, as I mentioned in my remarks, that in the first half, we had this $7 million working capital adjustment associated with the restructuring and shutting down of part of our pubs business. And that was pure cash outflow that directly impacted the free cash flow in the first half, which we don't expect to see in the second half. Well, we know we won't see it in the second half. So without overly complicating it, that's the main reason.

Got it. Great. That was all for me. I'll hop back in queue. Thanks.

Your next question comes from the line of Barry Jonas with Truist. Your line is now open. Please go ahead.

Hey guys, apologies if this was addressed, but the UK growth offsetting the UK tax increase, very impressive. Help us understand how do you think those gains will be sustainable? I mean, is this really just content driven or do you think once you lap the William Hill reallocations, market share gains potentially slow? Thank you.

Well, the William Hill reallocations. The William Hill allocations, that's all the retail thing, Barry. So that wouldn't have anything to do with the digital market.

But go ahead. Go ahead, Barry.

I'm sorry. Apologies there. Yeah, just how we understand the sustainability of these market share gains.

Yeah. I mean, I think, look, we've shown pretty consistent growth in the UK You know, over the last few years, I think we've gone from kind of 3 or 4% to over 11, approaching 12%. And I think as we talked about in the second quarter where, you know, a lot of people might be kind of exiting the market because of some of these constraints, we're pretty much doubling down in the UK and part of our new content will be producing games not only for North America but for the UK as well. So we're, you know, we're confident that we'll continue to continue to grow our share in the UK.

The other point to add to that, Barry, is that in the UK is the one market where we have a very significant retail machine estate. And we know one of the major drivers of online performance is the multi-channel effect of people I think that Lorne's right, and that probably goes also a way in

Validating the kind of disparities between our market share and the UK versus what we're getting in North America. Our UK shares more than double what we have in North America. Both are growing nicely, but Lorne's right. The footprint where you go any place in the UK where there's a gaming machine, you're going to see our games and naturally people play them online. Obviously, we get that same benefit in Greece.

Got it. Just for a follow-up question, you know, you repaid debt and bought back stock in the quarter. How do you think about capital allocation priorities from here? Thank you.

We're thinking about it in the same way. You know, we think there's clearly benefit to debt reduction. because obviously it not only produces a dollar for dollar absolute reduction in interest costs, it helps the computation of the stock value. And as we hit leveraging points, our spread declines. So we get a double or even a triple whammy for paying down debt. On the other hand, you don't have to be A financial genius to believe that at the kind of levels of stock price where we are now, you know, there's tremendous benefit to allocating stock to allocating cash to share repurchase. So I think we're certainly going to allocate all of our excess cash one way or another to Your next question comes from Jordan Bender.

With Citizens. Your line is now open. Please go ahead.

Hey, everyone. Thanks for the question. Maybe just follow up on Barry's question a little bit. You know, there's the provision that as your leverage gets lower, your interest rates drop under debt. And you kind of just talked about the mix between buying back stock and paying down debt. But is it kind of fair to assume then that M&A just could be off the table for the time being as you kind of seek lower leverage levels?

No, I wouldn't ever put M&A off the table. We have a pretty carefully designed template in terms of how we think about M&A. But if we have an M&A opportunity that has significant synergies with our existing business, and which can immediately be accretive, then we'll definitely consider it. So, yeah, I mean, certainly to give the full picture of capital allocation, we would consider debt reduction, share repurchase and potential acquisitions, but When we get that question on these kinds of calls about capital allocation, I don't want to speak for Barry, but normally the question asker is referring to debt reduction and share repurchase.

understood okay and then you know in the slides here you have on the interactive slide you have higher incremental margin is interactive skills which obviously makes sense you know we can kind of look back historically in your we've kind of talked about the the interactive EBITDA margin in the quarter that somewhat took a step down but With margins in that business kind of sitting here near all-time highs, like realistically, where can we kind of get EBITDA margins to over the next couple years?

Just to be sure I'm answering that question, Jordan, are you talking about overall or just interactive? Just your interactive margins. Yeah, I mean, look, obviously, with the scaling opportunities, we think we can, you know, increase those margins of, you know, several points, but I don't think it's going to be this is not going to be a, you know, 10 or 15% swing. This is, you know, I think the the interactive margins are close to 70% now already, which is which is pretty healthy.

