Record 45% Adjusted EBITDA makes the quarter harder to dismiss
Inspired's second quarter looks more credible than a simple revenue beat would suggest. A record 45% Adjusted EBITDA margin is difficult to explain away, especially after the higher UK remote gaming duty took effect on April 1. The key question now is whether that margin strength can hold up across future quarters.
Why Q2 looks sturdier than the prior quarter
Last quarter, InspiredINSE-- beat expectations on a low EPS base, which offered limited proof of a broader turnaround. This quarter looks more substantive: revenue reached $60.8 million, up 6% sequentially, while Adjusted EBITDA rose 14% to $27.1 million. When profit grows faster than sales under a tougher tax regime, that is a stronger signal of operating leverage.
The debate: real operating leverage or cheap-stock optimism?
The bull case is straightforward: profit grew faster than sales, and the business mix is improving. The counterargument is that Inspired still trades like an underfollowed bargain, with a consensus analyst price target of $21.75 versus a current price of $11.39 and no research coverage in the past 90 days. That setup can encourage optimism before the market has fully tested the recovery story.
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The quarter looks stronger than a one-off cleanup when the business is broken down by segment.
Retail Solutions is holding up well
Retail Solutions remains a clear source of stability, and management highlighted continued strength in the UK plus strong North American retail sales. That matters because hardware demand is easier to validate when operators still want a dependable floor presence.
Interactive kept growing despite the UK tax change
The Interactive segment also contributed to the better quarter. Management said Revenue and Adjusted EBITDA in the Interactive segment increased 15% and 13% year-over-year, respectively, reflecting continued market share gains despite the higher UK remote gaming duty. That does not eliminate the tax pressure, but it does suggest demand stayed healthy.
William Hill closures may support replacement demand
There is also practical evidence worth watching. William Hill closed more than 200 shops during the quarter, mostly lower-performing locations, and Inspired redeployed removed terminals across its broader network. If those machines still have useful life, store closures are not automatically negative for hardware demand; they can also create replacement orders.
The real test is repeatability in the second half
The main risk is not whether Q2 was good, but whether the margin build can repeat. Interactive grew through the tax shock, but the higher UK duty still complicates the margin story. That makes the next few quarters more important than the headline beat itself.
What the market is likely already pricing
Inspired still has no research coverage in the past 90 days, and only 1.12% of the float is shorted, with a 3.1-day cover ratio. That combination helps explain why the stock remains inexpensive and why even modest execution progress can attract attention.
What has to happen next for the rerating to work
The bullish case depends on the rest of 2026 matching at least part of Q2's quality. Inspired continues to target an FY2026 Adjusted EBITDA target range of $112 million to $118 million and a free cash flow conversion target of more than 20% of EBITDA. Management also pointed to a pipeline of product launches and geographic expansion to support the second half.
What would weaken the thesis
The next updates need to show that the second half is building on Q2 rather than simply following an unusually strong first half. If margin strength, Interactive growth, and hardware demand remain intact, the current optimism is easier to support. If not, the wide gap between share price and analyst targets may reflect visibility risk more than a clean rerating opportunity.
