Inspired Entertainment has reported building momentum in its North American business in its Q3 financial update published this week. But the overriding theme was one of negative impact from trading across the Atlantic in the UK where a reduction in machine stakes has hit betting shops hard, forcing the closure of 700 shops within its estate.
Total revenue for the three months ended September 30, 2019 was $26.6m, a year-over-year decrease of $9m, or 25.3%, on a reported basis, and $7.5m, or 21%, on a functional currency (£) at constant rate basis.
Adjusted EBITDA for Q3 was $8.7m, a year-over-year decrease of 46.5% on a reported basis and 43.4% on a functional currency (£) at constant rate basis.
Revenue and adjusted EBITDA were negatively impacted by the reduction in maximum B2 stakes to £2 in the UK LBO market implemented on April 1, 2019. The company also completed its acquisition of Novomatic‘s Gaming Technology Group on October 1 but said that third quarter results were not reflective of the acquisition.
“Results for the third quarter were in line with our expectations, considering the negative impact from the Triennial Implementation. Additionally, we are seeing a considerable improvement in trend in the UK in the fourth quarter,” said Lorne Weil, Executive Chairman.
“As stated previously, a large part of our mitigation efforts will be driven by shop closures. Since the September 30th closing of 700 shops within our estate, our revenue appears to be tracking higher than we initially anticipated, prior to the Triennial Implementation, with a significant improvement in the observed decline in gross win per unit per day to 24.5% in October from 44.1% in April and 37.9% in August.
“This trend illustrates, in practice, our previously outlined thesis that a substantial portion of revenue lost due to shop closures would be recovered throughout our remaining estate. Additionally, because our costs are generally aligned with our total machine count, the overall industry restructuring and consolidation is likely to assist our cost mitigation efforts going forward due to the benefits of supporting a smaller, more profitable estate.”
He added: “We’re now quite confident that the projected adverse impact on Adjusted EBITDA will be at the lower end of the guidance range of approximately $10m to $11m annually on a steady state basis.”
Turning to domestic US trading, Weil noted: “Our North American business has been building momentum and we had outstanding feedback on our new Valor terminal at G2E in Las Vegas. In October we delivered our first gaming terminals in Illinois and are very pleased with the performance thus far.
“We continue to lead the industry in Virtuals innovation and are excited about our new license agreements with NHL legend Jaromir Jágr and with NFL Alumni. The popularity of our Gaming and Virtuals content is fueling the growth in our Interactive business, where we are in the process of launching new content and integrating several customers.”
Weil concluded: “We believe we have reached a turning point in the implementation of our three-pronged strategy to mitigate the Triennial, generate new business to offset the impact of Triennial and return to pre-Triennial Adjusted EBITDA levels, and integrate the NTG acquisition and realize additional revenue opportunities between the complementary businesses, and we are extremely excited for our growth prospects in 2020 and beyond.”