Inspired revenue hit by FOBT stake cut in Q2

12 August 2019

Inspired Entertainment saw revenue fall $10.2m (£8.4m/€9.1m) in the second quarter of its financial year, with the decline blamed on the UK government’s decision to reduce maximum B2 machine stakes to £2.

The cut, effective 1 April, was responsible for $5.5m of the company’s revenue decline. Total revenue for the three months ended 30 June fell 27.6% year-on-year to $26.7m, Inspired reported.

Service revenue from server-based gaming was down 33.1% to $16.4m as a result of the B2 stake cut, which also resulted in a 41.1% year-on-year decline in customer gross win per unit per day across UK licensed betting offices.

Despite this Inspired executive chairman Lorne Weil said he was confident that the business would be able to mitigate the impact of the stake cut.

"The impact of the Triennial Implementation was in line with our expectations," Weil explained. "We believe we've taken much of the hit on the loss of revenue in the second quarter with very little mitigation so far. 

"We've actually begun to see the revenue creep back up, with gross win per unit per day improving from 44.5% decline in April to a 38.0% decline in June,” he said. “This trend has continued thus far in the third quarter and we anticipate the trend will be more pronounced with the acceleration of shop closures and the restructuring mitigation.”

Further decline was recorded in revenue from the Greek market, offset by an $0.2m increase in Italian revenue.

Hardware revenue, meanwhile, fell to $1.1m, due to lower UK hardware sales. Despite this, the supplier has been awarded a contract to supply OPAP with an additional 580 video lottery terminals in the country. In total it will roll out 8,940 terminals for the operator.

During Q2 Inspired also agreed to sell around 1,000 of its used gaming terminals, freed up by UK shop closures, to Playtech BGT Sports, which plans to repurpose the machines as self-service betting terminals. It has also extended its supply contract with William Hill to 2022.

Virtual sports revenue for the quarter was down 8.0% at $9.2m. This decline was blamed on the rephrasing of an annual contract with a major customer, as well as long-term licensing deals being fully amortised. Despite these impacts, Inspired noted, it saw revenue growth in the UK retail market - due in part to the migration of customers to virtuals from B2 machines - and Belgium.

Inspired’s interactive division has launched four new clients during the quarter, taking its total number live to 40, while also signing supply deals with Loto-Québec (for virtual sports) and SBTech, for casino games.

Q2 also saw Inspired agree to acquire Novomatic UK’s Gaming Technology Group, a supplier of Category B3, C and D gaming terminals to pubs, arcades, motorway service areas and holiday resorts. Inspired will pay $120m in cash for the business, with the deal expected to close in the third quarter of 2019.

"We see our pending transformational acquisition of NTG […] as a huge catalyst in our business, dramatically increasing our size, scope and scale and augmenting the existing growth trends for our company,” Weil said.

Executive vice president and chief financial officer Stewart Baker added that integration planning was progressing.

"We have a good track record of growing Inspired's margins and we believe we can achieve $12.3 million to $13.3m of annualised synergies within the first six months of this integration in addition to bringing down the cost of our debt,” Baker said.

Earnings before interest, tax, depreciation and amortisation for the quarter fell 42.6% to $8.9m.

Despite posting declines in revenue-related costs for the quarter, as well as a drop in selling, general and administrative expenses, the decline in revenue contributed to Inspired posting a $4.5m operating loss. After other expenses, including interest expenses, of $6.1m, plus income tax of $0.1m, the net loss for the quarter stood at $10.7m, compared to a $4.0m loss in the prior year.

For the six months to 30 June, revenue was down 18.8% at $60.4m, with service revenue declining to $56.4m, and hardware revenue down to $4.0m. As in Q2, revenue-related costs and selling, general and administrative expenses fell, though lower revenue, plus increased stock-based compensation expenses and acquisition-related costs saw the business post an operating loss of $5.2m.

Other, finance-related expenses increased to $10.5m, resulting in a net loss of $15.7m, compared to $4.5m in H1 2018.