Inspired Entertainment, Inc. Reports Third Quarter 2017 Results

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Revenue increased 23.2% on a constant functional currency basis, principally driven by growth in Server Based Gaming ("SBG") hardware sales and Virtual Sports recurring revenue; reported revenue increased 9.9%, reflecting adverse foreign currency impact.

- Successful continuation of launch of SBG and Virtual Sports in Greece, with 1,050 SBG terminals installed and operating at June 30, 2017 and Virtual Sports live in 4,600 venues. During this ramp-up period, our terminals have outperformed our competitors' and we had the top performing game in the Greek OPAP estate.

- SBG terminals average installed base increased by 1,181, or 4.5%, and Virtual Sports operators increased from 74 to 83, or 12.2%, as compared to Q3 2016.

- Virtual Sports now live in Poland with Fortuna, Central Europe's largest betting operator.

- Inspired selected to be Virtual Sports provider to Veikkaus, the Finnish national betting agency.

- Three mobile remote game server ("RGS") launches during the quarter, with revenue for this product line increasing approximately 80% as compared to Q3 2016.

 

NEW YORKAug. 7, 2017 /PRNewswire/ -- Inspired Entertainment, Inc. ("Inspired") (NASDAQ: INSE) today reported financial results for the quarter ended June 30, 2017. As previously announced, management will host a conference call at 11:00 a.m. ET / 4:00 p.m. GMT, to discuss the third quarter results and general business trends; access details are provided below.

 "Inspired continues to exhibit positive momentum," said Inspired President and Chief Executive Officer, Luke Alvarez. "We again delivered solid volume growth in both our SBG estate and our Virtual Sports and Mobile business, driven both by increasing market penetration and improved underlying performance from existing operators.  We have also been pleased by the significant progress we have made in both lines of businesses in Greece, which we expect to be material contributors going forward. We have multiple engines of growth across the business accelerating in parallel," Mr. Alvarez said.

"The performance of our underlying business was consistent with our expectations, highlighted by the significant progress we have made in Greece, where our content has exhibited market-leading performance," said Inspired Executive Chairman, Lorne Weil. Mr. Weil continued, "Management continues to be highly focused on pursuing strategic opportunities to utilize our platform to accelerate growth further."

 

Summary of Consolidated Third Quarter 2017 Financial Results

     
   

(Reported)

 

Constant

Constant

   

Quarter Ended
June 30,

 

Currency

Currency

   

Change

Basis

Change

   

2017

2016

(%)

2017

(%)

(In $ millions, except per share figures)

         

GAAP Measures:

           

Revenue

 

$     32,311

$     29,408

9.9%

$     36,230

23.2%

Net Operating Gain (Loss)

 

$        (705)

$         651

-208.3%

$        (790)

-221.4%

Net (loss)

 

$     (8,333)

$    (13,618)

-38.8%

$     (9,344)

-31.4%

Net (loss) per diluted share

 

$       (0.41)

$       (1.15)

-64.3%

   

Non-GAAP Measures:

           

Adjusted EBITDA1

 

$       9,656

$     10,754

-10.2%

$     10,827

0.7%

1Reconciliation to GAAP metrics shown below

         

Third Quarter Highlights

Greece

  • SBG rollout into the Greek market is progressing well, with 1,050 terminals installed as of June 30, 2017.  The full deployment is expected to be at least 3,960 terminals in the first half of calendar 2018.  The performance of our SBG terminals has been strong in the Greek OPAP estate, where, during this ramp-up period, our terminals have outperformed our competitors' and we had the top performing game.
  • Virtual Sports is now live with OPAP in 4,600 retail venues with our virtual soccer product, and other sports planned to follow.

UK

  • We sold and deployed 550 Self-Service Betting Terminals ("SSBTs") in the UK licensed betting office ("LBO") estate during the quarter. As a result of this contract manufacturing business, we increased our hardware margin for the quarter as compared to the comparable period in 2016, and are expected to provide recurring service revenue.
  • We launched second and third Virtual Sports channels with a major UK betting retailer in the quarter, which we expect to represent a material growth driver in fiscal 2018.

Italy

  • We continued to deploy SBG terminals with our sixth Italian concessionaire, Gamenet.  As of June 30, 2017, there were 125 terminals installed and launched.

Other Europe

  • Inspired Virtual Sports products are now live in Poland with Central Europe's largest betting operator, Fortuna, through its retail venues. In an agreement which extends to 2019, Fortuna customers in Poland are able to play Virtual Football (soccer), Virtual Horses, Virtual Greyhounds, Virtual Speedway and Virtual Motor Racing.
  • During the quarter, we were selected, through a public procurement process, as Virtual Sports supplier to Veikkaus. Owned by the Finnish government, Veikkaus is the Finnish National Betting Agency and has an exclusive legal betting license on lotteries and sports betting in Finland. Inspired has been selected to supply Virtual Sports products to Veikkaus Sports Betting locations and on the Veikkaus Sports Betting website.

Mobile

  • We launched three mobile RGS implementations during the quarter with Leo Vegas, My Bet and Sky Bingo mobile operators.  After the quarter-end, we also secured a contract win and launch with Mr. Green, one of the world's fastest growing online casinos. Mr. Green is now live with several of Inspired's HTML5 games including Centurion and Atlantis.
  • We launched our first Rush Go on-demand virtual sports games across multiple mobile RGS customers, and these new types of hybrid sports games are exhibiting encouraging signs of player interest.

"We had many accomplishments in the third quarter and look forward to realizing the benefits of these initiatives, as well as other initiatives we have undertaken since the end of the quarter, in future periods," said Mr. Alvarez.

Guidance

We currently expect to be at the bottom end of our previously communicated guidance range.

Overview of Consolidated Third Quarter Results (as compared to prior year)

Total revenue increased $6.8 million, or 23.2%, on a constant currency basis, partially offset by an adverse currency impact of $3.9 million, resulting in a reported increase in revenue of $2.9 million, or 9.9%, from $29.4 million to $32.3 million.

On a constant currency basis, total SBG revenue increased by $5.6 million, or 27.2%, offset by an adverse currency impact of $2.8 million. On a reported basis, total SBG revenue increased by $2.8 million, or 13.4%, from $20.5 million to $23.3 million.

Virtual Sports revenue increased by $1.2 million, or 13.9%, on a constant currency basis, offset by an adverse currency impact of $1.1 million resulting in a negligible increase in reported revenue, from $8.9 million to $9.0 million.

Net operating income declined from a gain of $0.7 million to a loss of $0.7 million, due primarily to increases in stock-based compensation.

Net loss for the quarter was reduced from $13.6 million to $8.3 million, principally reflecting a reduction in interest expense and an offsetting increase in earnout liability pursuant to Inspired's acquisition by Hydra Industries Acquisition Corp. on December 23, 2016.

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