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spk10: Good morning, everyone, and welcome to the Inspired Entertainment second quarter 2023 conference call. I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. To rescind a question, do the same afterwards. Please note, today's event is being recorded. Please refer to the company's Safe Harbor statement that appears in the second quarter 2023 earnings press release. which is also available in the investor section on 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 now would like to turn the conference call over to Lorne Wheel, the company's Executive Chairman. Mr. Wheel, please go ahead.
spk06: Thank You operator good morning everyone and thank you for joining our second quarter earnings call with me today are Brooks Pierce our president and CEO and Stuart Baker our CFO second quarter EBITDA was 26.2 million was roughly in line with consensus slightly up over last year but at least a couple of million dollars less than we would consider to have been the inherent earnings power in the business in the quarter. As can be seen in the P&L that was in the earnings release, quarter-to-quarter corporate expense increased by $800,000 from $6.2 million in 2022 to $7 million this year, with a vast majority of this increase due to the timing of our audit expenses. As we reported some time ago, we changed auditors during 2023 or for 2023 from Markham to KPMG, with the latter now billing us on a different and unavoidably accelerated cycle. In our leisure business, we incurred a statutory $600,000 increase in labor costs in the second quarter due to the UK national living wage, But we have since reconfigured and reengineered our processes, enabling us to offset this cost going forward beginning with the third quarter. And we had about $1 million of equipment sale EBITDA move out of the second quarter into the second half of this year. Taken together, these items will benefit the second half to the extent of at least $2 million of EBITDA. And since we were anticipating a strong second half in any case, driven by growth in the digital businesses, continued strength in the gaming business, and a return to growth of leisure, we remain more than comfortable with the current full-year consensus. EBITDA on our digital businesses' pre-corporate expense allocation grew by 14% year-over-year on a functional currency basis comprised of 28% growth in interactive, and 11% in virtual sports. As anticipated several quarters ago, our interactive earnings continue to accelerate, driven by platform enhancements, high-performing new games, and additional customer integrations. Recent growth in virtual sports has been moderating, but we're anticipating a strong reacceleration in virtual sports as we move into next year, We expect that our gaming operator partners will be entering a number of new markets and catalyzed by our NFL license. We're expecting to see significant activity in the US market. In a moment, Brooks will elaborate on much of this. Our leisure business had a year-to-year decline in EBITDA on the second quarter, due almost entirely to the aforementioned labor cost increase. together with the previously reported loss of a pub customer. But as we move through the year, the combination of strong seasonality, new holiday park customers, and improved cost structure should drive leisure into positive growth by year end. And I should add that the last couple of weeks, the trading performance has been very, very strong. Lastly, but by no means least, I should mention that trading performance in our core gaming business continues to be very strong, aided by the very successful rollout of our new Vantage cabinet. And here again, Brooks will elaborate more in a moment. And with that, I'll hand it over to Brooks.
spk01: Okay, thank you, Lorne. And as I usually do, I'll try to add some color to the results of each of the segments of the business, both in quarter two performance as well as what we're seeing and what we have planned for the second half of the year, which we're very excited about. Our digital businesses, interactive and virtual sports, had double-digit growth in revenue in the quarter compared to prior year, and through the first half of the year now represent 31% of our revenue excluding low-margin sales and 62% of our EBITDA on a combined basis. This continues the trend of shifting more of our business online and expect these businesses to contribute a larger portion of our EBITDA going forward and generating significant cash flow with high margins and low capital intensity. The interactive segment growth of 28% in both revenue and EBITDA was helped in large part by the launch of FanDuel in both Michigan and Pennsylvania, as we've outlined in previous calls, and we expect that growth from this customer to continue as we add more and more of our best content with them and go live with them in New Jersey yet this month. The growth of Interactive was really across all geographic areas with Europe slash UK growth being 17%, North America growth growing at a strong 52%, and Latin America growing even faster but on a small base. We see these trends continuing because of the quality and quantity of the content we're releasing every quarter, But we're also starting to see some real traction in some key markets for us, like Italy, with growth of over 230% year-over-year, and the Netherlands, a growth of 95% year-over-year, but both growing off of a smaller base. In fact, we just had our best-ever week in terms of both total handle and revenue in the interactive segment ever just last week. Looking forward, we have some very exciting titles launching in the second half of this year, including Terminator, Big Piggy Bank, and Space Invaders Win and Spin, along with all of our usual holiday games around Halloween and Christmas. And we'll be introducing some exciting product innovations later this year that we think will accelerate this growth even further. It's a very competitive space, as you all know, but we're clearly delivering excellent growth and cash flow conversion in this part of the business. Moving over to virtual sports, as we talked about in our last quarterly