Inspired Entertainment, Inc.

Good morning, everyone, and welcome to the Inspired Entertainment second quarter 2021 conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist 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 second quarter 2021 earnings press release. which is also available in the investor 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 the 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 be discussing 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 Loren Wheel, the company's executive chairman. Mr. Wheel, please go ahead.

Thank you, operator. Good morning, everyone. And thank you for dialing into our second quarter conference call. I'm joined this morning, as usual, by Brooks Pierce. Our CFO, Stuart Baker, who will once again have a speaking role, and Dan Silvers. We will try and keep our comments relatively brief, so we have plenty of time for Q&A. Looking back on the second quarter, we can say with a modest degree of satisfaction that the narrative followed the script pretty well. Across both business units and geographies, our retail operations opened in stages during the quarter. And by mid-July, we were pretty much operating full tilt a couple of weeks later than we had originally expected. Notwithstanding the strong and immediate resurgence of our retail business, our online revenues continue to accelerate through the second quarter, most recently with iGaming establishing record revenue in July and performing very, very strong so far in August. Going back over the last year or so, we've talked about looking to return to the earnings standard that we established in October 2020, which was both the peak profitability month following the Novomatic acquisition and at the same time the peak month prior to the November 2020 lockdown. At this point, we can say that July 2021 was solidly ahead of October 2020, despite July not having fully opened until July 19th, and August is looking even stronger. Accordingly, midway through the third quarter, we're comfortable reaffirming our earlier third quarter EBITDA guidance of $28 to $30 million. At the same time, we are committing increasing resources to our principal growth initiatives, including, perhaps most importantly, our retail and online initiatives in north america where as brooks will discuss in more detail we're seeing impressive results in the i gaming virtual sports and video lottery channels and quickly laying a strong foundation for an exciting new business in i lottery as importantly we achieved a couple of critically important financial milestones during the course As Barry Jonas pointed out in his very thoughtful and very comprehensive initiating report, we were one of the first gaming companies to go public through merging with the SPAC. Since the time of the SPAC merger, our largest shareholder, Vitruvian, through its land gain entity, has been an extraordinarily supportive shareholder, as helpful and supportive a major shareholder as anyone could want. The nature of the beast is that we struggled with the twin issues of the perceived Vitruvian overhang and the associated diminished liquidity. But as many of you know on this call, and we are enormously grateful for your enthusiasm and commitment, we were able to assist Vitruvian in selling their entire position, thereby simultaneously eliminating a very large overhang. and bringing in dozens of new institutional shareholders, which we think should greatly enhance our liquidity. We crossed another important financial milestone during the quarter as well, in this case with respect to our debt. When we acquired the Novomatic Technology business in the fourth quarter of 2019, we put in place a new debt facility that both 100% debt financed the acquisition and refinanced the debt we had at the time. Having now got to where the Novomatic businesses are operating at full potential, together with the projected synergies, we feel that both the acquisition itself and the associated financing are far more than justified. But at the same time, particularly in the aftermath of the COVID shutdowns, that facility was less than optimal from several points of view, and our new facility positions us much more favorably. Stuart will address this in a little more detail at the moment. And with that, I'll hand it over to Brooks, who will discuss in greater detail our operations. And I think you'll find this very interesting. Brooks.

Thank you, Lorne. And I'll update on the progress that we're seeing across the four segments of our business and the momentum we're carrying forward in each of these into the third quarter. So starting with the gaming business, we're back to operating in full with no restrictions. now and are encouraged by the results that we're seeing. In the UK, our LBL gaming machine performance is back to pre-COVID levels. In Greece, we've seen the business return as well with performance actually exceeding pre-COVID levels. And Italy is also showing positive trends with our plans still intact to transition to a gaming content provider only model by the end of the year. In North America, we continue to see strength in our game performance and pipeline in the Illinois market. We're proud of the performance of the terminals delivered previously to WCLC Western Canada and are encouraged by the gain performance in that market and believe it bodes well for further penetration into the Canadian VLT market. As we've said on previous calls, we expect to enter other VLT markets this year and early in FY22 and have just recently hired a very experienced VP of North American sales to help drive our growth plans. Moving over to the interactive business, as you'll see in the release, we are continuing to see tremendous growth in this part of the business, 69% year over year. I think it's important to note that we are really in the early days of this story. To give you some context, North America has vaulted to our second largest market behind the UK, and that is with only approximately 65% customer penetration in New Jersey. only approximately 40% penetration with just two customers in Michigan, and we're not licensed yet in Pennsylvania and would hope to be yet this year. Additionally, we see opportunities on the horizon in Canada, where we already supply content to a lot of Quebec very successfully, as well as additional states like Connecticut once the regulatory framework is finalized. We are continuing to release high-performing content with our games making the top lists of a number of operators and consistently releasing up to four or five new games each month. We just released our first online separate game in New Jersey called Bullion Bars Grab the Gold, and it's doing amazing numbers thus far. As mentioned in the release, July was our highest revenue number in the interactive segment in a month in our history, and we're confident that we can continue to grow this business not only in North America, but in the UK, Greece, Italy, and some future markets such as Spain, Holland, and Romania. Moving over to virtual sports, our strategy has been to continue to innovate the product with our existing customers to drive player engagement and to get wider distribution of our product, particularly in North America. The results in our existing business that we're seeing in the last two months of the second quarter and the first month of the third quarter are very encouraging as our retail segment is coming back strong and growing, while the online part of our virtuals are maintaining and even slightly growing over the same period, producing overall growth and revenue EBITDA and margin percentage. The second quarter and the first part of the third quarter were exciting with the launch of the VPP product with BetMGM in New Jersey and with plans to take this product to their market in Michigan. We also have contracts and expect to launch with Caesars, FanDuel Resorts, and others in New Jersey yet this year. We work with our operators to build player awareness and acceptance of this product. As most of you know, it's fairly new in North America, and we will continue to report on this progress of these initiatives. We've launched, in virtuals, we've launched some new products into Italy, Greece, and Turkey, and the early results are extremely encouraging. Also to mention on the product side, we've started to show our home run Derby product and think that this will be a popular addition to our lineup of virtual sports, particularly in markets like Latin America and Asia, as well as North America. Finally, we continue to show double digit percentage growth in our Derby cash product with the Pennsylvania lottery. Uh, but our launch with the DC lottery, which we had hoped would be the third quarter has now been delayed until the fourth quarter. In summary, we feel very good about the growth and development of this segment of the business, particularly on the online side with all our new customers being added. Moving over to the leisure business, it's showing progress as we've been talking about for some time, with the restrictions finally lifting in full on July 19th. The holiday parks in particular have had their best month since 2019 in July, and we've seen that continue to build as we are heading into the busiest month of the year. August, of course, for that part of the business. The staycation phenomenon in the UK has really helped both our holiday parks as well as our motorway services business. We're very encouraged by the trends we are seeing in the pub sector post the elimination of the social distancing requirements, and we can see a direct correlation in machine performance. Second half of July and the first two weeks of August have seen significant improvements in footfall, both in pubs and in our machine income. As Lorne mentioned, we also have plans, we've spoken about our plans to enter the iLottery market, and we've made very good progress on that front in the second quarter. We've demonstrated several games and game concepts to a number of potential lottery customers and have received some very positive feedback. Still early days for this segment, but our experience in the lottery world, alongside our strong game development capabilities and positive feedback, makes us feel very bullish on this opportunity over the next 12 to 18 months. In summary, we believe that the strategy and operating plans that we've been discussing on these calls over the last few quarters is coming clearly to fruition and we look forward to reporting back as we progress on these initiatives. With that, I'll hand it over to Stuart.