Interactive growth fails to halt revenue decline at Inspired in Q1

Inspired Entertainment said ongoing growth within its Interactive segment was not enough to halt an overall decline in revenue in Q1, while the provider also reported a wider net loss.

Revenue for the three months to 31 March hit $63.1m (£50.4m/€58.6m). This is 2.8% lower than the $64.9m Inspired posted in Q1 of last year.

As was the case for Inspired during its 2023 full-year, the Interactive business continued to grow, with revenue up 37.3%. The provider also noted an 8.8% rise in Leisure revenue to $18.6m.

However, declines were not across both the Gaming and Virtual Sports segments. Gaming, its main source of income, reported an 11.4% drop in revenue to $24.0m, while Virtual Sports revenue was also down 16.2% to $12.4m.

Ultimately, lower revenue from the Gaming and Virtual Sports businesses offset growth in other areas, leaving Inspired with a lower total for Q1. This, coupled with higher spending, also led to an increased net loss for the period.

“Q1 results were a combination of continued outperformance in our Interactive segment, offset by the persistence of second half 2023 trends in Virtual Sports where a major customer has optimised their customer base as well as confronting an unusually challenging quarter in the Gaming segment,” Inspired executive chairman Lorne Weil said.

Digital dream for Inspired

Breaking down the Q1 results, it is easy to see where the majority of growth is at Inspired. The $8.1m generated in Interactive revenue was some way clear of $5.9m in the previous year.

This, Inspired says, is due to the growth of its existing customer base and expansion to new players in other markets.

As for its other digital business, Virtual Sports revenue fell from $14.8m to $12.4m. However, Weil is confident about long-term prospects here, referencing expanded content offerings, including the new NBA Re-Play title that launched today (10 May) with OPAP.

“As virtual sports gaming continues to grow in popularity around the world, this unique offering will continue to set Inspired apart in the growing market,” Weil said.

The ups and downs of land-based gambling

As for Inspired’s land-based operations, Q1 was very much a tale of two segments. Gaming revenue dropped from $27.1m to $24.0m, but remains the company’s main revenue source by some distance.

In contrast, revenue within the Leisure segment increased from $17.1m to $18.6m. 

Looking at land-based in general, Inspired said lower service revenue in the UK licensed betting office market and in Greece, driven by the expiry of historical amortised licensed revenue, hit operations.

However, it also said these trends are now starting to reverse heading into Q2, helped by low double-digit year-on-year revenue per machine increased with its Vantage cabinets across two of its largest UK LBO customers. In addition, higher costs in the inflationary environment are impacting operations, with Inspired taking action in Q1.

“During the quarter, we initiated a cost improvement initiative across the business,” Weil said. “We have a dedicated team working across all aspects of the business to find efficiencies to drive our adjusted EBITDA margins.”

Net loss tops $4.4m in Q1

On the subject of costs, this was also a mixed picture, with spending rising in some areas and falling in others. Cost of service and sales were both down year-on-year, but this was offset by increased selling, general and administrative spend, meaning expenses were up overall.

After also accounting for $6.5m in finance-related costs, this left Inspired with a pre-tax loss of $7.9m, compared to last year’s $1.6m. The company received $2.2m in tax benefits, but did not stop net loss widening from $1.4m to $5.7m.

Inspired also reported a $1.0m gain on foreign currency translation and a small gain on its pension plan. As such, bottom line net loss amounted to $4.4m, again wider than $3.9m in 2023.

In addition, adjusted EBITDA for the quarter slipped 18.9% from $20.1m to $16.3m.

“As we begin 2024, we remained focused on our long-term strategy to shift a greater proportion of our earnings to our aggregate digital business, which includes our Virtual Sports and Interactive segments,” Weil said.

“In the first quarter, our digital business accounted for 76% of adjusted EBITDA contribution compared to 69% in the prior year. At the same time our strategy of moving our retail business in the capital light direction is taking hold as well.”

Reason for optimism at Inspired?

Q1 also saw Inspired publish its delayed Q3 results for 2023, as well as its full-year finances.

The Q3 results had been pushed back after Inspired was contacted by Nasdaq over alleged non-compliance due to late filing. The delay was caused by Inspired investigating accounting errors relating to compliance with US GAAP, connected to accounting policies for capitalising software development costs.

Issues flagged in the review related to errors in financial statements for periods commencing 1 January 2021. Inspired committed to implement changes to remediate these weaknesses including restating financial statements for the periods of concern.

Inspired eventually had a plan to regain compliance accepted by Nasdaq, allowing it to move past the matter. 

There was a minor blip when Nasdaq contacted Inspired again last month over the late filing of its full-year results. However, Inspired allayed fears over further non-compliance issues with Nasdaq and published the figures mid-April as promised.

On the back of this, Weil again reiterated Inspired’s desire to move forward. He also spoke of his confidence about growth and new prospects for the current year.

“While Q1 had some items that worked against us, we are experiencing improving trends into the second quarter and are excited for the future, with new markets opening and new Virtual Sports products set to launch,” Weil said.

“As new markets emerge and more customers embrace these new, innovative products, opportunities for growth remain promising. We believe that our unmatched content portfolio positions us well to capitalise on the expanding online betting and gaming markets globally.”

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