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What changed in Inspired Entertainment, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Inspired Entertainment, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+367 added−354 removedSource: 10-K (2024-04-15) vs 10-K (2023-03-16)

Top changes in Inspired Entertainment, Inc.'s 2023 10-K

367 paragraphs added · 354 removed · 265 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

94 edited+9 added−9 removed100 unchanged
Biggest changeOur long-term contracts typically have an initial duration of three to five years depending on the business segment and the customer and, over the last three years, we have successfully renewed the significant majority of expiring contracts with key customers in our Gaming, Virtual Sports and Interactive segments, and have successfully renewed all expiring contracts with key customers in our Leisure segment since the Company’s acquisition of the Gaming Technology Group of Novomatic UK Ltd., a division of Novomatic Group, an international supplier of gaming equipment and solutions in October 2019 (the “NTG Acquisition”). 6 Proprietary Technology and Track-Record of Strong Content Development We are dedicated to being at the forefront of our industry in terms of technology and innovation.
Biggest changeOur long-term contracts typically have an initial duration of three to five years depending on the business segment and the customer and, over the last three years, we have successfully renewed the significant majority of expiring contracts with key customers in our Gaming, Virtual Sports, Interactive and Leisure segments.
Our SBG game portfolio includes a broad selection of popular omni-channel slots titles including the Centurion TM game family and Super Hot Fruits ® (featuring the Sizzling Hot Spins TM game family).
Our SBG game portfolio includes a broad selection of popular omni-channel slots titles including the Centurion TM game family and Super Hot Fruits ® (featuring the Sizzling Hot Spins™ game family).
Suppliers of gaming machines, including VLTs, must hold a police license (as prescribed by article 86, paragraph 3, of the Italian United Text of Public Security Law (TULPS) provided by the Royal Decree 18 June 1931, No. 773) and be enrolled in a registry prescribed by article 1, paragraph 82 of Law No. 220/2010 and managed by ADM (known as the “ADM Register of Gestori”).
Suppliers of gaming machines, including VLTs, must hold a police license (as prescribed by article 86, paragraph 3, of the Italian United Text of Public Security Law provided by the Royal Decree 18 June 1931, No. 773) and be enrolled in a registry prescribed by article 1, paragraph 82 of Law No. 220/2010 and managed by ADM (known as the “ADM Register of Gestori”).
We have multiple hosting solutions capable of fulfilling the product delivery needs of our customers including our proprietary Virtual Plug and Play end to end online and mobile turnkey solutions. In addition, a cloud-based solution is available to customers who require an XML sportsbook integration that is fully hosted and operated by Inspired.
We have multiple hosting solutions capable of fulfilling the product delivery needs of our customers including our proprietary Virtual Plug and Play (“VPP”) end to end online and mobile turnkey solutions. In addition, a cloud-based solution is available to customers who require an XML sportsbook integration that is fully hosted and operated by Inspired.
Many of our recent game launches, including Gold Cash Free Spins TM , Big Fishing Fortune TM , and the Reel King ® family of games, have been omni-channel, offering a premium player experience across multiple platforms – though, unlike our older games, they originated online and, once proved successful, were migrated to retail platforms.
Many of our recent game launches, including Gold Cash Free Spins™, Big Fishing Fortune™, and the Reel King ® family of games, have been omni-channel, offering a premium player experience across multiple platforms – though, unlike our older games, they originated online and, once proved successful, were migrated to retail platforms.
We distribute games to devices through different game management systems (“GMS”), each tailored to a specific operator or sector. Our CORE TM GMS is designed for distributed street-gaming sectors and uses Inspired cabinets in combination with gaming content from Inspired, as well as a wide portfolio of content from independent game developers.
We distribute games to devices through different game management systems (“GMS”), each tailored to a specific operator or sector. Our CORE™ GMS is designed for distributed street-gaming sectors and uses Inspired cabinets in combination with gaming content from Inspired, as well as a wide portfolio of content from independent game developers.
Our multi-channel offerings are well-positioned to benefit from the increased prevalence of smart phones and tablets and the legalization of online gaming in certain parts of the United States, Canada and other jurisdictions. Such jurisdictions have provided new growth opportunities for gaming and lottery operators through the introduction of new channels and portals for delivering games to customers.
Our multi-channel offerings are well-positioned to benefit from the prevalence of smart phones and tablets and the legalization of online gaming in certain parts of the United States, Canada and other jurisdictions. Such jurisdictions have provided new growth opportunities for gaming and lottery operators through the introduction of new channels and portals for delivering games to customers.
Our principal competitors include, among others, certain businesses that have vertically integrated gaming machine and retail betting operations and businesses that operate in both regulated and unregulated sectors and thereby effectively subsidize their regulated operations with unregulated operations. Corporate Information We maintain a website at www.inseinc.com.
Our principal competitors include, among others, certain businesses that have vertically integrated gaming machine and retail betting operations and businesses that operate in both regulated and unregulated sectors and thereby effectively subsidize their regulated operations with unregulated operations. 14 Corporate Information We maintain a website at www.inseinc.com.
Greece In Greece, we supply VLTs, including the terminal machines themselves, the related online platforms and the games available on the machines, to brick-and-mortar gaming locations operated by OPAP, the country’s sole licensed operator of gaming machines. We supply such VLTs under a certification provided by the Hellenic Gaming Commission (the “HGC”).
Greece In Greece, we supply VLTs, including the terminal machines themselves, the related online platforms and the games available on the machines, to brick-and-mortar gaming locations operated by OPAP, the country’s sole licensed operator of gaming machines. We supply such VLTs under a certification provided by the Hellenic Gaming Commission.
Our Products We operate in four business segments: Gaming, Virtual Sports, Interactive and Leisure, as further described below. Gaming Segment Our Gaming segment supplies gaming terminals as well as gaming software and games for the terminals provided to betting offices, casinos, gaming halls and high street adult gaming centers.
Our Products We operate in four business segments: Gaming, Virtual Sports, Interactive and Leisure, as further described below. 1 Gaming Segment Our Gaming segment supplies gaming terminals as well as gaming software and games for the terminals provided to betting offices, casinos, gaming halls and high street adult gaming centers.
Information regarding gaming sessions and the amounts wagered and won is provided in real time through the ADM servers, in order to enable the ADM to monitor the operation of machines and games and to verify the amount of taxes due. Italian Betting and Gaming Laws and Regulations.
Information regarding gaming sessions and the amounts wagered and won is provided in real time through the ADM servers, in order to enable the ADM to monitor the operation of machines and games and to verify the amount of taxes due. 10 Italian Betting and Gaming Laws and Regulations.
Also available on our website are our Code of Ethics, as well as the charters of the audit, compensation and nominating and corporate governance committees of the Board of Directors. Information on our website is not incorporated into this report. 15
Also available on our website are our Code of Ethics, as well as the charters of the audit, compensation and nominating and corporate governance committees of the Board of Directors. Information on our website is not incorporated into this report.
Our interactive content includes a wide range of premium random number generated casino content from feature-rich bonus games to European-style casino free spins and table games incorporating well-known first and third-party brands including Space Invaders ® , 20p Roulette TM , Jagr’s Super Slot TM , Super Hot Fruits ® and Reel King Megaways TM .
Our interactive content includes a wide range of random number generated casino content from feature-rich bonus games to European-style casino free spins and table games incorporating well-known first and third-party brands including Space Invaders ® , 20p Roulette™, Jagr’s Super Slot™, Super Hot Fruits ® and Reel King Megaways™.
Additionally, we earn revenue through the sale of units, as well as a fixed daily fee for certain of our installed units. With our participation-driven business model, approximately 96% of revenue for our Leisure segment is recurring in nature and derived under long-term contracts.
Additionally, we earn revenue through the sale of units, as well as a fixed daily fee for certain of our installed units. With our participation-driven business model, approximately 98% of revenue for our Leisure segment is recurring in nature and derived under long-term contracts.
In December 2021, we completed the acquisition of Sportech Lotteries, LLC (currently Inspired Entertainment Lotteries LLC), which is our first lottery-focused acquisition, further diversifying our business model on a product, customer, and geographic level. 8 Industry Overview We operate within the global gaming and lottery industry.
In December 2021, we completed the acquisition of Sportech Lotteries, LLC (currently Inspired Entertainment Lotteries LLC), which is our first lottery-focused acquisition, further diversifying our business model on a product, customer, and geographic level. 7 Industry Overview We operate within the global gaming and lottery industry.
In Virtual Sports we combine graphical assets and software that controls those assets to schedule events and generate results via a random number generator, as well as supplying on demand versions of our content. In 2020, we launched the Virtual Plug and Play (VPP) product range.
In Virtual Sports, we combine graphical assets and software that controls those assets to schedule events and generate results via a random number generator, as well as supplying on demand versions of our content. In 2020, we launched the VPP product range.
As of December 31, 2022, we supplied and operated over 11,000 gaming terminals and 4,500 pool tables, prize vending and jukeboxes located in pubs, bingo halls, and adult gaming centers. We also service approximately 2,800 gaming terminals under maintenance only contracts.
As of December 31, 2023, we supplied and operated over 11,000 gaming terminals and 4,500 pool tables, prize vending and jukeboxes located in pubs, bingo halls, and adult gaming centers. We also service approximately 2,800 gaming terminals under maintenance only contracts.
Inspired’s award-winning Virtual Sports products offer a wide range of betting markets and what we consider to be superior graphics. Our Virtual Sports revenue has been growing fast and has achieved high Adjusted EBITDA margins, while providing an attractive recurring-revenue base.
Inspired’s Virtual Sports products offer a wide range of betting markets and what we consider to be superior graphics. Our Virtual Sports revenue has been growing fast and has achieved high Adjusted EBITDA margins, while providing an attractive recurring-revenue base.
These games offer customers a wide range of volatilities, return-to-player and other special features, which we collectively refer to as “game math.” We also offer a range of more traditional casino games through our SBG network, such as roulette, blackjack and numbers games.
These games offer users a wide range of volatilities, return-to-player and other special features, which we collectively refer to as “game math.” We also offer a range of more traditional casino games through our SBG network, such as roulette, blackjack and numbers games.
We have developed this product using an award-winning TV and film graphics team with advanced motion capture techniques. We believe we are one of the most innovative suppliers of Virtual Sports gaming products in the world. We offer a wide range of sports and numbers games to approximately 32,000 retail venues as well as through various online websites.
We have developed this product using a TV and film graphics team with advanced motion capture techniques. We believe we are one of the most innovative suppliers of Virtual Sports gaming products in the world. We offer a wide range of sports and numbers games to approximately 32,000 retail venues as well as through various online websites.
Our customers are many of the largest operators in lottery, gaming and betting worldwide. We are contracted to supply Virtual Sports to mobile and online operators in the United Kingdom; the U.S. states of Nevada, Pennsylvania, D.C. and New Jersey; Gibraltar and other regulated EU sectors, including Italy, Greece and Poland; and other jurisdictions such as Ontario, Turkey and Morocco.
Our customers are many of the largest operators in lottery, gaming and betting worldwide. We are contracted to supply Virtual Sports to mobile and online operators in the UK; the U.S. states of Nevada, Pennsylvania, D.C. and New Jersey; Gibraltar and other regulated EU sectors, including Italy, Greece and Poland; and other jurisdictions such as Ontario, Turkey and Morocco.
We have award winning content and products in our Virtual Sports segment, which offers a wide range of sports and numbers games through approximately 32,000 retail venues as well as through various online channels.
We have content and products in our Virtual Sports segment, which offers a wide range of sports and numbers games through approximately 32,000 retail venues as well as through various online channels.
We seek to work closely with our customers to assist in the optimization of their operations so they can achieve growth in their revenues generated by our content and products, which we believe is to our benefit.
We seek to work closely with our customers to assist in the optimization of their operations so they can achieve growth in their revenue generated by our content and products, which we believe is to our benefit.
Our Virtual Sports products are typically offered to operators on a participation basis, whereby we receive a portion of the gaming revenues generated, plus an upfront software license fee.
Our Virtual Sports products are typically offered to operators on a participation basis, whereby we receive a portion of the gaming revenue generated, plus an upfront software license fee.
We believe our technological approach allows us to quickly adapt to changes in player preferences. Continue to invest in content and technology in order to grow our existing customers’ revenues and penetrate new customers in our existing markets.
We believe our technological approach allows us to quickly adapt to changes in player preferences. Continue to invest in content and technology in order to grow our existing customers’ revenue and penetrate new customers in our existing markets.
Our Virtual Sports products are typically offered to operators on a participation basis, whereby we receive a portion of the gaming revenues generated, plus an upfront software license fee.
Our Virtual Sports products are typically offered to operators on a participation basis, whereby we receive a portion of the gaming revenue generated, plus an upfront software license fee.
Moreover, digital operations can significantly reduce the need for on-site repairs, improve terminal up-time and should extend terminal life cycles as well as the time period over which capital costs can be depreciated. 9 Regulatory Framework We conduct business in a number of different jurisdictions, of which Great Britain, Italy and Greece have historically contributed the most significant recurring revenues.
Moreover, digital operations can significantly reduce the need for on-site repairs, improve terminal up-time and should extend terminal life cycles as well as the time period over which capital costs can be depreciated. 8 Regulatory Framework We conduct business in a number of different jurisdictions, of which Great Britain, Italy and Greece have historically contributed the most significant recurring revenue.
We have joint venture agreements with holiday park operators including Parkdean Resorts, Bourne Leisure and Butlins, where we supply machines and trained staff to manage and operate family entertainment centers. Overall, our Leisure segment had, as of December 31, 2022, an installed base of over 16,000 gaming terminals, which were operated primarily under participation-based contracts.
We have joint venture agreements with holiday park operators including Parkdean Resorts, Bourne Leisure and Butlins, where we supply machines and trained staff to manage and operate family entertainment centers. Overall, our Leisure segment had, as of December 31, 2023, an installed base of over 11,000 gaming terminals, which were operated primarily under participation-based contracts.
In addition, we also supply and operate approximately 9,300 amusement machines and 2,200 gaming terminals in family entertainment centers located in holiday parks, bowling centers and other entertainment venues.
In addition, we also supply and operate approximately 9,500 amusement machines and 2,200 gaming terminals in family entertainment centers located in holiday parks, bowling centers and other entertainment venues.
Over the last three years, a substantial portion of our annual revenue has been recurring and based on long-term contracts with customers, where our revenues typically grow in line with the growth of our customers’ gaming revenues from our content and products.
Over the last three years, a substantial portion of our annual revenue has been recurring and based on long-term contracts with customers, where our revenue typically grows in line with the growth of our customers’ gaming revenue from our content and products.
Our SBG terminals in the United Kingdom account for a material portion of all SBG terminal placements, and we offer over 100 games for play across this portfolio. We are also a material supplier to customers in Greece and Italy.
Our SBG terminals in the UK account for a material portion of all SBG terminal placements, and we offer over 100 games for play across this portfolio. We are also a material supplier to customers in Greece and Italy.
Because our SBG products are fully digital, they interact with a central server and are provided on a “distributed” basis, which allows us to access a wide geographic footprint through internet and proprietary networks.
Because our SBG products are fully digital, they interact with a central server and are provided on a “distributed” basis, which allows us to access a wide geographic footprint through internet and Inspired and third-party proprietary networks.
The terms of our intellectual property registrations vary based on the type of registration and the date and jurisdiction of filing or grant. European and U.K trademark registration lasts for 10 years but can be renewed indefinitely.
The terms of our intellectual property registrations vary based on the type of registration and the date and jurisdiction of filing or grant. European and UK trademark registration lasts for 10 years but can be renewed indefinitely.
European and U.K design registration lasts for five years but it can be renewed four times (giving a maximum total of 25 years of protection). European and U.K patents can only be renewed for up to 20 years.
European and UK design registration lasts for five years but it can be renewed four times (giving a maximum total of 25 years of protection). European and UK patents can only be renewed for up to 20 years.
CORE-CONNECT is our American Gaming Association G2S standard-based VLT GMS, currently deployed in the Greek VLT sector and North America. Our SBG products comply with all requirements in the UK (B2/B3), Italy (6B), Greece (G2S) and Illinois (G2S).
CORE-CONNECT is our American Gaming Association G2S standard-based video lottery terminal (“VLT”) GMS, currently deployed in the Greek VLT sector and North America. Our SBG products comply with all requirements in the UK (B2/B3), Italy (6B), Greece (G2S) and Illinois (G2S).
Licensees are also required to notify suspicion of offenses and suspicious gambling activity. ● Personal licenses: Key management personnel are required to maintain personal licenses authorizing them to discharge certain responsibilities on behalf of the operator. These personal licenses are subject to renewal every five years.
Licensees are also required to notify suspicion of offenses and suspicious gambling activity. ● Personal licenses: Key management personnel are required to maintain personal licenses authorizing them to discharge certain responsibilities on behalf of the operator. These personal licenses are subject to renewal every five years. Personal licenses are subject to compliance with certain license conditions.
We release over 100 games each year onto our own priority gaming system, Interactive RGS and to our G2S clients around the world in markets such as North America, UK, Greece, Spain, Belgium, Italy, Sweden and more.
We release over 100 games each year onto our own priority gaming system, Interactive Remote Gaming Server (“RGS”) and to our G2S clients around the world in markets such as North America, UK, Greece, Spain, Belgium, Italy, Sweden and more.
According to the H2 Database, mobile gaming revenues in such sectors exhibited a 27.0% compound annual growth rate between 2010 and 2021. Mobile gaming and lottery is now expanding in other sectors, and mobile play has recently been approved in other sectors for gaming or lottery.
According to the H2 Database, mobile gaming revenue in such sectors exhibited a 27.0% compound annual growth rate between 2010 and 2021. Mobile gaming and lottery are now expanding in other sectors, and mobile play has recently been approved in other sectors for gaming or lottery.
Because we participate in our customers’ revenues under such contracts, we are aligned with our customers in benefitting from the introduction of our new content, which can drive growth of the win per unit per day of our installed base.
Because we participate in our customers’ revenue under such contracts, we are aligned with our customers in benefiting from the introduction of our new content, which can drive growth in the win per unit per day of our installed base.
Our Virtual Sports gaming products are installed in approximately 35 gaming jurisdictions worldwide, including the United Kingdom, Italy, Greece, Morocco and the United States, our customers being many of the largest operators of lottery, gaming, and betting operations worldwide.
Our Virtual Sports gaming products are installed in approximately 32 gaming jurisdictions worldwide, including the UK, Italy, Greece, Morocco and the United States, our customers being many of the largest operators of lottery, gaming, and betting operations worldwide.
It utilizes our Server Based Gaming (“SBG”) technology to supply products to our customers’ global land-based gaming venues. SBG products offer an extensive portfolio of games through digital terminals. Our games are currently deployed through more than 35,000 digital terminals.
It supplies products and utilizes our Server Based Gaming (“SBG”) technology to supply gaming content to our customers’ global land-based gaming venues. SBG products offer an extensive portfolio of games through digital terminals. Our games are currently deployed through more than 34,000 digital terminals.
In the Bingo sector, we supply gaming terminals and services to Buzz Bingo and Mecca. We supply gaming terminals and services to transport hub operators, Moto and Welcome Break and major airports, including Heathrow. We also operate our own adult gaming centers under the Quicksilver TM brand in Extra Motorway Services.
We supply gaming terminals and services to transport hub operators, Moto and Welcome Break and major airports, including Heathrow. We also operate our own adult gaming centers under the Quicksilver™ brand in Extra Motorway Services.
The holder of a British gambling operating license is subject to a variety of ongoing regulatory requirements, including, but not limited to, the following: ● Shareholder disclosure: An entity holding a gambling license must notify the Gambling Commission of the identity of any shareholder holding 3% or more of the equity or voting rights in the entity (whether held or controlled either directly or indirectly). ● Change of corporate control: Whenever a new person becomes a “controller” (as defined in section 422 of the Financial Services and Markets Act 2000) of a company limited by shares that holds a gambling operating license, the licensed entity must apply to the Gambling Commission for permission to continue to rely on its operating license in light of the new controller.
