Gaming company Inspired (NASDAQ:INSE) reported Q2 CY2024 results beating Wall Street analysts' expectations, with revenue down 4.8% year on year to $75.6 million. It made a non-GAAP profit of $0.20 per share, improving from its profit of $0.19 per share in the same quarter last year.
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Inspired (INSE) Q2 CY2024 Highlights:
- Revenue: $75.6 million vs analyst estimates of $74.31 million (1.7% beat)
- EPS (non-GAAP): $0.20 vs analyst estimates of $0.09 ($0.11 beat)
- Gross Margin (GAAP): 67.2%, up from 63.6% in the same quarter last year
- EBITDA Margin: 33.7%, in line with the same quarter last year
- Free Cash Flow was -$5.3 million compared to -$4.1 million in the previous quarter
- Market Capitalization: $209.1 million
“We delivered solid second quarter 2024 results led by strength in our interactive business and a stable performance in gaming,” said Lorne Weil, Executive Chairman of Inspired.
Specializing in digital casino gaming, Inspired (NASDAQ:INSE) is a provider of gaming hardware, virtual sports platforms, and server-based gaming systems.
Gaming Solutions
Gaming 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 Growth
A 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 tends to grow for years. Luckily, Inspired's sales grew at a solid 20.2% compounded annual growth rate over the last five years. This shows it was successful in expanding, a useful starting point for our analysis. 
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. Inspired's recent history shows its demand slowed as its annualized revenue growth of 7.3% over the last two years is below its five-year trend.
Inspired also breaks out the revenue for its three most important segments: Gaming, Leisure, and Virtual Sports, which are 35.8%, 36.2%, and 15.5% of revenue. Over the last two years, Inspired's Gaming (land-based casino games) and Virtual Sports (digital gaming and sports betting) revenues averaged year-on-year growth of 16.8% and 6.2%. On the other hand, its Leisure revenue (gaming terminals and amusement machines) averaged 1.6% declines.
This quarter, Inspired's revenue fell 4.8% year on year to $75.6 million but beat Wall Street's estimates by 1.7%. Looking ahead, Wall Street expects revenue to decline 2.3% over the next 12 months.
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Cash Is King
Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
Over the last two years, Inspired's demanding reinvestments to stay relevant have drained its resources. Its free cash flow margin was among the worst in the consumer discretionary sector, averaging negative 2.5%.
Inspired burned through $5.3 million of cash in Q2, equivalent to a negative 7% margin. The company's quarterly cash flow turned negative after being positive in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren't a big deal because investment needs can be seasonal, but we'll be watching to see if the trend extrapolates into future quarters.
Looking forward, analysts predict Inspired will generate cash on a full-year basis. Their consensus estimates imply its free cash flow margin of negative 9.2% for the last 12 months will increase to positive 16.9%, giving it more optionality.
Key Takeaways from Inspired's Q2 Results
We were impressed by how significantly Inspired blew past analysts' EPS expectations this quarter. We were also glad its revenue outperformed Wall Street's estimates. On the other hand, its Gaming revenue unfortunately missed. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 1.3% to $8 immediately after reporting.
Inspired may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.