Inspired(INSE) - 2023 Q4 - Annual Results

Q3 2023 Financial Performance Overview Management Commentary and Strategic Highlights Management completed its financial restatement, shifted focus to the higher-margin digital business, and repurchased company stock - The financial restatement process is complete, with a minimal net impact on Adjusted EBITDA: a $0.6 million decrease for full-year 2022 and effectively zero for the first half of 2023[3] - The company's strategic focus is shifting towards its higher-margin digital businesses, which generated 58% of year-to-date Adjusted EBITDA contribution[3] - The Interactive segment demonstrated strong growth, with revenue and Adjusted EBITDA increasing by 28% and 55% year-over-year on a constant currency basis, respectively[3] - The land-based business is showing a reacceleration, with new 'Vantage' cabinet deployments leading to approximately 11% YoY revenue per machine increases in betting shops and 20% in pubs[5] - The company repurchased 121,847 shares for $1.5 million during the third quarter, bringing the total to approximately 1.2 million shares since the program's inception[4][5] Summary of Third Quarter 2023 Segment Financial Results Q3 total revenue grew 31% driven by hardware sales, but net income declined 63% and the Adjusted EBITDA margin contracted to 27% Q3 2023 Key Financial Metrics (vs. Q3 2022) | Metric | Q3 2023 | Q3 2022 | % Change | Functional Currency % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $97.5M | $74.2M | +31% | +22% | | Net Income | $3.4M | $9.2M | -63% | -65% | | Net Income per Diluted Share | $0.12 | $0.32 | -63% | -67% | | Total Company Adjusted EBITDA | $26.7M | $27.3M | -2% | -8% | Q3 2023 Adjusted EBITDA by Segment (vs. Q3 2022) | Segment | Q3 2023 Adj. EBITDA | Q3 2022 Adj. EBITDA | % Change | | :--- | :--- | :--- | :--- | | Gaming | $8.3M | $9.0M | -7% | | Virtual Sports | $11.7M | $12.2M | -5% | | Interactive | $4.7M | $2.8M | +66% | | Leisure | $8.7M | $9.6M | -9% | Recent Business Developments The company launched new products like 'Hybrid Dealer' and expanded strategic partnerships with the NBA, FanDuel, and Kambi Group - Launched 'Hybrid Dealer', a new iGaming product blending physical and digital elements, in partnership with BetMGM[6] - Strengthened its Virtual Sports offering by signing an agreement with the NBA and launching an NFL-themed product with bet365[6] - Expanded its North American footprint through a partnership with FanDuel across multiple states and integrated its Virtual Sports products into the Kambi sportsbook platform[6] Financial Statements Condensed Consolidated Statements of Operations Q3 revenue grew to $97.5 million, but higher costs led to a decline in net operating income and a fall in net income to $3.4 million Statement of Operations Summary (in millions) | Line Item | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $97.5 | $74.2 | $241.8 | $205.0 | | Net Operating Income | $12.2 | $15.3 | $30.6 | $34.4 | | Net Income | $3.4 | $9.2 | $7.6 | $17.1 | | Net Income per Diluted Share | $0.12 | $0.32 | $0.26 | $0.58 | Condensed Consolidated Balance Sheets Total assets increased to $304.7 million as of September 30, 2023, while the total stockholders' deficit improved to ($72.5) million Balance Sheet Summary (in millions) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $133.3 | $126.9 | | Total Assets | $304.7 | $287.2 | | Total Current Liabilities | $77.8 | $74.9 | | Long-term Debt | $282.7 | $277.6 | | Total Liabilities | $377.2 | $372.8 | | Total Stockholders' Deficit | ($72.5) | ($85.6) | Condensed Consolidated Statements of Cash Flows For the first nine months of 2023, net cash from operations was $35.3 million, with the period ending with a cash balance of $26.4 million Cash Flow Summary - Nine Months Ended Sep 30 (in millions) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $35.3 | $31.8 | | Net Cash Used in Investing Activities | ($31.7) | ($25.5) | | Net Cash Used in Financing Activities | ($2.6) | ($10.5) | | Net Increase (Decrease) in Cash | $1.4 | ($10.4) | | Cash, End of Period | $26.4 | $37.4 | Non-GAAP Financial Measures and Reconciliations Explanation of Non-GAAP Measures The company uses non-GAAP measures like Adjusted EBITDA and Adjusted Revenue to provide additional insight into its operating performance - Adjusted EBITDA is defined as net income excluding depreciation, amortization, interest, taxes, stock-based compensation, and other adjustments for items considered outside the normal course of business[12] - Adjusted Revenue (Revenue Excluding Low Margin Gaming Hardware Sales) is defined as revenue excluding hardware sales sold at a low margin to secure longer-term recurring revenue[14] - Adjusted Net Income excludes non-recurring items such as restructuring costs, M&A expenses, and gains or losses not in the ordinary course of business, adjusted for tax impacts[15] Reconciliation of Adjusted EBITDA by Segment Q3 2023 Adjusted EBITDA was $26.7 million, reconciled from a net income of $3.4 million with Virtual Sports as the largest contributor Q3 2023 Reconciliation of Net Income to Adjusted EBITDA (in millions) | Description | Amount | | :--- | :--- | | Net Income | $3.4 | | Depreciation and amortization | $10.3 | | Interest expense, net | $6.9 | | Stock-based compensation expense | $3.3 | | Income tax | $2.0 | | Other adjustments | $0.8 | | Adjusted EBITDA | $26.7 | Reconciliation of Adjusted Net Income Q3 2023 Adjusted Net Income was $4.9 million, or $0.17 per diluted share, a significant decrease from the prior-year period Adjusted Net Income Reconciliation (in millions, except per share data) | Metric | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Net Income | $3.4 | $9.2 | | Adjustments | $1.5 | $2.7 | | Adjusted Net Income | $4.9 | $11.9 | | Adjusted Net Income per Diluted Share | $0.17 | $0.41 | Reconciliation of Adjusted Revenue Adjusted Revenue for Q3 2023 was $74.8 million, nearly flat year-over-year after excluding $22.7 million in low-margin hardware sales Adjusted Revenue Reconciliation (in millions) | Line Item | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Net Revenues | $97.5 | $74.2 | | Less: Low Margin Gaming Hardware Sales | ($22.7) | — | | Adjusted Revenue | $74.8 | $74.2 | Pro-rated Segment Adjusted EBITDA Contribution After allocating corporate costs, the Virtual Sports segment was the largest contributor to Q3 Adjusted EBITDA at 39.3% Q3 2023 Segment Contribution to Adjusted EBITDA (in millions) | Segment | Adjusted EBITDA | Corporate Allocation | Segment-level Adj. EBITDA | % Contribution | | :--- | :--- | :--- | :--- | :--- | | Gaming | $8.3 | ($2.0) | $6.3 | 23.6% | | Virtual Sports | $11.7 | ($1.2) | $10.5 | 39.3% | | Interactive | $4.7 | ($0.6) | $4.1 | 15.1% | | Leisure | $8.7 | ($2.9) | $5.8 | 22.0% | | Total | $33.4 | ($6.7) | $26.7 | 100.0% | Other Disclosures Revision of Prior Period Results The company restated prior financial statements for FY2022 and Q1/Q2 2023 to correct accounting errors in software cost capitalization - The company completed a restatement of prior financial statements (Form 10-K/A for FY2022, Forms 10-Q/A for Q1 and Q2 2023) due to accounting errors[9] - The errors were primarily related to the company's accounting policies for capitalizing software development costs under U.S. GAAP[9] Forward-Looking Statements The release contains forward-looking statements subject to risks and uncertainties, and the company does not commit to updating them - The report includes forward-looking statements regarding business plans, new customers, and financial performance, which are not guarantees of future results[23] - These statements are subject to known and unknown risks and uncertainties, and the company undertakes no obligation to update them[24]