call, the comps in this area are going to get tougher as we grew this segment of the business dramatically in 2022 through the launch of some innovative games, the shift of more people playing online, and some key new geographies. Even with that, our quarter two 2023 revenue was a record quarter. We've consistently said that we believe that one of our biggest potential markets was in North America, and that we were gearing our product and sales strategy to capitalize on this. And we're starting to see the fruits of that strategy. Good example would be in Ontario where our virtual sports revenue was up 10% versus the same period last year. And the total North American revenue in virtual sports was up 20% year over year. That's without even being live with our home run baseball game, our NFL license game, and the highly anticipated hockey game that will launch in 2024. In baseball parlance, we're in the very early innings of this. So the product team has been working feverishly to have our NFL game ready for the September launch, but as you would expect, it'll take some time to get it rolled out to our customer base around the world. We expect very little contribution in the third quarter, but a greater contribution in Q4 and accelerating into 2024. We're building multiple versions of the NFL product that we'll be launching throughout the next six to 12 months, similar to the multiple versions of soccer we offer, which currently is our most popular game. We're working with several of the key sports betting operators and expect to be live with them over the rest of this year and even into early next year. So our plan is that by this period in 2024, we'll have the product roadmap of North American focus content and the distribution with the largest sports betting operators alongside the addition of further states from the lottery vertical to deliver on the internal expectations we have for this segment of the business. No doubt it's taken a little longer than expected or hoped, but we have a clear vision now on the path to success for this part of the virtuals business. Moving on to the gaming side of the business, the highlight of both the gaming segment and the leisure segment has been the launch of the Vantage cabinet in both areas. In gaming, we've now installed almost 50% of the customers we're converting and are still seeing close to 10% improvement in the cash box. As we had mentioned before, with the trials of Vantage showing a 13% uplift in the cash box, we had realistically expected there would be a modest fall-off with the added density. But frankly, almost 10% growth is even better than our expectations with almost 50% installed. We expect to finish the rest of the Betfred and Paddy Power installs by October, and we'll see the benefit of that for most of the fourth quarter. We've also improved our operating efficiency, as Lorne mentioned, across both the gaming and leisure segments by combining our field engineers, both geographically and cross-trained, them on multiple products. And the benefit of those operating efficiencies will now start showing in the second half of the year. Finally, we're seeing good results from the installation of the terminals in WCLC that we sold last year, with approximately 600 terminals now installed. which we hope will help us sell this product to other provincial operators and other U.S. jurisdictions of distributed gaming. Moving on to leisure, although the sample size is much smaller, the growth we're seeing in the cash box for Vantage in pubs is approximately 14%, and we'll be aggressively rolling this product out with our key pub customers over the rest of the year. Our flex cabinet continues to be the best performing cabinet in the adult gaming center space. And as Lauren mentioned, we're in the seasonally highest period for our holiday parks, and the early results are encouraging, and we expect this part of the business to be back in growth mode by year end. Finally, we're making excellent progress in our new lottery system development and have now gone live with online wagering with LATESA and the Dominican Republic and are seeing growth from this part of the business, particularly the online lottery part. has picked up nicely as we've seen a 50% month-over-month revenue increase in July. So in summary, we obviously have a lot of growth drivers to deliver in the second half across all segments of the company, and our focus remains on execution of these to build momentum for the rest of the year and into next year. So with that, I'll hand it over to Stuart.
spk08: Thank you, Brooks, and good morning, all. So as normal, I'll give an overview of the financials. One area where comparability is helped in this quarter's analysis versus the prior period is exchange rates. So while the pound to dollar rate was a little lower at 1.25 this year versus 1.26 in 2022, this gap is much smaller than it has been in previous quarters. So for consistency with prior quarters, I'll use the functional currency pound variance when explaining movements. It's also worth noting that given where the rate currently is and where it was last year in the third quarter, we expect in Q3 that FX will become a tailwind. So we lose that complexity around the variances, but we gain one with low margin hardware sales. If you remember, these are in relation to an estate refresh in the UK as the Vantage terminals replaced Eclipse terminals, which have been out for about 10 years now. Historically, we have capex these, either some or all of them. but now have an agreement from our large customers that they will do so broadly at cost. However, as we are selling terminals, the revenue needs to be balked, as does the cost of sale, positively distorting revenue growth and negatively distorting EBITDA margins. So in this analysis and the earnings release, we've tried to provide the clarity so you can see the results including and excluding these sales. And as the rollout will likely continue into the fourth quarter, this will be relevant for the rest of the year. So look at the numbers. Overall, revenue grew 13%, including these low margin sales, and 7% excluding them. As has already been mentioned, interactive