NEW YORK, Aug. 9, 2022 /PRNewswire/ -- Inspired Entertainment, Inc. ("Inspired" or the "Company") (NASDAQ: INSE), a leading B2B provider of gaming content, technology, hardware and services, today reported unaudited financial results for the three-month period ended June 30, 2022.
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Weil continued, "We are very excited about the current trends in our business and what's to come, including our recent Interactive launches in Ontario and particularly in Pennsylvania, where we are witnessing strong results with only one customer live and we have several additional customer launches to follow in the year, and the launch of Virtual Sports with the DC Lottery, our second North American lottery. We have also successfully negotiated a long-term strategic partnership/extension with William Hill on the Gaming front and signed key contract extensions with customers in the UK pub industry, including Greene King and Mitchells & Butlers. In addition, we have an exciting pipeline of new products and further enhancements to our existing Virtuals products. We are making Virtuals history with the first ever women-led virtual soccer product and we have signed baseball legend Mickey Mantle, in addition to our previously announced signing of Babe Ruth, for our Home Run ShootOut™ game, which is expected to launch in early 2023."
"The long-term fundamentals and health of the business are the strongest they have been in my tenure. The growth dynamics of our markets remain compelling as a wider audience engages with online betting and gaming and new jurisdictions open up, creating further opportunities. With the return of our retail customer base, we remain confident that our diversification and proven ability to grow our business will enable us to deliver further progress against our strategy," Weil concluded.
Stewart Baker, Executive Vice President and Chief Financial Officer, stated, "We are particularly pleased with our second quarter results, given the prevailing perception of headwinds from the macro-economic environment as well as the impact from foreign exchange rates. Given our ongoing strong performance in the face of these headwinds, the long-term outlook of the Company and the strength of our balance sheet, we have utilized our board-approved share buyback program to repurchase nearly 750,000 shares of Inspired common stock, as of August 9th, at an average price of $9.73 per share (before trading expenses). Moving forward, we see continued pressure from FX rates, however our underlying business has maintained the same trend. We will continue to be disciplined in our approach to capital deployment, while also focused on executing on our strategic plan to deliver profitable growth, increase cash flows and maximize shareholder value."
Recent Highlights (as of August 9, 2022)
Corporate
Interactive
Virtual Sports
Gaming
Leisure
Overview of Second Quarter 2022 Results Versus Second Quarter 2021 on a Reported Basis
Total Revenue increased 72% year-over-year to $71.3 million in the three months ended June 30, 2022, compared to $41.5 million in the prior-year period, reflecting strength in the Gaming and Leisure segments following customers' retail venues reopening after COVID-19 lockdowns and continued growth in the online business.
Gaming Service Revenue increased $6.8 million year-over-year due to Inspired's retail recurring revenues exceeding pre-COVID-19 performance levels in second quarter 2022 and the addition of the Company's newly acquired lottery systems contract in the Dominican Republic ($1.3 million). The strong results are driven by the removal of final COVID-19 restrictions across our geographies in May 2022 and the introduction of new content, which has resulted in growth. Gaming Product Revenue increased by $2.5 million driven by higher sales in the UK from the sale of Flex™ and Sabre Hydra™. Gaming Segment Operating Income increased to $4.8 million from a loss of $2.7 million in the prior-year period due to the increased revenue and decreased depreciation and amortization from software being fully amortized, partly offset by increased costs as all staff returned from furlough. Gaming Adjusted EBITDA increased to $9.5 million from $3.5 million in second quarter 2021.
Virtual Sports Revenue increased to a record $14.0 million from $8.2 million in the prior-year period, primarily due to Online Virtuals revenue doubling year-over-year, driven by growth from existing customers, and an increase in Retail Virtuals of $1.0 million, due to retail venues being open for the whole of the period compared to the prior-year period. Virtual Sports Segment Operating Income was $11.1 million, which compares favorably to $4.2 million in second quarter 2021 primarily due to the increase in revenue. Virtual Sports Adjusted EBITDA increased to $12.0 million from $6.4 million in second quarter 2021.
Interactive Revenue of $5.8 million was flat year-over-year and grew 12% in functional currency, driven by growth in North America and Greece. Results in the UK grew year-over-year but were impacted by many of our UK operator customers enhancing protections for players in advance of the proposed UK Gambling Act review. During the quarter, we went live with seven operators in Ontario and Rush Street in Pennsylvania with several additional customer launches expected throughout the remainder of 2022. Interactive Segment Operating Income was $2.2 million, a 13% decrease year-over-year primarily due to the increase in cost of sales and third-party platform provider costs as well as an increase in SG&A expenses driven by the investment in the segment to help drive revenues and staff returning from furlough. Interactive Adjusted EBITDA was $3.1 million, a 12% year-over-year decrease on a reported basis but flat in functional currency, from a record $3.6 million in the prior-year period.