OK, yeah, the question, I guess, would have been, are we near kind of that ceiling? But you did answer that the way I was trying to ask it. So I appreciate it. And thank you very much. Sure thing.

Your next and final question comes from Chad Bainon of Macquarie. Your line is now open. Please go ahead.

Hi, Brooks, Lorne, and team. Thanks for taking my question. Wanted to start with retail solutions. So you talked about in the presentation the 2,000 terminals that'll be delivered in Greece. Wanted to confirm that those are kind of the standard rev share that you already have out there. And then I'm assuming the capex for the year the 30 to 35. Is it fair to assume that a good amount of that comes from this deliverable? I'll start with that one, and then I have a couple follow-ups. Thanks.

Well, in regards to the terms, yeah, there's nothing changing from the kind of last batch. The only thing I would say is the slant terminal that's kind of doing extraordinarily well is probably going to be more of the mix, A, because that's The stuff that probably makes the most sense to replace and because it's higher performing from a yield management standpoint, they're going to take more slant terminals than they are uprights. But just in terms of the capex, Eric, you want to?

Yeah, sure. Just that capex, we reference cash capex, so it excludes any capex that is customer funded, which would be Greece among some other businesses. So that's exclusive to answer your question, Jeff.

OK, perfect. Thank you for that. Also on retail solutions, it sounds like Chicago, the process continues to move along. I think there's been a few dozen applications and potential licenses at this point. Is this factored into the fourth quarter? And how are you thinking about the opportunity for Chicago VLTs?

Well, if it gives you any indication, I'll be in Chicago all next week. So I think you can read from that that I think it's a pretty important market for us. You know, I know a cell reported earlier and they talked about having the Chicago maybe actually going in the fourth quarter where they had originally said it was the first quarter of 2027. We're kind of dependent on, you know, it's obviously dominated by two big operators, J&J and NSL, who we have very good relationships with both. So we're monitoring it closely. We still think Chicago is going to be, you know, a very strong market, whether it's fourth quarter of this year or, you know, moving into 2027. Kind of hard to tell. My guess is if I had to guess, I would say we'll get some this year, but probably more next year.

Great. Thank you. Safe travels out there. And then lastly, around just the World Cup exposure with your virtual product, I know the placement with BetMGM was improved, but just any commentary in terms of if there was more penetration, more exposure to customers, either in the United States or in some of the bigger European markets?

Yeah, I wouldn't say it was more exposure per se, although obviously BetMGM, this was the first time, you know, with the World Cup that we would have had them where the other customers, you know, Bet365 and Betano, we would have had that in the past. I think we've, you know, we said in the slide presentation, we had an uplift of about 6%. Some of that was World Cup, but some of that was also probably the product, you know, this soccer 4.0, which is the latest, greatest graphics. and included the bet builder functionality, which is essentially like same game parlay. So I think some combination of all of those helped us for the World Cup. And it'll be interesting to see, you know, as we go through the year, particularly now with MGM, you know, we've been saying for a long time, we really wanted a big sports betting operator in the States to be having a fully integrated virtual package. And now MGM does. We would hope that some of the others will come along with that, but I'll be very interested to see how, you know, when football season starts, American football for anyone who's questioning whether that's soccer or football, to see if we're getting some, you know, continued uplift that we saw that came out of the World Cup. So, yeah, pretty excited about a number of things in the second half of the year for virtual sports.

Thanks, Brooks. Appreciate it, guys.

Okay, Chad, thanks.

There are no further questions at this time. I will now turn the call back to Lorne Weil, Executive Chairman, for closing remarks.

Thank you, operator. And again, everyone, thank you for taking the time to listen to the call. I think we're pretty much on the trajectory that we've been talking about for some time. We're, as I think should have been clear from my remarks and Brooks. We're very sanguine about the third and fourth quarter and as we move into 2027. And we're excited to meet with you again in three months and tell you how we're doing. So thanks again.

This concludes today's call. Thank you for attending. You may now disconnect.