Where gambling software is used or supplied for use in relation to the British sector, it must satisfy the Remote Gambling and Software Technical Standards published by the Gambling Commission. 9 The holder of a British gambling operating license is subject to a variety of ongoing regulatory requirements, including, but not limited to, the following: ● Shareholder disclosure: An entity holding a gambling license must notify the Gambling Commission of the identity of any shareholder holding 3% or more of the equity or voting rights in the entity (whether held or controlled either directly or indirectly). ● Change of corporate control: Whenever a new person becomes a “controller” (as defined in section 422 of the Financial Services and Markets Act 2000) of a company limited by shares that holds a gambling operating license, the licensed entity must apply to the Gambling Commission for permission to continue to rely on its operating license in light of the new controller.
Our Virtual Sports product comprises a complex software and networking package that provides fixed odds wagering on an ultra-high definition computer rendering of a simulated sporting event, such as soccer, football or basketball. Players can bet on the simulated sporting event, overcoming the relative infrequency of live sporting events.
Our Virtual Sports product comprises a complex software and networking package that provides fixed odds wagering on an ultra-high definition computer rendering of a simulated sporting event, such as soccer, football or basketball. Players can bet on the simulated sporting event, without being bound by the schedules of of live sporting events.
In our Leisure segment, we supply and operate an installed base of approximately 16,000 gaming terminals (including approximately 2,200 gaming terminals under maintenance only contracts) and 7,000 pool tables, prize vending and jukeboxes to pubs, bingo halls and adult gaming centers.
In our Leisure segment, we supply and operate an installed base of approximately 11,000 gaming terminals (including approximately 2,800 gaming terminals under maintenance only contracts) and 4,500 pool tables, prize vending and jukeboxes to pubs, bingo halls and adult gaming centers.
Additionally, our Interactive segment provides a wide range of premium iGaming content to large operators primarily located in the United Kingdom, Italy, Greece and North America, as well as several other countries across Europe through over 170 websites.
Additionally, our Interactive segment provides a wide range of iGaming content to large operators primarily located in the UK, Italy, Greece and North America, as well as several other countries across Europe through over approximately 250 websites.
Inspired’s Virgo RGS™ is integrated with a number of best known casino brands, including William Hill, Entain, bet365, Flutter, 888, Kindred, Gamesys, BetFred, Rank, Leo Vegas, OPAP and Stoiximan.
Inspired’s Virgo Remote Gaming System (“RGS™”) is integrated with a number of best known casino brands, including William Hill, Entain, bet365, Flutter, 888, Kindred, Gamesys, BetFred, Rank, Leo Vegas, OPAP and Stoiximan.
The gaming regulator responsible for our activities in Great Britain is the Gambling Commission of Great Britain (the “UK Gambling Commission” or the “Gambling Commission”). In Italy, the operation of gaming machines and remote gaming is regulated by L’Agenzia delle dogane e dei Monopoli (“ADM”).
The gaming regulator responsible for our activities in Great Britain is the Gambling Commission. In Italy, the operation of gaming machines and remote gaming is regulated by L’Agenzia delle dogane e dei Monopoli (“ADM”). In Greece, the operation of gaming machines and remote gaming is regulated by the Hellenic Gaming Commission.
Personal licenses are subject to compliance with certain license conditions. 11 Italy We operate two different gaming businesses in Italy. We provide platform and games for video lottery terminals (“VLTs”), we also supply platforms for bets on Virtual Sports events to betting shops and online platforms. Our businesses are operated through the Italian branches of certain of our UK subsidiaries.
Italy We operate two different gaming businesses in Italy. We provide platform and games for video lottery terminals and we also supply platforms for bets on Virtual Sports events to betting shops and online platforms. Our businesses are operated through the Italian branches of certain of our UK subsidiaries.
These are typically one-time non-exclusive licenses specific to the virtual sporting event. We may agree to customize and brand the virtual sporting events for the operator or to provide language variations of the event. The contracts may be terminated early in various circumstances, including, for example, if the operator fails to pay an invoice within 60 days of receipt.
We may agree to customize and brand the virtual sporting events for the operator or to provide language variations of the event. The contracts may be terminated early in various circumstances, including, for example, if the operator fails to pay an invoice within 60 days of receipt.
With our participation-driven business model, approximately 94% of service revenue (excluding VAT related income) for our Gaming segment is recurring in nature and derived under long-term contracts that are typically between three and five years (although may be shorter for contract extensions).
With our participation-driven business model, approximately 94% of service revenue (excluding VAT related income) for our Gaming segment is recurring in nature and derived under long-term contracts that are typically between three and five years (although may be shorter for contract extensions). Over the last three years, we have renewed a significant majority of contracts that were expiring.
Games are available on over 300 websites across much of regulated Europe including the UK, Gibraltar, Malta, Spain, Sweden, Italy, Germany, the Netherlands, Romania, Greece and Belgium as well as in New Jersey, Michigan, Pennsylvania, Connecticut, Ontario and Quebec. We expect to next go live in West Virginia and Alberta during 2023.
Games are available on over 300 websites across much of regulated Europe including the UK, Gibraltar, Malta, Spain, Sweden, Italy, Germany, the Netherlands, Romania, Greece and Belgium as well as in New Jersey, Michigan, Pennsylvania, Connecticut, Alberta, Ontario and Quebec.
(OPAP.), Entain, the Pennsylvania Lottery, Bourne Leisure, Greentube, Stonegate, Mitchells & Butler, Marstons, Greene King, JD Wetherspoon, Parkdean Resort, Centre Parcs Resorts and Novomatic. Geographically, 73% of our revenues (excluding VAT-related revenue) for the year ended December 31, 2022 were generated from our UK operations, with the remainder generated from Greece and the rest of the world.
(OPAP.), Entain, the Pennsylvania Lottery, Bourne Leisure, Greentube, Stonegate, Mitchells & Butler, Marstons, Greene King, JD Wetherspoon, Parkdean Resort, Centre Parcs Resorts and Novomatic. Geographically, 78% of our revenue for the year ended December 31, 2023 were generated from our United Kingdom (“UK”) operations, with the remainder generated from Greece and the rest of the world.
We are licensed by regulators in other jurisdictions such as the Malta Gaming Authority, Licensing Authority of Gibraltar, the Alderney Gambling Control Commission, the Belgian Commission, Autorité Des Marchés Financiers (Quebec), the Romanian National Gambling Office, Oficiul National pentru Jocuri de Noroc and we hold licenses with the US States of Connecticut, Illinois, Michigan,, New Jersey, Oregon, Pennsylvania, West Virginia and the Canadian provinces of Alberta, Nova Scotia, Ontario and Saskatchewan. 1 We are headquartered in the United States, with principal operating facilities located in the United Kingdom, India and Italy.
We are licensed by regulators in other jurisdictions such as the Malta Gaming Authority (Malta), Licensing Authority of Gibraltar (Gibraltar), the Alderney Gambling Control Commission (Chennel Islands), the Belgian Commission (Belgium), Autorité Des Marchés Financiers (Quebec), the Romanian National Gambling Office, Oficiul National pentru Jocuri de Noroc, Spelinspektionen (Romania), the Swedish Gaming Authority (Sweden) and we hold licenses with the US States of Connecticut, Illinois, Michigan,, New Jersey, Oregon, Pennsylvania, West Virginia and the Canadian provinces of Alberta, Nova Scotia, Ontario and Saskatchewan.
While our Gaming segment has represented the largest proportion of our revenue in each of the last three years, our Virtual Sports and Interactive segments represent substantial growth opportunities as demonstrated by recent trends, including during the COVID-19 global pandemic, which are expected to continue to diversify our business.
While our Gaming segment has represented the largest proportion of our revenue in each of the last three years, our Virtual Sports and Interactive segments represent substantial growth opportunities as demonstrated by recent trends where Virtual Sports and Interactive trading has been seen to be increasing, which are expected to continue to diversify our business.
As of December 31, 2022, 21 U.S. states and the District of Columbia have legalized sports betting. 7 Experienced Management Team Our seasoned management team is led by our Executive Chairman, Lorne Weil, who is known as a gaming industry innovator and whose past leadership includes growing a diversified global gaming technology company both organically and through extensive acquisitions and joint ventures further bolstering the business.
Experienced Management Team Our seasoned management team is led by our Executive Chairman, Lorne Weil, who is known as a gaming industry innovator and whose past leadership includes growing a diversified global gaming technology company both organically and through extensive acquisitions and joint ventures further bolstering the business.
For example, in 2021 and 2022, we placed 399 and 1,006 VLT terminals, respectively, in North America. We also believe there are likely to be growth opportunities in Latin America which will be available to us in the future. Pursue targeted mergers and acquisitions to expand our product portfolio and distribution footprint.
We also believe there are likely to be growth opportunities in Latin America which will be available to us in the future. Pursue targeted mergers and acquisitions to expand our product portfolio and distribution footprint.
With our participation-driven or fixed weekly fee business model, approximately 100% of service revenue for our Leisure segment is recurring in nature and derived under long-term contracts that are usually between three and five years. Since the NTG Acquisition, within the Leisure segment we have successfully renewed or extended the significant majority of major contracts that have expired.
With our participation-driven or fixed weekly fee business model, approximately 100% of service revenue for our Leisure segment is recurring in nature and derived under long-term contracts that are usually between three and five years.
We are also now live with thirteen North American operators: Bet MGM, Draft Kings, Caesars, Resorts/Mohegan, Rush Street Interactive, Wynn, Unibet, Ballys, Tipico, Ocean, 888 and Golden Nugget and with Loto Quebec in Canada.
We are also live with a number of notable North American operators: Bet MGM, Draft Kings, Caesars, Resorts/Mohegan, Rush Street Interactive, Wynn, Unibet, Ballys, Tipico, Ocean, 888 and Golden Nugget and with Loto Quebec in Canada. In 2023 we launched our Hybrid Dealer® product with Caesars Digital.
For the year ended December 31, 2022, our recurring revenue, which included revenue generated from participation-based contracts and licensing arrangements, represented 86% of total revenue (87% excluding VAT-related revenue and $2.0 million of performance bonus), as compared to approximately 86% of total revenue (87% excluding VAT-related revenue) for the year ended December 31, 2021.
For the year ended December 31, 2023, our recurring revenue, which included revenue generated from participation-based contracts and licensing arrangements, represented 79% of total revenue, as compared to approximately 86% of total revenue for the year ended December 31, 2022.
British Betting and Gaming Laws and Regulations. The Gambling Act 2005 (the “GA05”) is the principal legislation in Great Britain governing gambling (other than in relation to the National Lottery, which is governed by separate legislation).
British Betting and Gaming Laws and Regulations. The Gambling Act 2005 (the “GA05”) is the principal legislation in Great Britain governing gambling (other than in relation to the National Lottery, which is governed by separate legislation). The GA05 applies to both land-based gambling (referred to as “non-remote” gambling) and online and mobile gambling (referred to as “remote” gambling).
The Company is publicly listed on the NASDAQ and had an equity market capitalization of approximately $328.27 million as of December 31, 2022 (based upon a closing stock price of $12.67 on December 30, 2022). Certain product and company names referred to herein are trademarks™ or registered® trademarks of their respective holders.
The Company had an equity market capitalization of approximately $259.0 million as of December 31, 2023 (based upon a closing stock price of $9.88 on December 29, 2023). Certain product and company names referred to herein are trademarks™ or registered® trademarks of their respective holders.
Operations and Employees Our operations include game production, platform and hardware design, production, testing, and distribution; the maintenance, management, and extension of our centralized network for product distribution and product monitoring; the delivery and, in certain circumstances, maintenance of SBG terminals; gaming machine engineering, assembly, repair and storage; parts supply; change and release management; remote operational services; problem management; business development; market account management; and general administration and management, including Finance, Legal, People (Human Resources), Investor Relations, Marketing and Communications, Quality, Compliance and Information Security. 14 As of December 31, 2022, we had approximately 1,600 employees, approximately 1,500 of which were full-time.
Over the last three years, within the Leisure segment we have successfully renewed or extended the majority of major contracts that have expired. 13 Operations and Employees Our operations include game production, platform and hardware design, production, testing, and distribution; the maintenance, management, and extension of our centralized network for product distribution and product monitoring; the delivery and, in certain circumstances, maintenance of SBG terminals; gaming machine engineering, assembly, repair and storage; parts supply; change and release management; remote operational services; problem management; business development; market account management; and general administration and management, including Finance, Legal, People (Human Resources), Investor Relations, Marketing and Communications, Quality, Compliance and Information Security.
Other members of the Company’s Office of the Executive Chairman (the “OEC”) are our President and Chief Executive Officer, Brooks H. Pierce; our Executive Vice President and Chief Financial Officer, Stewart F.B. Baker; and our Executive Vice President and General Counsel, Carys Damon. The OEC executes the day-to-day management of the Company.
Other members of the Company’s Office of the Executive Chairman (the “OEC”) are our President and Chief Executive Officer, Brooks H. Pierce; our Interim Chief Financial Officer, Marilyn Jentzen; and our Executive Vice President and General Counsel, Carys Damon (to be succeeded by Simona Camilleri effective July 1, 2024). The OEC executes the day-to-day management of the Company.
We supply the terminals on an exclusive or non-exclusive basis for all terminals of a customer or for specific locations. Under these contracts, we have general obligations to deliver, install, upgrade and service the terminals and software. The contracts may be terminated early in various circumstances such as if we fail to meet performance targets in servicing the machines.
We supply the terminals on an exclusive or non-exclusive basis for all terminals of a customer or for specific locations. Under these contracts, we have general obligations to deliver, install, upgrade and service the terminals and software.
For the year ended December 31, 2022, our Leisure segment generated revenue and Adjusted EBITDA of $95.5 million and $24.4 million, respectively. 5 Our Strengths We believe key factors that give us an advantage in the gaming technology space include: Established presence across multiple Product Verticals We have a substantial installed base across each of our product verticals, including over 31,800 digital terminals in the Gaming segment located across key jurisdictions in the United Kingdom, Greece, Italy and South America, with approximately 13,700 terminals installed in UK Licensed Betting Offices and approximately 8,700 installed in Greek video lottery terminals (“VLTs”).
Our Strengths We believe key factors that give us an advantage in the gaming technology space include: 4 Established presence across multiple Product Verticals We have a substantial installed base, including over 32,000 digital terminals in the Gaming segment located across key jurisdictions in the UK, Greece, Italy and South America, with approximately 12,800 terminals installed in UK Licensed Betting Offices and approximately 8,700 installed in Greek VLTs.
Over the last three years, we have renewed a significant majority of contracts that were expiring. 13 Customer Contracts – Virtual Sports Our contracts in the Virtual Sports segment typically involve the supply of licenses to operators to make available, either via online or retail channels, virtual sporting events such as darts, cricket, or basketball, and to enable end-users to place bets on these events.
Customer Contracts – Virtual Sports Our contracts in the Virtual Sports segment typically involve the supply of licenses to operators to make available, either via online or retail channels, virtual sporting events such as darts, cricket, or basketball, and to enable end-users to place bets on these events. These are typically one-time non-exclusive licenses specific to the virtual sporting event.
Virtual Sports revenue generated through online and mobile channels has increased from $26.1 million in 2021 to $43.4 million in 2022. 3 Interactive Segment Our Interactive business uses unique interactive-only content as well as offerings from our Gaming and Virtual Sports segments to create games that are hosted on remote gaming servers to allow online gaming operators to use our games and content online and on mobile devices worldwide.
Interactive Segment Our Interactive business uses unique interactive-only content as well as offerings from our Gaming and Virtual Sports segments to create games that are hosted on remote gaming servers. This allows online gaming operators to use our games and content online and on mobile devices worldwide.
Our products are designed to operate within applicable gaming and lottery regulations and our customers are regulated gaming or lottery operators or are otherwise licensed to operate our products. We conduct business across different jurisdictions of which Great Britain, Italy and Greece have historically contributed the most significant recurring revenues.
Our products are designed to operate within applicable gaming and lottery regulations. We conduct business across different jurisdictions of which Great Britain, Italy and Greece have historically contributed the most significant recurring revenue. Recently we have begun to conduct a meaningful amount of business in North America as well.
Commercial arrangements are typically structured as either revenue participations or rental agreements. Our customers in this segment include the vast majority of recognizable brands that participate in the geographies and sectors in which we operate. These customers include large pub operators JD Wetherspoons, Stonegate Pub Company, Greene King, Mitchells and Butler, Whitbread Marstons and Admiral Taverns.
Commercial arrangements are typically structured as either revenue participations or rental agreements. Our customers in this segment include large pub operators JD Wetherspoons, Stonegate Pub Company, Greene King, Mitchells and Butler, Whitbread Marstons and Admiral Taverns. In the Bingo sector, we supply gaming terminals and services to Buzz Bingo and Mecca.
Gaming Regulation and Changes in Ownership In all of the jurisdictions in which we are subject to gaming regulations, regulators require us to keep them informed as to our ownership structure and composition and, to varying extents and in various circumstances, require us to disclose certain information regarding the persons who directly or indirectly hold our shares.
Accordingly, manufacturers need to obtain a Suitability License Type A1 or A2 (depending on whether the manufacturer provides management services to the operator or not), while importers/distributors need to obtain a Suitability License Type E1 or E2. 11 Gaming Regulation and Changes in Ownership In all of the jurisdictions in which we are subject to gaming regulations, regulators require us to keep them informed as to our ownership structure and composition and, to varying extents and in various circumstances, require us to disclose certain information regarding the persons who directly or indirectly hold our shares.
Our Virtual Sports game portfolio includes titles such as V-Play Soccer TM , V-Play Women’s Soccer TM , V-Play Football TM , V-Play Basketball TM , V-Play Baseball TM , and V-Play NFLA TM , as well as greyhounds, other horse racing products, tennis, motor racing, cycling, cricket, speedway, golf and darts.
Our products are installed in over 20 gaming jurisdictions worldwide, including the UK, Italy, Greece, Turkey, Morocco, and the U.S. 2 Our Virtual Sports game portfolio includes titles such as V-Play Soccer™, V-Play Women’s Soccer™, V-Play Football™, V-Play Basketball™, V-Play Baseball™, and V-Play NFLA™, as well as greyhounds, other horse racing products, tennis, motor racing, cycling, cricket, speedway, golf and darts.
Our Strategy We seek to deliver innovative and differentiated products that provide value to our customers and exciting experiences to their players in multiple jurisdictions throughout the world while achieving long-term growth in revenues, profit and cash flow.
In addition, the members of the OEC have centered their careers on identifying, acquiring and integrating, through the implementation of value creation initiatives, complementary businesses. 6 Our Strategy We seek to deliver innovative and differentiated products that provide value to our customers and exciting experiences to their players in multiple jurisdictions throughout the world while achieving long-term growth in revenue, profit and cash flow.
For the year ended December 31, 2022, our Virtual Sports segment generated revenue and Adjusted EBITDA of $55.1 million and $46.3 million, respectively, as compared to the year ended December 31 2021, during which we generated $36.0 million and $28.4 million in revenue and Adjusted EBITDA, respectively.
For the year ended December 31, 2023, our Virtual Sports segment generated revenue and Adjusted EBITDA of $56.2 million and $47.7 million, respectively, as compared to the year ended December 31 2022, during which we generated $54.2 million and $44.9 million in revenue and Adjusted EBITDA, respectively.
We require all our employees, contractors and other collaborators to enter into agreements that prohibit the disclosure of our confidential information to other parties.
We depend upon agreements relating to trade secrets and proprietary know-how to protect our rights in this intellectual property. We require all our employees, contractors and other collaborators to enter into agreements that prohibit the disclosure of our confidential information to other parties.
