Inspired Entertainment: Still Striving to Break Out (NASDAQ: INSE )

Inspired Entertainment, Inc. (Nasdaq:realized), a business-to-business gaming technology company providing products and services to gaming operators worldwide, has been facing some significant headwinds, and given the Control of the company, it has been performing very well.

Results from its divisions were mixed, with some doing well and others weighing on the company’s results due to rising costs. Those costs are unlikely to disappear over the next two to three quarters, so those challenges are likely to persist, although the company said it believes it may be able to address them in the near term.

If this can be done, INSE could surprise upwards in the coming quarters.

In this article, we’ll look at some of the numbers from its most recent earnings report, how the segment is doing, and what might happen in the next year or so.

latest figures

exist third episodeINSE’s revenue was $74.9 million, down 3.48% year-over-year but beating estimates by $2.91 million.

Earnings per share during the reporting period were US$10.2 million, or US$0.35 per share, an increase of US$0.08 over the previous year.

Adjusted EBITDA for the quarter was $27.8 million, down 8% year-over-year.

Adjusted EBITDA margin fell to 37% in the third quarter of 2022 from 39% in the same period last year. This was largely attributable to supply chain issues and cost inflation in its holiday park business.

Another bright spot for the company is that even with the challenging economic environment in which it operates, it continues to generate solid cash flow, climbing sequentially from $31.8 million to $37.4 million during the reporting period. Capital expenditures at the end of the reporting period were US$9.3 million, bringing the total annual capital expenditures to US$31 million, already higher than the company’s historical average annual capital expenditure of approximately US$30 million.

cash in this quarter It decreased to $37.4 million, a decrease of $10.4 million from $47.8 million at the beginning of the quarter. INSE holds $257.1 million in debt.

segment performance

Virtual Sports and Interaction

Its virtual sports segment generated record revenue of $14.6 million in the third quarter, up 39% year-over-year. During the same reporting period, revenue from online virtual sports more than doubled from the previous year.

Interactive’s revenue was $5.7 million, down 6% from the third quarter of 2021. Most of the segment’s revenue came from the North American market, particularly Pennsylvania, which saw an increase in operator and game title launches during the quarter.

gaming leisure

Game revenue was US$24.1 million, down 12% year-over-year. During the quarter, the company released just six games, compared to 22 in the first half. Now that Christmas is here, management says the number of games released will increase. In turn, this should generate more gaming revenue in the fourth quarter.

Leisure revenue fell 9 percent to $30.5 million. Leisure is INSE’s biggest challenge as inflationary costs of energy and utilities squeeze margins. This is likely to improve in the coming months with new extensions and/or contracts signed with Betfred, Bourne, Butlins and Marston’s.

stock price change

While INSE has been taking some good steps and positioning itself for long-term growth, it is still struggling to break out as it trades today at a lower price than 5 years ago when it traded above $13.00 per share in mid-2017 Trading Price Its stock price plummeted below $5.00 per share in May 2018 at the end of the third quarter.

It’s been on a rollercoaster ride since then, until the second half of 2019, when fears of a potential pandemic (at the time) caused its stock to plummet below $2.00 a share.

It then began a sharp rise to a 52-week high of $15.81 in February 2022, but came under pressure again, falling below $8.00 per share in July 2022 and trading just below $9.00 per share in 2022. Its stock rose to about $10.50 in response to its earnings report, presumably in response to an improvement in its earnings per share, before breaking out on Nov. 8.

Looking at around $1.00 per share, I don’t believe the company has a catalyst for its share price to rise.

in conclusion

Given the company’s numbers and performance, as well as long-term debt, cash on hand and cash flow, I think they offset each other to some extent, so I think the company will reach transaction levels by 2023, if some of its recent transactions generate some Good results, it may be gradually increased.

My thesis is that if INSE wants to break out of its 5-year trading cap in the mid-$14s, it needs to move more aggressively into the North American market.

Even if it takes some time to do so, if it gains market share in the North American market, it could be a good long-term option in the industry it competes in.

Beyond that, I don’t see growth opportunities that have a material impact on the company’s performance, except on an incremental basis.

As for Q4 2022 and 2023, the company will continue to face inflationary pressures, and with modest catalysts in its pipeline, I think it will likely trade in a consolidated fashion until some costs are mitigated and more growth drivers added This will help it gain some momentum for the company’s product and service offerings.