Note that today's event is being recorded. Before we begin, please refer to the company's forward-looking statements that appear in the third quarter 2026 earnings press release and in the accompanying slide presentation, both of which are available in the Investors section of the company's website at www.inseinc.com. These also apply to today's conference call. Management will be making forward-looking statements within the meaning of U.S. securities laws. These statements are based on management's current expectations and beliefs, and are subject to various risks, uncertainties, and other factors that may cause actual results to differ materially from those expressed or implied in such statements. For a discussion on these risks and uncertainties, please refer to the company's filings with the Securities and Exchange Commission. During today's call, the company will discuss both GAAP and non-GAAP financial measures.
Reconciliation of these non-GAAP measures to the most directly comparable GAAP measures can be found in today's earnings release and slide presentation, which are both available on the website. With that, I would now like to turn the call over to Lorne Weil, the company's Executive Chairman. Mr. Weil, please go ahead.
Thank you, operator. Good afternoon, everyone, and thank you for joining our third quarter conference call. Per usual, CEO Brooks Pierce and I will be making prepared remarks, and CFO Craig Wilson and VP of Corporate Development Eric Herrera are available to assist with Q&A. As anyone who even casually follows us, either or the broader gaming industry knows, the news has been pretty well saturated with stories concerning regulatory changes in the U.K. and Brazil. In the U.K., the Machine Games Duty was increased from 20% to 25% effective next April, following the doubling of the Remote Gaming Duty effective last April. For now, at least, the online gaming industry in Brazil is shuttered and in limbo, which by the way, was the primary reason our EBITDA in the quarter was a little below consensus. Fortunately, in parallel, our platform has been strengthening in pretty much every dimension.
EBITDA margins continue to improve, having reached 46% in the third quarter, while both capital intensity and leverage are declining with the growth of our digital business, and overall growth momentum is building. At the same time, there have been so many moving parts, both internal to the company and within the regulatory environment, that it's difficult to appreciate the growth momentum. As you can see in slide five, trailing 12-month EBITDA at the end of the third quarter of 2026 was essentially flat to trailing 12 months at the end of full year 2025. However, in the interim, we divested the holiday park business and restructured the pub business, which together reduced our labor force by a third, and we absorbed a doubling of the U.K. Remote Gaming Duty, as well as a short, but meaningful period of Brazil shutdown, as I referenced a moment ago.
Adjusting for these developments, as shown on the slide, yields a like-for-like EBITDA growth in trailing 12-month EBITDA of 12% over the nine-month period, or about 15% annualized, which we feel is indicative of the growth momentum that's building in the company. In a few minutes, Brooks Pierce will go more deeply into the principal growth drivers, including interactive market share gains, new markets and customers for virtuals, and the resilience of our retail business. Comparing the third quarter of 2026 to the third quarter of 2025, we saw a 900 basis point increase in EBITDA margin despite the tax increases, and adjusting for the U.K. tax impact, like-for-like revenue increase of 9%, and EBITDA grew at about twice that pace, more or less comparable to the 12-month figures we looked at a moment ago.
Year-to-date free cash flow was $17.6 million, representing free cash flow conversion of about 22% of EBITDA. Lastly, because of the Brazil shutdown, we're reducing the low end of our full year guidance to $109 million. Before I hand it over to Brooks Pierce, I think it's worth taking another look at the evolution of our EBITDA margins. Over the last six quarters, we've increased EBITDA margin by 1,100 basis points from 35% in the second quarter of 2025 to 46% in the third quarter of 2026. As noted in the slide, we achieved this increase through a combination of divestment and restructuring of our lowest margin businesses, together with above average growth in our highest margin digital business. And with that, I'll hand it over to Brooks to talk in more detail about the performance of the business.
Okay, thanks, Lorne. As usual, I'll take a slightly deeper dive into the key drivers and metrics in each reporting segment. I agree with Lorne that there are many moving parts, particularly on the regulatory front. We have clarity now on the Machine Games Duty starting in April of 2027, but Brazil and the timing of any changes is still yet to be determined. Nevertheless, we're encouraged by the progress that we're seeing across the business. This slide illustrates the performance of our gaming machines in our three biggest markets, the U.K., Greece, and North America. In the U.K., shop closures have generally been concentrated among less profitable locations. So what you're seeing is per-machine performance has improved across our three biggest betting shop customers. Remaining shops are also improving, partly because play has been redistributed.
We're particularly proud of our machines and our content in Greece, where we've widened our lead over existing competitors. Our newest slant cabinet is performing so well that it's driving our overall numbers to their highest level in years, and almost one-third of our estate still needs upgrading to the latest cabinets, so we expect this trend to continue. We're also encouraged by the improved performance in Illinois and with our Canadian customers, and we've recently installed cabinets on trial in Manitoba, which is our third province now, and we're confident our content will resonate with players there as it has in both Saskatchewan and Alberta. Moving over to slide nine, our interactive segment continues to perform well, even though the U.K. Remote Gaming Duty has essentially doubled on April 1st of this year.
