Inspired Entertainment, Inc. 2026 Q2 Earnings Call

Thank you, operator. Good afternoon, and thank you for joining our second quarter conference call. I'll begin with some overarching comments, and will then hand it over to Brooks, who will discuss the business in significantly more detail. As you'll hear in a few minutes, there was a lot going on in the first half of the year, and there's even more in the second half. Revenue and EBITDA of $61 million and $27 million respectively in the quarter were about where we expected, and EBITDA was a little ahead of consensus. Comparison to the second quarter of 2025 isn't too meaningful because of the exclusion in 2026 of the divested Holiday Park revenue and income, which were seasonally strong in 2025, as well as the impact of pub restructuring.

At the same time, however, it's instructive to compare the first and second quarters of 2026 to each other to get a sense of sequential momentum. In that case, second quarter revenue and EBITDA were 6% and 14% respectively from the first quarter, despite the impact of the near doubling of the U.K. Remote Gaming Duty beginning in April, a subject to which I will return in a moment. As a result of the combined Holiday Park sale and pub restructuring, together with the momentum in our continuing digital and retail businesses, our EBITDA margin expanded by 1,000 basis points year-over-year to 45%. In parallel, we have year to date retired $23 million in debt, repurchased over 700,000 shares, and reduced our net leverage to three.

Slide four confirms our 2026 EBITDA target range of $112 million-$118 million and guides to free cash flow conversion for the year of 20%+ of EBITDA. For reasons I will explain more fully later on the call, the true operating free cash flow of the business in 2026 has in fact been significantly better than what can be seen from the reported results. For the year, we expect that on a pro forma basis, it will be in excess of 25% versus the 20% shown on the slide. The impact of the increase in the U.K. gaming duty, which went into effect on April 1st, is something we need to unpack a little more fully in order to fully understand how the rest of the year will unfold.

As illustrated in slide five, worldwide year-over-year growth in interactive revenue and EBITDA in the second quarter were 15% and 13% respectively. A decent but totally anomalous result in that historically interactive EBITDA has consistently grown meaningfully faster than revenue due to operating leverage in the business. The cause of the second quarter anomaly is, of course, the U.K. Remote Gaming Duty. On slide five, we illustrate that our U.K. gross gaming revenue in the second quarter was 40% up year-over-year. I should emphasize this was our gross gaming revenue, not the gross gaming revenue of the U.K. market itself. The near doubling of the tax largely negated this growth, thereby depressing the margin.

The compounding effect of the increase in our GGR of 40% with the doubling of the tax rate meant that in absolute terms, our tax impact went up 2.5 times from year-to-year. For the balance of the year, the anomaly will continue to distort year-to-year comparisons, but sequentially, the situation will be quite different. In a moment, Brooks will show how in each of the last three years, consecutive second half interactive volume growth was well ahead of first half, with EBITDA growth even faster. Since the increased tax was fully in effect in this year's second quarter, we can anticipate that as we move through the balance of this year, the sequential relationship between EBITDA and revenue will revert to the historic pattern, showing operating leverage. With that, I'll hand it over to Brooks.

Okay, thanks, Lorne. As usual, I'll provide more detail on our business segments in the second quarter and share an update on the key initiatives we're focused on for the second half of the year. Our Q2 results demonstrate continued progress in transforming the business into a more digital-led, less capital-intensive model while increasing adjusted EBITDA, expanding EBITDA margins, generating stronger cash flow, and giving us the flexibility to continue deleveraging and repurchasing shares where appropriate. We've discussed these priorities for some time, and we are pleased to see the benefits coming through, particularly with the EBITDA margin reaching 45% by the end of the second quarter, tracking in line with our full-year guidance. Moving over to slide seven. Retail solutions performed very well in the quarter, executing against our margin expansion strategy following last year's sale of the Holiday Parks business and the restructuring of our pub segment.

As a result, the business delivered EBITDA margins before corporate allocation of more than 50% for the first time. Performance was driven by continued cash box growth across our U.K. retail businesses, including the licensed betting offices, MSAs, pubs, AGCs, and bingo. As previously discussed, William Hill closed just over 200 shops during the quarter, and these closures were largely their lower-performing locations, which improved the performance of the remaining William Hill estate. At the same time, we successfully redeployed the removed terminals across our broader estate, with further placement opportunities still ahead. In Greece, we delivered year-over-year cash box growth and further expanded our market-leading share, supported by our latest Vantage cabinets and our best-in-class content. The Vantage Slant cabinet has delivered particularly strong gains in Greece, which were reinforced by Allwyn's additional order of more than 2,000 replacement machines.

We expect to begin delivering those units in the fourth quarter of this year as part of the ongoing refresh of our Greek estate, with 32% of our 9,000 terminals yet to be refreshed. We also installed 125 terminals for AGLC in Alberta this quarter, further strengthening our position in the important Canadian VLT market. A key part of our retail solution strategy is continually refreshing content to keep players engaged. During the quarter, we sold subscription game packs to both AGLC and to more than 92% of our Illinois terminal base, which has driven the best performance in that market we've seen to date. We're also leveraging our omnichannel strategy by bringing successful online titles into retail, and early results are encouraging.

Wolf It Up! has proven to be a top game in multiple retail markets in the U.K. and North America, demonstrating our ability to translate online game success into retail performance. Moving over to slide eight. The interactive business continued to perform well with adjusted EBITDA growing approximately 13% year-over-year, despite the impact of the U.K. Remote Gaming taxes nearly doubling from 21% to 40% beginning on April 1st. We continued to gain market share in the U.K., which helped offset some of the tax impact we had previously guided to. As Lorne mentioned, U.K. gross gaming revenue grew 40% year-over-year in the second quarter, underscoring the strength of our content and the continued demand for our games. On this slide, you'll see the pattern of interactive plays over the last four years and how each year the lines overlay one another in virtually the same way.

As you can see, that pattern didn't change in 2026, despite the introduction of the U.K. tax changes on April 1st. If this historical pattern continues for the remainder of 2026 as it has in prior years, we expect the second half of the year to grow in a similar trajectory, giving us confidence in our second-half targets. We've also continued to gain share in North America, led by the performance of our Cash Bank family of games across operator customers. We took advantage of the World Cup fever and released several soccer-themed skins on our most popular franchise brands, and these games kept players as engaged as the World Cup did for fans across the globe.

In July, we launched on day one of Alberta's newly regulated market with all major operators. We're very excited about this market, as we see further opportunity to leverage content that has already proven successful throughout Alberta, through AGLC and also Ontario, and expand our presence over time. Hybrid Dealer is also gaining momentum, with turnover increasing 13% and GGR increasing 25% from Q1 to Q2. In Q2, we launched our branded Wolf It Up Roulette game with DraftKings and added key U.K. operators such as Betfred, which contributed to this growth. We're also developing a bespoke BetMGM game based on The Price is Right license for delivery by the end of the year.

While Hybrid Dealer may not become as large as we originally anticipated, it certainly represents a focused opportunity within interactive. We continue to see attractive growth potential as we expand our offerings and add new customers. Finally, we've committed significant resources to expanding our iLottery instance capabilities and expect to begin delivering games into that vertical next year, with plans to further leverage our content creation capabilities in all of these areas. Moving over to slide nine, we continue to invest in our content creation capabilities, including the building out of our newest content studio in Manchester. Bee Reel Games is generating a lot of buzz. Sorry about that, I couldn't help it. It's expected to launch its first game by year-end. As I've said before, the feedback we hear most often from operator customers is that they love our content, they just want more of it.