Inspired Entertainment, Inc.

Good morning, everyone, and welcome to the Inspired Entertainment first quarter 2022 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 first quarter 2022 earnings press release which is also available in the investors section of the company's website at www.inseinc.com again 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 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 first quarter earnings call. Using a hockey metaphor, I'm pleased to say that we're back now to full strength with Stuart joining Brooks and myself in speaking this morning. And not a minute too soon because there are a huge number of developments to keep track of. And when it comes to keeping track of things, they don't get any better than Stuart. As we indicated in the press release, we were pleased with our first quarter results with consolidated EBITDA coming in nicely ahead of estimates and all the important performance vectors going in the right direction. In our last conference call, we talked about our digital business, the combination of virtual sports and interactive, moving towards accounting for half of our overall earnings. And indeed, in the first quarter, the digital business grew 47% year-over-year to reach 48% of total EBITDA. As we have also mentioned previously, this dynamic continues to positively impact the growth rate, operating margin, and capital intensity of the overall business. Virtual sports was the primary digital driver in the first quarter, with overall revenue growing 84% year after year. Despite the fact that retail virtuals returned almost to pre-COVID levels, online virtuals still recorded growth of 54%, illustrating the tremendous momentum in this business. As Brooks will discuss in a moment, virtually all this growth in the quarter was organic, coming from the existing customer base, And now to this, we will add several new customers rapidly coming on stream. We should also note that in the first quarter, there was no longer any COVID-related impact on live sports. And yet with the full menu of live sports betting options being available, virtual sports still charged ahead on this tremendous growth trajectory. Indeed, this might even reinforce a point we've been making for some time, that live and virtual sports might be complementary rather than competitive. Under normal circumstances, digital growth in the first quarter would have actually been still greater, and digital's overall share might already have been 50%. But as we've seen from the numbers in the press release, as against only modest interactive revenue growth, There was about a 34% increase in interactive operating costs, a situation that is already turning itself around nicely in the second quarter. During the first quarter, we invested heavily in new markets and new operators, but we introduced only about half the number of new titles as we typically do. But by the end of the quarter, a handful of new titles were performing very strongly, driving revenue growth and week-by-week improvement. So the outlook for this business over the balance of the year remains very positive. As can be seen in the press release as well, our combined gaming and leisure business effectively are land-based systems and equipment activities rebounded tremendously from the COVID-impacted first quarter of 2022, with combined EBITDA swinging from a loss of 3.3 million in 2021 to positive EBITDA of 12.4 million in 2021, despite the first quarter generally being relatively weaker seasonally. At the same time, we've been very pleased with the performance of our North American machine-based business, highlighted by a very significant order from the Western Canada Lottery Corporation, which, Brooks, again, we'll talk a little bit more in a minute. Elsewhere in the North American lottery world, things continue to move forward on our head of schedule. Revenue and profitability in our Dominican Republic retail lottery operation are running ahead of projections, and we're moving towards completing the development of the online platform, which we expect to launch in the early summer. This will not only drive incremental high margin in the Dominican Republic, but provide us with a lottery platform having wide applicability and synergizing well with our growing lottery content capability. Finally, let me say a word about our share repurchase announcement, which we mentioned in the press release. Throughout most of my career, I have generally not been a huge advocate for share repurchases. My feeling has generally been that allocating resources to building the fundamental business itself is the key to creating longer-run shareholder value. But we find ourselves in an interesting position right now. The fastest-growing parts of our business are also the highest margin and least capital-intensive, so generating sufficient cash to fund our growth is not an issue. And at the same time, given our outlook, We believe that repurchasing our shares will be very highly accretive to our shareholders, again, without compromising the need for growth capital. And with that, I'll turn it over to Brooks.

Okay, thank you, Lorne. And I'm happy to go into a little bit more detail in each of our operating segments. And I certainly agree that our positive results in the first quarter continue building strong momentum into the second quarter and for the second half of the year. The gaming segment, it was gratifying to see the recurring revenue of our retail businesses return to pre-COVID levels, with several of our key customers actually showing growth compared to pre-COVID levels. It's also important to note that we've built a significant backlog in the sales side of our gaming business, which also includes machine sales in the UK, where we've seen success of our products in both the pub and AGC segments driving demand. Like pretty much every other business in the world, we're facing the challenges of supply chain issues and expect that our hardware sales will be a little lumpier and less predictable from a quarter-to-quarter perspective than usual because of this. However, we remain quite comfortable that over the course of this year, we'll deliver to our plans. As Lauren mentioned, this quarter we saw the results of significant efforts by our team here in North America when we received an award of 720 terminals through the Western Canada Lottery Corporation. Just for a little background, we had delivered 100 terminals to them previously, and based on the performance of our products, they renewed their commitment to Inspired with the award of 100% of the available order during this procurement cycle. Frankly, a really significant achievement by our entire team. We think this bodes well for us with other jurisdictions in Canada and North America in the future as we continue to build out this part of our business. This is also the first quarter in which we reported on our recently acquired lottery systems business through LATESA in the Dominican Republic, and their results exceeded our expectations, as Lorne mentioned. We have significant plans to build out this opportunity as we will be expanding their suite of services to include both online and mobile betting in the second half, and we expect these services to be a showcase of our capabilities in the broader lottery industry. Moving on to the virtual sports business, the virtual sports business had a record first quarter with adjusted EBITDA almost doubling from the same period in 2021 on the strength of the growth in our online segment combined with the return of our retail business. As Lauren just mentioned, the growth came largely from existing customers, frankly, demonstrating the ability to grow this business organically over time. But we're also quite excited to have a very full pipeline of customers that we expect to go live throughout the rest of the year in a number of key geographies. Results in this segment from a limited number of customers thus far in Ontario have been quite promising, and we expect that it will be a strong market for us as more and more players are exposed to the product. Second half of the year, we'll also see us go live with a new football product in Pennsylvania with the lottery and the addition of the DC lottery, as well as the launch of some key new products like our winning soccer game in time for the Euros, the summer, and our home run shootout product with licensed players from the MLB PAA, including Babe Ruth. Moving on to the interactive ride gaming segment, where we showed modest growth compared to the prior period, but which, as Lorne discussed, is in part due to the staging of content beyond Q1, which is historically the lowest quarter in this segment. We're excited for some of the new games we've launched. In April, we're already seeing strong performance and trends. We believe that several markets that are new for us in North America, including Connecticut and Ontario, will produce meaningful contributions to our growth as well as the potential licensing in Pennsylvania, which is a very big market that we're not yet live. The combination of all of the above as well as getting live with both FanDuel and Penn National in existing markets like New Jersey and Michigan in the second half of the year will help us have a strong second half. Moving to the leisure segment, we saw all aspects of the business operating with no restrictions compared to Q1 of 2021 and have seen the benefits of early openings of the holiday parks as well as increased traffic on the motorways contributing to our MSA sector performance. We're now close to 80% of our public state being digital and we'll have the whole state connected by the end of Q2, which allows us to refresh content more regularly, report more detailed analytics to our customer base, and which we expect to drive yield improvements and increase cash box. Our omnichannel content strategy continues to work as intended, as several of the titles that are successful across iGaming, betting shops, pubs, and AGCs, and we'll have more titles like this being delivered to the market throughout the rest of the year. Summary, we feel very good about the progress of the business and our execution, and we see a very clear path to deliver consistent growth across each of the segments for the rest of the year. With that, I'll hand it over to Stuart to cover off some of the financial performance.