Leisure Revenue increased to $26.0 million from $11.3 million in the prior-year period when our customers' retail venues were closed for part of the quarter and then ramping back up. Revenue from pubs, holiday parks and motorway services was higher as a result of increased travel within the UK, which we believe resulted in (i) a significant number of holiday park locations opening early for the Easter and summer half-term holiday and (ii) increasing volume of road transport, which lead to a strong second quarter for our MSA segments. Revenue generated in second quarter 2022 from holiday park customers was $11.3 million, MSA customers was $3.8 million and pub customers was $8.5 million. Digitization of the pub estate has continued with further digital machines placed in the quarter taking digital penetration to 81%. Leisure Segment Operating Income improved to $4.1 million, from a loss of $4.4 million, due to the increased revenue as venues reopened and restrictions were removed. Leisure Adjusted EBITDA improved to $7.7 million from a loss of $0.2 million in second quarter 2021.
Total Company Selling, General and Administrative expenses increased to $29.3 million from $25.1 million in the prior-year period. This $4.2 million increase was driven by all staff returning from furlough and return to full pay for the whole period ($6.4 million) and favorable currency movements ($3.5 million), partly offset by a $1.2 million cost in the prior period from the provision of additional taxes due, relating to historic periods, which is excluded from Adjusted EBITDA.
Net Income during the quarter increased to $7.5 million, compared to a net loss of $43.8 million in the prior-year period, primarily due to the increase in net operating income ($23.1 million), driven by higher revenue and a decrease in depreciation ($2.1 million), the change in fair value of warrant liability in the prior-year period ($10.5 million) and a decrease in net interest expense ($16.1 million), driven by the refinancing and write off of debt fees in the prior-year period.
Foreign Currency Exchange Rates impacted our results in the quarter. Foreign currency exchange negatively impacted Total Revenue by $8.1 million ($2.9 million in Gaming, $1.5 million in Virtual Sports, $0.7 million in Interactive and $3.0 million in Leisure). Net Operating Income was negatively impacted by $1.6 million ($0.5 million in Gaming, $1.2 million in Virtual Sports, $0.4 million in Interactive and $0.5 million in Leisure, offset by $1.0 million in Corporate). Adjusted EBITDA was negatively impacted by $2.9 million ($1.1 million in Gaming, $1.3 million in Virtual Sports, $0.3 million in Interactive and $0.9 million in Leisure, offset by $0.7 million in Corporate).
Total Company Net Cash Provided by Operating Activities Less Capital Expenditures during the quarter was an outflow of $0.3 million due to a six-monthly interest payment of $11.5 million and $5.1 million of share repurchases in the second quarter. This was an improvement from an outflow of $18.2 million in the prior-year period driven by events surrounding COVID-19-related closures and interest expense timing associated with refinancing.
Non-GAAP Financial Measures
We use certain non-GAAP financial measures, including EBITDA and Adjusted EBITDA, to analyze our operating performance. We use these financial measures to manage our business on a day-to-day basis. We believe that these measures are also commonly used in our industry to measure performance. For these reasons, we believe that these non-GAAP financial measures provide expanded insight into our business, in addition to standard U.S. GAAP financial measures. There are no specific rules or regulations for defining and using non-GAAP financial measures, and as a result the measures we use may not be comparable to measures used by other companies, even if they have similar labels. The presentation of non-GAAP financial information should not be considered in isolation from, or as a substitute for, or superior to, financial information prepared and presented in accordance with U.S. GAAP. You should consider our non-GAAP financial measures in conjunction with our U.S. GAAP financial measures.
We define our non-GAAP financial measures as follows:
EBITDA is defined as net loss excluding depreciation and amortization, interest expense, interest income and income tax expense.