Moreover, for Manufacturers which are defined under the aforesaid Decision 79305 as “the person or entity which manufactures (indicatively, studies, designs, assembles, produces, programs) and in any way makes available to an Operator and/or Importer any Technical Means and Hardware, and has received a Suitability License by the HGC to this end, as well as the person that holds a license for a Studio”, Decision 79305, provides in Article 9 for a Suitability License provided a Manufacturers (type A.1 licence) and in Article 10 to Importers/Distributors (type E1 and E2)Accordingly, manufacturers need to obtain a Suitability License Type A1, while importers/distributors need to obtain a Suitability License Type E1 or E2. 12 As regards online gaming, Articles 45 -52 of Law 4002/2011 (GG A’ 180/22.8.2011), which was recently amended by Law 4635/2019 (GG A’ 167/30.10.2019), introduces several new provisions such as the two exclusive types of online licenses for online gaming operators: a) Online Betting License; and b) a license for Other Online Games (it covers online casino games and online poker games and variants thereof).
Moreover, for Manufacturers which are defined under the aforesaid Decision 79305 as “the person or entity which manufactures (indicatively, studies, designs, assembles, produces, programs) and in any way makes available to an Operator and/or Importer any Technical Means and Hardware, and has received a Suitability License by the HGC to this end, as well as the person that holds a license for a Studio”, Decision 79305, provides in Article 9 for a Suitability License provided a Manufacturers (type A.1 license) and in Article 10 to Importers/Distributors (type E1 and E2)Accordingly, manufacturers need to obtain a Suitability License Type A1, while importers/distributors need to obtain a Suitability License Type E1 or E2.
The GA05 applies to both land-based gambling (referred to as “non-remote” gambling) and online and mobile gambling (referred to as “remote” gambling). 10 The GA05 provides that it is an offense to make a gaming machine available for use without an appropriate operating license.
The GA05 provides that it is an offense to make a gaming machine available for use without an appropriate operating license.
Under some contracts, we receive an upfront fee for the provision of the terminals but more typically generate revenue as a percentage of income generated on terminals.
The contracts may be terminated early in various circumstances such as if we fail to meet performance targets in servicing the machines. 12 Under some contracts, we receive an upfront fee for the provision of the terminals but more typically generate revenue as a percentage of income generated on terminals.
Recently we have begun to conduct a meaningful amount of business in North America as well. We are licensed or certified (as applicable) by the Gambling Commission in the United Kingdom, and by the Hellenic Gaming Commission in Greece, and registered with L’Agenzia delle dogane e dei Monopoli (“ADM”) in Italy.
We are licensed or certified (as applicable) by the Gambling Commission in the UK, (the “UK Gambling Commission” or the “Gambling Commission”), and by the Hellenic Gaming Commission in Greece, and registered with L’Agenzia delle dogane e dei Monopoli (“ADM”) in Italy.
With our participation-driven business model, approximately 100% of revenue for our Interactive segment is recurring in nature and derived under long-term contracts for which our standard term is three years in duration. We have successfully renewed all of our key Interactive contracts expiring over the last three years.
For the year ended December 31, 2023, our Interactive segment generated revenue and Adjusted EBITDA of $27.9 million and $15.4 million, respectively. With our participation-driven business model, approximately 100% of revenue for our Interactive segment is recurring in nature and derived under long-term contracts for which our standard term is three years in duration.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThese risks are discussed more fully below and include, but are not limited to, risks related to the following: ● We rely on a relatively small number of customers for a significant portion of our sales, and the loss of, or material reduction in, sales to any of our top customers could have an adverse effect on our business, results of operations, financial condition and prospects. ● We are dependent on our relationships with key suppliers to obtain equipment and other supplies for our business on acceptable terms. ● The UK Government’s impending review of the Gambling Act, together with other rules that may be considered in the UK in response to recent consultations, could have a material negative impact on our business. ● Data privacy and security laws and regulations in the jurisdictions in which we do business could increase the cost of our operations and subject us to possible sanctions and other penalties. ● Our results of operations fluctuate due to seasonality and other factors and, therefore, our periodic operating results are not guarantees of future performance. ● Our industry is subject to strict government regulations that could limit our existing operations and have a negative impact on our ability to grow. ● Our industry is subject to regulations that set parameters for levels of gaming or wagering duty, tax, stake, prize and return to player. ● We may be adversely affected by disruptions to our transaction gaming and lottery systems, as well as disruptions to our internal enterprise and information technology systems. ● Our directors and key personnel are subject to the approval of certain regulatory authorities, which, if withheld, would require us to sever our relationship with non-approved individuals, which could adversely impact our operations. ● Licensing and gaming authorities have significant control over our operations and ownership and could cause us to redeem certain stockholders on potentially disadvantageous terms. ● Certain of our executive officers and directors are affiliated with entities engaged in business activities similar to those conducted by us (or may enter into similar business activities in the future) and, accordingly, may have conflicts of interest in determining whether a particular business opportunity should be presented to us or to another entity. ● We have operations in a variety of countries, which subjects us to additional risks. ● We may have future capital needs and may not be able to obtain additional financing on acceptable terms. ● Because tax laws and regulations are subject to interpretation and uncertainty, tax payments may ultimately differ from amounts currently recorded by the Company. 16 ● We may be unable to develop sufficient new products and product lines and integrate them into our existing business, which may adversely affect our ability to compete; our expansion into new sectors may present competitive and regulatory challenges that differ from current ones. ● We may be required to recognize impairment charges related to goodwill, identified intangible assets and property and equipment or to take write-downs or write-offs, restructuring or other charges that could have a significant negative effect on our financial condition, results of operations and stock price, which could have an adverse effect on your investment. ● Volatility or disruption in the financial markets could materially adversely affect our business and the trading price of our common stock. ● Global economic conditions could have an adverse effect on our business, operating results and financial condition. ● We face risks and uncertainty arising from the United Kingdom’s withdrawal from the European Union.
Biggest changeFailure to remediate the material weaknesses or any other material weaknesses that we identify in the future could result in material misstatements in our financial statements. ● We are dependent on our relationships with key suppliers to obtain equipment and other supplies for our business on acceptable terms. ● Data privacy and security laws and regulations in the jurisdictions in which we do business could increase the cost of our operations and subject us to possible sanctions and other penalties. ● Our results of operations fluctuate due to seasonality and other factors and, therefore, our periodic operating results are not guarantees of future performance. ● Our industry is subject to strict government regulations that could limit our existing operations and have a negative impact on our ability to grow. ● Our industry is subject to regulations that set parameters for levels of gaming or wagering duty, tax, stake, prize and return to player. ● We may be adversely affected by disruptions to our transaction gaming and lottery systems, as well as disruptions to our internal enterprise and information technology systems. 15 ● Our directors and key personnel are subject to the approval of certain regulatory authorities, which, if withheld, would require us to sever our relationship with non-approved individuals, which could adversely impact our operations. ● Licensing and gaming authorities have significant control over our operations and ownership and could cause us to redeem certain stockholders on potentially disadvantageous terms. ● Certain of our executive officers and directors could be affiliated with entities engaged in business activities similar to those conducted by us in the future and, accordingly, may have conflicts of interest in determining whether a particular business opportunity should be presented to us or to another entity. ● We have operations in a variety of countries, which subjects us to additional risks. ● We may have future capital needs and may not be able to obtain additional financing on acceptable terms. ● Because tax laws and regulations are subject to interpretation and uncertainty, tax payments may ultimately differ from amounts currently recorded by the Company. ● We may be unable to develop sufficient new products and product lines and integrate them into our existing business, which may adversely affect our ability to compete; our expansion into new sectors may present competitive and regulatory challenges that differ from current ones. ● We may be required to recognize impairment charges related to goodwill, identified intangible assets and property and equipment or to take write-downs or write-offs, restructuring or other charges that could have a significant negative effect on our financial condition, results of operations and stock price, which could have an adverse effect on your investment. ● Volatility or disruption in the financial markets could materially adversely affect our business and the trading price of our common stock. ● Global economic conditions could have an adverse effect on our business, operating results and financial condition.
The failure of beneficial owners of our common stock to submit to such background checks and provide required disclosure could jeopardize our business.
The failure of beneficial owners of our common stock to submit to such background checks and provide required disclosure could jeopardize our business.
Additionally, we cannot assure that products or services containing these programs and technologies will be available to us on commercially reasonable terms, if at all, or that they will perform accurately or otherwise in accordance with required specifications. 26 Our business is capital intensive and our ability to retain customers may be influenced by our ability to deploy additional capital.
Additionally, we cannot assure that products or services containing these programs and technologies will be available to us on commercially reasonable terms, if at all, or that they will perform accurately or otherwise in accordance with required specifications. Our business is capital intensive and our ability to retain customers may be influenced by our ability to deploy additional capital.
The performance of our business may also be subject to political risks in certain jurisdictions where we operate, including change of government, political unrest, war or terrorism. Our revenues can vary substantially from period to period and you should not rely upon our periodic operating results as indications of future performance. Our revenues are subject to variations.
The performance of our business may also be subject to political risks in certain jurisdictions where we operate, including change of government, political unrest, war or terrorism. Our revenue can vary substantially from period to period and you should not rely upon our periodic operating results as indications of future performance. Our revenues are subject to variations.
Moreover, if any of these customers experience reduced revenue, such reduction could adversely affect any revenue-sharing arrangements we have with those customers, reduce our own revenues and adversely affect our financial results. We are dependent on our relationships with key suppliers to obtain equipment and other supplies for our business on acceptable terms.
Moreover, if any of these customers experience reduced revenue, such reduction could adversely affect any revenue-sharing arrangements we have with those customers, reduce our own revenue and adversely affect our financial results. We are dependent on our relationships with key suppliers to obtain equipment and other supplies for our business on acceptable terms.
Because a substantial part of our revenue is recurring in nature, our medium to long term results of operations, cash flows and financial condition could be negatively affected if any of our customers were sold to or merged with other customers, or if consolidation in the gaming industry were otherwise effected.
Because a substantial part of our revenue is recurring in nature, our medium to long term results of operations, cash flows and financial condition could be negatively affected if any of our customers were sold to or merged with other customers, or if consolidation in the gaming industry were otherwise affected.
If global economic and financial market conditions do not improve or deteriorate, the following factors could have an adverse effect on our business, operating results and financial condition: ● Slower consumer spending may result in reduced demand for our products, reduced orders from retailers for our products, order cancellations, lower revenues, higher discounts, increased inventories and lower gross margins; ● In the future, we may be unable to access financing in the credit and capital markets at reasonable rates in the event we find it desirable to do so; ● We conduct transactions in various currencies, which increases our exposure to fluctuations in foreign currency exchange rates relative to the USD.
If global economic and financial market conditions do not improve or deteriorate, the following factors could have an adverse effect on our business, operating results and financial condition: ● Slower consumer spending may result in reduced demand for our products, reduced orders from retailers for our products, order cancellations, lower revenue, higher discounts, increased inventories and lower gross margins; ● In the future, we may be unable to access financing in the credit and capital markets at reasonable rates in the event we find it desirable to do so; ● We conduct transactions in various currencies, which increases our exposure to fluctuations in foreign currency exchange rates relative to the USD.
Our business in foreign markets subjects us to risks customarily associated with such operations, including: ● foreign withholding taxes on, or bank regulatory restrictions on expatriating, our subsidiaries’ earnings that could reduce cash flow available to meet our required debt service and other obligations; ● the complexity of foreign laws, regulations and markets; ● the impact of foreign labor laws and disputes; ● potential risks relating to our ability to manage our foreign operations, monitor our customers’ activities or our partners’ activities which may subject us to risks involving such other entities’ financial condition or to inconsistent interests or goals; ● recent gaming tax increases in Italy; 25 ● other economic, tax and regulatory policies of foreign governments; and ● the ability to attract and retain key personnel in foreign jurisdictions.
Our business in foreign markets subjects us to risks customarily associated with such operations, including: ● foreign withholding taxes on, or bank regulatory restrictions on expatriating, our subsidiaries’ earnings that could reduce cash flow available to meet our required debt service and other obligations; ● the complexity of foreign laws, regulations and markets; 26 ● the impact of foreign labor laws and disputes; ● potential risks relating to our ability to manage our foreign operations, monitor our customers’ activities or our partners’ activities which may subject us to risks involving such other entities’ financial condition or to inconsistent interests or goals; ● recent gaming tax increases in Italy; ● other economic, tax and regulatory policies of foreign governments; and ● the ability to attract and retain key personnel in foreign jurisdictions.
Changes in applicable gambling regulations or taxation regimes may affect the revenues or profits generated by the contracts we enter into with our customers. Many of the contracts we have with our customers are on revenue-sharing (net of gaming taxes) terms, and therefore changes which adversely affect our customers may also adversely affect us.
Changes in applicable gambling regulations or taxation regimes may affect the revenue or profits generated by the contracts we enter into with our customers. Many of the contracts we have with our customers are on revenue-sharing (net of gaming taxes) terms, and therefore changes which adversely affect our customers may also adversely affect us.
Any such violation could disrupt our business and adversely affect our reputation, results of operations, cash flows and financial condition. We review and develop our internal compliance programs in an effort to ensure that we comply with legal requirements imposed in connection with our business activities.
Any such violation could disrupt our business and adversely affect our reputation, results of operations, cash flows and financial condition. 22 We review and develop our internal compliance programs in an effort to ensure that we comply with legal requirements imposed in connection with our business activities.
Wagering equipment sales and software license revenues usually reflect a limited number of large transactions, which may not recur on an annual basis. Consequently, revenues and operating results can vary substantially from period to period as a result of the timing of major equipment sales and software license revenue.
Wagering equipment sales and software license revenue usually reflect a limited number of large transactions, which may not recur on an annual basis. Consequently, revenue and operating results can vary substantially from period to period as a result of the timing of major equipment sales and software license revenue.
If we cannot successfully compete in our industry and business segments, our business, results, financial condition and prospects could suffer. 17 We are heavily dependent on our ability to renew our long-term contracts with our customers and we could lose substantial revenue if we are unable to renew certain of these contracts.
If we cannot successfully compete in our industry and business segments, our business, results, financial condition and prospects could suffer. We are heavily dependent on our ability to renew our long-term contracts with our customers and we could lose substantial revenue if we are unable to renew certain of these contracts.
The ability of our subsidiaries to pay dividends or make other payments or distributions to us will depend upon their respective operating results and may be restricted by, among other things, the laws of their jurisdiction of organization (which may limit the amount of funds available for the payment of dividends and other distributions to us), the terms of existing and future indebtedness and other agreements of our subsidiaries and the covenants of any future outstanding indebtedness we or our subsidiaries incur. 24 Our inability to complete future acquisitions of gaming and related businesses we acquire in the future could limit our future growth, if any.
The ability of our subsidiaries to pay dividends or make other payments or distributions to us will depend upon their respective operating results and may be restricted by, among other things, the laws of their jurisdiction of organization (which may limit the amount of funds available for the payment of dividends and other distributions to us), the terms of existing and future indebtedness and other agreements of our subsidiaries and the covenants of any future outstanding indebtedness we or our subsidiaries incur. 25 Our inability to complete future acquisitions of gaming and related businesses we acquire in the future could limit our future growth, if any.
Generally, our customer contracts within the Leisure business segment are for terms of four to six years (although in certain cases they are longer), but certain customers have options for early termination under certain circumstances or to reduce machines volumes in certain circumstances, and we may face pressure to renew or upgrade terminals during the lives of these contracts, which could adversely affect revenues or our return on capital and leave us with surplus terminals.
Generally, our customer contracts within the Leisure business segment are for terms of four to six years (although in certain cases they are longer), but certain customers have options for early termination under certain circumstances or to reduce machines volumes in certain circumstances, and we may face pressure to renew or upgrade terminals during the lives of these contracts, which could adversely affect revenue or our return on capital and leave us with surplus terminals.
We expect that these customers will continue to represent a significant portion of our sales in the future. However, the loss of any of our top customers, whether through contract expiry and non-renewal, breach of contract or other adverse factors could materially adversely affect our revenues or return on capital and leave us with surplus terminals.
We expect that these customers will continue to represent a significant portion of our sales in the future. However, the loss of any of our top customers, whether through contract expiry and non-renewal, breach of contract or other adverse factors could materially adversely affect our revenue or return on capital and leave us with surplus terminals.
There can be no assurance that our business might not be affected by a malicious or unintentional breach or technical error, failure or lapse which could have an adverse impact on payout ratios which would consequently have an adverse effect on our business in the form of lost revenues or penalty payments to players or customers.
There can be no assurance that our business might not be affected by a malicious or unintentional breach or technical error, failure or lapse which could have an adverse impact on payout ratios which would consequently have an adverse effect on our business in the form of lost revenue or penalty payments to players or customers.
Customers of our server based gaming products may request us to incur capital expenditures to provide gaming terminals to support their land-based operations. While we seek to obtain what we believe to be satisfactory rates of return on such investments, these capital expenditures can be meaningful and may be concentrated within short periods of time.
Customers of our SBG products may request us to incur capital expenditures to provide gaming terminals to support their land-based operations. While we seek to obtain what we believe to be satisfactory rates of return on such investments, these capital expenditures can be meaningful and may be concentrated within short periods of time.
The failure to obtain or retain a required license or approval in any jurisdiction would decrease the geographic area where we may operate and generate revenues, decrease our share in the gaming marketplace and put us at a disadvantage compared with our competitors.
The failure to obtain or retain a required license or approval in any jurisdiction would decrease the geographic area where we may operate and generate revenue, decrease our share in the gaming marketplace and put us at a disadvantage compared with our competitors.
In addition, we are subject to various gaming taxes, which are subject to increase at any time. 23 Licensing and gaming authorities have significant control over our operations and ownership, and could cause us to redeem certain stockholders on potentially disadvantageous terms.
In addition, we are subject to various gaming taxes, which are subject to increase at any time. 24 Licensing and gaming authorities have significant control over our operations and ownership, and could cause us to redeem certain stockholders on potentially disadvantageous terms.
We do not currently expect to pay cash dividends on our common stock and have not paid cash dividends on our common stock to date.
We do not currently intend to pay dividends on our common stock. We do not currently expect to pay cash dividends on our common stock and have not paid cash dividends on our common stock to date.
In addition, revenues may vary depending on the timing of contract awards and renewals, changes in customer budgets and general economic conditions. Revenues may also vary based on adverse sequences of payouts of prizes, unusual jackpot wins, and other variations in game margin.
In addition, revenue may vary depending on the timing of contract awards and renewals, changes in customer budgets and general economic conditions. Revenue may also vary based on adverse sequences of payouts of prizes, unusual jackpot wins, and other variations in game margin.
Moreover, there can be no assurance that the operation of Server Based Gaming terminals, Video Lottery Terminals or other Terminals, Virtual Sports betting, betting online, lottery or other forms of wagering systems will be approved, certified or found suitable by additional jurisdictions or that those jurisdictions in which these activities are currently permitted will continue to permit such activities in their existing forms (stricter regulations, including regulation relating to age verification, could come into force which could have adverse impacts on the Company) or at all.
Moreover, there can be no assurance that the operation of SBG terminals, Video Lottery Terminals or other Terminals, Virtual Sports betting, betting online, lottery or other forms of wagering systems will be approved, certified or found suitable by additional jurisdictions or that those jurisdictions in which these activities are currently permitted will continue to permit such activities in their existing forms (stricter regulations, including regulation relating to age verification, could come into force which could have adverse impacts on the Company) or at all.
Additionally, there has been, and may continue to be, volatility in currency exchange rates as a result of the United Kingdom’s June 23, 2016 referendum in which voters approved Brexit and subsequent entry into and ratification of a withdrawal agreement as of January 29, 2021 followed by an agreement of the terms of a trade and cooperation agreement effective as of December 31, 2021.
