Inspired Entertainment, Inc. (NASDAQ:INSE) Q1 2019 Earnings Conference Call - Final Transcript

May 10, 2019 • 09:30 am ET

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Inspired Entertainment, Inc. (NASDAQ:INSE) Q1 2019 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Good morning everyone, and welcome to the Inspired Entertainment First Quarter 2019 Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation there will be an opportunity to ask questions. Please note today's event is being recorded.

I'll begin today's conference by referring you to the company's safe harbor statement that appears in the first quarter 2019 earnings press release, which is available in the Investors section of the company's website at www.inseinc.com. This safe harbor statement also applies to today's conference call, as the company's management will be making certain statements, that will be considered forward-looking under securities laws and rules of the SEC. These statements are based on management's current expectations or beliefs and are subject to risks, uncertainties and changes in circumstances.

In addition please note that the company will discuss both GAAP and non-GAAP financial measures. A reconciliation is included in the earnings press release.

With that completed, I would now like to turn the conference call over to Lorne Weil, the company's Executive Chairman. Mr. Weil, please go ahead.

Executive
A. Lorne Weil

Thank you operator. Good morning everyone and thank you for joining our first quarter earnings conference call. With me this morning on the call are Brooks Pierce, our President and COO; Stewart Baker, CFO; and our newly minted Group Chief Technology Officer, Steve Beason, who will say a few words on the call this morning.

As described in the press release, our first quarter adjusted EBITDA results were in line with our previous guidance. Total revenue appeared to be down year-over-year on a reported basis mainly because of foreign exchange rates and some nil margin sales and nonrecurring software licenses in the comparable quarter last year. If anyone is interested, we can explain the issue of nil margin sales in the Q&A. However, if we exclude these onetime sales, our revenue increased $3.7 million or 11% on a functional currency basis, which is a far more accurate measure of the momentum we see in the business.

In terms of outside research projections, we were at or ahead not only on adjusted EBITDA, but both year-to-year and sequential quarterly adjusted EBITDA growth, and maybe most importantly operating margin improvement. Adjusted EBITDA for the quarter was up 18.5% year-over-year on a functional currency basis to $13.7 million, which is about in the center of the guidance that we had given in the first quarter of between $13.25 million and $14.25 million. We were pleased with the continuing strength in adjusted EBITDA margins which went from 36.6% to 40.7% year-to-year, which we see as a very positive sign.

During the quarter, revenue in Virtual Sports, our best performing segment in terms of margins and return on capital increased to 11% year-over-year on a functional currency basis. Our existing content portfolio continued to perform extremely well in the first quarter and during the second quarter, we added Virtual Basketball. If you had a chance to see this game either online, where you can see demos of it