Adjusted EBITDA is defined as net loss excluding depreciation and amortization, interest expense, interest income and income tax expense, and other additional exclusions and adjustments. Such additional excluded amounts include stock-based compensation U.S. GAAP charges where the associated liability is expected to be settled in stock, and changes in the value of earnout liabilities and income and expenditure in relation to legacy portions of the business (being those portions where trading no longer occurs) including closed defined benefit pension schemes. Additional adjustments are made for items considered outside the normal course of business, including (1) restructuring costs, which include charges attributable to employee severance, management changes, restructuring, dual running costs, costs related to facility closures and integration costs, (2) merger and acquisition costs and (3) gains or losses not in the ordinary course of business. This does not include any adjustments related to COVID-19.
We believe Adjusted EBITDA, when considered along with other performance measures, is a particularly useful performance measure, because it focuses on certain operating drivers of the business, including sales growth, operating costs, selling and administrative expense and other operating income and expense. We believe Adjusted EBITDA can provide a more complete understanding of our operating results and the trends to which we are subject, and an enhanced overall understanding of our financial performance and prospects for the future. Adjusted EBITDA is not intended to be a measure of liquidity or cash flows from operations or a measure comparable to net income or loss, because it does not take into account certain aspects of our operating performance (for example, it excludes non-recurring gains and losses which are not deemed to be a normal part of underlying business activities). Our use of Adjusted EBITDA may not be comparable to the use by other companies of similarly termed measures. Management compensates for these limitations by using Adjusted EBITDA as only one of several measures for evaluating our operating performance. In addition, capital expenditures, which affect depreciation and amortization, interest expense, and income tax benefit (expense), are evaluated separately by management.
Functional Currency at Constant rate. Currency impacts shown have been calculated as the current-period average GBP:USD rate less the equivalent average rate in the prior period, multiplied by the current period amount in our functional currency (GBP). The remaining difference, referred to as functional currency at constant rate, is calculated as the difference in our functional currency, multiplied by the prior-period average GBP:USD rate, as a proxy for functional currency at constant rate movement.
Currency Movement represents the difference between the results in our reporting currency (USD) and the results on a functional currency at constant rate basis.
Reconciliations from net loss, as shown in our Consolidated Statements of Operations and Comprehensive Loss, to Adjusted EBITDA are shown below.
Conference Call and Webcast
Inspired management will host a conference call and simultaneous webcast at 9:30 a.m. ET /2:30 p.m. UK on Wednesday, August 10, 2022 to discuss the Company's financial results and general business trends.
Telephone: The dial-in number to access the call live is 1-888-550-5864 (US) or 1-646-960-0275 (International). Participants should ask to be joined into the Inspired Entertainment call.
Webcast: A live audio-only webcast of the call can be accessed through the "Events and Presentations" page of the Company's website at www.inseinc.com under the Investors link. Please follow the registration prompts.
Replay: A replay of the webcast will be available on the Company's website at www.inseinc.com.
About Inspired Entertainment, Inc.
Inspired offers an expanding portfolio of content, technology, hardware and services for regulated gaming, betting, lottery, social and leisure operators across retail and mobile channels around the world. The Company's gaming, virtual sports, interactive and leisure products appeal to a wide variety of players, creating new opportunities for operators to grow their revenue. The Company operates in approximately 35 jurisdictions worldwide, supplying gaming systems with associated terminals and content for approximately 50,000 gaming machines located in betting shops, pubs, gaming halls and other route operations; virtual sports products through more than 32,000 retail venues and various online websites; interactive games for 170+ websites; and a variety of amusement entertainment solutions with a total installed base of more than 16,000 terminals. Additional information can be found at www.inseinc.com.
Forward-Looking Statements
This news release contains "forward-looking statements" within the meaning of the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995, including, but not limited to, statements regarding our ability to bring certain of our products to customers in the various markets in which we operate and execute on our strategic plan, statements regarding expectations with respect to potential new customers and statements regarding our anticipated financial performance. Forward-looking statements may be identified by the use of words such as "anticipate," "believe," "continue," "expect," "estimate," "plan," "will," "would" and "project" and other similar expressions that indicate future events or trends or are not statements of historical matters. These statements are based on Inspired management's current expectations and beliefs, as well as a number of assumptions concerning future events.
Forward-looking statements are subject to known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside of Inspired's control and all of which could cause actual results to differ materially from the results discussed in the forward-looking statements. Accordingly, forward-looking statements should not be relied upon as representing Inspired's views as of any subsequent date. You are advised to review carefully the "Risk Factors" section of Inspired's annual report on Form 10-K for the fiscal year ended December 31, 2021, and subsequent quarterly reports on Form 10-Q, which are available, free of charge, on the U.S. Securities and Exchange Commission's website at www.sec.gov. Inspired does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as required by law.
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