As this slide shows, segment EBITDA grew 20%, excuse me, before the impact of the U.K. tax increase. Monthly results in the third quarter were slightly mixed. August was affected somewhat by the World Cup in prior months, but we are encouraged by the bounce back we saw in September, and October was the best month we have ever had on record, even eclipsing any individual month in the first quarter, which was before the U.K. tax increase. We saw growth in key markets like North America, the U.K., and Greece. The largest contributor to overall growth was the U.S., where our GGR grew over 30% year-over-year in the third quarter, significantly outpacing broader U.S. iGaming market growth. Italy was our fastest-growing market, with growth exceeding 50% year to date.
We think this demonstrates the strength of our content and our ability to gain market share across major markets. We are also excited that the first game from our newest studio, Bee Reel Games, is already out now for regulatory approval. Moving to slide 10, as we have mentioned previously, there is nothing that would drive this segment more than additional U.S. states approving iGaming. In the meantime, we continue to gain share in all of our key markets. Outside the U.K., where our share is currently more than 11%, we are confident that we can grow our share from a combination of more bespoke games, more derivatives of our successful game theme families, and a focus on player segments where we either do not participate or are under-indexed. On slide 11, we stress that, look, at our core, we are a content company, and that is how we will differentiate ourselves across all three segments.
We develop games for online players, for retail players, and for the crossover between the two, as well as independently for each segment. This gives us what I consider the most swings at the plate. We have also made our mark with seasonal games. October's results showed the power of Halloween-themed games, and we now move into the Thanksgiving games and Christmas themes, and this is historically our highest GGR quarter of the year. Variety matters too. We showed some products at G2E in the virtual space. Our first archived soccer product, Real Play Soccer, goes live this year, and a Golden Horses derivative of our successful virtual horse racing product should add appeal to a product that has been in the market for years.
Moving to slide 12, one of our goals has always been to become a more global company and to rely less on the U.K. market. As the chart shows, we have doubled the percentage of our non-U.K. revenue since 2023, and we expect this trend to continue as key growth markets like North America and Greece become bigger contributors. The pipeline of opportunities outside the U.K. continues to grow on a daily basis. Speaking of growth, we see many opportunities to grow the business despite the U.K. higher taxes and the uncertainty in Brazil. Our digital business remains a key driver with the highest margins, the biggest cash flow contribution, and the most opportunity.
We still believe it's a matter of when, not if, additional states will be added for iGaming, and nothing would be more meaningful for us than for some of the larger states to approve it and deploy it. We also see a number of opportunities for our virtual sports business in the U.S. We're excited that we've gone live now in our fourth U.S. lottery market in Massachusetts with our horse racing product, and we launched our virtuals product with FanDuel. FanDuel's the largest sports operator in the U.S., which obviously gives us the sense that this is the best chance for success for this product. Moving to some new products, we expect to launch additional e-instant games in the iLottery space in 2027, a key opportunity for us to leverage our content development skills in another channel.
We expect clarity in Illinois on the expansion of VLTs in the Chicago market, and I'm happy to say that we took our first order today, as a matter of fact, for an expansion into Chicago. We're starting to see that opportunity manifest itself, certainly some in this quarter, but probably more so in 2027. The last thing is we're excited to move our content into the U.S. Class III market through a unique relationship with Gaming Arts, and we showed that product at G2E for many of you that were out there. We're also fielding a number of inquiries in the lottery systems market following the successful launch of our cloud-based system built from scratch in the Dominican Republic. We have plenty of opportunities to fill the gap created by the U.K. tax increase and the Brazil situation.
Between the U.K. tax and potential Brazil headwinds, we've basically pushed our targets out by a year. Even so, we continue to improve our EBITDA margins and cash flow, reduce our leverage ratio, and build a large pipeline of opportunities across our segments and markets. Most of our business, as you would know, is recurring revenue under long-term contracts, and we're making progress on our strategy to increase the share of revenue and EBITDA from our existing segments. With that, I'll hand it back over to Lorne.
Thanks, Brooks, for a great deep dive into each of the businesses. Slide 15 summarizes the three-year period, 2025 to 2027. This is a slide that we've been looking at now for the last several quarters. In this case, it's assuming that the shutdown of Brazil stays in effect. Brazil, in and of itself, has not been a growth market the last couple of years, so we don't expect that the shutdown of Brazil will compromise the organic growth profile of the company per se. What it does do is shifts the growth curve one year to the right, in effect. We expect 2027 will be up only modestly from 2026 because, again, we're assuming that Brazil will stay shut down, and we need to first make that up before we can generate any growth.