revenue grew at 28%, and virtual sports grew at 8%, with the latter coming up against tougher comparisons. In the land-based business, gaming revenue was up 24%, including these low margin sales, and 6% excluding them. It's also pleasing to be reporting that leisure has returned to top-line revenue growth. growing 2% compared to a decline in the first quarter year-on-year of 4%. At an adjusted EBITDA level, we grew 1%, which is clearly a smaller growth rate than we've been seeing recently, so it's worth giving some color here. As Lauren has mentioned, we have a phasing difference with the auditor change, which causes a 3% impact on growth rates. In addition, in the prior year, the nature of hardware sales and gaming were higher margin, as casino terminals don't carry an ongoing revenue for content. We've spoken many times over the years about how these type of sales peak and trough through quarters. And this happens to be a quarter when they were low and the comparative period was high. The other big area of impact is wage inflation, particularly in the leisure segment, which is the biggest staff costs. Costs rising faster than revenues is not a trend that can continue, nor do we expect it to, based on what we can see, based on a combination of cost reduction measures, as well as revenue growth drivers that Brooke spoke about. Notwithstanding that overall EBITDA growth for the company was below longer-term trends, it's worth pointing out that both interactive and virtual sports grew at double-digit rates at 28% and 11% respectively. Further down the income statement, depreciation and amortization was up 5% or $0.5 million. This excludes an out-of-period adjustment from Q1 at $0.6 million, so excluding this was broadly in line. You may have seen in the earnings release that we have revised the prior year numbers for this chart. based on software assets being amortized earlier than initially recorded. For the avoidance of doubt, this revision does not impact revenue, adjusted EBITDA, capex, or cash flows. There were no exceptional SG&A charges in the period, but the interest line does show an increase of $1.3 million a year on year. To be clear, this is not reflective of increased borrowings or the cost of borrowings, as our rate is fixed at 7.875% until the middle of 2026. but instead reflects Forex differences on cash balances and mark-to-mark movements on FX hedges. So turning attention to the balance sheet, capex in the quarter was $10.6 million, down from $11.1 million in the same quarter last year and from $11.6 million in the first quarter of this year. We finished the quarter with $42 million of cash, which gives us a net leverage of 24 times when looking at the last 12 months EBITDA on a functional currency basis. On capital allocation, we've seen we only purchased a normal amount of stock in the quarter, but still have just under $15 million of this facility available, and they're constantly evaluating both stock and debt repurchases. And finally, while we are working to try and file the 10Q today, this may end up not being possible given the revisions to amortization. If this isn't possible, we'll add details later today with KPI information, usually only in the queue, in the form of an updated investor presentation, and expect the queue to follow shortly after. So with that, I'll now hand back to Lorne for any closing remarks before opening up to Q&A.
spk06: Thank you, Stuart. That was an excellent financial summary. I don't have any further prepared remarks, so operator, if you can please open the program to Q&A.
spk10: At this time, I would like to remind everyone in order to ask questions, Press star and then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from David Bain from D Riley. Please go ahead.
spk07: David Bain Great. Thanks so much. I guess first, Brooks, you mentioned the lottery in tandem with virtual sports. Could you give maybe an example or two of new potential virtual sports concepts that could operate or be offered in a traditional lottery outlet or sales environment? And as you're having those discussions, what's your best take on when we may see agreements, understanding that lotteries don't often move very fast like some other industries?
spk01: Yeah, well, that part is definitely true. But I think we've seen already with both Pennsylvania and D.C. that the lottery vertical is definitely a good one for virtual sports. But clearly the NFL, Lauren can comment on this as well, is something that the lottery industry is tremendously excited about because they've never really been able to get an NFL license like we have. So all I can tell you is that we're in accelerated conversations with a number of state lotteries largely driven by the NFL license. And so we expect certainly to be able to announce something through the course of the rest of the year. But you're right, it does take a little bit longer to get decisions made in this space and obviously to do the integrations and get it implemented.
spk07: Are there concepts where it could actually be ported to more of a traditional kind of ticket or numbers format where then someone can view it?
spk01: Yeah, I mean, the reality is, as you know, the outcome of a virtual sports game is literally just like a Keno game or a lottery draw. So we've had a number of conversations with lotteries about could this be a new, enhanced, kind of exciting way to accelerate their growth in the draw game space. So we've had, you know, our product people on the lottery, state lottery product people having a number of conversations. So whether it will be, you know, a new kind of highly innovative advanced version of keynote or even as a draw game, you know, we think virtual sports will slot in very nicely to the lottery product offerings.
spk07: Awesome. And then just, I guess, Stuart, maybe if you could review to the best of your ability, I know some of this is out of your hands as operators, but kind of the sales weighting of low margin customer transitions over the next few quarters, the weighting there. And then I don't know if Brooks or Lauren, you mentioned, I didn't hear it, if you discussed the network lift from Vantage cabinets to date.
