Inspired Entertainment, Inc.

Good morning, everyone, and welcome to the Inspired Entertainment second 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 second quarter 2022 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 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 Will, the company's executive chairman. Mr. Will, please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining us for our second quarter conference call. With me on the call today are Brooks Pierce, Dan Silvers, and Stuart Baker, who certainly picked the right quarter to come back to full strength, or maybe it's cause and effect, but either way, it's a very good thing. Brooks and Stuart each have fairly extensive prepared remarks, so I won't go into too much detail. Beyond the excellent financial performance, which I think speaks for itself, the highlights of the quarter for me are these. On the capital structure side of things, we have to date repurchased just under three quarters of a million shares at an average price of 973, using just over a quarter of our announced $25 million repurchase program, and we were upgraded by Moody's to B2 with a positive outlook. We launched virtual sports with our second US lottery customer, the DC Lottery, and the KPIs since startup have been very impressive. As we have mentioned previously, we're seeing great interest in virtual sports by North American lottery jurisdictions. We launched iGaming operations in Ontario and Pennsylvania during the quarter, and the early indications point towards accelerating interactive revenue in coming quarters, reinforced by significant product enhancements, which we will be rolling out in the next couple of months. We launched our first iLottery title with Lotto Quebec, and the performance has been extremely strong, placing among the top performing games in the market. And we have a number of new games coming close to completion and ready for introduction. Our retail gaming and leisure businesses are now running comfortably ahead of pre-COVID levels, even as our digital businesses continue to grow its growth trajectory. As importantly, we executed new contracts with three very important gaming and leisure customers, William Hill, Green King, and Mitchells and Butlers, something of extra significance in the event we were to head into a recession. Indeed, it seems that the possibility of recession is on everyone's mind these days, so let me digress a little and talk about this. The subject of recession sensitivity is something I've been studying for many, many years. When I was still in my 20s, I was literally traumatized living through the nightmare of the 73, 74, 75 recession. Anecdotally, inflation and the prime interest rate at that time were both each over 12%. The Dow dropped by 50%, and the decline in GDP seemed to go on forever. But as it turns out, I was fortunate to have learned lessons that I've been careful to apply in managing businesses ever since. further reinforced by a few too many recessions in the meantime. So should we find ourselves in a recession? My experience of the last 45 or 50 years would suggest that the most vulnerable companies are those that are highly leveraged with variable interest rates and short maturities, those whose operating margins are thin so that minor pricing or volume pressure can quickly wipe out all the profit, particularly if overhead is relatively fixed, Those that compete with their own customers in house supply because when the market declines, they're the first to be cut off. Those whose revenues come primarily from one-shot sales rather than recurring multi-year contracts because they're the most vulnerable to competitive pressure. And lastly, and in particular in the gaming space, those that are heavily dependent on destination gaming as opposed to regional or ideally even local Looked at against this template, I think we're in very strong shape to deal with any economic downturn. Our net leverage is comfortably under three, our interest rates are fixed, and our maturities are very comfortable. Our operating margins are very strong across all our businesses, and despite our growth objectives, we're very careful about overhead. We do not compete with any of our customers, and virtually all of our revenue comes from recurring contracts And our contract portfolio is in excellent shape, as referenced a moment ago. And finally, 100% of our EBITDA is derived from locals markets, much of it from online, the ultimate locals market for the 2020s. So while, of course, we're not thrilled with the prospect of a recession, I think we're as prepared as we can be. Indeed, we think that in the event of a recession, we may, in a longer-term sense, actually be able to turn this to our advantage. And with that, I'll hand it over to Brooks.

