Inspired Entertainment, Inc.

Good morning, everyone, and welcome to the Inspired Entertainment third quarter 2021 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the start 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 to the to referring you to the company's safe harbor statement that appears in the third quarter 2021 earnings press release, which is also 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 considered in the earnings press release. With that completed, I would now like to turn the conference call over to Lorne 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. Here with me today are Brooks Pierce, Stuart Baker, and Dan Silvers. As we anticipated in our last conference call in August, we had a strong third quarter and we're quite pleased with the results. EBITDA of 30.1 million exceeded the high end of our guidance. We achieved these results despite the modest decline in the value of the pound as compared to dollars and the fact that the UK fully reopened in July a few weeks later than we had expected. effectively imposing headwinds on us for about 15% of the quarter. Nevertheless, some historical comparisons I think are very interesting, excluding last year's one-time VAT income. The $30.1 million EBITDA in the third quarter of this year was 89% higher than the $15.9 million in the third quarter of 2020, which as we might recall was a ramp-up quarter prior to this second lockdown in the UK in November of 2020. And it was 70% higher than our prior high water mark of 17.7 million established in the fourth quarter of 2019, immediately following the Novomatic Technology Group acquisition. And finally, if we go all the way back to the first quarter of 2019, which was the last quarter prior to the implementation of the triennial We're 120% ahead of that. So I think it's safe to say we're hitting on all cylinders at this point. The overarching narrative behind these trends is pretty much what we have anticipated for several quarters. Our retail gaming businesses in the UK and elsewhere rebounded to pre-pandemic business levels. And at the same time, our virtual sports and interactive businesses continued unabated along the growth path they had established at the outset of the pandemic. The comparatively high margin and low capital intensity of these content businesses is the primary reason our net cash flow was so impressive in the quarter. About $13 million is highlighted in the press release. From where we stand now, we expect that the interactive and virtual sports businesses will grow on a combined business to account for about 50% of our EBITDA in 2022, further enhancing our overall margins, capital intensity, and inherent growth rate. At the same time, we believe that by the end of this year, our net debt to run rate EBITDA will have declined to below three, the target we established for ourselves at the time of the Novomatic acquisition. Our expectation, of course, was that we would have reached this point sooner But in the meantime, there was the small matter of dealing with COVID. In a moment, Brooks will discuss in detail some of the developmental activities that are driving our growth. Each of our virtual sports and interactive businesses is growing through expansions into new jurisdictions, new customers, and new products and content. In virtuals, the Major League Baseball Players Alumni Association licensed home run hitting competition is the latest and most exciting example of new content. In our interactive business, we continue to exhibit impressive growth as we introduce three or four new games every month and improve our shelf space within the existing customer base. Earlier this year, we launched an initiative to diversify our interactive business into the lottery space And a couple of weeks ago, we announced our first iLottery initiative with Lotto Quebec, one of the premier lottery operators in the world. And lastly, as Brooks will discuss in a moment, we continue to get great traction in the North American VLT market. And with that, I'll hand it to Brooks.

