Inspired Entertainment, Inc.

Good morning, everyone, and welcome to the Inspired Entertainment first quarter 2023 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. Please note that today's event is being recorded. Please refer to the company's safe harbor statement that appears in the first quarter 2023 earnings press release which is also available in the investor section of the company's website at www.inseinc.com. The 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 our first quarter earnings call. Here with me today are Brooks Pierce and Stuart Baker, who We'll be presenting prepared remarks and also Eric Carrera, who is available to answer questions as appropriate. I'll keep my remarks this morning fairly brief, focusing on important overarching financial comparisons and a few particularly noteworthy specific business points. Brooks and Stewart will then go more deeply into operating in financial matters. As mentioned in the press release, there were a couple of important items that significantly impacted year-to-year financial comparisons. And because the first quarter is seasonally our lowest in terms of EBITDA, the impact of these is consequently magnified. In normal first quarters, we would have had a very significant marketing and exhibition expense, typically approaching about $1 million for the annual ICE event in the U.K. While we did have the usual isofit in Q1 of 23 with an associated expense, I think it was mentioned in the press release of $800,000, there was no comparable event in the first quarter of 2022. And in 2022, we had VAT revenue of about $900,000, all of it margin. That was a rebate from our customers that arose from VAT overpayments in previous years. And then, of course, there was a foreign exchange impact. So, as mentioned in the press release, when we make these adjustments, the like-for-like increases in year-to-year revenue in EBITDA were 22% and 26%, respectively, which we think more accurately represents both the momentum generating the growth in the business and the operating leverage that's driving increased profitability. And I should mention that at this point in the year, the pound is above where it was at any point in the last three quarters of 2022. I just took a look. It's $1.27 today, well above, certainly well above where we were a year ago, so that what has been a headwind for some time could conceivably be turning now into a tailwind. Our digital business is now accounting for nearly two-thirds of our EBITDA, are the primary drivers of growth. We're particularly pleased with a very strong reacceleration of our interactive business, which, as discussed in previous earnings calls, we have been anticipating and projecting for some time. Our interactive business initially accelerated during COVID, as those of you who follow us will remember, with virtually all of that growth coming in Europe. But as the symptoms of COVID started to recede, our interactive growth began to moderate. What's underlying our growth now, the acceleration that we're now talking about, is the North American market, which has in a very short period of time become our second largest and fastest growing single market, driven by product and platform developments designed explicitly for the North American market. Since only a handful of the 60 states and provinces in North America have introduced iGaming to date, the opportunities ahead are almost limitless. The opportunity for virtual sports in North America is similarly limitless. Like with Interactive, the acceleration in our virtual sports business had its origins during the pandemic when live sports in the UK and Europe were effectively shut down. But in this case, there was no plateau in the post-COVID period, as had been the case with Interactive, where we needed to retool for North America, as I mentioned a minute ago. As we've outlined previously, our growth in virtuals has come through steady expansion into new geographies, complemented by product and technology development. And now we stand at the edge of a product geography opportunity like none we've seen before, the launch of the NFL product in the North American market. And in a moment, Brooks will discuss this opportunity in some more detail. At the same time, our retail businesses continue on their intended strategic path, providing modest growth with strong cash generation, particularly in the context of our evolving asset-light business model. The new Vantage terminal, which we talked about a lot in the fourth quarter conference call, having demonstrated a 13% uplift in win per day now after almost a year of field trials, promises to enhance both growth and cash flow in all segments of our retail business. And it's worth mentioning in conclusion that last week was the strongest week in the UK betting shop segment. since prior to the impact of the triennial review in 2019. And with that, I'll hand it over to Brooks.

