Inspired Entertainment’s virtual sports segment has led the way for its corporate performance in Q3 as its gaming and leisure divisions slowed down with global economic pressures.
Publishing its Q3 financial report, Inspired reported total revenues of $74.9m, down 3% year-over-year which was attributed to weakening currencies against the US dollar.
Top growth was witnessed across the firm’s virtual sports segment which posted revenue of $14.6m, an increase of 39% YoY. This represented a fifth straight quarterly revenue record and online virtual sports revenues more than doubled YoY.
North American virtual sports activity saw Inspired launch the online and mobile variants of Race2Riches with Intralot and DC Lottery on DC Lottery’s platforms.
Inspired’s gaming division posted revenues of $24.1m, down 12% YoY but continues to be the largest source of revenue for the company. Gaming highlights include the delivery of 820 Valor terminals to Western Canada Lottery Corporation, whilst taking 100 terminals to redeploy in other territories.
It also sold 60 units of the Valor terminals in Illinois bringing the total terminal sales in Illinois since launch to 876.
Meanwhile, the interactive division posted revenues of $5.7m, a decrease of 6% YoY, despite launching six games across the quarter and going live with a partner in Ontario. The growth of the interactive division was attributed to US and Canada activity, with more partner launches expected in Q4.
The firm also anticipates launching in Pennsylvania via a partner brand during Q4.
“This quarter’s underlying operating performance was strong, with third quarter Adjusted EBITDA exceeding last year’s record performance on a functional currency basis,” explained Lorne Weil, Executive Chairman of Inspired.
“This reflects a continuation of the trend we have seen in recent quarters, with the resiliency of our diversified business model as well as what we perceive to be the continued strength in consumer spending across our segments – notwithstanding perceived ongoing macro trends.”
Weil continued: “Virtual Sports continued its impressive growth trajectory, producing its fifth record-setting Revenue and Adjusted EBITDA quarter in a row, with online Virtual Sports doubling year-over-year versus strong comparatives. Growth in Interactive Revenue was modest, however, the addition of new content and customers in Pennsylvania has led to an acceleration in Interactive growth rates in October.
“Looking forward, we continue to see solid results from our retail and digital businesses, demonstrating the strength and resilience of our business. We remain mindful of the potential for a shifting macro environment and are diligently managing cost containment efforts, but rely on the healthy underlying momentum, diversification of our business model, and our strong development pipeline and believe we are well positioned to deliver further progress against our strategy.”
Continuing revenue trends, virtual sports was the outlier as its adjusted EBITDA and net income grew compared to other divisions. Virtual sports posted adjusted EBITDA of $12.6m, a record, up from $8.6m in Q321, whilst operating income of $11.6m was up 56% YoY.
Group wide adjusted EBITDA stood at $27.8m, down 8% YoY at a slightly lower margin of 37% compared to 39% in Q321.
The falling margin was primarily impacted by inflationary cost pressures and supply chain issues in its UK-based holiday park retail business.
With operating costs decreasing throughout Q3, Inspired posted a net operating income
Stewart Baker, Executive Vice President and CFO, added: “We are pleased to report another strong quarter in the face of an uncertain economic environment. Our online business was relatively unimpacted by inflation or supply chain issues, however, we did experience significant cost pressures in the Holiday Parks business.
“We have experience reducing costs significantly when we have needed to and will do so again here as we are highly focused on mitigating the impact and improving our cost efficiency.”
Baker concluded: “Our underlying business remains strong and produces substantial free cash flow, allowing us to buyback more than $10m of our common stock so far this year. We are focused on delivering sustained efficiencies across our business and are confident in our strategy and our ability to deliver consistent results in the current economic environment in order to maximize shareholder value.”