Okay, Lon, thanks. It's great to be able to speak about the operational aspects of the four segments of our business when, as you say, everything's hitting on all cylinders. I'm also excited to give some additional color on a number of the business developments that we've discussed in previous calls. I'd be remiss if I didn't thank the entire Inspire team for their hard work to produce the results that you just covered in your remarks, and it's rewarding to see what this business can do when so many of the headwinds which we've faced have dissipated. I know I speak for the entire team when I say that we'll continue to stay laser focused on the things that have brought us to this stage of our development, and we're incredibly encouraged at the opportunities yet in front of us. And as Lorne mentioned, we increasingly see our business evolving into content-led, primarily online businesses on the one hand and retail gaming on the other hand. So let's start with retail gaming and the leisure segment specifically. They just finished a record quarter with 92% revenue growth over the comparable period. And for the first time, we've been able to see the true earnings power of the business that we acquired from Novomatic in 2019. Across the holiday parks part of the business, we've seen excellent results that have continued through October as well. In our pubs business, we've seen the business rebound as restrictions have abated, and we continue the investments we've previously discussed in this business to get us to 100% connectivity and a larger portion of the estate being digital going forward in 2022 and beyond. We believe we already have the highest performing content and cabinets in this business, but we also believe that we have plenty of runway left as we develop content specifically for this sector that can widen our lead. Finally, our motorway services businesses benefited from the increase in travel within the UK, which led to growth in this segment. We're looking to build on this momentum in 2022. Moving over to the interactive business, we continue to see growth in mature markets like the UK and Greece. which we built upon with growth in the North American market from existing jurisdictions like New Jersey, Michigan, and Quebec, and as well as the prospects of additional jurisdictions including Pennsylvania, Connecticut, Ontario, and Alberta. Our interactive revenue grew 73% over the same period last year, and we currently sit at just over 60% penetrated in New Jersey and Michigan with the addition of DraftKings in the Michigan market. We've also gone live with Bet365 in the Netherlands as one of the early operators in the market. This growth in the number of markets in which we operate and our share in these markets is being driven by the quality of our content as well as the number of games we're releasing every month. This is truly building a network effect, and we expect this trajectory to continue. An example of some of the product innovation that we're bringing to the market is In the fourth quarter of this year, we'll be launching our Space Invaders license game, which is getting a lot of anticipation from operator customers. We're also able to announce, as Lorne mentioned, our first iLottery customer recently with the first two games going to Lotto Quebec. Already, we've had great feedback from the lottery industry on our entry into the market as they believe the addition of eInstant games to be a big part of the digitization of that industry. We expect this to be an area of focus for our business going forward, and we'll report on the progress of that as it develops. Next, we're excited about the growth of the overall of the virtual sports segment around the world, and in particular, the growth online. Virtual sports overall revenue grew 27% compared to the same quarter last year, and grew 67% online. As we mentioned in our last call, we believe the North American market has vast potential, and we've now gone live online with BetMGM, in New Jersey and are in the process of understanding the nuances of growing a product that is completely new to players in this market. BetMGM has been a great partner, and we've done some joint promotions that have proven successful. Furthermore, we are in the midst of doing a major customer-focused project with our players to make sure we are hitting the mark with the product or if there's anything that we need to tweak. In terms of the rest of our markets, we're seeing great results and traction with new products in Italy, including marbles, Match Day Ultra, and penalties. and with the U.S. basketball product in Greece. And finally, on the product side, we're excited to announce our licensing deal with the Major League Baseball Players Association, Alumni Association for our home run and shootout, and we think this product will resonate in North America, Latin America, and Asia. We had mentioned previously a number of players that were part of the deal, but I'm happy to announce today that we have secured a license to now include Babe Ruth, in the game and our development team has already started creating some interesting ways to showcase this property. In our core gaming business, we're happy to see that the business returned to at or above pre-COVID levels in our key markets of the UK, Greece, and Italy, even with some of the restrictions on needing to show proof of vaccination or a negative COVID test in some key markets to enter a betting shop. I think this demonstrates the resiliency of this part of our business. In Italy, as we've discussed in the past, our plan is to move to a content and platform business as opposed to a full-service business, and we took the first steps in that process with the sale of our existing terminals in Italy to our customers, SISL. We have plans to be fully completed with this plan by the end of the year, and we'll expect modest improvements in the margin contribution of our Italian retail gaming to our bottom line. Our virtual sports and interactive businesses in Italy are not impacted by these changes, and as discussed, we see tremendous growth potential in both. Moving over to North America, we continue to see growth of our machine count in Illinois, and we've already exceeded our Q3 sales in the first month of Q4. In Western Canada, our VLTs are the top performers, and we'll be responding to the WCLC RFQ with that experience now under our belt. which we believe can only help there and in other provinces in the future in Canada. And finally, we've shipped our Ballard Terminal to the Oregon State Lottery for their early review, and we would hope to qualify to go to trial there in 2022, and we see not only Oregon but West Virginia as key future markets for us. So that, I'll hand it over to Stuart to go through some details on the numbers, but needless to say, we're excited about the business we've built and its prospects going forward.