Server-based gaming decline hits Inspired in Q1

10 May 2019

Inspired Entertainment has reported a 10.1% decline in revenue for the first quarter of 2019, the result of a dip in the performance of its server-based gaming (SBG) division.

Total revenue fell to $33.7m (£25.9m/€30.0m) - which Inspired noted was down 3.5% on a functional currency basis - as a result of total SBG revenue falling 14.8% year-on-year to $23.7m. Within the division, service revenue dropped 11.7% to $20.8m, while revenue from hardware declined 31.8% to $2.9m.

By the end of the quarter on March 31, 2019, the number of machines installed grew 11.6% from the prior year, to 35,286. This, Inspired said, was down to the continuing roll-out of terminals for OPAP in Greece, as well as new contract awards in the UK retail sector and ongoing machine growth in Italy.

With 500 additional terminals deployed in Greece in Q1, there are now over 7,300 in operation across the market. Italian performance, meanwhile, was boosted by a 4.2% increase in customer gross win per unit per day, though this was offset by an increase in tax on terminal revenue, which reduced net win per unit per day by 22%.

With the quarter ending just before the maximum stake on B2 gaming machines was slashed to £2 in the UK, much of the focus in Q1 was on the roll-out of alternative machine-based products.

This included 125 self-service betting terminals (SSBTs) sold and deployed, as well as 50 Flex B3 terminals, installed towards the end of the quarter. Inspired also struck a deal for the roll-out of 100 Sabre Hydra electronic table games, which will be deployed in the second half of the year.

“As we move into the second quarter, we have begun to see the impact of the April implementation of the new £2 stake limit in the UK,” Inspired executive chairman Lorne Weil said. “I applaud the efforts of our UK team, which has successfully remodeled and converted our games and software to satisfy the new requirements on an accelerated timetable.”

Inspired’s Virtual Sports division, including its interactive arm, saw revenue grow 2.4% year-on-year to $9.9m. The number of operators offering its virtuals products increased to 101, up 7.4%, including the launch of Rush Football 2 with BetStars and the Moroccan Lottery.

Interactive customers increased to 35, with two new customers launched in the first quarter via the Scientific Games-owned NYX platform. A proprietary virtuals offering was rolled out with Genting Online, and its contract with Bet365 was renewed for a further three years. It also sealed a new contract to provide the British Columbia Lottery Corporation with its virtuals, slots and table game content.

Inspired saw a decline in revenue lead to declines in costs for the period. Cost of services was down 10.9% year-on-year to $5.4m, while hardware costs dropped 59.5% to $1.6m. Selling, administrative and general expenses were down marginally to $14.7m and depreciation and amortisation fell to $9.7m.

Despite marginal increases in stock-based compensation expenses and acquisition-related costs, Inspired’s operating loss fell to $702,000.

However, finance related costs impacted earnings, resulting in the Q1 pre-tax loss rising to $5.0m. Once income taxes of $93,000 were paid, the loss stood at $4.9m, up from $498,000 in the prior year.

Looking ahead to the rest of the year, Weil said he was confident that Inspired could mitigate at least some of the impact of the B2 machine stake cut, though added that this was likely to reduce full-year earnings by up to $11m.

“However, with only one month of data, we are not yet prepared to predict either player adoption rates or the acceleration of the mitigants with greater specificity,” he added. 

"We continue to see strong growth in our virtual sports and interactive businesses and we are extremely focused and encouraged by our business development activity across a number of key territories," Weil continued.

"In particular we have a unique opportunity and a clear strategy to build our VLT, Virtual Sports and Interactive businesses in North America and we expect to see more meaningful results starting in the fourth quarter of 2019 when we plan to commence shipments of VLTs into the market."