Inspired Entertainment has seen its acquisition of Novomatic’s Gaming Technology Group contribute to a rise in Q1 revenue, though costs associated with the deal have resulted in the supplier posting a net loss of $17.4m (£14.3m/€16.0m) for the quarter.
Overall revenue in the three months to 31 March 2020 amounted to $52.3m, up 55.4% from $33.7m in the same quarter last year.
Total service revenue jumped 40.3% to $43.2m for the quarter, while hardware revenue rocketed by 213.8T from $2.9m to $9.1m.
Inspired said this growth was primarily driven by $27.4m in revenue from the recently acquired Gaming Technology Group from Novomatic. This comprised $21.4m in service revenue and $6.0m in hardware revenue, including the sale of 930 gaming machines.
However, this increase was significantly offset by a lag in sales and temporary suspension of the supplier’s land-based business as a result of novel coronavirus (Covid-19) and the decrease in revenue from the UK licensed betting office market, primarily due to the reduction in maximum B2 stakes to £2 implemented on April 2019.
As such, server-based gaming (SBG) revenue dropped 35.8% year-on-year, with Inspired saying $4.4m of this decline was due to the changes in UK fixed-odds betting terminal regulations and $2.1m due to the coronavirus outbreak.
Virtual sports revenue also fell 10.1%, primarily due to a drop in retail recurring revenue as a result of enforced coronavirus closures, but SBG hardware revenue was up 16.4%, boosted by $2.3m worth of Valor cabinet sales in North America.
Inspired has already taken a number of steps to help mitigate the impact of the coronavirus. Since mid-March, Inspired has drawn around $24.9m from its revolving credit facility to provide additional near-term liquidity and cancelled or delayed material capital expenditures.
The group also implemented furloughs across the business, reduced work hours and lowered compensation, while its board approved plans to indefinitely delay payment of executive bonuses for the year ended December 31, 2019, and waive cash payments of board retainers that due to be disbursed during Q2 of 2019.
Looking at spending during the quarter, costs were up across a number of areas, with service sales expenses climbing 22.2% to $6.6m and hardware sales 337.5% to $7.0m.
Acquisition and integration related transaction expenses hiked 255.6% to $3.2m, while depreciation and amortisation costs were also up from $9.7m to $12.6m. Selling, general and administrative expenses jumped 97.5%, to $29.1m, $16.9m of which was incremental expenses related to the Novomatic acquisition deal.
This higher spending offset the increase in revenue, leaving Inspired with a net loss of $7.2m for the quarter, compared to a loss of $700,000 in the prior year’s quarter. After accounting for additional costs, including $6.1m in interest expense and financial costs, loss before tax amounted to $17.2m, up from $5.1m in 2019.
After paying $200,000 in income tax during the quarter, overall net loss came in at $17.4m, compared to $5.0m in Q1 of last year.
Reflecting on the performance, Inspired’s executive chairman Lorne Weil said the group started the year strongly, but was inevitably hit by Covid-19.
“The year got off to a strong start, building on the momentum from outstanding organic growth, increased profitability across our businesses and better-than-expected initial results from our transformative acquisition which we realised in the fourth quarter of 2019,” Weil said.
“However, the Covid-19 pandemic resulted in the temporary closure of the land-based retail businesses of our customers with continuation of many of the associated expenses, which had a material negative impact on our first quarter results.”
Weil praised the performance of Inspired’s interactive business and also pointed out how its virtual sports offering helped many operators fill the void left by the cancellation of most sports due to the coronavirus. Inspired helped run virtual versions of both the Kentucky Derby in the US and UK’s Grand National horse racing events in recent months.
“These products have helped to drive demand for additional channels from existing customers and an influx of potential new customers,” he said. “We have a pipeline of customers ready to launch the new V-Play Plug & Play, our complete end-to-end online virtual sportsbook product that allows 14 channels of Virtuals with minimal integration effort.
“We are encouraged by this strong momentum, particularly in North America, as we look to build upon these opportunities to drive results in the future.
“We have benefited from both our product diversity and the aggressive actions our management team has taken. We will be prepared to re-launch land-based retail operations in each of our markets as soon as conditions permit.”