Additionally, there has been, and may continue to be, volatility in currency exchange rates as a result of the UK’s June 23, 2016 referendum in which voters approved Brexit and subsequent entry into and ratification of a withdrawal agreement as of January 29, 2021 followed by an agreement of the terms of a trade and cooperation agreement effective as of December 31, 2021.
International revenues and expenses generally are derived from sales and operations in various foreign currencies, and these revenues and expenses could be affected by currency fluctuations, specifically amounts recorded in foreign currencies and translated into USD for consolidated financial reporting, as weakening of foreign currencies relative to the USD will adversely affect the USD value of the Company’s foreign currency-denominated sales and earnings.
International revenue and expenses generally are derived from sales and operations in various foreign currencies, and this revenue and these expenses could be affected by currency fluctuations, specifically amounts recorded in foreign currencies and translated into USD for consolidated financial reporting, as weakening of foreign currencies relative to the USD will adversely affect the USD value of the Company’s foreign currency-denominated sales and earnings.
Factors affecting the trading price of the Company’s securities may include: ● market conditions affecting the gaming industry; ● quarterly variations in our results of operations; ● changes in government regulations; ● the announcement of acquisitions by us or our competitors; ● changes in general economic and political conditions; ● volatility in the financial markets; ● results of our operations and the operations of others in our industry; ● changes in interest rates; ● threatened or actual litigation and government investigations; ● the addition or departure of key personnel; ● actions taken by our stockholders, including the sale or disposition of their shares of our common stock; and ● differences between our actual financial and operating results and those expected by investors and analysts and changes in analysts’ recommendations or projections.
Factors affecting the trading price of the Company’s securities may include: ● market conditions affecting the gaming industry; ● quarterly variations in our results of operations; ● changes in government regulations; ● the announcement of acquisitions by us or our competitors; ● changes in general economic and political conditions; ● volatility in the financial markets; ● results of our operations and the operations of others in our industry; ● changes in interest rates; ● threatened or actual litigation and government investigations; ● the addition or departure of key personnel; ● actions taken by our stockholders, including the sale or disposition of their shares of our common stock; and ● differences between our actual financial and operating results and those expected by investors and analysts and changes in analysts’ recommendations or projections. 32 Broad market and industry factors may materially harm the market price of our securities irrespective of our operating performance.
We are exposed to the impact of any global or domestic economic disruption, including any potential impact of the decision by the United Kingdom to exit the EU and the sovereign debt crises in certain Eurozone countries where we do business.
We are exposed to the impact of any global or domestic economic disruption, including any potential impact of the decision by the UK to exit the EU and the sovereign debt crises in certain Eurozone countries where we do business.
Our revenues are subject to a number of variations. Equipment sales and software license revenues usually reflect a limited number of large transactions, which may not recur on an annual basis. Consequently, revenues and operating results can vary substantially from period to period as a result of the timing of equipment sales and software licensing.
Our revenue is subject to a number of variations. Equipment sales and software license revenue usually reflect a limited number of large transactions, which may not recur on an annual basis. Consequently, revenue and operating results can vary substantially from period to period as a result of the timing of equipment sales and software licensing.
In addition, revenues may vary depending on the timing of contract awards and renewals, changes in customer budgets and general economic conditions.
In addition, revenue may vary depending on the timing of contract awards and renewals, changes in customer budgets and general economic conditions.
Accordingly, volatility or disruption in the financial markets could impair our ability to execute our growth strategy and could have an adverse effect on the trading price of our common stock. 32 Currency exchange rate fluctuations could result in lower revenues, higher costs and decreased margins and earnings.
Accordingly, volatility or disruption in the financial markets could impair our ability to execute our growth strategy and could have an adverse effect on the trading price of our common stock. 34 Currency exchange rate fluctuations could result in lower revenue, higher costs and decreased margins and earnings.
Risks Relating to Our Business and Industry Disruption of our supply chain or distribution capabilities have an adverse effect on our business, financial condition, and results of operations. Our ability to manufacture and ship machines is critical to our success.
Disruption of our supply chain or distribution capabilities have an adverse effect on our business, financial condition, and results of operations. Our ability to manufacture and ship machines is critical to our success.
Any such developments could adversely affect such operator’s revenues and in turn adversely affect our earnings from such operator.
Any such developments could adversely affect such operator’s revenue and in turn adversely affect our earnings from such operator.
Continued volatility in the markets and exchange rates for foreign currencies and contracts in foreign currencies could have a significant impact on our reported operating results and financial condition; ● Continued volatility in the availability and prices for commodities and raw materials we use in our products and in our supply chain could have an adverse effect on our costs, gross margins and profitability; ● If operators or distributors of our products experience declining revenues or experience difficulty obtaining financing in the capital and credit markets to purchase our products, this could result in reduced orders for our products, order cancellations, late retailer payments, extended payment terms, higher accounts receivable, reduced cash flows, greater expense associated with collection efforts and increased bad debt expense; ● If operators or distributors of our products experience severe financial difficulty, some may become insolvent and cease business operations, which could negatively affect the sale of our products to consumers; and ● If contract manufacturers of our products or other participants in our supply chain experience difficulty obtaining financing in the capital and credit markets to purchase raw materials or to finance capital equipment and other general working capital needs, it may result in delays or non-delivery of shipments of our products. 33 International hostilities, terrorist or cyber-terrorist activities, natural disasters, pandemics, and infrastructure disruptions could prevent us from effectively serving our customers and thus adversely affect our results of operations.
Continued volatility in the markets and exchange rates for foreign currencies and contracts in foreign currencies could have a significant impact on our reported operating results and financial condition; 35 ● Continued volatility in the availability and prices for commodities and raw materials we use in our products and in our supply chain could have an adverse effect on our costs, gross margins and profitability; ● If operators or distributors of our products experience declining revenue or experience difficulty obtaining financing in the capital and credit markets to purchase our products, this could result in reduced orders for our products, order cancellations, late retailer payments, extended payment terms, higher accounts receivable, reduced cash flows, greater expense associated with collection efforts and increased bad debt expense; ● If operators or distributors of our products experience severe financial difficulty, some may become insolvent and cease business operations, which could negatively affect the sale of our products to consumers; and ● If contract manufacturers of our products or other participants in our supply chain experience difficulty obtaining financing in the capital and credit markets to purchase raw materials or to finance capital equipment and other general working capital needs, it may result in delays or non-delivery of shipments of our products.
In addition to market factors, our ability to develop new products and their ability to achieve commercial success will depend on a number of factors, including our ability to: ● effectively market our games to our customers and to existing and new players; ● adapt to changing customer needs and player preferences; ● adapt to new technologies; ● adapt game features and contents for an increasingly diverse set of devices and specifications; ● minimize launch delays and cost overruns on the development of new products and features; ● expand and enhance games and content after their initial release; ● attract, retain and motivate talented and experienced game designers, product managers and engineers; ● achieve and maintain player engagement; ● develop games that can build upon or become franchise games; ● maintain quality content and game experience; ● compete successfully against a large and growing number of market participants; ● integrate new products and product lines into our existing business; and ● minimize and quickly resolve bugs or outages.
In addition to market factors, our ability to develop new products and their ability to achieve commercial success will depend on a number of factors, including our ability to: ● effectively market our games to our customers and to existing and new players; ● adapt to changing customer needs and player preferences; ● adapt to new technologies; ● adapt game features and contents for an increasingly diverse set of devices and specifications; ● minimize launch delays and cost overruns on the development of new products and features; ● expand and enhance games and content after their initial release; ● attract, retain and motivate talented and experienced game designers, product managers and engineers; ● achieve and maintain player engagement; ● develop games that can build upon or become franchise games; ● maintain quality content and game experience; ● compete successfully against a large and growing number of market participants; ● integrate new products and product lines into our existing business; and ● minimize and quickly resolve bugs or outages. 30 In addition, if new technologies are protected by the intellectual property rights of others, including our competitors, we may be prevented from introducing new products and product lines based on these technologies or expanding into sectors created by these technologies.
In particular, the EU has adopted strict data privacy regulations. Following recent developments such as the European Court of Justice’s 2015 ruling that the transfer of personal data from the EU to the U.S. under the EU/U.S. Safe Harbor was an invalid mechanism of personal data transfer, the adoption of the EU-U.S.
Following recent developments such as the European Court of Justice’s 2015 ruling that the transfer of personal data from the EU to the U.S. under the EU/U.S. Safe Harbor was an invalid mechanism of personal data transfer, the adoption of the EU-U.S.
Certain key customers, including certain UK, Italian and Greek gaming terminal customers and certain Virtual Sports customers, make a significant contribution to our revenues and profitability. Our top ten customers generated approximately 56% of total revenues and one customer generated more than 10% of total revenues in the year ended December 31, 2022.
Certain key customers, including certain UK, Italian and Greek gaming terminal customers and certain Virtual Sports customers, make a significant contribution to our revenue and profitability. Our top ten customers generated approximately 57% of total revenue and two customers generated more than 10% of total revenue in the year ended December 31, 2023.
Risks Relating to Our Status as a Public Company and Ownership of Our Common Stock We may be required to recognize impairment charges related to goodwill, identified intangible assets and property and equipment or to take write-downs or write-offs, restructuring or other charges that could have a significant negative effect on our financial condition, results of operations and stock price, which could have an adverse effect on our common stock and your investment.
Player perception of our customers may also impact the willingness of players to engage with our customers, which in turn may have an adverse effect on our results of operation. 31 Risks Relating to Our Status as a Public Company and Ownership of Our Common Stock We may be required to recognize impairment charges related to goodwill, identified intangible assets and property and equipment or to take write-downs or write-offs, restructuring or other charges that could have a significant negative effect on our financial condition, results of operations and stock price, which could have an adverse effect on our common stock and your investment.
The trading prices and valuations of these stocks, and of our securities, may not be predictable. A loss of investor confidence in the market for retail stocks or the stocks of other companies which investors perceive to be similar to the Company could depress our stock price regardless of our business, prospects, financial condition or results of operations.
A loss of investor confidence in the market for retail stocks or the stocks of other companies which investors perceive to be similar to the Company could depress our stock price regardless of our business, prospects, financial condition or results of operations.
Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur, adversely affect our business, financial condition, and results of operations, as well as require additional resources to restore our supply chain.
Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur, adversely affect our business, financial condition, and results of operations, as well as require additional resources to restore our supply chain. 16 Our results of operations could be adversely affected by labor shortages, turnover, and labor cost increases.
In the year ended December 31, 2022, we earned approximately 73% of our revenue from our operations in the UK, 8% of our revenue from our operations in Greece, and 19% of our revenue from our operations in the rest of the world.
In the year ended December 31, 2023, we earned approximately 78% of our revenue from our operations in the UK, 8% of our revenue from our operations in Greece, and 14% of our revenue from our operations in the rest of the world.
On February 16, 2022, the Company filed a registration statement pursuant to which the Company may offer and sell from time to time, in one or more series, any one of the following securities of our company, for total gross proceeds up to $300,000,000: ● common stock; ● preferred stock; ● secured or unsecured debt securities consisting of notes, debentures or other evidences of indebtedness which may be senior debt securities, senior subordinated debt securities or subordinated debt securities, each of which may be convertible into equity securities; ● warrants to purchase our securities; ● rights to purchase any of the foregoing securities; or ● units comprised of, or other combinations of, the foregoing securities. 31 Anti-takeover provisions contained in our second amended and restated certificate of incorporation and bylaws, as well as provisions of Delaware law, could impair a takeover attempt.
On February 16, 2022, the Company filed a registration statement pursuant to which the Company may offer and sell from time to time, in one or more series, any one of the following securities of our company, for total gross proceeds up to $300,000,000: ● common stock; ● preferred stock; ● secured or unsecured debt securities consisting of notes, debentures or other evidences of indebtedness which may be senior debt securities, senior subordinated debt securities or subordinated debt securities, each of which may be convertible into equity securities; ● warrants to purchase our securities; 33 ● rights to purchase any of the foregoing securities; or ● units comprised of, or other combinations of, the foregoing securities.
As of December 31, 2022, our senior debt consisted of an aggregate of £235.0 million ($282.9 million) of Senior Secured Notes (carrying an interest rate of 7.875% per annum, and maturing on June 1, 2026), and we had £20.0 million ($24.1 million) of credit facility borrowings available under the RCF Agreement (see Note 13).
As of December 31, 2023, our senior debt consisted of an aggregate of £235.0 million ($299.6 million) of Senior Secured Notes (carrying an interest rate of 7.875% per annum, and maturing on June 1, 2026), and we had £20.0 million ($25.5 million) of credit facility borrowings available under the RCF Agreement, with £15.0 million ($19.1 million) drawn as of December 31, 2023 (see Note 13).
Exposure to currency exchange rate fluctuations exists and will continue because a significant portion of our revenues are denominated in currencies other than the USD, particularly GBP and the Euro.
Exposure to currency exchange rate fluctuations exists and will continue because a significant portion of our revenue is denominated in currencies other than the USD, particularly the British pound (“GBP”) and the Euro.
Our existing borrowings, and any other indebtedness we may enter into, may limit our ability to, among other things: ● incur or guarantee additional debt; ● make distributions or dividends on or redeem or repurchase shares of common stock; ● make certain investments and acquisitions; ● make capital expenditures; ● incur certain liens or permit them to exist; ● enter into certain types of transactions with affiliates; ● acquire, merge or consolidate with another company; and ● transfer, sell or otherwise dispose of all or substantially all of our assets. 27 The provisions of our existing borrowings may affect our ability to obtain future financing and pursue attractive business opportunities and our flexibility in planning for, and reacting to, changes in business conditions.
Our existing borrowings, and any other indebtedness we may enter into, may limit our ability to, among other things: ● incur or guarantee additional debt; ● make distributions or dividends on or redeem or repurchase shares of common stock; ● make certain investments and acquisitions; ● make capital expenditures; ● incur certain liens or permit them to exist; ● enter into certain types of transactions with affiliates; ● acquire, merge or consolidate with another company; and ● transfer, sell or otherwise dispose of all or substantially all of our assets.
Our ability to monitor and ensure quality of our products is continually reviewed and enhanced. There can be no assurance that our business might not be affected by a security breach, virus, Denial of Service attack, or technical error, failure or lapse which could have an adverse impact on our business.
There can be no assurance that our business might not be affected by a security breach, virus, Denial of Service attack, or technical error, failure or lapse which could have an adverse impact on our business.
We rely upon such systems to manage customer systems on a timely basis, to coordinate our sales and installation activities across all of our locations and to manage invoicing.
Our operations are dependent upon our transactional gaming, lottery and information technology systems. We rely upon such systems to manage customer systems on a timely basis, to coordinate our sales and installation activities across all of our locations and to manage invoicing.
None of our officers, directors or stockholders is required to provide any financing to us. 28 We may be unable to identify and develop sufficient new products and product lines and integrate them into our existing business, which may adversely affect our ability to compete; our expansion into new sectors may present competitive and regulatory challenges that differ from current ones.
We may be unable to identify and develop sufficient new products and product lines and integrate them into our existing business, which may adversely affect our ability to compete; our expansion into new sectors may present competitive and regulatory challenges that differ from current ones.
Generally, there can be no assurance that we will achieve the necessary technological advances, have the financial resources, introduce new products or services on a timely basis or otherwise have the ability to compete effectively on a technological basis in the sectors we serve. 22 Our business competes on the basis of the stability, security and integrity of our software, networks, systems, games and products.
Generally, there can be no assurance that we will achieve the necessary technological advances, have the financial resources, introduce new products or services on a timely basis or otherwise have the ability to compete effectively on a technological basis in the sectors we serve.
Gaming regulators may take enforcement action against us (including the imposition of significant fines) where the payout ratios fall below the ratios advertised to customers, or our software, networks, systems, games and/or products otherwise suffer from technical error, failure or lapse.
Gaming regulators may take enforcement action against us (including the imposition of significant fines) where the payout ratios fall below the ratios advertised to customers, or our software, networks, systems, games and/or products otherwise suffer from technical error, failure or lapse. 23 We may be adversely affected by disruptions to our transaction gaming and lottery systems, as well as disruptions to our internal enterprise and information technology systems.
We may be required to obtain and maintain licenses and certifications from various state and local jurisdictions in order to operate certain aspects of our business and we and our key personnel and certain security holders may be subject to extensive background investigations and suitability standards.
Any such action may adversely affect our standing with gaming regulators and our ability to obtain and retain required licenses and other approvals in other jurisdictions. 21 We may be required to obtain and maintain licenses and certifications from various state and local jurisdictions in order to operate certain aspects of our business and we and our key personnel and certain security holders may be subject to extensive background investigations and suitability standards.
We generally do not have insurance for losses and interruptions caused by terrorist attacks, conflicts and wars. If these disruptions prevent us from effectively serving our customers, our results of operations could be adversely affected. We face risks and uncertainty arising from the United Kingdom’s withdrawal from the European Union.
We generally do not have insurance for losses and interruptions caused by terrorist attacks, conflicts and wars. If these disruptions prevent us from effectively serving our customers, our results of operations could be adversely affected. ITEM 1B. UNRESOLVED STAFF COMMENTS. None.
Although we believe we have alternative sources of supply for the equipment and other supplies used in our business, concentration in the number of our suppliers could lead to delays in the delivery of products or components, and possible resultant breaches of contracts that we have entered into with our customers; increases in the prices we must pay for products or components; problems with product quality or components coming to the end of their life; and other concerns. 18 Our ability to bid on new contracts may be dependent upon our ability to fund any required up-front capital expenditures through our cash from operations, the incurrence of indebtedness or the raising of additional equity capital.
Although we believe we have alternative sources of supply for the equipment and other supplies used in our business, concentration in the number of our suppliers could lead to delays in the delivery of products or components, and possible resultant breaches of contracts that we have entered into with our customers; increases in the prices we must pay for products or components; problems with product quality or components coming to the end of their life; and other concerns.
Broad market and industry factors may materially harm the market price of our securities irrespective of our operating performance. The stock market in general, and NASDAQ in particular, have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected.
The stock market in general, and NASDAQ in particular, have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable.
A proportion of our revenues are subject to regular seasonal variations of the sort often related to seasonal consumer behavior, income from the Leisure business segment is generally strongest in the spring and summer, predominantly in Leisure parks, and in Italy and Greece we experience reductions in revenue in the summer.
A proportion of our revenue is subject to regular seasonal variations of the sort often related to seasonal consumer behavior, income from the Leisure business segment is generally strongest in the spring and summer, predominantly in Leisure parks, and in Italy and Greece we experience reductions in revenue in the summer. 20 Our industry is subject to strict government regulations that could limit our existing operations and have a negative impact on our ability to grow.
In jurisdictions that authorize interactive gaming, we cannot assure that we will be successful in offering our technology, content and services to interactive gaming operators, because we expect to face intense competition from our traditional competitors in the gaming and lottery industries as well as a number of other domestic and foreign competitors (and, in some cases, the operators themselves), many of which have substantially greater financial resources or experience in this area than we do.
In jurisdictions that authorize interactive gaming, we cannot assure that we will be successful in offering our technology, content and services to interactive gaming operators, because we expect to face intense competition from our traditional competitors in the gaming and lottery industries as well as a number of other domestic and foreign competitors (and, in some cases, the operators themselves), many of which have substantially greater financial resources or experience in this area than we do. 27 Know-your-customer and geo-location programs and technologies supplied by third parties are an important aspect of certain interactive gaming products and services, because they can confirm certain information with respect to players and prospective players, such as age, identity and location.
Gaming may lose popularity as new leisure activities arise or as other leisure activities become more popular. Alternatively, changes in social mores and demographics could result in reduced acceptance of gaming as a leisure activity.
Gaming may lose popularity as new leisure activities arise or as other leisure activities become more popular. Alternatively, changes in social mores and demographics could result in reduced acceptance of gaming as a leisure activity. If the popularity of gaming declines for any reason, our business, financial condition and results of operations may be adversely affected.