Then 2028 will look like 2027, and had otherwise been projected to be, and so forth. Notwithstanding the shift in the growth trajectory, free cash flow is projected to continue increasing along with the decline in leverage. With regards to free cash flow conversion, our previous target of 20% for 2026 will be lowered a little bit because of the impact of Brazil. Finally, let me make a comment about debt and covenant issues in response to some questions that we have been getting. At the end of the third quarter, our senior secured net leverage was about 2.8x , well below the covenant leverage of five, giving us over $46 million of covenant EBITDA headroom. As further noted on the slide, we can repay our private credit facility that matures in June 2030 without any prepayment penalty anytime from June 2027.
Since our EBITDA leverage ratio and cash flow have all improved meaningfully since we put this facility in place in 2025, the possibility of refinancing prior to maturity is something we will be looking at very carefully. I should also mention with respect to this facility that we expect sometime during the first half of 2027 that we will be achieving the first step down in our rate on this facility. With that, operator, can we please turn the program over to Q&A?
We will now begin the question- and- answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Matthew Maus with B. Riley Securities. Your line is open. Please go ahead.
Hi. Thanks for taking my question. Weil, Wilson and Pierce, your strongest quarter, gross win unit per day were both up double digits percentage-wise. As U.K. operators absorb the higher machine duty, wondering how our revenue share conversation is going, and does that performance help?
In terms of our revenue share, you mean like our contract rates? Is that what you mean by the question?
Yeah, just more in relation to how U.K. operators, as they are absorbing the higher machine duty, how that changes things.
Yeah. Look, I think it is common knowledge. You have probably read plenty of press that nobody was happy about the fact that the tax increased at all. There was obviously a lot of conversation about why that should not be the case. But I could say on the flip side of that, there had been some discussion that it could increase as much as 20%, and it actually only increased 5%. So, I do not think anybody is happy about it from an operator perspective, nor are we, but we do feel that it is manageable, and we have plans to be able to hopefully mitigate as much of this as possible.
Yeah, kind of as a follow-up to that, with Machine Games Duty going up, just wondering how much do you think you can reasonably offset, and what are the main levers there? I think back a few months ago, you said you could reasonably offset the increase in the duty. Just wondering what the levers there are and how much you think you can-
Yeah. I think now that we know what the percentage is, based on our estimates, we believe that it's going to be an impact to us of between $2 million and $3 million starting in April, so not a full year next year. We also believe, and we've had history of the changes in tax rates in the U.K., that over the course of time, between game development and other things, we'll find a way to mitigate it. We look at this as a short-term headwind starting in 2027, but we obviously think that we'll be able to mitigate that over the course of time.
Great. Last one for me. It's great seeing FanDuel's virtual sports offerings live. Just wondering if you could give more color there. How many states does it cover? How does early engagement compare with BetMGM's integrated sportsbooks?
Yeah. Unfortunately, it's too early in the process. They just went live within the last week or two, and it's really more in a proof mode on making sure the tech is all working. It'll migrate over to the sportsbook probably here in the next week or two, and then I think we probably need four or six weeks for it to bed down to have some sense. But we've seen nice progress with BetMGM, and we would expect, because FanDuel's substantially bigger from a sports betting standpoint, and so we would hope that this will be a catalyst to get some good growth out of the virtual sports business. FanDuel's going to launch with more sports. BetMGM right now only has three, FanDuel's launching with five.
We're obviously, it's taken a long time to get us there, but we're certainly hopeful and encouraged that we finally got it done.
Yeah, it was great to see that. Hoping to see it as a catalyst for 2027. Thanks for taking my questions.
Sure thing.
Your next question comes from the line of Ryan Sigdahl with Craig-Hallum Capital Group. Your line is open. Please go ahead.
Hey, good afternoon. This is Will on for Ryan. Thanks for taking our questions. First, wanted to ask on maybe guidance in Brazil. I know you guys called out a $3 million revenue impact there after the ban went into effect, and I know the flow-through on EBITDA was a little bit higher there. So, curious the revisions there, maybe if there's anything else included, and which segment specifically that's impacting.
No, I think, look, as we talked about, Lorne and I talked about, it's a very fluid situation. I think we're taking the most conservative posture here, assuming that the ban doesn't get lifted, but I think we have lots of reasons to think that that might not be the case. In terms of the impact to us, it's predominantly our virtual sports business. Our iGaming business in Brazil was relatively small, and I think we talked a little bit about what the impact was, both on the revenue side and kind of the EBITDA flow-through on the last call, and nothing's really changed from that.
