Inspired Entertainment, Inc.

Good morning, everyone, and welcome to the Inspired Entertainment fourth quarter and full year 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 fourth quarter and full year 2021 earnings press release, which is also available in the investor section of the company's website at www.imsbeinc.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 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 Wheel, the company's executive chairman, Mr. Wheel, please go ahead.

Thank you, Operator. Good morning, everyone. And thank you for joining our fourth quarter and year-end conference call. I'm here today with Brooks Pierce and Dan Silvers. Our CFO, Stuart Baker, is recovering at home from an illness, and we expect Stuart to be back at work in a week or two. Stuart, if you're listening, we look forward to seeing you back in the office shortly. you need to rest up because there's a lot of work to do. We feel as though we ended the year firing on all cylinders. The integration of the Novomatic business, interrupted the last couple of years by the fits and starts of COVID, is entirely complete. The businesses are beautifully integrated from both an operating and revenue point of view, and each of the components is performing as well as we could have hoped. At this point, we're particularly pleased with the performance of the pub business where we are steadily gaining both margin and market share and expect more growth and margin improvement to come as we complete the analog to digital conversion. We have had conviction going back at least 10 years to our scientific games days that there was a great opportunity for our style of digital server-based gaming in the pub sector But 10 years ago, unfortunately, we were for better or worse ahead of our time. But now the time has definitely come, and this business is really coming into its own. I might also mention that at the same time, some of the acquired Novomatic titles are among our best-performing online games. So we're seeing real omni-channel revenue synergies here also. What we think of as our digital businesses, iGaming and virtual sports, ended the year far ahead of last year in both revenue and profitability, with margin improvement illustrating the way these businesses scale. As we mentioned in our last conference call, these businesses together are approaching 50% of our overall EBITDA, and we expect we will move well beyond that as we exit 2022. A couple of days ago, we launched iGaming in Connecticut with DraftKings, and we just relieved our iGaming license in Ontario, my home province, by the way, earlier this week. We had plans to launch in Ontario in April, and at the same time, we can see Pennsylvania clearly on the horizon. Along with a number of new jurisdiction in virtual sports, We see this whole digital area as a tremendous driver of revenue growth, margin expansion, and asset utilization. For years, we were trained in the paradigm of revenue growth slash margin improvement slash asset utilization. You could pick any two, but we seem to be in a new paradigm now where if you understand what you're doing, you actually get to have all three. In a moment, Brooks will go into these areas in more detail because there are a bewildering number of important developments taking place in terms of products, markets, geographies, and so forth. Financially, of course, we could not have ended the year any stronger. Every measure of revenue and profitability was at a record level, as was our liquidity position. We ended the year with about $48 million in cash, and $75 million in liquidity, including our undrawn revolver. And our net debt to EBITDA was down below three on a stabilized basis. All of this taken together gives us confidence that our platform is ready to move very aggressively to the next level. Bear in mind also that the cash and liquidity balances are after the completion of the Sportech lottery acquisition. of about $12 million so that, excluding this, our cash and revolver were together close to $100 million, a rather remarkable achievement considering where we were in the depth of COVID. The Sportec lottery acquisition itself fits a critical piece into our strategic mosaic. As we have explained previously, we paid about $12 million for a three-year run rate EBITDA of about $4 million. So, in effect, the purchase price was equal to the profit remaining in the existing contract. At the same time, we were fortunate to have been able to extend the contract with Leica, the customer, for an additional 10 years, effectively generating, therefore, at least $40 million of gravy. This was certainly a neat piece of financial engineering but it's not the real reason we did this, although by itself it's obviously made a compelling case. When we're finished with the development and launch of the iGaming platform in the Dominican Republic, we expect to see significant immediate upside there, given the very high incremental margin on revenue. We expect that the DR will give us an operation with a strong retail foundation where we can refine and showcase our lottie our iLottery content, which will be greatly beneficial worldwide. We see significant opportunities to use the DR as a platform to grow our business throughout the Caribbean and Latin America, markets, again, from our past that we know extremely well. And lastly, and maybe most importantly, I believe we will end up with a state-of-the-art platform probably beyond the state of the art, cloud-based lottery system capable of supporting both iLottery and land-based lottery systems anywhere in the world. I should also mention that we have assembled a really world-class team of lottery system developers under the leadership of our global chief technology officer, Steve Beeson, who some of you may remember was for many years prior to joining us the CTO of Scientific Games. And here I'm referring to the lottery company, not the light and wonder company. And before that, G-Tech, now IGT. Lastly, I should just mention that as a first-time accelerated filer this year, and adding to the increased reporting requirements that we now have as we moved this year from SOX 404A to SOX 404B, we will be intending to file our 10-K by March 31st within the automatic extension period. And with that, I will hand it over to Brooks.

