Inspired(INSE) - 2021 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - EBITDA for Q3 2021 was $30.1 million, exceeding guidance and representing an 89% increase from $15.9 million in Q3 2020 and a 70% increase from $17.7 million in Q4 2019 [6][39] - Overall revenue grew by 29% on a reported basis and 21% on a constant currency basis compared to the same quarter last year [35] - Adjusted EBITDA grew 89% on a reported basis and 80% on a constant functional currency basis, with an overall adjusted EBITDA margin of 38.8%, up from 31.4% last year [39] Business Line Data and Key Metrics Changes - Virtual Sports revenue increased by 27%, Interactive revenue grew by 73%, Leisure revenue surged by 92%, and Gaming revenue rose by 28% compared to the same quarter last year [37] - The Leisure segment achieved record earnings power, reflecting the successful integration of the Novomatic acquisition [16] - The Interactive business is expected to account for about 50% of EBITDA in 2022, driven by new games and market expansions [9][19] Market Data and Key Metrics Changes - Land-based incomes were at 94% of pre-pandemic levels in July and approximately 100% in August and September [38] - Online incomes reached approximately 250% of pre-COVID levels by September [38] - The North American market is showing growth potential, with the company expanding into new jurisdictions like New Jersey, Michigan, and Québec [19][30] Company Strategy and Development Direction - The company is evolving into content-led online businesses and retail gaming, focusing on expanding its Virtual Sports and Interactive segments [15][16] - There is a strategic initiative to diversify the Interactive business into the lottery space, with the first iLottery initiative launched with Loto-Québec [13][22] - The company is actively seeking M&A opportunities to enhance business development and leverage its improved financial flexibility [49][50] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the business's performance, indicating that results reflect a return to normalcy rather than pent-up demand [38] - The company anticipates continued growth in its Virtual Sports and Interactive businesses, with expectations for significant contributions to EBITDA in 2022 [9][64] - Management acknowledged the challenges posed by COVID-19 but emphasized the resilience of the business and its ability to adapt [10][27] Other Important Information - The company reported a net cash flow of approximately $13 million for the quarter [9] - Cash increased from $24.5 million at the start of the quarter to $37.1 million by the end [43] - The fair value of the warrant liability resulted in a $17 million benefit, but even without this, net income would have been positive by nearly $8 million [41][42] Q&A Session Summary Question: Thoughts on iLottery ramp-up and early investments - Management expects meaningful revenue from iLottery to begin in the second half of next year, with initial investments impacting P&L [46][47] Question: M&A environment and pipeline - The company remains open to M&A opportunities and is focused on leveraging its financial flexibility for potential acquisitions [48][49] Question: Update on Interactive license in Pennsylvania - The timeline for the interactive license in Pennsylvania remains uncertain, with expectations for potential activation in the first quarter of next year [51][52] Question: Content usage for iLottery relative to iGaming - The company has over 150 games in its library, which can be adapted for iLottery, and is targeting North American markets for expansion [54][55] Question: Launch timing with FanDuel and Rush Street Interactive - FanDuel's launch may take longer than expected due to technical issues, while Rush Street's launch is imminent [57][58] Question: Normalized earnings profile and adjustments - Management indicated that there are no significant one-time costs affecting the Q3 results, and the quarter reflects a normalized profitability profile [59][60] Question: Growth foundation for Virtuals and Interactive - Management expects continued growth in Virtuals and Interactive, projecting these segments to contribute significantly to future EBITDA [62][64] Question: Similarities of games in different markets - The company believes that games developed for Illinois can be successfully adapted for Oregon and West Virginia with minimal changes [66][68]