We rely on a relatively small number of customers for a significant portion of our sales, and the loss of, or material reduction in, sales to any of our top customers could have an adverse effect on our business, results of operations, financial condition and prospects.
In addition, any such changes may cause our customers to seek to renegotiate their contracts, may alter the terms on which such customers are prepared to renew their contracts and may affect their ability or willingness to renew their contracts. 17 We rely on a relatively small number of customers for a significant portion of our sales, and the loss of, or material reduction in, sales to any of our top customers could have an adverse effect on our business, results of operations, financial condition and prospects.
We have a participation-driven business model, whereby a significant amount of our revenues are generated from the gaming revenue of our customers, typically as a percentage of gross revenue. Accordingly, our results of operation and financial condition have been and are expected to continue to be influenced by the ability of our customers to attract and maintain players.
Our financial success is dependent on our customers’ ability to attract and maintain players. We have a participation-driven business model, whereby a significant amount of our revenue is generated from the gaming revenue of our customers, typically as a percentage of gross revenue.
The failure to secure additional financing could have an adverse effect on our continued development or growth.
The failure to secure additional financing could have an adverse effect on our continued development or growth. None of our officers, directors or stockholders is required to provide any financing to us.
The ability of our customers to attract and maintain players depends on a number of factors, including player gaming preferences, marketing of our products and player perceptions of our customers.
Accordingly, our results of operation and financial condition have been and are expected to continue to be influenced by the ability of our customers to attract and maintain players. The ability of our customers to attract and maintain players depends on a number of factors, including player gaming preferences, marketing of our products and player perceptions of our customers.
Additionally, such prohibition could trigger reviews of our Company by regulatory bodies in other jurisdictions and adversely affect our ability to obtain or retain the required licenses and approvals in those jurisdictions. 20 The regulatory environment in any particular jurisdiction may change in the future, and any such change could have an adverse effect on our results of operations or business in general.
Additionally, such prohibition could trigger reviews of our Company by regulatory bodies in other jurisdictions and adversely affect our ability to obtain or retain the required licenses and approvals in those jurisdictions.
If expressly authorized, such activities are typically subject to extensive and evolving governmental regulation. Gaming regulatory requirements vary from jurisdiction to jurisdiction. Therefore, we are subject to a wide range of complex gaming laws, rules and regulations in the jurisdictions in which we are licensed or may seek to be licensed.
Therefore, we are subject to a wide range of complex gaming laws, rules and regulations in the jurisdictions in which we are licensed or may seek to be licensed.
Restrictions in our existing borrowings, including covenants set forth in our existing debt facilities, or any other indebtedness we may incur in the future, could adversely affect our business, financial condition, or results of operations, and our ability to make distributions to stockholders and the value of our common stock.
Further, if we are unable to cost-effectively recruit, train and retain sufficient skilled personnel, we may not be able to adequately satisfy increased demand for our products and services, which could adversely affect our operating results. 28 Restrictions in our existing borrowings, including covenants set forth in our existing debt facilities, or any other indebtedness we may incur in the future, could adversely affect our business, financial condition, or results of operations, and our ability to make distributions to stockholders and the value of our common stock.
Following the occurrence of an event of default which has not been waived or remedied, the Lenders who represent more than 66.67% of total commitments under the RCF may, subject to the terms of an intercreditor agreement (which governs the relationship between the Lenders and the holders of the Senior Secured Notes), instruct the agent to (i) accelerate the RCF Loans, (ii) instruct the security agent to enforce the transaction security and/or (iii) exercise any other remedies available to the Lenders.
Following the occurrence of an event of default which has not been waived or remedied, the Lenders who represent more than 66.67% of total commitments under the RCF may, subject to the terms of an intercreditor agreement (which governs the relationship between the Lenders and the holders of the Senior Secured Notes), instruct the agent to (i) accelerate the RCF Loans, (ii) instruct the security agent to enforce the transaction security and/or (iii) exercise any other remedies available to the Lenders. 29 The RCF Agreement requires that the Company maintain a maximum consolidated senior secured net leverage ratio of 6.25x on the test date for the relevant period ending June 30, 2022, 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”).
Labor shortages or lack of skilled labor have led to increases in costs to meet demand as we roll out incremental programs to attract and retain talent. Labor shortages may also negatively impact us from servicing all demand that exists for our products or operating our service operations and manufacturing facilities efficiently.
Labor shortages may also negatively impact us from servicing all demand that exists for our products or operating our service operations and manufacturing facilities efficiently.
We believe that our success depends, in significant part, on providing secure products and systems to our vendors and customers with high levels of uptime, quality and availability. Attempts to penetrate security measures may come from various combinations of customers, retailers, vendors, players, employees and others.
Our business competes on the basis of the stability, security and integrity of our software, networks, systems, games and products. We believe that our success depends, in significant part, on providing secure products and systems to our vendors and customers with high levels of uptime, quality and availability.
A decline in the market price of our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.
A decline in the market price of our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future. Depending on the number of shares you hold and other factors, you may not be able to sell your shares at the times you prefer at desirable market prices.
We could also be negatively impacted by existing and proposed laws and regulations, and government policies and practices related to cybersecurity, data privacy, data localization and data protection. The risk of cyber attacks may also increase owing to the current war in Ukraine. Our business depends upon the protection of our intellectual property and proprietary information.
We could also be negatively impacted by existing and proposed laws and regulations, and government policies and practices related to cybersecurity, data privacy, data localization and data protection.
Our results of operations could be adversely affected by labor shortages, turnover, and labor cost increases. Inflationary pressures, shortages in the labor market, and increased competition within and outside our industry for talented employees have increased our labor costs, which could negatively impact our profitability.
Inflationary pressures, shortages in the labor market, and increased competition within and outside our industry for talented employees have increased our labor costs, which could negatively impact our profitability. Labor shortages or lack of skilled labor have led to increases in costs to meet demand as we roll out incremental programs to attract and retain talent.
The licensing procedures and background investigations of the authorities that regulate our businesses and the proposed amendment may inhibit potential investors from becoming significant stockholders or inhibit existing stockholders from retaining or increasing their ownership. 21 Our businesses are subject to a number of federal, state, local and foreign laws and regulations governing data privacy and security, including with respect to the collection, storage, use, transmission and protection of personal information and other consumer data.
Our businesses are subject to a number of federal, state, local and foreign laws and regulations governing data privacy and security, including with respect to the collection, storage, use, transmission and protection of personal information and other consumer data. In particular, the EU has adopted strict data privacy regulations.
Certain contracts within the Leisure business segment also require injections of capital expenditure during the term for new or replacement hardware. The UK Government’s impending review of the Gambling Act, together with other rules that may be considered in the UK in response to recent consultations, could have a material negative impact on our business.
Certain contracts within the Leisure business segment also require injections of capital expenditure during the term for new or replacement hardware. Our business depends on our ability to prevent or mitigate the effects of a cybersecurity attack.
Our industry is subject to strict government regulations that could limit our existing operations and have a negative impact on our ability to grow. In certain jurisdictions, forms of wagering, betting and lottery may be expressly authorized and governed by law and in other jurisdictions forms of wagering, betting and lottery may be expressly prohibited by law.
In certain jurisdictions, forms of wagering, betting and lottery may be expressly authorized and governed by law and in other jurisdictions forms of wagering, betting and lottery may be expressly prohibited by law. If expressly authorized, such activities are typically subject to extensive and evolving governmental regulation. Gaming regulatory requirements vary from jurisdiction to jurisdiction.
Removed
In addition, any such changes may cause our customers to seek to renegotiate their contracts, may alter the terms on which such customers are prepared to renew their contracts and may affect their ability or willingness to renew their contracts.
Added
These risks are discussed more fully below and include, but are not limited to, risks related to the following: ● We rely on a relatively small number of customers for a significant portion of our sales, and the loss of, or material reduction in, sales to any of our top customers could have an adverse effect on our business, results of operations, financial condition and prospects. ● We have identified material weaknesses in our disclosure controls and procedures and internal control over financial reporting.
Removed
In December 2020, DCMS announced that it is reviewing the Gambling Act, the consultation period for which closed on March 31, 2021 with the objective of (i) examining whether changes are needed to the system of gambling regulation in Great Britain to reflect changes to the gambling landscape since 2005, particularly due to technological advances (ii) ensuring there is an appropriate balance between consumer freedoms and choice on the one hand, and prevention of harm to vulnerable groups and wider communities on the other and (iii) making sure customers are suitably protected whenever and wherever they are gambling, and that there is an equitable approach to the regulation of the online and the land based industries.
Added
Risks Relating to Our Business and Industry We have identified material weaknesses in our disclosure controls and procedures and internal control over financial reporting. Failure to remediate the material weaknesses or any other material weaknesses that we identify in the future could result in material misstatements in our financial statements.
Removed
There have a been a number of similar consultations launched, including a DCMS consultation in relation to fees which closed on March 25, 2021 and a Gambling Commission consultation in relation to Remote Customer Interaction which closed on February 9, 2021.
Added
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, as amended, our management is required to report on, and our independent registered public accounting firm is required to attest to, the effectiveness of our internal control over financial reporting.
Removed
The potential outcomes of such reviews are not currently known but new legislation or regulations could adversely affect our business. A recent example of legislative change implemented by the UK Government which adversely affected our business was the reduction of maximum permitted bets from £100 to £2 on B2 Gaming Machines which became effective as of April 1, 2019.
Added
The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. Annually, we perform activities that include reviewing, documenting and testing our internal control over financial reporting.
Removed
As a result of this change, a number of land-based operators commenced a rationalization of their retail operations, which among other measures led to the closure of certain land-based operator shops. Our business depends on our ability to prevent or mitigate the effects of a cybersecurity attack.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe primary locations were as follows: ● Approximately 40,000 square feet of office space on one floor in Burton-on-Trent, East Midlands, UK. ● Approximately 2,250 square feet of flexible office space in Manchester, UK. ● Approximately 80,000 square feet of administrative offices, workshop and warehousing in Bridgend, South Wales, UK. ● Approximately 2,000 square feet of offices on one floor in Rome, Italy. ● Approximately 17,000 square feet of office space on one floor in Kochi, India. ● Approximately 3,200 square feet of office space on one floor in New York.
Biggest changeThe primary locations were as follows: ● Approximately 40,000 square feet of office space on one floor in Burton-on-Trent, East Midlands, UK. ● Approximately 2,250 square feet of flexible office space in Manchester, UK. ● Approximately 80,000 square feet of administrative offices, workshop and warehousing in Bridgend, South Wales, UK. ● Approximately 17,000 square feet of office space on one floor in Kochi, India. ● Approximately 3,200 square feet of office space on one floor in New York.
ITEM 2. PROPERTIES. As of December 31, 2022, the Company occupied approximately 240,000 square feet of leased space in the United Kingdom, 3,000 square feet of leased space elsewhere in Europe, 3,200 square feet in New York and 17,000 square feet in Kochi, India.
ITEM 2. PROPERTIES. As of December 31, 2023, the Company occupied approximately 240,000 square feet of leased space in the UK, 1,000 square feet of leased space elsewhere in Europe, 3,200 square feet in New York and 17,000 square feet in Kochi, India.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS. From time to time, the Company is involved in legal matters arising in the ordinary course of business.
Biggest changeHowever, at this time, Management believes that the ultimate outcome and timing of the SEC investigation remains uncertain and is not estimable given the broad range of potential outcomes. From time to time, the Company is involved in legal matters arising in the ordinary course of business.
While the Company believes that such matters are currently not material, there can be no assurance that matters arising in the ordinary course of business for which the Company is, or could be, involved in litigation, will not have an adverse effect on its business, financial condition or results of operations. ITEM 4. MINE SAFETY DISCLOSURES.
While the Company believes that such matters are currently not material, there can be no assurance that matters arising in the ordinary course of business for which the Company is, or could be, involved in litigation, will not have an adverse effect on its business, financial condition or results of operations. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. PART II
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ITEM 3. LEGAL PROCEEDINGS. Securities Matters Arising From the Company’s Restated Financial Statements and Related Matters On March 12, 2024, the Company received a subpoena from the SEC seeking documents concerning, among other things, the Company’s recently restated financial statements. The Company intends to comply with the subpoena and is cooperating with the SEC’s inquiry.
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The Company cannot predict the ultimate outcome or timing of the SEC investigation, what if any actions may be taken by the SEC, or the effect that such actions may have on the business, prospects, operating results and financial condition. The resolution of the SEC investigation may result in substantial monetary penalties or settlement costs.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe first repurchases under the Share Repurchase Program were made on May 24, 2022. (2) The average price paid per share includes commissions related to the repurchases. Dividends We do not currently expect to pay cash dividends on our common stock and have not paid cash dividends on our common stock to date.
Biggest changeDividends We do not currently expect to pay cash dividends on our common stock and have not paid cash dividends on our common stock to date.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Market Information Our common stock is listed and traded on the Nasdaq Capital Market under the symbol “INSE”. Holders As of March 13, 2023, there were 35 holders of record of our common stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Market Information Our common stock is listed and traded on the Nasdaq Capital Market under the symbol “INSE”. Holders As of April 11, 2024, there were 33 holders of record of our common stock.
This does not include the number of stockholders who hold shares of our common stock through banks, brokers or other financial institutions. Recent Sales of Unregistered Securities None.
This does not include the number of stockholders who hold shares of our common stock through banks, brokers or other financial institutions. Recent Sales of Unregistered Securities None. 37 Purchases of Equity Securities by the Issuer and Affiliated Purchasers There were no share repurchase activities for the three months ended December 31, 2023.
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Purchases of Equity Securities by the Issuer and Affiliated Purchasers The Company’s share repurchase activities for the three months ended December 31, 2022 were as follows (1) : Period Number of shares purchased Average price paid per share (2) Total number of shares purchased as part of publicly announced plans or programs Maximum dollar value of shares that may yet be purchased under the plans or programs October 1, 2022 to October 31, 2022 39,469 $ 8.91 39,469 $ 14,555,517 November 1, 2022 to November 30, 2022 – $ – – $ – December 1, 2022 to December 31, 2022 – $ – – $ – 39,469 $ 8.91 39,469 $ 14,555,517 (1) On May 10, 2022, the Company announced that its Board of Directors authorized the Company to repurchase up to $25.0 million of shares of the Company’s common stock (the “Share Repurchase Program”), exclusive of any fees, commissions or other expenses related to such repurchases, on or prior to May 10, 2025.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeReconciliations from net loss, as shown in our Consolidated Statements of Operations and Comprehensive Income (Loss), to Adjusted EBITDA are shown below. 52 Reconciliation to Adjusted EBITDA by segment for the Twelve Months ended December 31, 2022 For the Twelve-Month Period ended Dec 31, 2022 (In millions) Statutory Heading Total Gaming Virtual Sports Interactive Leisure Corporate Net Income/ (loss) Net Income $ 22.3 $ 24.0 $ 42.5 $ 8.7 $ 10.0 $ (62.9 ) Items Relating to Legacy Activities: Pension charges (1) SG&A $ 0.7 0.7 Items outside the normal course of business: Acquisition and integration related transaction expenses (2) SG&A $ 0.5 - 0.5 Acquisition and integration related transaction expenses (2) Cost of Sale $ 0.6 0.3 0.3 - Litigation Settlement (3) SG&A $ 0.5 0.5 - Stock-based compensation expense (4) Stock-based compensation expense $ 10.8 1.6 0.7 0.7 0.6 7.2 Depreciation and amortization (4) Depreciation and amortization $ 37.6 16.6 2.6 2.9 13.5 2.0 Interest expense net (4) Interest expense net $ 25.4 25.4 Profit on disposal of trade & assets (5) Profit on disposal of trade & assets $ (0.9 ) (0.9 ) - Other finance expenses / (income) (4) Other finance expenses / (income) $ (1.1 ) (1.1 ) Income tax (4) Income tax $ 3.2 3.2 Adjusted EBITDA $ 99.6 $ 41.6 $ 46.3 $ 12.3 $ 24.4 $ (25.0 ) Adjusted EBITDA £ 80.8 £ 33.6 £ 37.7 £ 10.0 £ 19.9 £ (20.4 ) Exchange Rate - $ to £ (6) 1.23 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, 2021 For the Twelve-Month Period ended Dec 31,2021 (In millions) Statutory Heading Total Gaming Virtual Sports Interactive Leisure Corporate Net Income/ (loss) $ (36.7 ) $ 1.8 $ 22.8 $ 9.2 $ (1.0 ) $ (69.5 ) Items Relating to Legacy Activities: Pension charges (1) SG&A 0.8 0.8 Items outside the normal course of business: Acquisition and integration related transaction expenses (2) SG&A 1.6 1.6 Refinancing of Company Debt (7) SG&A 0.8 0.8 Italian tax related costs relating to prior years (8) SG&A 1.4 1.4 - Stock-based compensation expense (4) Stock-based compensation expense 13.0 1.8 0.8 0.6 0.6 9.2 Depreciation and amortization (4) Depreciation and amortization 47.0 22.5 3.4 3.2 16.1 1.8 Interest expense net (4) Interest expense net 44.3 44.3 Change in fair value of warrant liability (4) Change in fair value of warrant liability (0.9 ) (0.9 ) Other finance expenses / (income) (4) Other finance expenses / (income) (5.7 ) (5.7 ) Income tax (4) Income tax (1.6 ) (1.6 ) Adjusted EBITDA $ 64.0 $ 26.1 $ 28.4 $ 13.0 $ 15.7 $ (19.2 ) Adjusted EBITDA £ 46.7 £ 19.2 £ 20.6 £ 9.5 £ 11.4 £ (14.0 ) Exchange Rate - $ to £ (6) 1.37 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.
Biggest changeReconciliation 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) Net Income $ 7.6 $ 23.5 $ 44.0 $ 11.2 $ 6.8 $ (77.9 ) Pension charges (1) SG&A $ 0.9 0.9 Cost of Group Restructure (2) SG&A $ 3.6 - 3.6 Cost of Group Restatement (3) SG&A $ 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 $ 39.9 19.0 3.3 3.6 11.6 2.4 Interest expense net (4) Interest expense net $ 27.7 27.7 Other finance expenses / (income) (4) Other finance expenses / (income) $ (0.4 ) (0.4 ) Income Tax (4) Income Tax $ 5.0 5.0 Adjusted EBITDA $ 100.5 $ 44.0 $ 47.7 $ 15.4 $ 19.4 $ (26.0 ) Adjusted EBITDA £ 80.6 £ 35.6 £ 38.3 £ 12.4 £ 15.4 £ (21.1 ) Exchange Rate - $ to £ (6) 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. 55 Reconciliation to Adjusted EBITDA by segment for the Twelve Months ended December 31, 2022 For the Twelve-Month Period ended December 31, 2022 (In millions) Statutory Heading Total Gaming Virtual Sports Interactive Leisure Corporate Net Income/ (loss) $ 20.6 $ 23.1 $ 41.0 $ 8.6 $ 9.9 $ (62.0 ) Pension charges (1) SG&A $ 0.7 0.7 Acquisition and integration related transaction expenses (7) SG&A $ 0.5 0.5 Acquisition and integration related transaction expenses (7) Cost of Sale $ 0.6 0.3 0.3 Litigation Settlement(8) SG&A $ 0.5 0.5 Stock-based compensation expense (4) Stock-based compensation expense $ 10.8 1.6 0.7 0.7 0.6 7.2 Depreciation and amortization (4) Stock-based compensation expense $ 39.9 19.6 2.7 2.0 13.5 2.1 Interest expense net (4) Interest expense net $ 25.3 25.3 Profit on disposal of trade & assets (5) Profit on disposal of trade & assets $ (0.9 ) (0.9 ) Other finance expenses / (income) (4) Other finance expenses / (income) $ (1.1 ) (1.1 ) Income tax (4) Income tax $ 2.1 2.1 Adjusted EBITDA $ 99.0 $ 43.7 $ 44.9 $ 11.3 $ 24.3 $ (25.2 ) Adjusted EBITDA £ 80.3 £ 35.3 £ 36.5 £ 9.1 £ 19.7 £ (20.3 ) Exchange Rate - $ to £ (6) 1.23 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.
