Yahoo Finance Inspired Entertainment Inc (INSE) Q4 2023 Earnings Call Transcript Highlights: Digital Growth ...
Fourth Quarter EBITDA: $26.5 million, in line with consensus and ahead of 2022.
Full Year EBITDA: $100.5 million.
EBITDA from Digital Business: Grew by 12% from $56.2 million in 2022 to $63.1 million in 2023.
EBITDA Margins: Maintained at 75% year over year.
Interactive Business Revenue Growth: Nearly 50% in the fourth quarter.
Virtual Sports EBITDA: Ticking up in the first quarter after being flat or slightly down in previous quarters.
Retail Business Performance: Continued strong performance with benefits from new Vantage cabinet and new market opportunities in North America.
Release Date: April 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Fourth quarter EBITDA of $26.5 million was in line with previous consensus and modestly ahead of 2022, with full year EBITDA of $100.5 million.
Full year EBITDA from the overall digital business grew by 12% from $56.2 million in 2022 to $63.1 million in 2023, maintaining EBITDA margins of 75%.
The Interactive business saw revenue growth of close to 50% in the fourth quarter, driven by new content and worldwide account management.
Retail businesses continued to perform well, benefiting from new Vantage cabinet and new market opportunities in North America.
The company has a robust pipeline of new products and is expanding into new geographies, such as Brazil, which is expected to be a key market.
Negative Points
Growth in Virtual Sports moderated over the year, with peak EBITDA in the first quarter of 2023.
The market share in the Virtual Sports business is high, which constrains volume growth through market share gains without new markets opening.
The Holiday Parks business has been operating at margins below the company average, affecting overall profitability.
The first quarter of 2024 is still significantly below the first quarter of 2023 for Virtual Sports EBITDA, indicating a slower recovery.
The company's focus on maximizing revenue and earnings means M&A is not a top priority, potentially missing out on consolidation opportunities in the market.
Q & A Highlights
Q: Now that we're rounding the corner on the accounting issues here, do you have any thoughts on M&A here given recent consolidation news in the space? A: Lorne Weil, Executive Chairman of Inspired Entertainment, Inc., mentioned that while they are always considering M&A, their primary focus is on maximizing the revenue, earnings, and growth potential of their business. M&A is not at the top of their focus list at the moment.
Q: As far as the NFL product, are you guys seeing any cannibalization on your existing NFL game? And where would you say you are as far as the growth timeline and how material you think that product's going to be on the Virtual segment over time? A: Brooks Pierce, President & CEO, noted that the NFL game is outperforming the NFLA game, but the overall football segment is growing. They expect the NFL game to be a strong performer in North America and are excited about licensed content in Virtual Sports globally. They anticipate growth in the second half of the year as they distribute the NFL and NBA games to more customers.
Q: Can you maybe elaborate on discussions with mid-tier operators? Do they see this as an opportunity for something to get involved akin to live casino? A: Brooks Pierce explained that the Hybrid Dealer product is attractive to both large and mid-tier operators. For mid-tier operators, it's an opportunity to enter the live dealer market cost-effectively and with branding flexibility. The pipeline for the Hybrid Dealer product is robust across different operator sizes.
Q: Lorne, you mentioned Virtual Sports has ticked up in 1Q. Should we view 4Q Virtual Sports as close to a trough absolute level before the back half ramp from new content? A: Lorne Weil confirmed that the decline in the Virtuals business has ended and is ticking up in the first quarter, though still below the first quarter of 2023. They expect an acceleration in the second half of the year due to new product launches and additional customers.
Q: With respect to leverage, how you're thinking about where you want to be right now, given the prolonged period of higher rates, is there a target net leverage goal? And then how does that affect buybacks? A: Lorne Weil stated that their plan is to be consistently under a leverage of 3, preferably 2.5. They prioritize developing the business, maintaining a good credit profile, and then consider buybacks and M&A.
Q: Can you give an update on the pipeline of the other operators, namely the other big couple majors in the US? And then secondly on that, you had a deal with Kambi, is that an integration into all of Kambi's B2B customers or will it be an opt-in option for each of those operators individually? A: Brooks Pierce mentioned that they have an integration with Kambi that will make Virtual Sports available to all of their customers, but it will be a combined effort to get individual customers to opt-in. He refrained from commenting on discussions with other major operators in North America.
Q: Vantage, nice to see the low double-digit revenue uplift per machine. Do you think that's sustainable? And then how you think that'll play as you expand into pumps? A: Brooks Pierce indicated that the Vantage product has been performing well for six to nine months, suggesting sustainability. They plan to continue rolling out Vantage in the Pub segment, which should contribute to growth throughout the year.
Q: Do you expect EBITDA to be up year over year and can your confidence be in that? A: Lorne Weil said they are comfortable with the full year consensus, which is modestly up from 2023. However, they expect a shift with more weight towards the back end of the year due to the timing of Virtual Sports growth and equipment sales.
This article first appeared on GuruFocus.