Thanks, Lauren. And I share your views that we're seeing excellent performance across all the segments of our business and have an outsized number of opportunities we're working on that we are confident will continue our momentum in 2022. As we've learned from the experience with COVID and now with the war in Ukraine, general macroeconomic issues, supply chain challenges, et cetera, there are a number of things beyond our immediate control. I do take comfort, however, in the amazing resiliency and tenacity of this management team to take on any challenge they confront head on and find ways to continue to build this company to realize its potential. And we want to express our respect and admiration and appreciation for the work that they've done over the last couple of years. So as we've done in the past few calls, I'd like to go into a little more detail on each of the areas of the business and report on our progress and what we're working on in each but aligned with our core strategy of growing our digital businesses and its increasing EBITDA contribution by leveraging not only our existing content portfolio, but as well as our content creation. I'll also update on our progress in North America, specifically as that's a geography for which we see tremendous potential to grow our footprint substantially. Moving into the business segment, so the interactive business had a strong fourth quarter with 36%. year-over-year revenue growth, as well as revenue growth throughout all of 2021 of over 72%, even with the land-based businesses coming back during the second half of the year. North America in particular showed strong growth throughout the year. As Lauren mentioned, we've just gone live in Connecticut with DraftKings, and we'll be going live in Ontario hopefully in the second quarter after now receiving our license. We already have agreements in place with most of our customers, and we think Ontario will is going to be a very strong market. We hope to be live in Pennsylvania in Q2 as well, subject to licensing approval. And as I've mentioned in the past, we're currently serving roughly 70% of the markets in New Jersey and Michigan and would hope to add both FanDuel and Penn National by the second half of the year, which should get us close to 90% of each market. So you can see that by the second half of the year, we're expecting several key market drivers to accelerate our growth trajectory in this segment. We continue to produce three to four new games monthly, and that combined with the quality of our games coming out of our studios is driving share gains as part of our organic growth. Needless to say, we're very bullish on the prospects for this part of our business. Now moving on to virtual sports. Our virtual sports business continues to perform exceptionally well, and we're excited about the footprint we're building with the online aspect of this business as our virtual plug-and-play, VPP, The product went live in additional markets like Belgium with Napoleon and Greece with both OPAP and Novabet. And early results are very encouraging. Q4 revenue growth of 26% illustrates the potential we see for this business with online continuing to grow and land-based now back at pre-COVID levels across our geographies. North America, we now have a launch date of April 4th for our second U.S. lottery customer, the D.C. Lottery. And we'll be introducing a new football product with the Pennsylvania lottery in the second half of this year. We remain very bullish on the lottery sector as a great market for virtual sports in North America, as we've seen in some of our big lottery customers around the world, including OPAP in Greece and Cecil in Italy and Turkey. On the product side, we have a number of enhancements coming out in 2022, including our first women's soccer game in time for the women's Euros tournament this summer. And we're signing customers currently for our newly licensed Major League Baseball Players Alumni Association home run shootout, which I have to tell you looks amazing in development. Moving over to the leisure segment. So our leisure business grew well with revenue up 183% compared to the prior year Q4 due to a number of factors, including reduced COVID restrictions, extended season for holiday parks, increased traffic to our MSA locations, and as Lorne mentioned, the continued growth in our pub sector, as well as reaching now 78% of the estate being digital with the majority of the rest of the estate converting in the rest of the first half this year. The Prismatic Cabinet continues to be the leader in Cat C Gaming and pubs, and we're excited to be introducing our Vantage Cabinet later this year, not only to our pub customers, but also our LBO and AGC customers as well. As we've said a number of times, we design our games to work across our product portfolio, including online, leisure, and our gaming segments, and we are seeing the benefit of this omnichannel strategy with players' recognition of our brands and the ability to play our games in whichever venue or mode they choose for themselves. As Lorne mentioned in his remarks, we firmly believe that the pub sector will recover well from the COVID restrictions and increased footfalls should drive machine play with our content and cabinet performance being major drivers for the success in this segment. Last, the gaming segment continues to perform well with land-based back to pre-COVID levels across our major geographies of the UK and Greece. In Greece, we've seen our lead and performance expand over Q4 and believe the addition of some Some of our new key titles of our own, along with the first game from Aristocrat being introduced to the market, will strengthen our offering in this key market. We completed the transition to a content and platform provider in the Italian market with our deal with Crystal Tech finalized, and we're seeing the benefits to our P&L taking hold. We continue to expand our footprint in Illinois in Q4 and have introduced some new content and a roadmap for additional content going into the market in Q1 2022. that should continue to improve our performance in that highly competitive market. And we've submitted a number of proposals to several key North American VLT markets in Q1 and expect to report on those in future earnings calls. Last but certainly not least, we're delighted to now have two months under our belt with our Latza Lottery customer in the DR, and early results are very positive. We expect to expand their offering to make it available online in the first half of 2022. which could expand the sales opportunity significantly in that market. Lorna and I both worked with Laetza for many years in our prior lives, and they run a world-class lottery, and we look forward to building a lottery platform for them that's state-of-the-art and will be an opportunity for growth for us in markets outside of the DR, and will include the ability to be a platform provider for iLottery as well. So needless to say, we have a lot going on at the moment as we continue to build this business, and clearly our financial position gives us increased flexibility as we expand organically, as well as review the many opportunities going on out in the market today. So thanks, and I'll hand it back to Lorne for his closing remarks before we take Q&A.