Inspired Entertainment came up short on its first-quarter earnings, with $62 million in revenue representing a three percent miss of Wall Street expectations. Cash flow was worse, missing by 16 percent and delivering $16.5 million.
Although Truist Securities analyst Barry Jonas had reason to be disappointed, Inspired having come in 30 percent under his cash-flow projection, he wasn’t let down. The numbers, he wrote, were “a speed bump” for the gaming-content, technology, hardware (50,000 slots), and services provider, which is still on track for growth. “We continue to like INSE’s product suite and runway for growth and see opportunities to further unlock value for shareholders through capital returns and/or M&A.”
Jonas kept his price target at $13 per share, with a Buy rating. Inspired shares were trading at $9.44 apiece at the time of his Friday-afternoon report.
He also took heart from Inspired management’s assurances of significant cash-flow improvement during the current quarter (50 percent over the second quarter of 2023), with “a further recovery” through the second half of 2024 and into 2025.
The saving grace of Inspired’s first quarter was its interactive division; cash flow grew 38 percent from last year and revenue was up 31 percent. Against this had to be set softness in Inspired’s core business and a $10 million-plus charge related to a recent earnings restatement.
Jonas said the situation was “a tough start to the year, but brighter days are ahead … like now.” He noted that April was the interactive division’s second-best month ever, with early May providing the company’s best-ever revenue week.
“Interactive had another strong Q1 and management sees no reason for slowdown in growth, given new marketing openings and further product introductions,” Jonas chronicled. “The pullback seen in Virtuals has seemingly ended and management has seen growth resume driven by new markets, as well as NBA and NFL games.”
Inspired’s virtual-sports revenues grew seven percent, which Jonas attributed to NBA games involving archival footage, as well as new NFL-themed products. Interactive revenues leapt as Inspired grew market share in the United Kingdom.
Another cause for optimism was an equipment-sale backlog reported to be at historic levels, requiring that some delivery dates be postponed until the second half of the year. Despite the “poor” first quarter, Inspired executives told Wall Street they were “comfortable” with a full-year cash-flow projection of $104 million.
Jonas wrote that the third quarter “is typically the seasonal peak and management sees no reason Q3 won’t top Q2 this year as well. Q4 is generally not as strong, but given some potential benefit from the equipment-sales backlog, as well as Vantage and margin efforts, management is still comfortable with being in the ballpark of pre-earnings consensus.”
One aspect of Inspired that may be in flux is its Holiday Parks division. Company executives disclosed a planned spinoff of Holiday Parks from the remainder of its leisure businesses. The latter comprise pubs, arcades, bingo halls, and motorway services, which “are near identical to its Gaming business, but addressing different retail environments.”
Elaborated the analyst, Inspired management “sees elements of overlap in product engineering, manufacturing, platform and content development, server hosting and field service operations potentially providing sizable benefits to consolidation.”