However, given our current earnings and anticipated future earnings, we believe that there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of the valuation allowance will no longer be needed.
However, given our current earnings and anticipated future earnings, we believe there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of the valuation allowance will no longer be needed.
“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 impacts of regulatory change and our new content releases on our customers.
“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.
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.
Typically, we recognize revenue from these arrangements on a daily basis over the term of the contract. 47 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.
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.
Typically, we recognize revenue from these arrangements on a daily basis over the term of the contract. 49 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.
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, 2022, compared to the same period in 2021; 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, 2022, compared to the same period in 2021, including KPI analysis.
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, 2023, compared to the same period in 2022; 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, 2023, compared to the same period in 2022, including KPI analysis.
Revenue is derived from the performance of the installed base as described by the Gross and Net Win KPIs. 40 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.
Revenue is derived from the performance of the installed base as described by the Gross and Net Win KPIs. 43 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.
“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”. 41 Gaming, Recurring Revenue Set forth below is a breakdown of our Gaming recurring 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”. 44 Gaming, Recurring Revenue Set forth below is a breakdown of our Gaming recurring revenue.
Additional adjustments are made for items considered outside the normal course of business, including (1) restructuring costs, which include charges attributable to employee severance, management changes, restructuring, dual running costs, costs related to facility closures and integration costs, (2) merger and acquisition costs and (3) gains or losses not in the ordinary course of business.
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.
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).
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).
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 .
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).
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.
Foreign Exchange Our results are affected by changes in foreign currency exchange rates because 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.
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.
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.
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 year ended December 31, 2022.
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, 2023.
For the twelve months ended December 31, 2022, we derived approximately 73% of our revenue from the UK (including customers headquartered in the UK but whose revenue is generated globally), 8% from Greece, and the remaining 19% 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.
Virtual Sports, Results of Operations For the Twelve-Month Period ended Variance 2022 vs 2021 (In millions) Dec 31, 2022 Dec 31, 2021 Variance Attributable to Currency Movement Variance on a Functional currency basis Total Functional Currency Variance % Total Reported Variance % Service Revenue $ 55.1 $ 36.0 $ (6.6 ) $ 25.7 71.4 % 53.2 % Cost of Service (2.4 ) (1.9 ) 0.3 (0.8 ) (44.5 )% 29.4 % Selling, general and administrative expenses (6.9 ) (7.1 ) 0.8 (0.6 ) 8.9 % (2.6 )% Stock-based compensation (0.7 ) (0.8 ) 0.1 0.0 (2.1 )% (12.5 )% Depreciation and amortization (2.6 ) (3.4 ) 0.3 0.5 (14.4 )% (23.5 )% Net operating Income (Loss) $ 42.5 $ 22.8 $ (5.1 ) $ 24.7 108.4 % 86.1 % Exchange Rate - $ to £ 1.23 1.37 Note: Exchange rate in the table is calculated by dividing the USD service revenue by the GBP service revenue, therefore this could be slightly different from the average rate during the period depending on timing of transactions.
Virtual Sports, Results of Operations For the Twelve-Month Period ended Variance December 31, 2023 vs December 31, 2022 (In millions) December 31, 2023 December 31, 2022 Variance Attributable to Currency Movement Variance on a Functional currency basis Total Functional Currency Variance % Total Reported Variance % Service Revenue $ 56.2 $ 54.2 $ 0.5 $ 1.5 2.8 % 3.7 % Cost of Service (1.4 ) (1.8 ) 0.0 0.4 (22.2 )% (22.2 )% Selling, general and administrative expenses (7.1 ) (8.0 ) (0.1 ) 1.0 (12.5 )% (11.3 )% Stock-based compensation (0.4 ) (0.7 ) 0.0 0.3 (42.9 )% (42.9 )% Depreciation and amortization (3.3 ) (2.7 ) 0.1 (0.7 ) 25.9 % 22.2 % Net operating Income (Loss) $ 44.0 $ 41.0 $ 0.5 $ 2.5 6.1 % 7.3 % Exchange Rate - $ to £ 1.25 1.23 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.
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, 2022, we had liquidity consisting of $25.0 million in cash and cash equivalents and a further $24.1 million of undrawn revolver facility.
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, 2023, we had liquidity consisting of $40.0 million in cash and a further $6.4 million of undrawn revolver facility.
Stock-based compensation During the twelve months ended December 31, 2022, the Company recorded expenses of $10.8 million, compared to expenses of $13.0 million, for the twelve months ended December 31, 2021. All expenses related to outstanding awards, but the twelve months ended December 31, 2021, included $1.4 million of shares that fully vested on the date of grant.
Stock-based compensation During the twelve-month period ended December 31, 2023, the Company recorded expenses of $11.2 million, compared to expenses of $10.8 million, for the twelve month period ended December 31, 2022. 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.
For the Twelve-Month Period ended Variance 2022 vs 2021 (In £ millions) Dec 31, 2022 Dec 31, 2021 % Virtual Sports Recurring Revenue Total Virtual Sports Revenue £ 44.9 £ 26.2 £ 18.7 71.2 % Recurring Revenue - Retail Virtuals £ 9.2 £ 6.8 £ 2.4 34.8 % Recurring Revenue - Online Virtuals £ 35.1 £ 18.1 £ 17.0 93.6 % Total Virtual Sports Long-term license amortization £ 0.5 £ 0.8 £ (0.3 ) (34.6 )% Total Virtual Sports Recurring Revenue £ 44.8 £ 25.7 £ 19.0 73.9 % Virtual Sports Recurring Revenue as a Percentage of Total Virtual Sports Revenue 99.7 % 98.1 % 1.6 % 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.
For the Twelve-Month Period ended Variance December 31, 2023 vs December 31,2022 (In £ millions) December 31, 2023 December 31, 2021 % Virtual Sports Recurring Revenue Total Virtual Sports Revenue £ 45.3 £ 44.1 £ 1.2 2.7 % Recurring Revenue - Retail Virtuals £ 9.9 £ 8.7 £ 1.2 13.8 % Recurring Revenue - Online Virtuals £ 34.6 £ 35.1 £ (0.5 ) (1.4 )% Total Virtual Sports Long-term license amortization £ 0.2 £ - £ 0.2 100 % Total Virtual Sports Recurring Revenue £ 44.7 £ 43.8 £ 0.9 2.1 % Virtual Sports Recurring Revenue as a Percentage of Total Virtual Sports Revenue 98.7 % 99.3 % (0.6 )% 48 “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.
Net cash (used)/generated by financing activities During the twelve months ended December 31, 2022, net cash utilized by financing activities was $11.0 million, $10.4 million of which related to the Company’s repurchase of its common shares under the Share Repurchase Program and $0.6 million of which related to finance lease spend.
During the twelve months ended December 31, 2022, financing activities utilized $11.0 million of cash due to the Company’s repurchase of its common shares under the Share Repurchase Program, $10.4 million, and finance lease spend of $0.6 million.
Liens and Encumbrances As of December 31, 2022, our senior bank debt was secured by the imposition of a fixed and floating charge in favor of the lender over all the assets of the Company and certain of the Company’s subsidiaries.
Liens and Encumbrances As of December 31, 2023, 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.
Interactive revenue During twelve-month period, revenue increased by $3.0 million, primarily driven by recurring revenue growth due to the consistent launch of new content across the estate, growth in the customer base in new, emerging and core markets and increased promotional activity through exclusive deals with tier-one customers.
Interactive revenue During twelve-month period ended December 31, 2023 revenue increased by $6.9 million, driven by recurring revenue growth due to the launch of new content across the estate, growth in the customer base in new, emerging and core markets and increased promotional activity through exclusive deals with tier-one customers.
During the twelve months ended December 31, 2022, we derived approximately 27% of our revenue from sales to customers outside the UK, compared to 29% during the twelve months ended December 31, 2021.
During the twelve months ended December 31, 2023, we derived approximately 22% of our revenue from sales to customers outside the UK, compared to 26% during the twelve months ended December 31, 2022.
At December 31, 2021, $2.7 million of our $47.8 million of cash and cash equivalents 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 March 2024. 56 Long Term and Other Debt (In millions) December 31, 2022 December 31, 2021 Cash held £ 20.8 $ 25.0 £ 35.4 $ 47.8 Original principal senior debt (235.0 ) (282.9 ) (235.0 ) (316.7 ) Cash interest accrued (1.5 ) (1.8 ) (1.6 ) (2.1 ) Finance lease creditors (1.8 ) (2.2 ) (2.1 ) (2.8 ) Total £ (217.6 ) $ (261.9 ) £ (203.3 ) $ (273.8 ) Debt Covenants Under our debt facilities in place as of December 31, 2022, we are not subject to covenant testing on the Senior Secured Notes.
At December 31, 2022, $2.5 million of our $25.0 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 2025. 59 Long Term and Other Debt (In millions) December 31, 2023 December 31, 2022 Cash held £ 31.4 $ 40.0 £ 20.8 $ 25.0 Revolver drawn (15.0 ) (19.1 ) - - Original principal senior debt (235.0 ) (299.6 ) (235.0 ) (282.9 ) Cash interest accrued (1.6 ) (2.0 ) (1.5 ) (1.8 ) Finance lease creditors (1.9 ) (2.4 ) (1.8 ) (2.2 ) Total £ (222.1 ) $ (283.1 ) £ (217.6 ) $ (261.9 ) Debt Covenants Under our debt facilities in place as of December 31, 2023, we are not subject to covenant testing on the Senior Secured Notes.
Deferred Tax We recorded a valuation allowance against all of our deferred tax assets as of both December 31, 2022, and December 31, 2021. We intend to continue maintaining a full valuation allowance on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances.
We intend to continue maintaining a full valuation allowance on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances.
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.
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.
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”).
The geographic region in which the largest portion of our business is operated is the UK and GBP is our functional currency. Our reporting currency is the U.S. dollar (“USD”).
For a discussion of other recently issued accounting standards, and assessments as to their impacts on the Company, see Nature of Operations, Management’s Plans and Summary of Significant Accounting Policies, Note 1 to the consolidated financial statements included elsewhere in this report. 57
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.
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.
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 measure used in generally accepted accounting principles in the United States (“U.S. GAAP” or “GAAP”), but is one which management believes gives a clearer indication of results.
Securities and Exchange Commission. Critical Accounting Policies and Accounting Estimates The preparation of our audited consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions.
Securities and Exchange Commission. Critical Accounting Policies and Accounting Estimates The preparation of our audited consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions.
See “Gaming Segment Revenue” below for a discussion of gaming service revenue between the periods under review. 42 For the Twelve-Month Period ended Variance (In millions) Dec 31, 2022 Dec 31, 2021 2022 vs 2021 Total Functional Currency % Service Revenue: UK LBO $ 40.7 $ 30.3 $ 10.4 34.2 % 49.4 % UK VAT - Related Income 1.0 3.1 $ (2.1 ) (66.9 )% (65.5 )% UK Other 12.1 7.9 4.2 52.6 % 69.0 % Italy 2.7 2.2 0.5 24.4 % 37.7 % Greece 18.1 14.9 3.2 21.6 % 35.1 % Rest of the World 0.7 0.4 0.4 96.1 % 114.0 % Lotteries 5.1 - 5.1 NA NA Total Service revenue $ 80.4 $ 58.8 $ 21.6 36.8 % 51.8 % Exchange Rate - $ to £ 1.24 1.37 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.
See “Gaming Segment Revenue” below for a discussion of gaming service revenue between the periods under review. 45 For the Twelve-Month Period ended Variance (In millions) December 31, 2023 December 31, 2022 December 31, 2023 vs December 31, 2022 Total Functional Currency % Service Revenue: UK LBO $ 40.4 $ 40.7 $ (0.3 ) (0.1 )% 1.0 % UK VAT - Related Income 0.0 1.0 (1.0 ) (100.0 )% (100 )% UK Other 13.9 12.1 1.8 14.9 % 7.4 % Italy 2.7 2.7 0.0 0.0 % 0.0 % Greece 18.7 18.1 0.6 3.3 % 2.2 % Rest of the World 2.1 0.7 1.4 200.0 % 200 % Lotteries 5.2 5.1 0.1 2.0 % 2.0 % Total Service revenue $ 83.0 $ 80.4 $ 2.6 3.2 % 2.9 % Exchange Rate - $ to £ 1.25 1.23 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.
“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.
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.
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 2022 vs 2021 Leisure Dec 31, 2022 Dec 31, 2021 % End of period installed base Gaming machines (# of terminals) 11,008 11,418 (410 ) (3.6 )% Average installed base Gaming machines (# of terminals) 10,960 11,576 (616 ) (5.3 )% End of period installed base Other (# of terminals) 4,646 6,838 (2,192 ) (32.1 )% Average installed base Other (# of terminals) 5,306 7,080 (1,774 ) (25.1 )% Pub Digital Gaming Machines - Average installed base (# of terminals) 6,102 6,087 15 0.2 % Pub Analogue Gaming Machines - Average installed base (# of terminals) 1,334 2,092 (759 ) (36.3 )% MSA and Bingo Gaming Machines - Average installed base (# of terminals) (1) 3,216 3,204 11 0.4 % Inspired Leisure Revenue per Gaming Machine per week £ 64.3 £ 36.9 £ 27.4 74.3 % Inspired Pub Digital Revenue per Gaming Machine per week £ 68.6 £ 36.2 £ 32.4 89.5 % Inspired Pub Analogue Revenue per Gaming Machine per week £ 38.3 £ 22.5 £ 15.9 70.7 % Inspired MSA and Bingo Revenue per Gaming Machine per week £ 91.0 £ 50.3 £ 40.7 81.0 % Inspired Other Revenue per Machine per week £ 19.7 £ 11.0 £ 8.7 78.7 % Total Holiday Parks Revenue (Gaming and Non Gaming) (£’m) £ 30.0 £ 21.1 £ 8.9 42 % (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, from which there is participation or rental revenue at the end of the period or as an average over the period.
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. 51 Leisure, Key Performance Indicators For the Twelve-Month Period ended Variance December 31, 2023 vs December 31, 2022 Leisure December 31, 2023 December 31, 2022 % End of period installed base Gaming machines (# of terminals) 10,741 11,008 (267 ) (2.4 )% Average installed base Gaming machines (# of terminals) 10,761 10,960 (199 ) (1.8 )% End of period installed base Other (# of terminals) 4,209 4,646 (437 ) (9.4 )% Average installed base Other (# of terminals) 4,371 5,306 (935 ) (17.6 )% Pub Digital Gaming Machines - Average installed base (# of terminals) 6,175 6,102 73 1.2 % Pub Analogue Gaming Machines - Average installed base (# of terminals) 367 1,334 (967 ) (72.5 )% MSA and Bingo Gaming Machines - Average installed base (# of terminals) (1) 3,048 3,216 (168 ) (5.2 )% Inspired Leisure Revenue per Gaming Machine per week £ 67.7 £ 64.3 £ 3.4 5.3 % Inspired Pub Digital Revenue per Gaming Machine per week £ 70.0 £ 68.6 £ 1.4 2.0 % Inspired Pub Analogue Revenue per Gaming Machine per week £ 34.7 £ 38.3 £ (3.6 ) (9.4 )% Inspired MSA and Bingo Revenue per Gaming Machine per week £ 93.5 £ 91.0 £ 2.5 2.7 % Inspired Other Revenue per Machine per week £ 21.4 £ 19.7 £ 1.7 8.6 % Total Holiday Parks Revenue (Gaming and Non Gaming) (£’m) £ 32.2 £ 30.0 £ 2.2 7.3 % (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, from which there is participation or rental revenue at the end of the period or as an average over the period.
Virtual Sports, Key Performance Indicators For the Twelve-Month Period ended Variance 2022 vs 2021 Virtuals Dec 31, 2022 Dec 31, 2021 % No. of Live Customers at the end of the period 66 61 5 8.2 % Average No. of Live Customers 65 60 5 8.9 % Total Revenue (£’m) £ 44.9 £ 26.2 £ 18.7 71.4 % Total Revenue £’m - Retail £ 9.5 £ 7.2 £ 2.2 31.2 % Total Revenue £’m - Online Virtuals £ 35.4 £ 19.0 £ 16.5 86.7 % 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.
Virtual Sports, Key Performance Indicators For the Twelve-Month Period ended Variance December 31, 2023 vs December 31,2022 December 31, 2023 December 31, 2022 % Virtuals No. of Live Customers at the end of the period 56 66 (10 ) (15.2 )% Average No. of Live Customers 57 65 (8 ) (12.3 )% Total Revenue (£’m) £ 45.3 £ 44.1 £ 1.2 2.7 % Total Revenue £’m - Retail £ 10.2 £ 9.0 £ 1.2 13.3 % Total Revenue £’m - Online Virtuals £ 35.2 £ 35.2 £ - 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.
“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.
“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.
Gaming, Results of Operations For the Twelve-Month Period ended Variance 2022 vs 2021 (In millions) Dec 31, 2022 Dec 31, 2021 Variance Attributable to Currency Movement Variance on a Functional currency basis Total Functional Currency Variance % Total Reported Variance % Revenue: Service $ 80.4 $ 58.8 $ (8.8 ) $ 30.4 51.8 % 36.8 % Product 31.3 22.6 $ (4.0 ) 12.7 56.0 % 38.4 % Total revenue 111.7 81.4 (12.8 ) 43.1 53.0 % 37.2 % Cost of Sales, excluding depreciation and amortization: Cost of Service (19.3 ) (12.8 ) $ 2.3 (8.8 ) 69.2 % 51.3 % Cost of Product (21.0 ) (14.4 ) $ 2.7 (9.3 ) 64.5 % 45.8 % Total cost of sales (40.3 ) (27.2 ) 5.0 (18.1 ) 66.7 % 48.4 % Selling, general and administrative expenses (30.1 ) (28.1 ) $ 3.6 (5.6 ) 19.7 % 7.2 % Stock-based compensation (1.6 ) (1.8 ) $ 0.2 0.0 (0.9 )% (11.1 )% Depreciation and amortization (16.6 ) (22.5 ) $ 2.0 4.0 (17.8 )% (26.3 )% Net operating Income (Loss) $ 23.1 $ 1.8 $ (2.1 ) $ 23.4 1227.4 % 1156.3 % Profit on disposal of trade & assets 0.9 - - 0.9 N/A N/A Net Income (Loss) $ 24.0 $ 1.8 $ (2.1 ) $ 24.3 1280.2 % 1205.7 % Exchange Rate - $ to £ 1.23 1.37 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.
Gaming, Results of Operations For the Twelve-Month Period ended Variance December 31, 2023 vs December 31, 2022 (In millions) December 31, 2023 December 31, 2022 Variance Attributable to Currency Movement Variance on a Functional currency basis Total Functional Currency Variance % Total Reported Variance % Revenue: Service $ 83.0 $ 80.4 $ 0.6 $ 2.0 2.5 % 3.2 % Product 59.6 30.9 1.5 27.2 88.0 % 92.9 % Total revenue 142.6 111.3 2.1 29.2 26.2 % 28.1 % Cost of Sales, excluding depreciation and amortization: Cost of Service (24.6 ) (23.7 ) (0.4 ) (0.5 ) 2.1 % 3.8 % Cost of Product (51.5 ) (20.4 ) (0.9 ) (30.2 ) 148.0 % 152.5 % Total cost of sales (76.1 ) (44.1 ) (1.3 ) (30.7 ) 69.6 % 72.6 % Selling, general and administrative expenses (22.5 ) (23.8 ) (0.2 ) 1.5 (6.3 )% (5.5 )% Stock-based compensation (1.5 ) (1.6 ) 0.0 0.1 (6.3 )% (6.3 )% Depreciation and amortization (19.0 ) (19.6 ) (0.1 ) 0.7 (3.6 )% (3.1 )% Net operating Income (Loss) $ 23.5 $ 22.2 $ 0.5 $ 0.8 3.6 % 5.9 % Profit on disposal of trade & assets 0.0 0.9 (0.1 ) (0.8 ) (88.9 )% (100.0 )% Net Income (Loss) $ 23.5 $ 23.1 $ 0.4 $ 0.0 0 % 1.7 % Exchange Rate - $ to £ 1.25 1.23 46 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.
