Inspired Entertainment Inc. announced its financial results for the fourth quarter and the full fiscal year of 2023 this past Monday, 15 April. The filing came notably later than anticipated, leading to a warning from Nasdaq about the delay. Following an earlier caution after the tardy third-quarter report, Nasdaq reiterated that the late submission constituted a breach of its listing rules.
The company attributed the recent postponement to a comprehensive review of its accounting practices carried out in the fourth quarter. This review uncovered errors in financial data stretching back to January 1, 2021, prompting Inspired to commence the process of restating its financial statements. For more clarity on the restatements, iGB has reached out to Inspired.
Despite the accounting setbacks, Inspired reported a 14.7% increase in revenues for the fiscal year ending in 2023, climbing to $323.0 million from $281.6 million in the previous year. A breakdown of these figures shows product sales soaring by 86.1% to $61.8 million from $33.2 million, complimented by a rise in service revenue from $248.4 million to $261.2 million.
Adjusted earnings before interest, tax, depreciation, and amortisation (EBITDA) saw a marginal elevation, finishing the year at $100.5 million compared to $99.0 million in 2022. However, net income took a significant hit, plummeting by 63.1% to $7.6 million from $20.6 million in the preceding year, a situation exacerbated by swelling expenses; selling, general, and administrative costs rose from $101.9 million to $115.5 million, and the cost of product sales jumped to $52.6 million from $21.9 million.
Per share, net income plummeted by 63.0% to $0.27, down from $0.73, with net operating income decreasing to $39.9 million from $46.0 million. Additionally, the adjusted EBITDA margin decreased to 31%, a reduction from the previous year’s margin of 35%. Brooks Pierce, the President and CEO of Inspired, expressed on the investors’ call that the company is aiming for an adjusted EBITDA margin of 40%.
With revenues reaching record heights, Executive Chairman Lorne Weil has a positive outlook, highlighting the evolving global online betting and gaming ecosystem as an opportunity for further growth. Inspired sees the potential for continued expansion, with new markets opening and consumer adoption rising.
While gaming, virtual sports, and leisure sectors reported only modest gains in revenue of 1%, 4%, and 1% respectively, Inspired’s interactive sector flourished with $27.9 million in total revenue, a significant 35.4% increase compared to $20.6 million the previous year. The interactive segment also showed impressive adjusted EBITDA growth.
The fourth quarter, in particular, was robust for the interactive sector, where revenues reached $8.0 million, registering a 48.1% year-on-year leap, while adjusted EBITDA shot up by a considerable margin as well. Reflecting on the performance, Weil praised the Q4 results for complementing a strong year overall and attributed the success to strategic focus on digital verticals.
Though Q4 revenues improved by 6.0% to $81.2 million from $76.6 million in the same period the year before, associated costs dampened net operating income, which fell to $9.3 million from $11.6 million. The quarter also included $5.0 million in expenses related to the accounting restatements.
Gaming remains a cornerstone of Inspired’s business, contributing 39.6% of the total annual revenue and 34.1% of the FY2023 adjusted EBITDA. Virtual sports, although representing a smaller fraction of total revenue at 19.2%, impressively contributes 40.4% of the annual adjusted EBITDA. The interactive segment, despite its explosive growth, accounts for just 7.3% of the annual revenue and 9.6% of the adjusted EBITDA.
Inspired traditionally does not provide forecasts; however, Weil indicated that expectations for the full-year consensus were moderately above the FY2023 numbers. Looking ahead, he anticipates a stronger performance in the latter part of FY2024, especially from the virtual sports, which is expected to gain momentum after the initial introduction of company initiatives. Weil also mentioned that the hangover from accounting restatements and product sales backlogs could potentially impact the 2024 financials.
