Inspired Entertainment Third Quarter 2026 Conference Call - INSPIRED ENTERTAINMENT INC

Explicit Guidance:

• Full-year 2026 EBITDA guidance reduced to a low end of $109 million due to the Brazil shutdown impact.
• Full-year 2026 Free Cash Flow (FCF) conversion target lowered below the previous 20% target due to Brazil impacts.
• 2027 EBITDA growth expected to be "only modest" relative to 2026, reflecting the assumption that the Brazil shutdown persists and must be recovered first.
• 2028 growth trajectory projected to resemble what 2027 would have looked like had the Brazil shutdown not occurred.
• UK Machine Gaming Duty increase (effective April 2027) expected to impact results by $2–3 million in the first year (April 2027–March 2028).
• Debt interest rate reduction: Expecting the "first step down" in the private credit facility rate during the first half of 2027.
• Debt repayment: Capability to repay the private credit facility maturing in June 2030 without penalty starting June 2027.
• Capital Allocation: Overwhelming emphasis on share repurchases for the immediate and intermediate future due to trading at ~4x EBITDA vs. industry average of 7x; M&A under review but secondary to buybacks.

Business-Segment Outlook:

• Digital/Interactive: Expecting continued share gains in key markets (US, UK, Greece) via bespoke games and derivatives; anticipating growth acceleration if additional US states approve iGaming (viewed as "when, not if").
• US iGaming: US GGR grew >30% YoY in Q3 2026; anticipating further upside from Class III market entry via Gaming Arts partnership.
• Virtual Sports: Launch of first archived soccer product ("Real Place Football") this year; Golden Horse Race derivative launch imminent; FanDuel partnership goes live in Massachusetts (4th state) with a product launch this year (2026).
• iLottery: Expecting launch of additional eInstant games in the iLottery space in 2027.
• VLT Expansion: Chicago VLT expansion order secured with first orders expected in Q4 2026; more significant impact anticipated in 2027 pending Illinois market clarity.
• Game Studio ("Be Real"): First game submitted for regulatory approval; full operational output (approx. one game per month) expected upon ramp-up; second game nearing completion.
• Retail/Gaming Machines: UK per-machine performance improving due to closure of less profitable locations; Greece lead over competitors widening with new slant cabinet drive; Canadian expansion progressing (Manitoba trial, Saskatchewan/Alberta success); Illinois performance improving.
• Brazil: Virtual sports business currently shuttered; assuming shutdown persists, company will implement cost mitigation measures to offset the estimated $1 million/month revenue impact.

Market and Competitive Outlook:

• UK Tax Environment: Machine gaming duty increased 5% (from 20% to 25%) effective April 2027; revenue share contracts expected to adjust over time to mitigate the $2–3 million impact.
• Brazil Market: Industry remains in limbo; primary assumption is a shutdown persisting through 2027 with a potential decision on sports betting only vs. full ban expected by end of year or Q1 2027.
• US Market: Confidence that additional states will approve iGaming; FanDuel partnership expected to be a catalyst for virtual sports growth given their scale (5 sports at launch vs. BetMGM's 3).
• Content Strategy: Leveraging seasonal themes (Thanksgiving, Christmas) to drive Q4 GGR; expanding "swings at the plate" with crossover content and new virtual sports formats to gain share in under-indexed player segments.
• Share Shifts: Anticipating non-UK revenue share to continue growing, doubling since 2023, with North America and Greece becoming larger contributors.

Macro / Industry Outlook:

• Regulatory: Monitoring UK remote gaming duty trends and potential future increases; tracking Brazil regulatory timeline closely.
• Economic/Operational: Acknowledging that despite global regulatory headwinds (UK tax, Brazil ban), the company's underlying growth momentum (12% like-for-like EBITDA growth over 9 months) is building.
• FX/Tax: Adjusting for UK tax impacts in "like-for-like" analysis; no specific FX guidance provided other than noting Brazil revenue impact is predominantly operational.

Strategic Initiatives:

• Market Entry: Entering US Class III market via unique partnership with Gaming Arts; expanding cloud-based lottery system offerings following Dominican Republic success.
• Product Launches:
  • "Real Place Football" (soccer virtual) going live this year.
  • Additional eInstant games in iLottery scheduled for 2027.
  • New "Be Real" studio content rolling out with regulatory approval targets for 2026–2027.
• Capacity/Infrastructure: Expanding VLT estate in Chicago; upgrading one-third of UK machine estate to latest cabinets to maintain performance trends.
• Partnerships: Live virtual sports integration with FanDuel (launching 5 sports) and continued strong performance with BetMGM (3 sports).

Risks and Headwinds to Outlook:

• Brazil Shutdown: The primary risk; if the ban extends beyond current forecasts, it delays the recovery of 2027 growth targets and necessitates cost mitigation actions.
• UK Tax Increases: The 5% duty increase effective April 2027 will create a short-term headwind of $2–3 million, though management expects long-term mitigation through game development and operational changes.
• Regulatory Uncertainty: The timing of any changes to the Brazil online gaming ban is "yet to be determined," creating uncertainty in the 2026 full-year guidance.
• Execution Risk: Dependency on US state-level iGaming approvals and Illinois VLT expansion timelines for future revenue acceleration.

Management Tone on the Future:

• Confidence: High confidence in the company's "content" strategy and ability to gain market share despite headwinds; describes the growth momentum as "indicative" and "encouraged."
• Caveats: Management uses "fluid" and "conservative" language regarding Brazil; acknowledges "short-term headwinds" from UK taxes but frames them as manageable.
• Strategic Pivot: Explicit shift of the growth curve forward due to Brazil, prioritizing cash flow and margin improvement over immediate top-line growth in the 2027 window.
• Capital Discipline: Aggressive stance on share repurchases, viewing the stock as undervalued relative to industry multiples.

Miscellaneous:

• EBITDA Margins: Reached 46% in Q3 2026, up 1,100 basis points over the last six quarters, driven by restructuring and digital growth.
• Free Cash Flow: Year-to-date FCF was $17.6 million (22% conversion of EBITDA).
• Leverage: Senior secured net leverage at 2.8x (well below the 5.0x covenant limit), providing $46M in headroom; leverage expected to decline further.
• Q&A Highlights: Confirmed that the FanDuel virtual sports product is in "proof mode" with migration to the sportsbook expected within a week or two of launch.