Interactive, Key Performance Indicators For the Twelve-Month Period ended Variance 2022 vs 2021 Interactive Dec 31, 2022 Dec 31, 2021 % No. of Live Customers at the end of the period 130 109 21 19.3 % Average No. of Live Customers 125 100 25 24.5 % No. of Live Games at the end of the period 270 232 38 16.4 % Average No. of Live Games 254 216 38 17.6 % Total Revenue (£’m) £ 18.8 £ 16.6 £ 2.2 13.0 % 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 Interactive revenue at the end of the period and the average number of customers from which there is Interactive revenue during the period, respectively.
Interactive, Key Performance Indicators For the Twelve-Month Period ended Variance December 31, 2023 vs December 31, 2022 Interactive December 31, 2023 December 31, 2022 % No. of Live Customers at the end of the period 149 130 19 14.6 % Average No. of Live Customers 142 125 17 13.6 % No. of Live Games at the end of the period 290 270 20 7.4 % Average No. of Live Games 259 254 5 2.0 % Total Revenue (£’m) £ 22.4 £ 16.7 £ 5.7 34.1 % 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.
Leisure, Results of Operations For the Twelve-Month Period ended Variance 2022 vs 2021 (In millions) Dec 31, 2022 Dec 31, 2021 Variance Attributable to Currency Movement Variance on a Functional currency basis Total Functional Currency Variance % Total Reported Variance % Revenue: Service $ 93.2 $ 65.7 $ (10.9 ) $ 38.4 58.4 % 41.8 % Product 2.3 3.0 (0.3 ) (0.4 ) (14.0 )% (23.1 )% Total revenue 95.5 68.7 (11.2 ) 38.0 55.3 % 39.0 % Cost of Sales, excluding depreciation and amortization: Cost of Service (23.9 ) (15.9 ) 2.9 (10.9 ) 69.0 % 50.6 % Cost of Product (1.7 ) (2.0 ) 0.2 0.1 (6.2 )% (14.3 )% Total cost of sales (25.6 ) (17.9 ) 3.1 (10.8 ) 60.5 % 43.3 % Selling, general and administrative expenses (45.8 ) (35.1 ) 5.2 (15.9 ) 45.1 % 30.3 % Stock-based compensation (0.6 ) (0.6 ) 0.1 (0.1 ) 11.7 % 0.0 % Depreciation and amortization (13.5 ) (16.1 ) 1.6 1.0 (6.3 )% (16.1 )% Net operating Income (Loss) 10.0 (1.0 ) $ (1.3 ) $ 12.3 N/A N/A Exchange Rate - $ to £ 1.23 1.37 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.
Interactive, Recurring Revenue All Interactive revenue in both years was recurring. 50 Interactive, Results of Operations For the Twelve-Month Period ended Variance December 31, 2023 vs December 31, 2022 (In millions) December 31,2023 December 31, 2022 Variance Attributable to Currency Movement Variance on a Functional currency basis Total Functional Currency Variance % Total Reported Variance % Service Revenue $ 27.9 $ 20.6 $ 0.4 $ 6.9 33.5 % 35.4 % Cost of Service (1.7 ) (1.3 ) 0.0 (0.4 ) 30.8 % 30.8 % Selling, general and administrative expenses (10.8 ) (8.0 ) 0.0 (2.8 ) 35.0 % 35.0 % Stock-based compensation (0.6 ) (0.7 ) 0.0 0.1 (14.3 )% (14.3 )% Depreciation and amortization (3.6 ) (2.0 ) 0.0 (1.6 ) 80.0 % 80.0 % Net operating Income (Loss) $ 11.2 $ 8.6 $ 0.4 $ 2.2 25.6 % 30.2 % Exchange Rate - $ to £ 1.25 1.23 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.
In the discussion and analysis below, certain data may vary from the amounts presented in our consolidated financial statements due to rounding. Year-on-year comparisons may not be meaningful due to COVID-19 impacts in prior period, as noted above. For all reported variances, refer to the overall company and segment tables shown below.
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.
Depreciation and amortization decreased by $10.3 million, to $40.0 million, with reductions of $4.4 million in machine depreciation, $5.0 million in amortization of intangible assets and $1.0 million in amortization of right of use assets. Other net cash utilized by operating activities increased by $7.3 million, to a $40.9 million outflow.
Depreciation and amortization increased by $0.3 million, to $43.7 million, with increases of $2.0 million in amortization of intangible assets and $0.3 million in amortization of right of use assets offset by a $2.0 million decrease in machine depreciation. Other net cash utilized by operating activities improved by $35.5 million, to an outflow of $9.0 million.
This compares to $47.8 million of cash and cash equivalents as of December 31, 2021, with a further $27.0 million of revolver facilities undrawn. We had a working capital outflow of $40.9 million for the twelve months ended December 31, 2022, compared to a $33.6 million outflow for the twelve months ended December 31, 2021.
This compares to $25.0 million of cash as of December 31, 2022, with a further $24.1 million of revolver facilities undrawn. We had a working capital outflow of $9.0 million for the twelve months ended December 31, 2023, compared to a $44.5 million outflow for the twelve months ended December 31, 2022.
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, revenue increased by $25.7 million, or 71%.
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, 2023 revenue decreased by $0.5 million, or 0.8%.
Gaming Revenue During the twelve-month period, Gaming revenue increased by $43.1 million, or 53%, this was driven by a $30.4 million increase in Service revenue and $12.7 million increase in Product revenue.
Gaming Revenue During the twelve-month period, Gaming revenue increased by $29.2 million, or 26.2%, this was driven by a $2.0 million increase in Service revenue and $27.2 million increase in Product revenue.
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.
Excluding Low Margin sales, Gaming Recurring Revenue was 68% of Total Gaming Revenue. 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.
For the Twelve-Month Period ended Variance 2022 vs 2021 (In £ millions) Dec 31, 2022 Dec 31, 2021 % Gaming Recurring Revenue Total Gaming Revenue £ 90.8 £ 59.4 £ 31.5 53.0 % Gaming Participation Revenue £ 43.0 £ 27.7 £ 15.3 55.3 % Gaming Other Fixed Fee Recurring Revenue £ 12.8 £ 6.9 £ 5.9 85.6 % Gaming Long-term license amortization £ 4.3 £ 5.2 £ (0.8 ) (16.1 )% Total Gaming Recurring Revenue * £ 60.2 £ 39.8 £ 20.4 51.3 % Gaming Recurring Revenue as a % of Total Gaming Revenue † 66.3 % 67.0 % (0.8 )% Total Gaming excluding VAT-related revenue £ 90.0 £ 57.1 Gaming Recurring Revenue as a % of Total Gaming Revenue (excluding VAT-related revenue) 66.9 % 69.7 % * Does not reflect VAT-related revenue. † Total Gaming Revenue for the twelve-month period ended December 31, 2022 and 2021, includes £0.8 million and £2.3 million, respectively of VAT-related revenue, which is not reflected in Gaming Recurring Revenue for that period.
For the Twelve-Month Period ended Variance December 31, 2023 vs December 31, 2022 (In £ millions) December 31, 2023 December 31, 2022 % Gaming Recurring Revenue Total Gaming Revenue £ 114.1 £ 90.4 £ 23.7 26.2 % Gaming Participation Revenue £ 44.3 £ 43.5 £ 0.8 1.8 % Gaming Project Recurring Revenue £ 0.9 £ 0.4 £ 0.5 125.0 % Gaming Other Fixed Fee Recurring Revenue £ 13.7 £ 12.6 £ 1.1 8.7 % Gaming Long-term license amortization £ 2.7 £ 4.3 £ (1.6 ) (37.2 )% Total Gaming Recurring Revenue * £ 61.6 £ 60.8 £ 0.8 1.3 % Gaming Recurring Revenue as a % of Total Gaming Revenue † 54.0 % 67.3 % (13.3 )% Total Gaming excluding VAT -related revenue £ 114.1 £ 89.6 Gaming Recurring Revenue as a % of Total Gaming Revenue (excluding VAT-related revenue) 54.0 % 67.8 % Gaming Recurring Revenue as a % of Total Gaming Revenue (excluding Low Margin Sales) † 68.6 % 67.3 % * Does not reflect Low Margin-related revenue. † Total Gaming Revenue for the twelve-month period ended December 31, 2023 has no VAT-related revenue, the twelve-month period ended December 31, 2022, includes £0.8 million of VAT-related revenue, which is not reflected in Gaming Recurring Revenue for that period.
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.
(2) Includes circa 2,500 of lottery terminals where the 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.
As of December 31, 2022, $2.5 million of our $25.0 million of cash and cash equivalents were held as operational floats within the machines.
As of December 31, 2023, $3.1 million of our $40.0 million of cash were held as operational floats within the machines.
Liquidity and Capital Resources Twelve Months ended December 31, 2022, compared to Twelve Months ended December 31, 2021 Cash Flow Summary - A Two Year Comparative Twelve Months ended Variance (in millions) Dec 31, 2022 Dec 31, 2021 2022 to 2021 Net profit/(loss) $ 22.3 $ (36.7 ) $ 59.0 Amortization of debt fees 1.8 17.2 (15.4 ) Change in fair value of derivative and warrant liabilities and stock-based compensation expense 11.5 13.6 (2.1 ) Foreign currency translation on senior bank debt and cross currency swaps 0.0 (4.6 ) 4.6 Depreciation and amortization (incl RoU assets) 40.0 50.3 (10.3 ) Other net cash utilized by operating activities (40.9 ) (33.6 ) (7.3 ) Net cash provided by operating activities 34.7 6.2 28.5 Net cash used in investing activities (40.4 ) (37.9 ) (2.5 ) Net cash used/(generated) by financing activities (11.0 ) 31.2 (42.2 ) Effect of exchange rates on cash (6.1 ) 1.2 (7.3 ) Net decrease in cash and cash equivalents $ (22.8 ) $ 0.7 $ (23.5 ) Net cash provided by operating activities For the twelve months ended December 31, 2022, net cash inflow provided by operating activities was $34.7 million, compared to a $6.2 million inflow for the twelve months ended December 31, 2021, representing a $28.5 million increase in cash generation.
For the Twelve-Month Period ended (In millions) December 31, 2023 December 31 2022 Net revenue $ 323.0 $ 281.6 Less Low Margin Gaming Sales (30.6 ) - Adjusted Revenue $ 292.4 $ 281.6 Adjusted Revenue £ 234.7 £ 229.0 Exchange Rate - $ to £ 1.25 1.23 57 Liquidity and Capital Resources Twelve Months ended December 31, 2023, compared to Twelve Months ended December 31, 2022 Cash Flow Summary - A Two Year Comparative Twelve Months ended Variance (in millions) Dec 31, Dec 31, 2023 2022 2023 to 2022 Net profit $ 7.6 $ 20.6 $ (13.0 ) Non-cash interest expense relating to senior debt 2.0 1.8 0.2 Change in fair value of derivative liabilities and stock-based compensation expense 11.5 11.5 - Profit on sale of Gaming business - (0.9 ) 0.9 Contract cost additions (10.3 ) (7.2 ) (3.1 ) Depreciation and amortization (incl RoU assets) 43.7 43.4 0.3 Other net cash utilized by operating activities (9.0 ) (44.5 ) 35.5 Net cash provided by operating activities 45.5 24.7 20.8 Net cash used in investing activities (48.4 ) (32.6 ) (15.8 ) Net cash generated/(used) by financing activities 16.2 (11.0 ) 27.2 Effect of exchange rates on cash 1.7 (3.9 ) 5.6 Net increase/(decrease) in cash and cash equivalents $ 15.0 $ (22.8 ) $ 37.8 Net cash provided by operating activities For the twelve months ended December 31, 2023, net cash inflow provided by operating activities was $45.5 million, compared to a $24.7 million inflow for the twelve months ended December 31, 2022, representing a $20.8 million increase in cash generation.
Loto-Quebec launched our first iLottery title with Pharaon Reaction TM in the first half of 2022 and followed up with a second title in the second half of 2022. 48 Interactive, Results of Operations For the Twelve-Month Period ended Variance 2022 vs 2021 (In millions) Dec 31, 2022 Dec 31, 2021 Variance Attributable to Currency Movement Variance on a Functional currency basis Total Functional Currency Variance % Total Reported Variance % Service Revenue $ 23.1 $ 22.8 $ (2.7 ) $ 3.0 13.0 % 1.2 % Cost of Service (3.7 ) (3.7 ) 0.4 (0.4 ) 10.0 % (1.3 )% Selling, general and administrative expenses (7.1 ) (6.1 ) 0.8 (1.9 ) 30.9 % 17.1 % Stock-based compensation (0.7 ) (0.6 ) 0.1 (0.2 ) 30.2 % 16.7 % Depreciation and amortization (2.9 ) (3.2 ) 0.3 (0.0 ) 1.2 % (9.4 )% Net operating Income (Loss) $ 8.7 $ 9.2 $ (1.0 ) $ 0.5 5.3 % (5.5 )% Exchange Rate - $ to £ 1.23 1.37 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.
For the Twelve-Month Period ended Variance December 31, 2023 vs December 31, 2022 (In £ millions) December 31, 2023 December 31, 2022 % Leisure Recurring Revenue Total Leisure Revenue £ 77.2 £ 77.7 £ (0.5 ) (0.6 )% Total Leisure Recurring Revenue £ 75.4 £ 75.4 £ 0.0 0.0 % Leisure Recurring Revenue as a Percentage of Total Leisure Revenue 97.7 % 97.0 % 0.7 52 Leisure, Results of Operations For the Twelve-Month Period ended Variance December 31, 2023 vs December 31, 2022 (In millions) December 31, 2023 December 31,2022 Variance Attributable to Currency Movement Variance on a Functional currency basis Total Functional Currency Variance % Total Reported Variance % Revenue: Service $ 94.1 $ 93.2 $ 1.4 $ (0.5 ) (0.5 )% 1.0 % Product 2.2 2.3 (0.1 ) - 0.0 % (4.3 )% Total revenue 96.3 95.5 1.3 (0.5 ) (0.5 )% 0.8 % Cost of Sales, excluding depreciation and amortization: Cost of Service (47.4 ) (44.6 ) (1.0 ) (1.8 ) 4.0 % 6.3 % Cost of Product (1.1 ) (1.5 ) 0.1 0.3 (20.0 )% (26.7 )% Total cost of sales (48.5 ) (46.1 ) (0.9 ) (1.5 ) 3.3 % 5.2 % Selling, general and administrative expenses (28.4 ) (25.4 ) (0.1 ) (2.9 ) 11.4 % 11.8 % Stock-based compensation (1.0 ) (0.6 ) - (0.4 ) 66.7 % 66.7 % Depreciation and amortization (11.6 ) (13.5 ) - 1.9 (14.1 )% (14.1 )% Net operating Income (Loss) 6.8 9.9 $ 0.3 $ (3.4 ) (34.3 )% (31.3 )% Exchange Rate - $ to £ 1.25 1.23 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.
Net Income/ (loss) During the twelve-month period, net income was $22.3 million, an increase of $60.9 million year-over-year, primarily due to an increase in net operating income $54.9 million, a decrease in interest expense, net $15.7 million, a decrease in other finance income ($4.5 million) and increase in income tax expense of ($5.3 million).
During the twelve-month period ended December 31, 2023 net income was $7.6 million, an decrease of $13.2 million year-over-year, primarily due to the decrease in net operating income $7.0 million, an increase in interest expense, net $2.0 million, a decrease in profit on disposal $0.9 million, a decrease in other finance income $0.7 million and an increase in income tax expense of $2.8 million.
(6) 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. (7) In May 2021, the Company refinanced its debt.
(6) 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. (7) Acquisition and integration related transaction expenses, are as described above in the Results of Operations line item discussions.
Overall Company Results Twelve Months ended December 31, 2022, compared to Twelve Months ended December 31, 2021 For the Twelve-Month Variance Period ended 2022 vs 2021 (In millions) Dec 31, 2022 Dec 31, 2021 Variance Attributable to Currency Movement Variance on a Functional currency basis Total Functional Currency Variance % Total Reported Variance % Revenue: Service $ 251.8 $ 183.3 $ (29.1 ) $ 97.5 53.2 % 37.3 % Product 33.6 25.6 (4.2 ) 12.3 48.0 % 31.4 % Total revenue 285.4 208.9 (33.3 ) 109.8 52.6 % 36.6 % Cost of Sales, excluding depreciation and amortization: Cost of Service (49.3 ) (34.3 ) 5.9 (21.0 ) 61.3 % 43.9 % Cost of Product (22.7 ) (16.4 ) 2.9 (9.2 ) 55.7 % 38.2 % Selling, general and administrative expenses (115.6 ) (97.2 ) 13.6 (32.0 ) 33.0 % 18.9 % Stock-based compensation (10.8 ) (13.0 ) 1.2 1.0 (7.8 )% (17.2 )% Acquisition and integration related transaction expenses (0.5 ) (1.6 ) 0.1 1.0 (63.4 )% (67.6 )% Depreciation and amortization (37.6 ) (47.0 ) 4.2 5.2 (11.1 )% (20.0 )% Net operating Income (Loss) 48.9 (0.6 ) (5.4 ) 54.9 (30632.3 )% (8714.8 )% Other income (expense) Interest expense, net (25.4 ) (44.3 ) 3.2 15.7 (35.7 )% (42.7 )% Change in fair value of warrant liability - 0.9 - (0.9 ) (100.0 )% (100.0 )% Profit on disposal of trade & assets 0.9 - (0.0 ) 0.9 N/A N/A Other finance income (expense) 1.1 5.7 (0.1 ) (4.5 ) (78.0 )% (80.2 )% Total other income (expense), net (23.4 ) (37.7 ) 3.1 11.2 (29.2 )% (38.0 )% Net Income (loss) from continuing operations before income taxes 25.5 (38.3 ) (2.3 ) 66.1 (177.4 )% (166.6 )% Income tax expense (3.2 ) 1.6 0.4 (5.3 ) (329.4 )% (303.3 )% Net Income (Loss) $ 22.3 $ (36.7 ) $ (1.9 ) $ 60.9 (170.5 )% (160.7 )% Exchange Rate - $ to £ 1.23 1.37 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.
