Inspired sees losses widen despite revenue growth in 2019

Inspired Entertainment has announced an increased net loss for 2019, as increased revenue from its server-based gaming and hardware divisions was offset by rising operating costs.

Total revenue for the 12 months to 31 December 2019 amounted to $153.4m (£118.6m/€135.2m), up 9.0% from $140.7m in the previous year.

The majority of revenue from its service operations, with revenue from this business unit amounting to $134.9m, an increase of 3.3% on 2019. Revenue from hardware sales, meanwhile was up 83.2% year-on-year to $18.5m.

However, this revenue growth was accompanied by rising costs for the year. Selling, general and administrative expenses were the main outgoing for the provider, rising 23.1% to $72.6m, while service-related costs climbed to $23.5m, and hardware costs were up 59.5% to $12.6m.

Full year adjusted earnings before interest, tax, depreciation and amortisation were down 10.4% from 2018.

Inspired also noted expenses of $6.7m, related to acquisitions and integration, following its deal to acquire Novomatic's Gaming Technology Group subsidiary for $120m in October 2019. Stock-based compensation costs jumped 55.12% to $9.0m, though there were no impairment charges for the year, which had reduced earnings by $7.7m in 2018.

These increased costs resulted in Inspired's net operating loss rising to $130m. Interest expenses of $27.8m, coupled with the value of earn-out liabilities falling by $2.3m, saw the supplier's pre-tax loss rise to $36.9m, and its net loss to $37.0m paying $100,000 in taxes for the year.

Focusing on the final quarter of the year, the results made for similar reading, with revenue growth – up 116.2% year-on-year to $66.4m – offset by higher costs.

Key highlights in Q4 included the installation of an additional 1,183 terminals in Greece, the sale of 150 electronic table games to Genting UK, the addition of six new interactive customers in North America and signing a virtual sports content deal with Flutter Entertainment.

However, despite total revenue climbing, net loss increased to $12.8m from a loss of $4.7m, mainly due to a $10.8m increase in interest expense attributable to the refinancing for acquisitions.

Reflecting on Q4, Inspired’s executive chairman Lorne Weil said he was pleased with the quarter, saying the results show the provider was able to mitigate the impact of the reduction in fixed odds betting terminal stakes to £2, effective from April 2019. The stake cut had a $1.8m negative impact on fourth EBITDA, down from $2.9m in Q3, and $3.7m in Q2. This, Inspired said, suggested its projection of a $10-$11m impact from the cut was accurate.

Adjusted EBITDA for Q4 came in at $17.7m, up 68.6% year-on-year.

“We are excited about the growth prospects we are seeing across the company,” Weil said. “We sold our first units in Illinois during the fourth quarter and have seen outstanding performance with all completed trials having resulted in follow-on orders.

“Our virtual sports business had its strongest ever quarter and we saw growth across the board. The popularity of our gaming and virtuals content continues to fuel the growth in our Interactive business and we are seeing impressive results from the recent launch of six new Interactive customers in North America.”

Looking ahead, Weil said he is positive about the growth prospects for Inspired in 2020, but did note the business cannot be certain about what sort of impact the coronavirus will have. To date, Weil said that Covid-19 has not had any meaningful impact on Inspired.

“With the uncertainty surrounding the Triennial [review] behind us, we are delighted to see these positive trends across our business thus far in 2020, where, in addition to the annualisation of the acquired businesses, we continue to see upside from North American penetration, accelerated UK pub and leisure digitisation, additional customers coming on board in virtual sports and interactive, as well as the realization of expected synergies.”