Okay, thank you, Lorne. And I share your sentiments on the financial performance of the business in the second quarter. And I'll share some of the highlights across the business segments as I usually do, then hand over to Stuart for a deeper dive into the numbers. As we've been talking about for almost a year now, Q2 2022 is the last of the four quarters in which we'll be comparing to quarters that were impacted by COVID restrictions and lockdowns. across our business segments. As both Lauren and I have mentioned many times over the last year, we believe that Inspired is a business that will pass 100 million or more in run rate EBITDA by mid-22 with an ever-increasing contribution coming from our higher margin digital businesses, which in turn creates tremendous operating leverage. Notwithstanding currency headwinds, our thesis was correct with LTM EBITDA approximately 74 million pounds, which translates to more than 100 million in run rate at Q2 2021 exchange rates. This doesn't happen without the focus and effort of our entire team working under some incredibly difficult operating conditions. And we sincerely appreciate their efforts and know they'll continue to be laser focused going forward as we broaden our product offerings and expand in key markets and add even more geographies. So here are some of the highlights of the operating segments for the quarter, as well as some look into what's in the pipeline from a product and business development perspective. I'll talk about our digital businesses first and then our retail businesses, but as Lorne mentioned in his remarks, each set of these had strong performances in the quarter. In virtual sports, our revenue grew 90% compared to prior year in functional currency with strong performance from both our online and retail segments. This performance was driven in large part by the confluence of a strong product portfolio and the expansion of our online product organically and across new territories. On the product side, we launched the first women's virtual sports soccer for those of us from the U.S. that coincided nicely with the England women winning the Euros tournament for the first piece of hardware for 56 years for England and a strong rallying point for a huge number of our customers and our employees. We look forward to launching our home run shootout game later this year and I've added Mickey Mantle to our stable of players under the MLBPAA license that we've secured. We have several product enhancements from a player perspective that we'll launch later this year, and we believe will give our operator customers unprecedented marketing and analytic tools. We also went live with our second lottery customer with the DC Lottery, launching our horse racing game, and we're excited to see that business off to a good start. And the pipeline of U.S. lottery opportunities in virtual sports is building every day. Needless to say, we're very bullish on this business segment. In Interactive, our revenue grew 12% over prior year on a constant currency basis with a number of new initiatives and markets just coming on in the quarter. We're very encouraged by what we've seen from our first customer, Rush Street Interactive, to go live in Pennsylvania. We expect to go live with several of our biggest customers in Pennsylvania over the third and fourth quarter, including BetMGM, DraftKings, Caesars, Penn, and others. We're seeing weekly growth in our business in Ontario and still believe strongly in the potential for this market and are happy to report that we are now live with FanDuel in Ontario, our first successful integration with this key customer. As a reminder, FanDuel represents a significant share of the market in PA, New Jersey, and Michigan, and we are yet to go live with them in these markets, but expect to over the course of the next quarter or two. North America is the fastest growing part of our iGaming business and is now our second largest market behind the UK with what we believe is tremendous potential. Moving on to the iLottery side, we've launched our first iLottery content, as Lorne mentioned, into North American with Lotto Quebec, and it's already a top five performer in their portfolio, and we'll be launching our second game with them soon and have a roadmap of additional content for next year. Now that we've proven our game performance, we'll be accelerating our sales and marketing efforts in additional key North American lottery markets, and combined with our virtual sports efforts, We offer compelling content for the entire North American lottery market. Moving on to gaming, we're very happy to announce the agreement with William Hill to continue providing equipment and services to a long-standing key customer of ours. We've launched our Vantage cabinet into the UK LBO market, and the early numbers are very strong, and we'll be working with key customers across both our LBO business as well as our pubs and AGC markets to get this product out in 2023. Our LBO customers continue to exceed their pre-COVID performance, even with the macroeconomic challenges facing the UK economy. It goes to what we believe is the resilience of the market and our offerings. Our flex cabinet, which is our curse green offering, is doing extremely well, and our backlog for orders for this segment of the business is significant. We have three new game titles going out in Illinois yet this quarter. where we have high hopes for and several other gaming opportunities in the North American market that we'll be reporting on as they develop. Moving over to Leisure, we're very happy to announce the extension of our agreement with Green King for another three years, and importantly, an increase in our footprint with this very large customer. We also announced a three-year extension agreement with another large customer, Mitchells and Butlers. We believe that our products in this segment are best in class and are the highest performing products in the pub segment. And we have several key initiatives from both the content and platform perspective that we believe will further enhance our offering in this business. In the motorway service side of the business, as well as our holiday parks business, they both have been positively impacted by the staycation phenomenon going on in the UK with more and more folks opting for a vacation time in the UK as opposed to overseas. So let me just say in summary, it feels like we're clicking on all cylinders. Yet we believe that we have key product and market developments that are in their very early stages, which gives us plenty of opportunity to build this business out even further. So with that, I'll hand it over to Stuart for some further commentary on the numbers.