Okay, thank you, Lorne. I'll get a little more color on the business on a segment-by-segment basis as I normally do, but I also want to add to a few points that Lorne made in his remarks. Inspired has transformed in the post-COVID world to a digitally-led business with now two-thirds of our EBITDA coming from these segments. These segments have all the characteristics you look for in businesses with high growth rates, high margins, low capital intensity, and numerous expansion opportunities both from a product and geography standpoint and highly differentiated offerings that make them unique and wide distribution through almost all tier one operators around the globe. Frankly, it's what you would strive for if you were starting a business from scratch. And we really believe that we are early in the development curve of these segments and the potential addressable markets for both across gaming, lottery, and sports betting operators is huge. In short, we feel we have a unique opportunity to capitalize on. It's also important to mention, as Lauren did, how strong our gaming machine businesses, particularly in the UK, are performing with levels not seen since the triennial in our betting shop business. And our sales funnel in the adult gaming center segment is also at record levels. I guess the icing on the cake to all of this is the signing of the new five-year agreement with our largest pubs customer, JD Weatherspoons. It's worth noting that the importance of the synergies and benefits we derive from the combination of our digital and retail businesses. We leverage our design studios to develop games that work in both segments and drive play to each channel and reduce our overall cost by spreading the development across both segments. It's also very beneficial to have players exposed to our content and familiar with our content in both channels, which drives engagement with both. And lastly, our commercial relationships are strengthened with key customers by having multiple products available to them across the globe, including our virtual sports alongside our gaming offerings, and this will hold true with both lottery and sports betting operator customers. Many in this industry talk about omnichannel, but we're proof of it every day. So now on to the segments themselves. As Lorne mentioned, our interactive business had a very strong first quarter with revenue growth of 38% on a functional currency basis, and that momentum has carried on into April, with the last week of April being the highest revenue week we have ever had, even beyond December, which is largely driven by the holiday-themed games, and it's historically our high watermark. This growth was well distributed across all geographies, but primarily in the core markets of the UK and North America that make up approximately 75% of this business. We have several drivers in the next few quarters with the launching of some key new titles, particularly in North America with the Terminator game, as well as now getting FanDuel Live in Michigan and with New Jersey and Pennsylvania also to come with FanDuel. We made a substantial investment in our talent base and capacity and account management that's paying dividends. with growth coming in key markets like Italy and the Netherlands that had been reasonably flat. Our game design teams continue to produce content that's resonating with players across all our markets, and our recent game, Catch the Day Reeling Them In, has come out of the box with some amazing numbers, and we're anxious to get it into the North American market. Moving over to virtual sports, the virtual sports business continues to deliver very strong results with 42% revenue growth year over year on a constant currency basis. Although online now represents almost 80% of the virtual sports revenue, we've also seen over 10% growth in the retail part of our business in mature markets like Greece and Italy, which speaks to the quality of our offerings and working with our customers to tweak and enhance our product to appeal to their player base. We're very excited about the potential of the NFL license and all the potential ways we can deliver multiple products leveraging that license. similar to what we've done with varied and unique offerings of our soccer product on a worldwide basis. The NFL brand, we believe, will resonate with sports betting players and operators and we'll comment further on that as these opportunities coalesce. We also believe this license will really appeal to the lottery market and early indications are bearing that out. We're targeting the first variation of the NFL product to be live for the kickoff of the 23 season in September. but we'll also be adding variations throughout the rest of the year and before the next Super Bowl. We're excited about the launch of our home run shootout game this quarter and believe this product will resonate with our customers in North and Latin America, as well as potential new markets in other parts of the world. And finally, we are excited about the Women's World Cup this summer and showcasing our women's soccer product, the first of its kind in women's virtual sports. Moving over to the gaming side of the business, particularly in the UK, is delivering positive results with our betting shop business hitting numbers we've not seen since the stakes changes brought on by the triennial. It bodes well for the business going forward as we start installations this quarter with Betfred and Paddy Power with the new Advantage cabinet that Lauren discussed previously and that was trialed successfully throughout 2022. This conversion process will take most of the second and third quarter, and we would hope to see improved cash box results throughout, but certainly by quarter four. We're also seeing great demand for the Vantage cabinet in the adult gaming center market, which is akin to slot halls and where, ironically, Novomatic happens to be our largest customer. And we'll be rolling that cabinet out in that segment throughout the rest of the year and building up our recurring revenue content fees as we move into 2024. We've widened our lead on our nearest competitor in the Greece market, and we'll be replacing 2,500 terminals there this year with both Vantage and Valor cabinets, which we anticipate will strengthen our market advantage. We're also putting terminals on trial in a key Canadian province to build upon the success of our sale to WCLC at the end of 2022. Although the gaming segment is mature, we're bullish on the various growth opportunities we have at this part of the business and leveraging our content teams to drive continued improved performance, therefore creating the operating leverage that Warren addressed in his remarks. Finally, the leisure part of the business is seeing very positive early results in the holiday park segment of the business with growth rate percentages in the teens. As we have previously discussed, we lost some share in the pub segment at the end of last year, but expect to have recovered all of that loss by the end of 23. And we are happy to announce that we've signed the contract extension, as mentioned, with our largest pubs customer where we have approximately 60% of their estate covering over 400 pubs and over 2,000 machines. We believe that the combination of our new Vantage cabinet, enhanced service, and analytics offerings will help us to put this part of the business back in growth mode. So with that, I'll hand it over to Stuart for further remarks.