Inspired Entertainment reports strong third quarter

Business News

Inspired Entertainment, has reported financial results for its third quarter, ended June 30, 2018.

Third quarter performance is a testament to the strength of our underlying core business and our ongoing strategy to diversify our revenue base not only across product and service areas but across geographies as well,” said Inspired Executive Chairman Lorne Weil.  “With our third quarter Adjusted EBITDA growing 61% year over year to $15.5 million and Adjusted EBITDA margins growing to 42% from 30%, our business is building as envisioned. Our products continue to deliver and gain traction while our margins are benefiting from scale.”

Mr. Weil continued, “We are very pleased with the additional machine installation and the launch of an additional Virtual Sports channel in Greece.  We believe our strong performance in Greece is sparking interest in our innovative games and technology from operators around the world, further diversifying our geographic exposure.  We expect this to bode well for our products in North America, where we will be launching Virtual Sports with the Pennsylvania Lottery later this week.”

Total revenue for the quarter ended June 30, 2018 increased by $4.6 million, or 14.3%, from the quarter ended June 30, 2017, to $36.9 million, on a reported basis. Favorable currency movements3 accounted for $2.1 million of the increase, with constant currency4 revenue increasing by $2.5 million, or 7.9%.

SBG revenue increased by $2.1 million, or 9.2%, on a constant currency basis, comprised of growth in service revenue of $5.4 million offset by lower hardware sales of $3.2 million.

SBG service revenue increased by $5.4 million, or 30.0%, on a constant currency basis, as a result of the continued rollout of terminals in Greece driving a $1.9 million increase, and software license sales of $3.4 million into Greece.

SBG hardware revenue decreased by $3.2 million, on a constant currency basis, driven by lower hardware sales into Greece of $2.8 million and the Electronic Table Gaming (“ETG”) business of $0.3 million.

Virtual Sports revenue increased by $0.4 million, or 4.5%, on a constant currency basis, to $10.0 million, driven by new customer revenue from Inspired’s Mobile RGS product, as well as continued growth in GreeceFinland and Poland.  Underlying Virtual Sports revenue increased by $1.0 million, or 12.8%, with Virtual Sports land-based and online customers accounting for $0.6 million of the increase and $0.4 million coming from Mobile RGS.  Growth was negatively affected by $0.6 million due to a reduction in revenue from long-term Virtual Sports licenses that have now come to an end.

Cost of sales, excluding depreciation and amortization, which includes machine cost of sales, consumables, content royalties and connectivity costs, decreased from the quarter ended June 30, 2017 by $1.1 million, or 12.4%, on a reported basis, to $7.9 million. Of this decrease, $0.5 million arose from adverse currency movements. On a constant currency basis, cost of sales decreased by $1.6 million, or 17.4%.

Cost of service increased by $1.4 million, or 32.7%, on a constant currency basis, due to an increase in Greece SBG service costs of $1.1 million, driven by continued roll out, and additional costs to service UK SBG terminals of $0.1 million. The additional cost of supporting new recurring contracts for Virtual Sports amounted to $0.2 million of the increase.

Cost of hardware decreased by $2.9 million, or 59.9%, on a constant currency basis, due to lower nil margin hardware sales in Greece. Hardware sales are made at nil margin in certain circumstances in order to secure long-term revenue sharing contracts.

SG&A expenses increased by $1.5 million, or 10.6%, on a reported basis, to $15.2 million. Of this increase, $0.9 millionarose from adverse currency movements. On a constant currency basis, SG&A expenses increased by $0.6 million, or 4.3%. $1.5 million of this adverse variance was due to restructuring costs relating to senior management changes announced in May 2018.  This was partially offset by $0.9 million of staff-related cost savings.