The first financial quarter of 2023 saw Inspired Entertainment Inc. navigating a complex industry landscape, with mixed results across its various sectors. Total revenue for the quarter ending March 31 amounted to $63.1 million, a slight decrease of 2.8% from the $64.9 million reported in the same period the previous year.
A shining spot in the company’s portfolio was the Interactive segment, which continued to flourish with an impressive revenue surge of 37.3%. Inspired’s Leisure sector also enjoyed an uptick, marking an 8.8% increase to $18.6 million. Despite these gains, the overall financial picture was dampened by declines in the Gaming and Virtual Sports sectors. The company’s main revenue stream, Gaming, suffered an 11.4% dip to $24.0 million, while Virtual Sports slumped by 16.2% to $12.4 million. These downturns effectively neutralized gains in other areas, culminating in a lower aggregate revenue for Inspired in Q1.
Lorne Weil, Inspired’s executive chairman, offered insight into the quarter’s performance, attributing it to a combination of robust performance in the Interactive segment, counterbalanced by enduring trends from the latter half of 2023 in the Virtual Sports domain. Citing a major customer that refined its customer base and an “unusually challenging quarter” for the Gaming segment, Weil sketched a vivid picture of the prevailing dynamics.
Delving deeper into the results, the numerical growth in Inspired can be readily observed. In the Interactive realm, the revenue catapulted from $5.9 million in the previous year to $8.1 million, attributed to the broadening of the customer base and expansion into new markets.
However, there was a disappointing turnover within Virtual Sports, with revenue retreating from $14.8 million to $12.4 million. Despite this setback, Weil voiced confidence in the long-term opportunities in this domain. He highlighted the expanded content offerings, notably the new NBA Re-Play title, which has been eagerly received by OPAP.
Shedding light on Inspired’s land-based operations, the first quarter presented contrasting narratives: the fall in Gaming revenue from $27.1 million to $24.0 million starkly contrasted the Leisure segment’s rise. Affecting land-based operations were lower service revenue in the UK betting office market and a tail-off in historical amortised licensed revenue in Greece. However, the company remained optimistic, indicating a reversal of these trends entering the second quarter, supported by promising machine revenue increases and strategic moves to mitigate the impact of higher costs due to inflation.
Fiscal discipline was a focal point for Inspired, with Weil underscoring the initiation of a cost improvement initiative. A dedicated team has been charged with driving efficiencies across the business to boost adjusted EBITDA margins, a critical financial health indicator for the company.
Still, the financial landscape was not without its challenges, with a mixed bag of cost rising in some areas while decreasing in others. Overall, increased administrative spending led to a rise in total expenses. These, combined with $6.5 million in finance-related costs, culminated in a pre-tax loss of $7.9 million, escalating from the preceding year’s $1.6 million. Tax benefits did little to cushion a net loss, which expanded from $1.4 million to $5.7 million.
On a positive note, gains were reported in foreign currency translation and pension plan details, softening the net loss slightly to $4.4 million. However, adjusted EBITDA for the quarter also suffered a setback, descending 18.9% from $20.1 million to $16.3 million.
As the company strides into the new year, Weil expressed a commitment to a strategic focus on shifting a larger portion of earnings to the digital sphere, which includes the Virtual Sports and Interactive sectors. The digital business now represents 76% of adjusted EBITDA contribution, an increase from the previous year’s 69%.
Meanwhile, Inspired overcame regulatory challenges, including accounting errors and late filing issues that brought the company under scrutiny from Nasdaq. Through comprehensive review and committed corrective actions, the company is now focused on growth opportunities in newly opening markets and the launch of innovative Virtual Sports products.
Despite a tepid first quarter, the company envisions promising growth and developments as it embarks on the rest of 2024. With unique content offerings and the potential to tap into the expanding online betting and gaming markets globally, Inspired Entertainment aims to solidify its footprint in the digital world while continuing to navigate the challenges ahead.
