Inspired Entertainment, Inc.

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Good morning, everyone, and welcome to the Inspired Entertainment third quarter 2020 conference call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. 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 call by referring you to the company's Safe Harbor statement that appears in the third quarter 2020 earnings press release, which is also available in the investor section of the company's website at www.safeharbor.com. This Safe Harbor statement also applies to today's conference call, as the company's management will make certain statements that will be considered forward-looking under security 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 gaps 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 over to Lauren Wheel, the company's executive chairman. Mr. Wheel, please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining our third quarter conference call. I'm here as usual with Brooks Pierce, Stuart Baker, and Dan Silvers. I'll begin with an overview of the significant momentum that we saw building across the business throughout the third quarter and then discuss the recent resurgence of COVID-driven measures taking place in parts of Europe. Brooks will then talk about the individual business lines in more detail and we should have plenty of time for Q&A. We were very pleased with our performance in the third quarter. During our first quarter call, when we were in the middle of the pandemic wave, we set up a thesis that our business would come back very quickly post-lockdown for three fundamental reasons. Number one, our business predominantly comprises wide area networks, so small, locals-oriented venues in comparison to single, large destination resorts. Number two, 90% of our business is driven by contracted multi-year recurring revenue so there's no issue of recreating backlog and finally there are no time lags in starting back up due to supply chain issues since all of our equipment in bedding shops pups truck stops etc is ready to turn back on at a moment's notice and things played out pretty much as we had expected even though the business was still ramping upwards as we moved through the third quarter. Our core business EBITDA for the third quarter was very close to the high watermark we had reached in the fourth quarter of 2019 before the onset of COVID. Momentum in our retail-related business built steadily through the quarter, while at the same time the growth we had been experiencing in our online business showed little sign of slowing down. despite the reopening of both retail and live sports. So we were confidently planning that EBITDA in the fourth quarter of this year would overtake the 2019 high watermark and be in the range of $20 million or perhaps more, and then grow from there in 2021 to produce annual EBITDA in excess of $80 million, which we felt would begin to reflect the fundamental earnings power of the combined, inspired, and former nomadic businesses, and we still very much feel that this is the inherent earnings power. That scenario was playing out quite nicely through the first week of November when, as is now pretty well known, the UK went once again into lockdown for what was announced to be a month, joining Italy, which had gone into a one-month lockdown a couple of weeks earlier. In response to these developments, we return to the playbook that we had developed pretty much on the fly back in March and April. So we have at this point furloughed about two-thirds of our employees, while the remaining one-third are experiencing reduced hours or salary reductions. At the same time, though, continuing to heavily support development in our online business, a strategy that paid great dividends during the last shutdown. Very importantly, the UK has extended the very generous furlough reimbursement scheme through March 2021, and this is helping us greatly. Fortunately, we're in dramatically better shape to weather the current storm, regardless of its duration. We hope it will only be a month as announced, but we don't necessarily need to plan on that. Having been through the cost mitigation drill once before, actually twice if we count the actions taken following the triennial review, we have been able to take action more quickly and more aggressively than we had before, and we're doing this against the cost structure that is already considerably lower than it had been. As we've discussed previously, our online business grew very substantially during the spring lockdown. And at this time, it continues to grow, but from a far higher starting point, obviously. Well, part of the online growth during the pandemic resulted predictably from the retail closure. Much of it was driven by our continued spending on both content and technology development. They, in turn, have allowed us to meaningfully expand our customer base, and at the same time drive significant growth in existing customers. And lastly, our liquidity situation is light years beyond where it was last spring, reflecting both the recent strong operating performance of the business and the VAT refunds that were referenced in today's press release. Before I conclude, let me take a moment and elaborate on the VAT and liquidity situations. As indicated in the press release, we received $9.3 million net of taxes in VAT refund money during the third quarter. And on this past Tuesday, we received an additional $32.5 million again net of any applicable taxes. At this point, we anticipate receiving an additional and final $4.1 million in the coming weeks, which would bring the total VAT receipts, again net of taxes, to $46 million. Our cash balance on Monday was about $32 million, which included the impact of the first roughly $9 million, so that at this point there's an additional $37 million to consider the difference between the $46 million and $9 million, and that would bring our total projected cash balance to just under $70 million. Our net debt in that case, being somewhat conservative, will stand at about $250 million. Achieving our target run rate EBITDA of at least $80 million, which, as I said a moment ago, we're quite confident we will reach once the current lockdown ends, would have the effect of reducing our leverage to about 3.1, which is getting very close to the target of 3 we had established when we made the Novomatic acquisition, and I think put us in a very strong position in the league table of balance sheets of companies in our industry. Exactly when the current lockdown will end, is, of course, impossible to predict. But we're confident that when it does, our retail business will recover quickly for the reasons established earlier. Our online business carrying very strong margins and margins which are getting stronger as the business grows, which Brooks will explain in a moment in a little more detail, will continue to accelerate. And we will quickly establish, I apologize for sounding like a broken record, an annualized EBITDA run rate upwards of $80 million. And on that note, I'll turn the program over to Brooks who will discuss many of these issues and developments in greater detail. Brooks.