Inspired sees losses widen in H1 despite revenue growth

13 August 2020

Inspired Entertainment has reported an increased net loss for the first half of the year, despite reporting year-on-year revenue growth for the period.

Revenue for the six months to 30 June amounted to $67.9m (£51.8m/€57.3m), up 12.4% from $60.4m in the corresponding period last year.

Inspired noted growth across its two primary business segments, with service revenue climbing 3.6% to $58.4m and hardware revenue rocketing 137.5% to $9.5m.

In terms of spending in the first half, cost of services was down from $10.7m to $9.7m, but cost of hardware was up 180.8% to $7.3m.

Selling, general and administrative expenses jumped 44.4% to $39.7m, but stock-based compensation costs more than halved from $4.4m to $2.0m. Acquisition and integration related transaction expenses were up 175.0% to $4.4m, while depreciation and amortisation spend jumped 37.8%.

Higher spending in certain areas offset the increase in revenue, leaving Inspired with an operating loss of $21.1m, compared to $5.2m last year. Other spending, mainly $14.2m in interest expenses and $6.2m in other finance related costs, amounted to $20.5m in additional outgoings. 

Though Inspired only paid $300,000 in tax during H1, it ended the period with a net loss of $41.9m, a  $15.7m last year.

Lorne Weil, executive chairman of Inspired, praised the provider’s performance in the first half, saying that it weathered a number of challenges due to novel coronavirus (Covid-19), which primarily impacted the business in the second quarter.

“We believe we are well-positioned to recover, assuming no further Covid-19 measures are implemented in our markets, given our focus on local, smaller retail venues,” Weil said.

“We believe there are less travel dependent and better situated than larger venues to adapt to social distancing measures, and our European-concentrated business which appears to be better positioned than the United States in managing the Covid-19 health crisis.”

Looking more closely at the second quarter, when many of Inspired’s clients were forced to temporarily close their retail venues due to the pandemic, revenue was down 41.6% to $15.6m.

Service revenue slipped 40.6% to $15.2m, after its retail clients were hit hard by temporary shop closures amid the pandemic. Breaking this down further, server-based gaming (SBG) revenue fell 77.1% to $4.0m, with SBG service revenue also fell 78.1% to $3.6m and SBG hardware revenue down from $1.1m to $400,000.

Virtual sports revenue, which includes interactive, was up by 6.4% to $9.8m, despite the shutdown of retail services in key markets the UK, Greece and Italy. However, Covid-19 stay-at-home orders and growing migration to igaming saw revenue from online virtuals rise to $2.9m and interactive games' contirbution increased to $1.3m.

Acquired business service revenue - from the Gaming Technology Group business purchased from Novomatic in June last year - was $1.8m. Of this total, approximately $1.2m was generated from the online business, with pubs, leisure parks, motorway service areas and adult gaming centres closed for all of the quarter.

With business slowing in Q2, this led to a drop in certain expenses, with cost of sales falling from $5.4m to $3.1m, and hardware expenses down from $1.0m to $300,000.

Selling, general and administrative expenses were 17.2% lower at $10.6m, while stock-based compensation costs fell from $2.3m to $1.0m. However, acquisition and integration related transaction expenses were up 71.4%% to $1.2m, and depreciation and amortisation spend hiked 46.2% to $13.3m.

This transpired to an operating loss of $13.9m for the second quarter, compared to a $4.5m loss last year. Other expenses totalled $10.5m, which meant that the provider posted a $24.4m loss before tax, higher than the $10.6m in 2019.

After paying $100,000 in tax, Inspired ended the second quarter with a net loss of $24.5m, compared to a $10.7m loss in the same period last year.

“We are pleased with the fundamentals of our business as we have navigated the impact of the Covid-19 closures,” Weil said. “Given these closures, we expected a negative impact in the second quarter.

“However the implementation of aggressive cost-savings measures and strong demand in our online business, which more than doubled on a pro forma basis, helped to compensate for the retail closures and we were able to achieve EBITDA profitability during the quarter.”

Weil added: “As we look ahead, we remain confident in the long-term fundamentals of our business. Between the return of our land-based business and the continued growth in our online business, we are upbeat on the outlook for the third quarter and beyond.”