Inspired Entertainment Cuts 2026 EBITDA Target as Q3 Margin Reaches 46%

Inspired Entertainment (NASDAQ: INSE) lowered its full-year 2026 adjusted EBITDA target to $109 million to $112 million from $112 million to $118 million, reflecting an expected $3 million fourth-quarter impact from the shutdown of its Brazil operations. The revised outlook came as the gaming technology company reported record profitability in the third quarter, with portfolio changes, cost reductions and a greater contribution from digital operations lifting adjusted EBITDA margin by 900 basis points year over year to 46%.

Revenue totaled $61 million for the three months ended September 30, 2026, while adjusted EBITDA was $28.2 million. The company reported a GAAP net loss of $0.1 million, compared with a $1.9 million loss in the year-earlier quarter.

Like-for-like revenue increased 4%. Excluding both the like-for-like adjustments and the effect of the UK remote gaming duty increase, revenue grew 9% and like-for-like adjusted EBITDA rose 15%. The like-for-like calculation excludes the UK holiday parks business and certain leisure assets divested in November 2025 and adjusts for a structural change in the pubs operating model.

Inspired attributed the margin expansion to the disposal of lower-margin operations, a structural cost reset, growth in the higher-margin Interactive segment, a shift toward digital revenue and operating leverage. Its adjusted EBITDA margin has increased from 35% in the second quarter of 2025 to 46% in the latest period.

Interactive growth offsets part of UK tax pressure

Interactive adjusted EBITDA was $10.2 million, down from $10.7 million a year earlier after approximately $2.6 million of incremental UK remote gaming duty. Before that tax effect, segment adjusted EBITDA would have been $12.8 million, representing 20% year-over-year growth.

The UK remote gaming duty rate increased to 40% from 21% on April 1, 2026. Inspired receives a post-tax revenue share from gaming operator customers, making the higher levy a direct headwind to its results.

The company said Interactive expanded across North America, the UK and Greece, while revenue in Italy grew by more than 50% year over year. Inspired released 45 game titles during the first nine months of 2026, up from 25 in the comparable prior-year period. Management also said the business gained market share in the US and UK during the summer despite softer US iGaming activity in August and September, and reported record Interactive gross gaming revenue in October.

Retail Solutions adjusted EBITDA was $19.6 million, compared with $22.6 million in the prior-year quarter. Operating metrics showed stronger machine performance: gross win per unit per day increased 13% at William Hill betting shops and 15% at Greek betting shops. In Illinois, net terminal income from the new Valiant cabinet exceeded the floor average, although Inspired does not receive revenue share in that for-sale market.

Virtual Sports generated adjusted EBITDA of $5.7 million, down from $6.6 million a year earlier. Corporate costs represented a $7.3 million adjusted EBITDA loss, compared with a $7.6 million loss in the prior-year period.

Cash flow and leverage

Year-to-date free cash flow was $17.6 million, equal to a 22% conversion rate relative to adjusted EBITDA, and cash stood at $36.5 million. Pro forma net leverage declined to 2.9 times from 3.3 times in December 2025. The calculation is adjusted for the divested holiday parks and leisure operations.

Inspired expects 2026 cash capital expenditure of $30 million to $35 million, free cash flow conversion approaching 20%, and year-end net leverage below 3.0 times. Its 2026 adjusted EBITDA margin target is as high as 45%.

For 2027, management targets an adjusted EBITDA margin above 45%, cash capital expenditure of $30 million to $35 million, free cash flow conversion of 20% to 25%, and net leverage of 2.25 to 2.75 times. Adjusted EBITDA is expected to grow at a low-single-digit rate, assuming Brazil remains shut down. The outlook also assumes the pound-to-dollar exchange rate remains broadly aligned with current levels.

The company reported a senior secured net leverage ratio of 2.8 times, below its 5.0-times covenant limit, which steps down to 4.75 times in June 2027. Inspired estimated that it had more than $46 million of covenant adjusted EBITDA headroom as of the third quarter.

Growth pipeline and regulatory risks

Inspired identified prospective growth opportunities in North American iGaming, US tribal markets, virtual sports products in US sportsbooks, gaming terminals in Chicago and Western Canada, Class III gaming content, and North American lottery products. A game from a new studio is scheduled to launch in December, while virtual sports products have launched with BetMGM and FanDuel.

The company has also reduced its reliance on the UK. Non-UK markets accounted for 40.7% of revenue in the first nine months of 2026, up from 22.3% in 2023.

Regulation remains a central uncertainty. In addition to the higher UK gaming tax, a provisional measure prohibited regulated online betting and gaming operations in Brazil on September 25, 2026. Other risks identified by the company include competition, technological change, cybersecurity threats, customer and contract retention, acquisition integration, financing needs, seasonality, and changing economic and political conditions across its markets.