Inspired Entertainment Inc (INSE) (Q2 2026) Earnings Call Highlights: Record UK Growth and ...

Negative Points

• UK remote gaming duty nearly doubled from 21% to 40% in April, negatively impacting interactive revenue and EBITDA growth.

• Interactive revenue growth decelerated to 15% year-over-year in Q2, with EBITDA growth of only 13%, below historical operating leverage trends.

• The tax increase caused a 2.5 times year-over-year increase in absolute tax impact, depressing margins.

• One-time nonrecurring cash outflow of approximately $7 million in H1 2026 related to pub restructuring, impacting reported free cash flow.

• Free cash flow conversion for 2026 is guided at 20% plus, below the pro forma 25% due to the one-time outflow.

• Potential further UK tax increases on B2 gaming machines are a risk, though the company hopes for a measured approach.

• Hybrid Dealer may not become as large as originally anticipated, limiting its growth potential.

• Interactive margins are already near 70%, limiting potential for significant further expansion.

• The company faces uncertainty regarding the timing of the Chicago VLT market launch, which could be delayed to 2027.

• The UK tax anomaly will continue to distort year-over-year comparisons for the balance of 2026.

Q & A Highlights

Q: Can you provide more detail on the interactive segment's growth deceleration, specifically breaking down UK performance versus other regions to better understand the underlying performance ex-UK? A: Brooks Pierce (CEO) explained that UK GGR specifically was up 40% year-over-year, but the near-doubling of the UK remote gaming duty (from 21% to 40%) significantly impacted reported revenue and EBITDA. He noted the company believes it gained market share in the UK during Q2 based on conversations with major operator customers. Lorne Weil (Executive Chairman) added that revenue growth outside the UK was significantly higher than in the UK, emphasizing that the tax increase from 20% to 40% comes straight off the top line, making the positive UK revenue growth "a miracle" given most operators saw declining revenues.

Q: Is the sequential step-down in interactive revenue the trough for the year, and how should we think about the sequential path into the seasonally strong fourth quarter? A: Brooks Pierce (CEO) confirmed that the interactive business historically grows sequentially each quarter, with Q3 better than Q2 and Q4 better than Q3, and sees nothing to change that view. Lorne Weil (Executive Chairman) emphasized that the Q2 sequential decline is "completely due to the tax" and that the underlying business is "growing like crazy." Since the increased tax is now fully in the Q2 calculation, Q3 and Q4 should reflect full GGR growth without additional tax offsets, making Q2 a definitive trough.

Q: How sustainable are the impressive UK market share gains that helped offset the tax increase, and could they slow once you lap certain reallocations? A: Brooks Pierce (CEO) highlighted that the company has shown consistent growth in the UK, going from roughly 3-4% market share to over 11-12%, and is "pretty much doubling down" in the UK market while others may be exiting due to constraints. Lorne Weil (Executive Chairman) added that the UK is the one market where the company has a significant retail machine estate, and the multi-channel effect of players seeing games in betting shops and arcades drives online performance, creating a sustainable competitive advantage as new games are introduced across both channels.

Q: How are you thinking about capital allocation priorities, particularly the mix between debt repayment and share repurchases, and is M&A off the table as you seek lower leverage? A: Lorne Weil (Executive Chairman) stated the company will allocate all excess cash to debt repayment and stock repurchases, with proportions shifting quarter to quarter based on specific objectives. He noted debt reduction provides a "double or triple whammy" through absolute interest cost reduction and declining spread as leverage hits deleveraging points. Regarding M&A, he said it's never off the table, but any opportunity must have significant synergies and be immediately accretive to be considered.

Q: With interactive EBITDA margins near all-time highs, where realistically can those margins go over the next couple of years? A: Brooks Pierce (CEO) indicated that with scaling opportunities, the company expects to increase interactive margins by "several points" from the current level of nearly 70%, but cautioned it won't be a dramatic 10-15% swing. The margin expansion will come from continued operating leverage as the business scales.

Q: Regarding the 2,000 replacement terminals for Greece, are these on the standard revenue share terms, and does the $30-35 million CapEx guidance include this deliverable? A: Brooks Pierce (CEO) confirmed the terms are unchanged from the last batch, noting the Vantage slant cabinet will likely be a larger mix given its extraordinary performance and higher yield management. Eric (CFO) clarified that the CapEx guidance excludes customer-funded CapEx, which would include the Greece deliveries, meaning the Greek terminal refresh is not included in the company's cash CapEx guidance.

Q: Is the Chicago VLT opportunity factored into Q4 expectations, and how are you thinking about that market's potential? A: Brooks Pierce (CEO) indicated he would be in Chicago the following week, signaling its importance. He noted the market is dominated by two large operators (J&J and NSL) with whom the company has strong relationships. While competitors have suggested Chicago could launch in Q4 2026 versus earlier expectations of Q1 2027, Pierce estimated the company will see "some this year, but probably more next year," maintaining confidence in Chicago as a very strong market.

Q: Can you provide commentary on World Cup exposure for the virtual sports product, particularly regarding penetration with BetMGM and other operators? A: Brooks Pierce (CEO) noted this was the first World Cup with BetMGM as a fully integrated sportsbook solution, while Bet365 and Betano had prior exposure. The company saw a 6% uplift in turnover, attributed to a combination of World Cup interest and the new Soccer 4.0 product with Bet Builder functionality (similar to same-game parlays). He expressed excitement about seeing whether the momentum continues into American football season, particularly with BetMGM now fully integrated, and hopes other major US sports betting operators will follow.

Q: Can you explain the free cash flow conversion guidance of 20% plus and what drives higher conversion in the back half of the year? A: Lorne Weil (Executive Chairman) explained that the first half included a one-time, non-recurring cash outflow of approximately $7 million related to contractual working capital adjustments from the pub restructuring. This outflow is fully reflected in reported free cash flow but won't recur in the second half. On a pro forma basis, the full-year free cash flow projection of $23 million becomes $30 million, representing over 25% of EBITDA, with conversion expected to improve further as the business mix shifts toward less capital-intensive operations and declining leverage generates interest savings.

Q: There are reports of a UK think tank recommending increased taxes on B2 gaming machines. What are you hearing on the ground, and what are your thoughts on potential further tax increases? A: Brooks Pierce (CEO) noted that following the online gaming tax increase, different industry factions (horse racing, betting shops, AGCs) initially had divergent views, but now the industry recognizes the need to align against further increases. He acknowledged the potential job losses and high street decimation that could result from aggressive tax hikes, and expressed hope that any increase would be "measured" rather than matching what the think tank has suggested, though he admitted it's impossible to predict.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .