Inspired(INSE) - 2024 Q1 - Quarterly Results

Executive Summary and Business Outlook This section summarizes Inspired Entertainment's Q1 2024 performance, strategic shift to digital, and recent business developments Q1 2024 Performance Highlights Q1 2024 saw decreased revenue and Adjusted EBITDA, increased net loss, but expanded VLT placements and new virtual sports product launches Total Company Financial Performance (Q1 2024 vs. Q1 2023) | Metric | Q1 2024 | Q1 2023 | | :------------------- | :------ | :------ | | Revenue | $63.1M | $64.9M | | Net Loss | $(5.7)M | $(1.4)M | | Adjusted EBITDA | $16.3M | $20.1M | - Expanded video lottery terminal placements by Western Canada Lottery Corporation with 720 Additional Valor™ Terminals in Saskatchewan[7] - Announced the exclusive launch of its NBA Re-Play Virtual Sports product with long-time partner OPAP[7] Executive Commentary and Strategic Direction The company focuses on shifting earnings to digital, with 76% of Q1 2024 Adjusted EBITDA from digital, implementing cost improvements, and anticipating Q2 growth - Digital business accounted for 76% of Adjusted EBITDA contribution in Q1 2024, up from 69% in the prior year, aligning with the long-term strategy to shift earnings to digital[3] - Interactive segment revenue and Adjusted EBITDA increased approximately 31% and 38% year-over-year on a constant currency basis, driven by existing customer growth and new customer expansion[5] - Virtual Sports continued to experience trends from H2 2023, including a major customer optimizing their base, but future growth is expected in H2 2024 with expanded content like NBA and NFL-themed products[4][5] - Land-based business (Gaming and Leisure) saw lower service revenue in the UK LBO market and Greece due to expired amortized licensed revenue, but trends are reversing with 'Vantage' cabinet showing low double-digit revenue per machine increases[6] - Initiated a cost improvement initiative across the business to drive Adjusted EBITDA margins in response to higher costs in an inflationary environment[6] - Anticipates improving trends into Q2 and future growth from new markets opening and new Virtual Sports products launching, leveraging its content portfolio in expanding online betting and gaming markets[8] Recent Business Developments Inspired Entertainment announced several key business developments, including the expansion of VLT placements, the exclusive launch of a new NBA-themed Virtual Sports product, and a long-term contract extension for arcade games - Subsequent to quarter-end, expanded video lottery terminal ("VLT") placements by Western Canada Lottery Corporation ("WCLC") with award of 720 Additional Valor™ Terminals in Saskatchewan[12] - Subsequent to quarter-end, announced the exclusive launch of its NBA Re-Play Virtual Sports product with long-time partner, Greek Organisation of Football Prognostics S.A. ("OPAP")[12] - Launched the virtual product, End Zone Cash, featuring NFL Alumni players with the Pennsylvania Lottery[12] - Signed a long-term contract extension as the provider of arcade games and entertainment products to longtime partner Parkdean Resorts, the UK's largest holiday park operator[12] Consolidated Financial Results This section details Inspired Entertainment's Q1 2024 consolidated and segment-level financial performance, including revenue, net loss, and Adjusted EBITDA Summary of Q1 2024 Financials Inspired Entertainment's total revenue for Q1 2024 decreased by 3% year-over-year to $63.1 million, reporting a net loss of $(5.7) million and a 19% decline in Adjusted EBITDA to $16.3 million Total Company Financial Performance (Q1 2024 vs. Q1 2023) | Metric | Q1 2024 (USD millions) | Q1 2023 (USD millions) | Reported Variance (%) | Functional Currency Variance (%) | | :-------------------------- | :--------------------- | :--------------------- | :-------------------- | :------------------------------- | | Total Company Revenue | $63.1 | $64.9 | (3)% | (7)% | | Net operating (loss) income | $(1.4) | $4.6 | (130)% | (124)% | | Net loss | $(5.7) | $(1.4) | 307% | 271% | | Net loss per basic share | $(0.20) | $(0.05) | 296% | NM | | Net loss per diluted share | $(0.20) | $(0.05) | 296% | NM | | Total Company Adjusted EBITDA | $16.3 | $20.1 | (19)% | (23)% | | Adjusted EBITDA Margin | 26% | 31% | | | | Adjusted net income (loss) | $(0.4) | $2.5 | (117)% | (117)% | | Adjusted net income (loss) per diluted share | $(0.02) | $0.09 | (117)% | (117)% | Segment-level Financial Performance In Q1 2024, Interactive and Leisure segments showed revenue and Adjusted EBITDA growth, while Gaming and Virtual Sports segments experienced declines Segment Revenue Performance (Q1 2024 vs. Q1 2023) | Segment | Q1 2024 (USD millions) | Q1 2023 (USD millions) | Reported Variance (%) | Functional Currency Variance (%) | | :------------- | :--------------------- | :--------------------- | :-------------------- | :------------------------------- | | Gaming | $24.0 | $27.1 | (11)% | (15)% | | Virtual Sports | $12.4 | $14.8 | (16)% | (20)% | | Interactive | $8.1 | $5.9 | 37% | 31% | | Leisure | $18.6 | $17.1 | 9% | 5% | Segment Adjusted EBITDA Performance (Q1 2024 vs. Q1 2023) | Segment | Q1 2024 (USD millions) | Q1 2023 (USD millions) | Reported Variance (%) | Functional Currency Variance (%) | | :------------- | :--------------------- | :--------------------- | :-------------------- | :------------------------------- | | Gaming | $7.3 | $9.7 | (25)% | (26)% | | Virtual Sports | $10.4 | $12.7 | (18)% | (23)% | | Interactive | $4.4 | $3.1 | 42% | 38% | | Leisure | $1.8 | $0.9 | 100% | 61% | | Corporate | $(7.6) | $(6.3) | (21)% | (13)% | Non-GAAP Financial Measures This section defines Inspired Entertainment's non-GAAP financial measures, provides reconciliations for Adjusted EBITDA and Adjusted Net Income, and details pro-rated segment Adjusted EBITDA contributions Definitions and Use Inspired Entertainment uses non-GAAP measures like Adjusted EBITDA and Adjusted Net Income to offer additional insight into operating performance by excluding specific non-recurring or non-cash items - EBITDA is defined as net loss excluding depreciation and amortization, interest expense, interest income, and income tax expense[14] - Adjusted EBITDA further excludes stock-based compensation, changes in earnout liabilities, legacy business income/expenditure, restructuring costs, M&A costs, and non-ordinary course gains/losses[15] - Adjusted Net Income excludes legacy business items, restructuring costs, M&A costs, and non-ordinary course gains/losses, adjusted for their tax impact[17] - These non-GAAP measures are used to analyze operating performance and manage the business, providing expanded insight into operating results and trends[13][16] Adjusted EBITDA Reconciliation The reconciliation tables detail adjustments from net income (loss) to Adjusted EBITDA for each segment and the total company for Q1 2024 and Q1 2023 Adjusted EBITDA Reconciliation by Segment (Q1 2024) | Metric | Gaming | Virtual Sports | Interactive | Leisure | Corporate | Total | | :-------------------------- | :----- | :------------- | :---------- | :------ | :-------- | :------ | | Net income (loss) | $2.8 | $9.4 | $3.1 | $(1.3) | $(19.7) | $(5.7) | | Pension charges | — | — | — | — | $0.3 | $0.3 | | Costs of group restructure | — | — | — | — | $0.2 | $0.2 | | Costs of group restatement | — | — | — | — | $5.0 | $5.0 | | Stock-based compensation | $0.2 | $0.1 | $0.1 | $0.1 | $1.8 | $2.3 | | Depreciation & amortization | $4.3 | $0.9 | $1.2 | $3.0 | $0.5 | $9.9 | | Interest expense, net | — | — | — | — | $6.6 | $6.6 | | Other finance income | — | — | — | — | $(0.1) | $(0.1) | | Income tax | — | — | — | — | $(2.2) | $(2.2) | | Adjusted EBITDA | $7.3 | $10.4 | **$