Despite a challenging quarter marked by regulatory setbacks and delayed reporting, Inspired has finally disclosed its earnings for the third quarter ending September 30, 2023, revealing a mixed financial performance. The company saw its revenue rise to $97.5 million, an increase buoyed by service revenue and an impressive jump in product sales primarily from low-margin gaming hardware. Nonetheless, increased expenditures across multiple departments have led to a dip in net profit for the quarter.
The Q3 results, which were anticipated earlier, were postponed as the company grappled with several internal issues. Among these were accounting errors related to the capitalization of software development costs under US GAAP—issues significant enough to catch the attention of the Nasdaq. The subsequent delay placed Inspired in breach of the Nasdaq’s regulations, triggering a warning in November that the company’s shares could potentially be de-listed unless they provided a plan to rectify the compliance breach.
In response, Inspired crafted and submitted a compliance plan by January, which Nasdaq accepted, effectively diffusing the threat of de-listing. Executive Chairman Lorne Weil expressed relief over the resolution of the issue and emphasized that all amended filings were now up to date. Weil is looking to steer the business past these complications and focus on growth and innovation.
Reflecting on the quarter’s performance, Weil lauded the impressive surge of the Interactive business unit, which notched another record quarter with double-digit growth. This success offset some of the declines experienced in the Gaming and Virtual Sports segments. Weil remains optimistic about these segments, especially considering the strong historical performance and the promising new content partnerships with major sports leagues like the NFL and NBA. He foresees potent growth opportunities in both the North American and Latin American markets.
In the land-based operations, comprising Gaming and Leisure, the company completed the roll-out of its ‘Vantage’ cabinet across considerable portions of its customer base. This roll-out accounted for an additional $22.7 million of terminal sales. An increase in revenue per machine was observed following the deployment in betting shops and pubs, instilling confidence in a reacceleration of the land-based businesses.
Analyzing the financials further, service revenue contributed $70.7 million, a modest increase over the previous year. In contrast, the product sales soared by a staggering 378.6%, predominantly due to the gaming hardware sales. The Leisure segment continued to be a primary revenue source, slightly increasing to $31.7 million. Conversely, Gaming revenue witnessed a decline, and despite a notable increase in hardware sales, the overall land-based segment performance did suffer.
The Interactive division’s record-breaking revenue of $7.3 million—a considerable 37.7% increase—was a highlight, countering the 6.9% decrease in virtual sports revenue.
The quarter saw a surge in expenses, with selling, general, and administrative costs reaching $26.9 million, up from the previous year. Cost of product sales experienced the most significant increase, aligning with the high volume of hardware sales. Finance costs also rose, as interest expenses contributed to an additional $6.8 million, leading to a pre-tax profit of $5.4 million, which was significantly lower than last year. Ultimately, despite some positive gains from foreign exchange and gains on its pension plan, Inspired reported a net profit decrease to $7.2 million, marking a substantial decline for the quarter.
Looking at the nine-month perspective, there was an 18.0% increase in revenue to $241.8 million, driven by service revenue and a massive increase in product sales. However, spending trends echoed those seen in Q3, with substantial increases in selling, general, and administrative costs. Finance expenses reached $20.2 million. These outflows of cash, combined with a $20 million negative impact from foreign exchange, resulted in a net loss of $1.0 million compared to a net profit the previous year.
Despite these hurdles, Inspired’s executive chairman maintains a positive outlook, speaking to a robust core business and an optimistic view of digital growth dynamics and land-based resilience. With a two-pronged omni-channel strategy, leveraging both high-margin, capital efficient digital offerings and the dependability of land-based operations, Inspired is set to navigate past its current setbacks and seize opportunities in the evolving market.
