Inspired Entertainment, Inc. Reports Second Quarter 2017 Results
Inspired Entertainment, Inc. (“Inspired”) (NASDAQ: INSE) today reported financial results for the quarter ended March 31, 2017. As previously announced, management will host a conference call at 10:30 a.m. ET / 3:30 p.m. GMT, to discuss the second quarter results and general business trends; access details are provided below.
“We continue to be excited about the momentum in our business,” said Inspired President and Chief Executive Officer, Luke Alvarez. “We delivered solid volume growth in our SBG estate and rapid growth in our Virtual Sports business driven both by increasing market penetration and improved performance from existing operators. We are also pleased that growth accelerated as the quarter progressed, driven by multiple new customers coming on stream.” Mr. Alvarez said, “The launch of both of our lines into the Greek lottery market is a key milestone for our business and should be a material contributor going forward.”
“The performance of our underlying business in the quarter is indicative of the constant currency revenue growth we enjoyed, but also some of the increased expenses we have as a public company,” said Inspired Executive Chairman, Lorne Weil. Mr. Weil continued, “despite this increase in expenses, our base business performed in line with our expectations during the period and is poised for accelerated growth in the second half of the year. Additionally, management continues to be highly focused on pursuing strategic opportunities to utilize our platform to accelerate growth further.”
Second Quarter Highlights
Greece Update
- During the quarter, Inspired successfully deployed 340 SBG terminals with OPAP, the Greek betting and lottery operator.
- Subsequent to the end of the quarter, Inspired successfully deployed its Virtual Sports product into 4,000 endpoints in Greece, as well as an additional 127 SBG terminals through May 4.
Italy Update
- Inspired launched Virtual Sports multimatch football products with both Snaitech and Sisal. Snaitech is the first Italian operator to launch Inspired’s Football Matchday (soccer) across online channels and retail venues.
- Inspired launched with Gamenet, the sixth concessionaire in Italy to deliver Inspired’s SBG technology and content to its customers, establishing Inspired as a top supplier of SBG terminals to Italian operators.
“We are excited about our many accomplishments in the second quarter and look forward to the continuing and increasing benefits from these initiatives as well as other initiatives we have undertaken since the end of the quarter,” said Mr. Alvarez.
2017 and 2018 Guidance
Due to an unexpected gaming tax increase in Italy and higher public company administrative costs than forecast, together with modest delays in SBG rollouts in Greece and Virtual Sports rollouts in certain new territories, we expect to be at the bottom end of our previously communicated guidance range for the forecast period but we are confident in the growth momentum in the business and expect continuing new market launches for the remainder of 2017 and 2018.
Overview of Consolidated Second Quarter Results
Total revenue increased $2.8 million, or 9.1%, on a constant currency basis, offset by an adverse currency impact of $5.2 million, resulting in a decrease in reported revenue of $2.3 million, or 7.8%, from $30.4 million to $28.1 million.
SBG revenue increased by $1.4 million, or 6.3%, on a constant currency basis, comprised of growth in hardware sales of $1.9 million and a decline in service revenue of $0.5 million. This was offset by an adverse currency impact of $3.6 million, resulting in a decrease in reported SBG revenue of $2.2 million, or 10.2%, from $21.8 million to $19.6 million.
On a constant currency basis, Virtual Sports revenue increased by $1.4 million, or 16.2%, due to growth in recurring revenue. This was offset by an adverse currency impact of $1.6 million, resulting in a decrease of $0.2 million, from $8.6 million to $8.5 million.
Net operating income decreased from $1.7 million to a $2.1 million loss, due primarily to the decline in reported revenue and increases in costs associated with hardware sales, as well as increases in stock-based compensation. This was partially offset by gains in currency translation.
Net loss for the quarter was reduced from $13.5 million to $9.1 million, primarily reflecting the reduction in interest expense due to the elimination of PIK shareholder loan notes.
Operating Segment Review
Server Based Gaming
Server Based Gaming Key Performance Indicators (KPIs)
On a constant currency basis, total SBG revenue increased by $1.4 million, or 6.3%, offset by an adverse currency impact of $3.6 million. On a reported basis, total SBG revenue declined by $2.2 million, or 10.2%, from $21.8 million to $19.6 million.
SBG service revenue declined by $0.5 million on a constant currency basis. In conjunction with an adverse currency impact of $3.1 million, this resulted in a reported decline of $3.6 million, from $20.5 million to $16.9 million. The underlying performance decrease was driven by revised terms on SBG contract extensions (these are platform only) with certain of our UK LBO and UK Casino & Bingo customers representing declines of $0.6 million and $0.3 million, respectively (on a constant currency basis), which were partially offset by growth in Gross Win per unit per day in the UK LBO estate driving additional recurring revenue of $0.4 million and a 400 terminal increase in the installed base of B3 terminals in Adult Gaming Centre (“AGCs”) venues which accounted for a $0.1 million increase in revenue. The revised terms on the SBG contract extensions allowed us to continue to generate revenue without the need to make any further capital expenditure. Historically these reductions have been temporary and have reversed if and when the next contracts are negotiated with new capital expenditure in them.
Hardware revenue grew by $1.9 million on a constant currency basis due to additional SBG sales in Greece, UK LBO and Colombia. This increase was partially offset by an adverse currency rate impact of $0.5 million, resulting in hardware revenue increasing by $1.4 million, from $1.3 million to $2.7 million.
The size of our Average Installed Base increased 3.4%, to 27,013, due to continued UK market growth, additional SBG installs in Colombia and commencement of our rollout into Greece.
On a constant currency basis, SBG operating profit decreased by $0.1 million. On a reported basis SBG operating profit decreased by $0.9 million, from $5.7 million to $4.7 million, due to an adverse exchange rate impact.
Virtual Sports
Virtual Sports Key Performance Indicators (KPIs)
|
For the Three-Month Period |
Variance |
||||||
|
March 31, |
March 31, |
2017 vs 2016 |
|||||
|
Virtuals |
2017 |
2016 |
% |
||||
|
Live Customers # |
78 |
67 |
11 |
16.4% |
|||
|
Total Revenue (£’000) |
£6,830 |
£5,877 |
£953 |
16.2% |
|||
|
Total Revenue £’000 – Retail |
£4,344 |
£3,926 |
£418 |
10.6% |
|||
|
Total Revenue £’000 – Online |
£2,487 |
£1,951 |
£535 |
27.4% |
|||
|
Average Revenue Per Customer per |
£973 |
£975 |
(£2) |
(0.2%) |
|||
Virtual Sports revenue increased by $1.4 million, or 16.2%, on a constant currency basis, offset by an adverse currency impact of $1.6 million resulting in a negligible decline in reported revenue, from $8.6 million to $8.5 million.
The revenue increase on a constant currency basis was driven by recurring revenue growth of $1.2 million in Virtual Sports land-based and online customers as a result of new content and growth in stakes. Further RGS integrations into the mobile market with six customers compared to four for the same period in 2016 resulted in an increase of $0.2 million.
Virtual Sports live customers increased by eleven, from 67 to 78, in the interim period, including new RGS customers.
Virtual Sports operating profit increased by $0.1 million on a constant currency basis. On a reported basis this represented a decline of $0.8 million, from $5.5 million to $4.7 million. This was primarily attributable to an adverse currency impact, which reduced operating profit by $0.9 million.
