Inspired Entertainment Third Quarter 2026 Conference Call - INSPIRED ENTERTAINMENT INC

Financial Performance:

• Reported EBITDA margin reached 46% in Q3 2026, an increase of 1,100 basis points over six quarters.
• Trailing 12-month EBITDA was flat to full-year 2025 levels, but "like-for-like" growth was 12% over the nine-month period (approx. 15% annualized) after adjusting for the divestment of the holiday park business, pub restructuring, UK tax hikes, and Brazil shutdown.
• Q3 2026 to Q3 2025 comparison showed a 9% like-for-like revenue increase and EBITDA growth of roughly 18%.
• Year-to-date free cash flow was $17.6 million, representing a 22% conversion rate of EBITDA.
• Senior secured net leverage stood at 2.8x, well below the 5.0x covenant limit, providing over $46 million in headroom.
• The company noted the ability to repay the private credit facility maturing in June 2030 without penalty starting June 2027.

Guidance and Future Outlook:

• Reduced the low end of full-year 2026 EBITDA guidance to $109 million, primarily due to the Brazil online gaming shutdown.
• Projected 2027 to show only modest growth relative to 2026, effectively shifting the growth curve one year to the right assuming the Brazil ban persists.
• Anticipated Brazil regulatory clarity by year-end or Q1 2028, with potential upside if sports betting is permitted while casino remains banned.
• Free cash flow conversion target for 2026 lowered slightly due to Brazil headwinds, though long-term conversion is expected to increase as leverage declines.
• Expects to achieve a step-down in the interest rate on the credit facility during the first half of 2027.
• Outlook remains positive for 2027 and beyond, contingent on Brazil market reopening and US state iGaming expansions.

Business Segments and Product Lines:

• Gaming Machines: Per-machine performance improved in the UK as operators closed less profitable locations and redistributed game clay; Greece saw widened market share lead with strong performance from the new slant cabinet; North America (Illinois, Manitoba) and Canada showed improved results.
• Interactive (iGaming): Segment EBITDA grew 20% before UK tax impacts; US GGR grew over 30% YoY; Italy was the fastest-growing market with >50% growth YTD; October 2026 set a record month for results.
• Virtual Sports: Launched a horse racing product in Massachusetts (4th US lottery market) and a virtual product with FanDuel; first archived soccer product, "Real Place Football," launched; Golden Horse Race derivative added.
• Content & Studio: New studio "Be Real" is live with the first game submitted to regulatory bodies; focus on seasonal games (Halloween, Thanksgiving, Christmas) driving Q4 historical highs.
• New Markets/Products: Expected to launch additional eInstant games in iLottery in 2027; secured first order for VLT expansion in Chicago; entering US Class III market via partnership with Gaming Arts; cloud-based lottery system gaining inquiries in Latin America.
• Segment Strategy: Aiming to increase revenue mix from non-UK markets, with non-UK revenue having doubled since 2023; targeting 20% revenue share increase from business segments.

Market and Competitive Landscape:

• UK: Remote gaming duty doubled in April 2026; Machine gaming duty to rise from 20% to 25% in April 2027; Company estimates £2-3 million annual impact starting April 2027, with plans to mitigate over time.
• Brazil: Industry shuttered in limbo; primary driver for reduced guidance; estimated $3 million revenue impact from the ban.
• US: Significant market share gains in iGaming; US GGR growth significantly outpacing broader market growth; potential catalyst for future growth from new state iGaming approvals.
• Competitive Position: Strong market share in the UK (>11% outside UK operators); widening lead in Greece; major partnerships with DraftKings, FanDuel, BetMGM, and others for exclusives.
• Market Share: Company focuses on gaining share through bespoke games and derivatives, targeting player segments where they are currently under-indexed.

Risks and Challenges:

• Regulatory Uncertainty: Brazil online gaming shutdown remains a critical near-term risk; timing of UK tax impacts fully realized in 2027.
• Revenue Impact: Brazil shutdown caused EBITDA to miss consensus; UK tax increases impact margins in the near term.
• Market Dependencies: Heavy reliance on UK market, though diversifying globally; US iGaming growth contingent on state-by-state regulatory approvals.
• Operational: Need to upgrade a third of the machine estate to latest cabinets; labor force reduced by one-third following restructuring.

Management Commentary and Tone:

• Management tone was confident and resilient, emphasizing "growth momentum" despite external headwinds and operational restructuring.
• Executive Chairman Lorne Wheel and CEO Brooks Pierce highlighted the strategic shift toward higher-margin digital businesses and reduced leverage.
• Management acknowledged the difficulty of the regulatory environment (UK/Brazil) but framed it as manageable with existing "covenant headroom" and strong cash flow.
• Closing remarks emphasized a primary focus on share repurchases due to undervaluation (trading at ~4x EBITDA vs. industry average of 7x).

Analyst Questions and Answers:

• Matthew Mouse (B. Riley Securities): Asked about UK revenue share negotiations and UK tax offsetting. Response: Tax increase expected to be manageable with mitigation plans over time; estimated $2-3 million impact starting April 2027.
• Ryan Sigdal (Craig Hallam Capital Group): Asked for details on Brazil guidance and cost savings. Response: Impact is predominantly on virtual sports; if ban persists, cost mitigation measures will be enacted; hopeful for sports-only reopening which could help virtual sports.
• Chad Baynon (Macquarie Capital): Inquired about the new "Be Real" studio and capital allocation. Response: Studio will output one game per month, focusing on underserved player behaviors; capital allocation priority is aggressive share repurchases due to low valuation, followed by debt repayment and selective M&A.

Other Key Points:

• The company has divested the holiday park business and restructured the pub business to improve overall margins and reduce leverage.
• Revenue diversification is a key strategic goal; non-UK revenue has doubled since 2023.
• The "Be Real" studio aims to increase content capacity and address player segments currently not served by the company.
• Management indicated that the Brazil shutdown shifts the growth curve but does not compromise the long-term organic growth profile of the core business.