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. 40 Overall Company Results Twelve Months ended December 31, 2023, compared to Twelve Months ended December 31, 2022 For the Twelve-Month Variance Period ended December 31, 2023 vs December 31, 2022 (In millions) December 31, 2023 December 31, 2022 Variance Attributable to Currency Movement Variance on a Functional currency basis Total Functional Currency Variance % Total Reported Variance % Revenue: Service $ 261.2 $ 248.4 $ 3.0 $ 9.8 4 % 5 % Product 61.8 33.2 1.5 27.1 82 % 86 % Total revenue 323.0 281.6 4.5 36.9 13 % 15 % Cost of Sales, excluding depreciation and amortization: Cost of Service (75.1 ) (71.4 ) (1.3 ) (2.4 ) 3 % 5 % Cost of Product (52.6 ) (21.9 ) (1.0 ) (29.7 ) 136 % 140 % Selling, general and administrative expenses (104.3 ) (91.1 ) (0.7 ) (12.5 ) 14 % 14 % Stock-based compensation (11.2 ) (10.8 ) (0.1 ) (0.3 ) 3 % 4 % Acquisition and integration related transaction expenses - (0.5 ) - 0.5 (100 )% (100 )% Depreciation and amortization (39.9 ) (39.9 ) (0.5 ) 0.5 (1 )% 0 % Net operating Income (Loss) 39.9 46.0 0.9 (7.0 ) (15 )% (13 )% Other income (expense) Interest expense, net (27.7 ) (25.3 ) (0.4 ) (2.0 ) 8 % 9 % Profit on disposal of trade & assets - 0.9 (0.1 ) (0.8 ) (89 )% (100 )% Other finance income (expense) 0.4 1.1 - (0.7 ) (64 )% (64 )% Total other income (expense), net (27.3 ) (23.3 ) (0.5 ) (3.5 ) 15 % 17 % Income (loss) before income taxes 12.6 22.7 0.3 (10.4 ) (46 )% (44 )% Income tax expense (5.0 ) (2.1 ) (0.1 ) (2.8 ) 133 % 138 % Net Income (Loss) $ 7.6 $ 20.6 $ 0.2 $ (13.2 ) (64 )% (63 )% Exchange Rate - $ to £ 1.24 1.23 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.
Contractual Obligations As of December 31, 2022, our contractual obligations were as follows: Less than More than Contractual Obligations (in millions) Total 1 yr 1-2 years 3-5 years 5 yrs Operating activities Interest on long term debt $ 77.9 $ 22.2 $ 44.6 $ 11.1 $ - Financing activities Senior bank debt - principal repayment 282.9 - - 282.9 - Finance lease payments 2.2 1.0 1.2 - - Operating lease payments 8.7 2.8 3.3 1.2 1.4 Interest on non-utilization fees 1.0 0.3 0.7 - - Total $ 372.7 $ 26.3 $ 49.8 $ 295.2 $ 1.4 Off-Balance Sheet Arrangements As of December 31, 2022, there were no off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, promulgated by the U.S.
Management has discretion as to whether to repurchase shares of the Company and as of December 31, 2023, an aggregate of $12.0 million of our shares of common stock had been repurchased. 60 Contractual Obligations As of December 31, 2023, 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 $ 59.0 $ 23.6 $ 23.5 $ 11.9 $ - Purchase of Vantage machines 12.6 12.6 - - - Financing activities Revolver repayment 20.1 20.1 - - - Senior secured notes - principal repayment 299.6 - - 299.6 - Finance lease payments 2.4 0.7 0.9 0.8 - Operating lease payments 14.5 4.7 3.0 4.2 2.6 Interest on non-utilization fees 0.6 0.2 0.4 - - Total $ 408.8 $ 61.9 $ 27.8 $ 316.5 $ 2.6 Off-Balance Sheet Arrangements As of December 31, 2023, there were no off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, promulgated by the U.S.
Gaming, Key Performance Indicators For the Twelve-Month Period ended Variance 2022 vs 2021 Gaming Dec 31, 2022 Dec 31, 2021 % End of period installed base (# of terminals) (3) 35,003 31,891 3,112 9.8 % Total Gaming - Average installed base (# of terminals) (3) 34,781 31,894 2,886 9.0 % Participation - Average installed base (# of terminals) (3) 31,268 29,189 2,079 7.1 % Fixed Rental - Average installed base (# of terminals) 3,512 2,705 807 29.8 % Service Only - Average installed base (# of terminals) 16,854 21,563 (4,709 ) (21.8 )% Customer Gross Win per unit per day (1) (2) (3) £ 91.0 £ 50.7 £ 40.4 79.7 % Customer Net Win per unit per day (1) (2) (3) £ 66.5 £ 37.7 £ 28.7 76.2 % Inspired Blended Participation Rate 5.7 % 6.4 % (0.7 )% (10.9 )% Inspired Fixed Rental Revenue per Gaming Machine per week (2) £ 47.8 £ 26.3 £ 21.4 81.4 % Inspired Service Rental Revenue per Gaming Machine per week (2) £ 4.7 £ 3.4 £ 1.3 36.9 % Gaming Long term license amortization (£’m) £ 4.3 £ 5.0 £ (0.7 ) (13.9 )% Number of Machine sales 2,927 3,372 (545 ) (16.2 )% Average selling price per terminal £ 7,918 £ 4,436 £ 3,482 78.85 % (1) Includes all SBG terminals in which the Company takes a participation revenue share across all territories.
Gaming, Key Performance Indicators For the Twelve-Month Period ended Variance December 31, 2023 vs December 31, 2022 Gaming December 31, 2023 December 31, 2022 % End of period installed base (# of terminals) (2) 34,500 34,903 (403 ) (1.2 )% Total Gaming - Average installed base (# of terminals) (2) 34,563 34,681 (118 ) (0.3 )% Participation - Average installed base (# of terminals) (2) 30,305 31,268 (963 ) (3.1 )% Fixed Rental - Average installed base (# of terminals) 4,258 3,412 846 24.8 % Service Only - Average installed base (# of terminals) 11,688 16,584 (4,896 ) (29.5 )% Customer Gross Win per unit per day (1) (2) £ 96.5 £ 91.0 £ 5.5 6.0 % Customer Net Win per unit per day (1) (2) £ 70.5 £ 66.5 £ 4.0 6.0 % Inspired Blended Participation Rate 5.6 % 5.7 % (0.1 )% Inspired Fixed Rental Revenue per Gaming Machine per week £ 47.5 £ 48.5 £ (1.0 ) (2.1 )% Inspired Service Rental Revenue per Gaming Machine per week £ 5.1 £ 4.7 £ 0.4 8.5 % Gaming Long term license amortization (£’m) £ 2.6 £ 4.3 £ (1.7 ) (39.5 )% Number of Machine sales 9,475 3,027 6,448 213.0 % Average selling price per terminal £ 4,890 £ 7,843 £ (2,953 ) (37.7 )% (1) Includes all SBG terminals in which the Company takes a participation revenue share across all territories.
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. 37 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).
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.
“Virtual Sports Long term license amortization” is the upfront license fee which is typically spread over the life of the contract. Virtual Sports, key events During the period, we launched Virtual Horse racing with the DC Lottery into their lottery locations.
“Virtual Sports Long term license amortization” is the upfront license fee which is typically spread over the life of the contract.
Interactive We generate revenue from our Interactive segment through the licensing of our products. Typically, we receive fees in exchange for the licensing of our products, on a long-term contract basis, on a participation basis.
Virtual Sports We generate revenue from our Virtual Sports segment through the on premise licensing solution and hosting of our products. We primarily receive fees on a participation basis.
Gaming Operating Income Operating income increased for the twelve-month period by $23.4 million.
Interactive operating income Operating income for the twelve-month period ended December 31, 2023 increased by $2.2 million.
During the twelve months ended December 31, 2021, we derived approximately 71%, 9% and 20% of our revenue from those regions, respectively. As of December 31, 2022, our non-current assets (excluding goodwill) were attributable as follows: 78% to the UK, 6% to Greece and 16% across the rest of the world.
As of December 31, 2023, our non-current assets (excluding goodwill) were attributable as follows: 71% to the UK, 12% to Greece and 17% across the rest of the world. As of as of December 31, 2022, our non-current assets (excluding goodwill) were attributable as follows: 79% to the UK, 6% to Greece and 15% across the rest of the world.
The increase was driven by Cost of Service of $21.0 million due to COVID-19 related closures in the prior period, and a $9.2 million increase in Cost of Product. Selling, general and administrative expenses Selling, general and administrative (“SG&A”) expenses for the twelve months ended December 31, 2022 increased by $32.0 million, or 33%.
The increase was driven by Cost of Service of $2.4 million and a $29.7 million increase in Cost of Product inclusive of Low Margin sales activity. Selling, general and administrative expenses Selling, general and administrative (“SG&A”) expenses for the twelve-month period ended December 31, 2023 increased by $12.5 million, or 13.7% over the twelve-month period ended December 31, 2022.
Currency Movement represents the difference between the results in our reporting currency (USD) and the results on a functional currency (at constant rate) basis.
Currency Movement represents the difference between the results in our reporting currency (USD) and the results on a functional currency (at constant rate) basis. 54 Reconciliations from net loss, as shown in our Consolidated Statements of Operations and Comprehensive Income (Loss), to Adjusted EBITDA are shown below.
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.
Historical seasonality has been impacted by COVID-19 business disruptions and could continue to be impacted in future periods. 38 Revenue We generate revenue in five principal ways: i) on a participation basis, ii) on a fixed rental fee basis, iii) through product sales, iv) through software license fees and v) managed service provision.
Expenses in both years related to integration costs for the Company’s acquisition of both Gaming Technology Group of Novomatic UK Ltd., and acquisition costs of Sportech Lotteries, LLC as well as costs relating to potential acquisitions. Depreciation and amortization Depreciation and amortization decreased for the twelve-month period by $5.2 million.
Acquisition and integration related transaction expenses During the twelve months ended December 31, 2023 there were no cost was recorded for acquisition and integration whereas during the twelve months ended December 31, 2022, the Company recorded an expense of $0.5 million related to integration costs for the Company’s acquisition of both Gaming Technology Group of Novomatic UK Ltd., and acquisition costs of Sportech Lotteries, LLC as well as costs relating to potential acquisitions.
During the periods ended December 31, 2022 and December 31, 2021, the average GBP:USD rates were for the twelve-month period 1.23 and 1.37, respectively.
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, 2023 and December 31, 2022, the average GBP:USD rates were for the twelve-month period 1.25 and 1.23, respectively.
Management gives careful consideration to this KPI in terms of driving growth across the segment. This does not include Service Only terminals.
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.
This was driven by higher spend on plant, property and equipment (an $9.6 million increase compared to 2021) and capitalized software (a $4.8 million increase compared to 2021) due to spending in the previous year being low as a result of the pandemic.
This was driven by higher spend on plant, property and equipment (a $10.6 million increase compared to 2022 driven by the updating of machines in Greece with 2,500 terminals installed) and capitalized software (a $3.9 million increase compared to 2022).
The RCF Financial Covenant does not include a minimum interest coverage ratio or other financial covenants. Covenant testing at December 31, 2022 showed covenant compliance. There were no breaches of the debt covenants in the periods ended December 31, 2022 or December 31, 2021.
There were no other breaches of the debt covenants in the periods ended December 31, 2023 or December 31, 2022.
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 the tables below, variances in particular line items from period to period exclude currency translation movements, and currency translation impacts are shown independently.
This was offset by lower VAT-related revenue of $2.1 million. Product revenue increase was primarily driven by higher Product sales of $9.3 million in North America, $3.3 million of UK sales and $2.0 million of higher spare sales, partly offset by lower sales of $2.1 million in Italy.
The increase in Gaming Service revenue was driven by $1.4 million for North America, $1.1 million in the UK, $0.3 million in Greece and $0.1 million for Lotteries offset by no VAT-related revenue in 2023 of $1.0 million.
Virtual Sports operating income Operating income increased by $25.3 million in the twelve-month period. This increase was primarily due to the increase in revenue of $25.7 million and a decrease in depreciation and amortization of $0.5 million, partly offset by an increase of $0.8 million of cost of sales.
This increase was primarily due to the increase in gross margin of $1.9 million, a decrease in SG&A expenses of $1.0 million and in Stock-based compensation of $0.3 million offset by an increase in depreciation and amortization of $0.7 million.
Virtual Sports and Interactive grew by $25.7 million and $3.0 million, respectively, with $22.6 million of the Virtuals Sports increase from Online and $3.1 million from Retail. 38 Cost of Sales, excluding depreciation and amortization Cost of sales, excluding depreciation and amortization, for the twelve months ended December 31, 2022, increased by $30.2 million, or 60%.
For the twelve-month period ended December 31, 2023 Leisure revenue reduced by $0.5 million, Gaming service revenue grew by $2.0 million, Virtual Sports grew by $1.5 million mainly due to Retail and Interactive grew by $1.5 million. 41 Cost of Sales, excluding depreciation and amortization Cost of sales, excluding depreciation and amortization, for the twelve-month period ended December 31, 2023, increased by $32.1 million, or 34% over the twelve-month period ended December 31, 2022.
(3) “Litigation Settlement” refers to full and final settlement of a contractual dispute relating to a Development Services and Management Agreement. 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.
To qualify as being an adjusting item, costs must be specific to the event and be neither normal nor recurring in nature. 56 (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.
Change in the fair value of derivative and warrant liabilities and stock-based compensation expense decreased by $2.1 million, from $13.6 million to $11.5 million.
Amortization of debt fees increased by $0.2 million, to $2.0 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 was unchanged at $11.5 million.
Gain on disposal of business For the twelve-months ended December 31, 2022, gain on disposal of business was $0.9 million due to the sale of part of our Italian Gaming operations (see Gaming key events for more information). Other finance income Other finance income for the twelve months ended December 31, 2022, was a $1.1 million gain.
A higher stock-based compensation expense ($0.2 million) was partly offset by a lower gain relating to terminated cross currency swaps ($0.2 million) as these terminated at the end of September 2023. The twelve-months ended December 31, 2022, included a $0.9 million gain on disposal of business due to the sale of part of our Italian Gaming operations.
This was partially offset by increases in Cost of sales ($10.8 million) and SG&A expenses ($15.9 million), due to staff returning from furlough and to full pay and in the later months from the increase in the UK national living wage. 51 Non-GAAP Financial Measures We use certain non-GAAP financial measures, including EBITDA and Adjusted EBITDA, to analyze our operating performance.
This was primarily due to the decrease in revenue of $0.5 million with increases in cost of sales of $1.5 million mainly due to seasonal staff increases inclusive of additional heads in the new locations plus higher UK national living wage and salary increases and increased SG&A cost $2.9 million which mainly relates to staff cost driven by the investment in staff to help to drive revenue and improve processes. 53 Non-GAAP Financial Measures We use certain non-GAAP financial measures, including EBITDA, to analyze our operating performance.
Interactive operating income Operating income for the twelve-month period increased by $0.5 million. This increase was driven by the increase in revenue, partially offset by a $1.9 million increase in SG&A expenses driven by the investment in the segment to help drive revenues and for staff returning from furlough and to full pay.
This increase was driven by the increase in gross margin of $6.5 million, partially offset by a $2.8 million increase in SG&A expenses driven by the investment in staff and IT in the segment to help drive revenue and higher depreciation and amortization reflecting the heightened investment in this segment.
Net operating income/(loss) During the twelve-month period, net operating income was $48.9 million, an increase of $54.9 million.
Net operating income / Net Income During the twelve-month period ended December 31, 2023 net operating income was $39.9 million, a decrease of $7.0 million over the twelve-month period ended December 31, 2022.
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.
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.
The relative movements between the twelve months ended December 31, 2022 and the twelve months ended December 31, 2021 resulted in a $17.6 million outflow through increased inventory holding as Inspired made the strategic decision to secure components and protect sales in a challenging global supply chain market and a $7.0 million increase in receivables due to timing of sales.
The relative movements between the twelve months ended December 31, 2023 and the twelve months ended December 31, 2022 resulted in a $16.3 million inventory improvement following Inspired making the strategic decision to secure components to protect future sales resulting in inventory levels increasing during the prior year.
These were offset by relative favorable movements between the twelve months ended December 31, 2022 and the twelve months ended December 31, 2021 for prepayments and accrued income of $10.2 million due to lower trading levels at the start of the previous year, interest accruals of $5.0 million following the debt refinancing in May 2021 and trade payables and accruals of $1.9 million. 55 Net cash used in investing activities Net cash utilized in investing activities increased by $2.5 million, to $40.4 million in the twelve months ended December 31, 2022.
These were partly offset by a relative outflow in prepayments and accrued income, $4.3 million. 58 Net cash used in investing activities Net cash utilized in investing activities increased by $15.8 million, to $48.4 million in the twelve months ended December 31, 2023.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeA hypothetical 10% adverse change in the value of the Euro and the US Dollar relative to GBP as of December 31, 2022, would result in favorable translation adjustments of approximately $0.0 million and $0.5 million, respectively, recorded in other comprehensive loss. Included within our trading results are earnings outside of our functional currency.
Biggest changeA hypothetical 10% adverse change in the value of the Euro and the USD relative to GBP as of December 31, 2023, would result in translation adjustments of approximately $1.7 million favorable and $0.7 million unfavorable, respectively, recorded in other comprehensive loss. Included within our trading results are earnings outside of our functional currency.
The majority of the Company’s trading is in GBP, the functional currency, although the reporting currency of the Company is the US Dollar. As such, changes in the GBP:USD exchange rate have an effect on the Company’s results.
The majority of the Company’s trading is in GBP, the functional currency, although the reporting currency of the Company is the USD. As such, changes in the GBP:USD exchange rate have an effect on the Company’s results.
For the trading figures the 10% movement is based on the average exchange rate throughout the reported period and for the balance sheet figures the 10% movement is based on the exchange rate used at December 31, 2022.
For the trading figures the 10% movement is based on the average exchange rate throughout the reported period and for the balance sheet figures the 10% movement is based on the exchange rate used at December 31, 2023.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our principal market risks are our exposure to changes in foreign currency exchange rates. Interest Rate Risk Following the Company’s refinancing of its debt in May 2021, the external borrowings of £235.0 million ($282.9 million) are provided at a fixed rate.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our principal market risks are our exposure to changes in foreign currency exchange rates. Interest Rate Risk Following the Company’s refinancing of its debt in May 2021, the external borrowings of £235.0 million ($299.6 million) are provided at a fixed rate.
To estimate our foreign currency exchange rate risk, we identify material Euro and US Dollar trading and balance sheet amounts and recalculate the result using a 10% movement in the GBP:US Dollar exchange rate.
To estimate our foreign currency exchange rate risk, we identify material Euro and USD trading and balance sheet amounts and recalculate the result using a 10% movement in the GBP:USD exchange rate.
A hypothetical 10% adverse change in the value of the Euro and the US Dollar relative to GBP as of December 31, 2022, would result in translation adjustments of approximately $1.3 million favorable and $1.1 million unfavorable, respectively, recorded in trading operations.
A hypothetical 10% adverse change in the value of the Euro and the USD relative to GBP as of December 31, 2023, would result in translation adjustments of approximately $1.1 million favorable and $2.2 million unfavorable, respectively, recorded in trading operations.
A 10% weakening of GBP against the US Dollar would change the trading operational results unfavorably by approximately $2.2 million and would result in unfavorable translation adjustments of approximately $7.4 million, recorded in other comprehensive loss. For further information regarding the new external borrowings, see Note 13 to the Consolidated Financial Statements, “Long Term and Other Debt”. 58
A 10% weakening of GBP against the USD would change the trading operational results unfavorably by approximately $1.6 million and would result in unfavorable translation adjustments of approximately $8.6 million, recorded in other comprehensive loss. For further information regarding the new external borrowings, see Note 13 to the Consolidated Financial Statements, “Long Term and Other Debt”. 64
Excluding intercompany balances, our Euro functional currency net assets total approximately $0.4 million, and our US Dollar functional currency net assets total approximately $4.6 million. We use a sensitivity analysis model to measure the impact of a 10% adverse movement of foreign currency exchange rates against the US Dollar.
Excluding intercompany balances, our Euro functional currency net assets total approximately $18.3 million, and our USD functional currency net liabilities total approximately $7.4 million. We use a sensitivity analysis model to measure the impact of a 10% adverse movement of foreign currency exchange rates against the USD.
Retained gains from Euro based entities earned in Euros and retained losses from USD based entities earned in US Dollars in the twelve months ended December 31, 2022, were €13.4 million and $12.3 million, respectively.
Retained gains from Euro based entities earned in Euros and retained losses from USD based entities earned in USD in the twelve months ended December 31, 2023, were €10.8 million and $23.7 million, respectively.

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