Gaming company Inspired Entertainment (NASDAQ:INSE) reported Q4 CY2023 results beating Wall Street analysts' expectations, with revenue up 3.3% year on year to $81.2 million. It made a GAAP loss of $0 per share, down from its profit of $0.11 per share in the same quarter last year.
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Inspired Entertainment (INSE) Q4 CY2023 Highlights:
- Revenue: $81.2 million vs analyst estimates of $73.15 million (11% beat)
- EPS: $0 vs analyst estimates of $0.11 (-$0.11 miss)
- Gross Margin (GAAP): 64.3%, down from 65.4% in the same quarter last year
- Free Cash Flow was -$2.5 million compared to -$13.3 million in the previous quarter
- Market Capitalization: $250.9 million
Specializing in digital casino gaming, Inspired Entertainment (NASDAQ:INSE) is a provider of gaming hardware, virtual sports platforms, and server-based gaming systems.
Gaming SolutionsGaming solution companies operate in a dynamic and evolving market, and the digital transformation of the gaming industry presents significant opportunities for innovation and growth, whether it be immersive slot machine terminals or mobile sports betting. However, the gaming solution industry is not without its challenges. Regulatory compliance is a crucial consideration as companies must navigate a complex and often fragmented regulatory landscape across different jurisdictions. Changes in regulations can impact product offerings, operational practices, and market access, requiring companies to maintain flexibility and adaptability in their business strategies. Additionally, the competitive nature of the industry necessitates continuous investment in research and development to stay ahead of competitors and meet evolving consumer demands.
Sales GrowthA company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one may grow for years. Inspired Entertainment's annualized revenue growth rate of 22% over the last five years was impressive for a consumer discretionary business. Within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. Inspired Entertainment's healthy annualized revenue growth of 24.4% over the last two years is above its five-year trend, suggesting its brand resonates with consumers.
We can dig even further into the company's revenue dynamics by analyzing its most important segment, Gaming. Over the last two years, Inspired Entertainment's Gaming revenue (slot machines, iGaming) averaged 40.2% year-on-year growth. This segment has outperformed its total sales during the same period, lifting the company's performance.
This quarter, Inspired Entertainment reported reasonable year-on-year revenue growth of 3.3%, and its $81.2 million of revenue topped Wall Street's estimates by 11%. Looking ahead, Wall Street expects revenue to decline 7.5% over the next 12 months, a deceleration from this quarter.
Cash Is KingIf you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.
Over the last two years, Inspired Entertainment broke even from a free cash flow perspective, subpar for a consumer discretionary business.
Inspired Entertainment burned through $2.5 million of cash in Q4, equivalent to a negative 3.1% margin, increasing its cash burn by 76.6% year on year. Over the next year, analysts predict Inspired Entertainment's cash profitability will improve. Their consensus estimates imply its LTM free cash flow margin of 0.3% will increase to 14.5%.
Key Takeaways from Inspired Entertainment's Q4 Results We were impressed by how significantly Inspired Entertainment blew past analysts' revenue expectations this quarter, led by strong performance in its Gaming segment. On the other hand, its EPS and operating margin fell short of Wall Street's estimates. Overall, this was a mixed quarter for Inspired Entertainment, but the market is rewarding the company for its top-line performance. The stock is up 5.3% after reporting and currently trades at $10.07 per share.