And maybe as a quick follow-up there, 2027 guidance revised too, we'd assume primarily for Brazil. Just curious maybe if there's a chance the market comes back online, maybe for sports betting, like we've heard about, what uplift that might provide. Then maybe as another follow-up to that, if it is, we're a few months from now and it seems that the ban is going to stick, do you have any cost-saving measures or anything you can undergo there? Thanks, guys.
Yeah. Look, we're obviously hopeful, and certainly we have people on the ground there every day kind of working on this, and so we're hopeful that it will return. I would say in terms of the impact, certainly if the ban stays, yes, we do have ways to be able to mitigate some costs that we will do. So, what we'd kind of guided to, $1 million a month, will obviously be mitigated if the ban doesn't get lifted. So, in terms of, there's obviously been conversation that it may be sports only, and online casino would still stay banned, but they'd allow sports. I mean, you could certainly make an argument that could potentially help us in terms of virtual sports.
Unfortunately for us, as you can imagine, with this not being clear, we're just kind of forecasting what we can forecast, but I think it will come to a head. I think there'll be a decision, if not before the end of the year, certainly in the first quarter. It's my view, at least.
Thanks, Brooks.
Sure thing.
Your last question comes from the line of Chad Beynon with Macquarie Capital. Your line is open. Please go ahead.
Hi, afternoon. Thanks for taking my question. Brooks, I wanted to ask about the Bee Reel Games studio. You've had a lot of nice success gaining market share in the U.S. A lot of operators are talking about some decelerating growth, but because you're taking share, I don't think a little of the overall TAM shrinking near term really matters for you guys. So, as you continue to take share, how is this studio a part of that thesis, and are you being asked to do more exclusive games or anything around the number of titles or timing of releases would be helpful? Thanks.
Yeah. That is a good question. Yes, we certainly have, as part of the plan for the studio, to develop games for the North American market. As I also said in my remarks, we are also looking at some of the areas from a kind of really from a player behavior aspect, where we either do not serve them or are under-indexed, and that could be in the U.S. or that could be in other markets. What it really does is gives us We are assuming, when it gets fully up to speed, this is going to be able to put an output of another game per month, which will increase our capacity pretty nicely. Whether it ends up being more U.S., I think that is still kind of to be determined. First game is out at GLI. Second game is pretty much done.
We will hope to hit the ground running with the studio. Yeah, in terms of the second part or third part of your question about exclusives, yeah. I mean, look, we have a very good relationship with Here is a perfect example. Rush Street just told us in October we were their second-biggest supplier, which is obviously great and gratifying for us. We try to navigate exclusives across all the biggest operators in the best and fairest way possible. As you know, Chad, I mean, there is tons of content out there, and it is really kind of gauged by how yours does relative to the competition. We certainly, we have a lot of exclusives with DraftKings, FanDuel, BetMGM, Hard Rock, Fanatics, you kind of name it. It is kind of the confluence of all of that stuff.
Great. Thanks. With more certainty around some of these unknowns that we have talked about here this afternoon, how does that adjust your thinking in terms of capital allocation, share repurchases, or maybe expanding into M&A with leverage coming down under 3x ?
I was wondering when you were going to ask that, Chad. I thought you were just about wrapped up with the other question. Thank you for asking it.
You know all your analysts way too well.
I was, well, particularly the ones we've known as long as we've known you, Chad. Had you not asked it, I was going to volunteer it anyway as a closing remark. In our minds, in theory, we're always thinking about share repurchase, debt repayment. We mentioned that we're going to be getting a step-down anyway in our rate sometime in the first half, and acquisitions, which again, given our leverage right now, and general valuations, we're looking at a couple of things quite carefully. I think it goes without saying that given where our shares are trading now, for at least the immediate and the intermediate future, our overwhelming emphasis is going to be on share repurchase.
I think we're probably barely, given where the EBITDA is going to be in 2026, and the minimum it will be in 2027 if we don't get some turnaround in Brazil. We're barely trading at 4x EBITDA, compared to like 7x as an average for suppliers in the gaming industry. We're going to be buying it as aggressively as we ever have, and we'll just see where we get as we move through the fourth quarter.
Great. Thank you very much, Lorne. Appreciate it.
There are no further questions at this time. I will now turn the call back to Lorne Weil, Executive Chairman, for closing remarks.
Thank you, operator, and thanks everyone for participating at this fairly late time in the afternoon. I think we were pretty happy with the third quarter, taking all of the group of objectives that we're trying to achieve simultaneously, profitability, cash flow, leverage, growth, and so forth. We're excited about the rest of the year and next year, and we look forward to speaking to you all in a quarter. Thank you.
This concludes today's call. Thank you for attending. You may now disconnect.