spk08: Let me start with the first one then, Dave. So in terms of number of terminals, that's probably the easiest way of thinking about it. In the second quarter, we delivered around 930 low margin sales, generating around $4.4 million of revenue. In the third quarter, we expect to do just over 4,000. And then in the fourth quarter, we expect to do just over 1,000.
spk01: Yeah, I did mention. Oh, I'm sorry. Well, go ahead if you want to finish, if there's anything more.
spk07: No, I missed it then.
spk01: Yeah, so on the Vantage cabinet, what we talked about is, if you remember, we said in the trial, we were seeing a 13% uplift, which was very nice. And we always had assumed that when you have so many more terminals, that there would be a slight drop in the cash box. But frankly, we've been very pleasantly surprised with now – You know, almost half of the terminals installed, the uplift in the cash box is still at roughly 10%, which is, you know, very meaningful for our operator customers and obviously bodes well for us going into the fourth quarter when we're fully deployed.
spk06: You might know about the POP, too.
spk01: Yeah. Sorry, Lauren was just saying. The other part of it, and maybe we probably haven't elaborated on this as much as we should have, is You know, the Vantage cabinet, it's a slightly different version of the Vantage cabinet, is going now into the pubs market as well. And the early numbers that we're seeing in the pubs market is actually even better than the LBO business at 14%. So, you know, by the end of the year, we're going to have thousands of Vantage terminals in multiple segments of our business and hopefully continuing to produce the results that we're seeing thus far. So, you know, that's a very nice tailwind for us. obviously in the fourth quarter, but moving into next year.
spk03: Awesome. Thank you.
spk04: You're welcome. Thanks.
spk10: Our next question comes from Barry Jonas from Trust Securities.
spk09: Please go ahead. Good morning, guys. As we think about the growing importance of digital to the business, can you talk about how you think about the synergies with the land-based side? Thanks.
spk06: Yeah, well, there's... I mean, there are two important synergies. The origin is the content development and this so-called omni-channel strategy that a lot of people think has been and will continue to be key to succeed in the business overall. So our start in the digital business was our main land-based customers in the UK the William Hills, Paddy Powers, and actually even the UK operators in the UK that are not our customers like Ladbrokes and Coral. When they first launched online gaming in the UK, the first games that were launched were the same games that had been played on the machines in the shops. So people would play it in the shop. They had a couple of games that they really liked. They'd get home, they'd play them on their phone or on their computer. So the whole idea of developing games in retail, seeing what works in retail, and then transferring those games to online is sort of the origin. And that continues to be a very important driver of the business. So we get, you know, one of the reasons we're able to introduce so many games online to the online market that drives, I'm not sure if Brooks mentioned it, but I think the first six months our interactive is up 50% over last year, something close to that. We're able to introduce that many new games because we have an install base of 50,000 or more machines in retail locations that we can amortize that total software development expense. Again, actually, that's ironically where this issue that Stuart mentioned earlier about our having to revise the amortization of this game software just because we're doing so many games and so many people are doing them that this has kind of just slipped. I think continuing in the future, again, the ability to have a huge retail base that lets us really understand what works and what doesn't, and having both a retail and an online business to be able to advertise the cost of the content development I think is a huge benefit, and I think without question is why we've been able to build such a successful iGaming business that is so profitable so quickly. I think if we didn't have our retail business, we wouldn't have been able to do that in a million years.
spk01: Yeah, and Barry, just one last point to add to that. I think it's interesting that you see it's somewhat different by geography. obviously where we have big installed bases of retail terminals in the UK and in Greece, what you would see is the same content that's at the top of the board for both online and retail in those markets, but it would be different content in Greece than it would be in the UK. So having the ability to be able to develop games specific to geographies really does kind of enhance our growth. And as I mentioned, it's a very competitive space So that's certainly a big advantage that we have. And hopefully as we grow our North American VLT business, we'll start getting even more and more traction from that in North America as well.
spk09: That's extremely helpful. And just as a follow-up, there's been some M&A activity in the space since your last call. I just wanted to get your thoughts and your appetite for M&A here.
spk06: Thanks.
spk04: Well,
spk06: Our appetite for M&A continues to be strong, as it always has been. But we've talked about this a number of times, Barry. We're not going to do an M&A just for the sake of doing M&A so we can acquire some earnings. I think we have a pretty clear template what we're interested in. We don't have any intention of doing anything that would be considered a significant diversification. I'm strongly of the opinion that sticking to your knitting is the best strategy. We're looking at lots of stuff. We're not going to overpay. We're not going to do anything that's dilutive. But as things come along that fit that template and the numbers work, then, you know, we're anxious to do it. Obviously, our balance sheet right now is really strong. As Stuart said, the leverage is, you know, right now, two and a half. I would imagine by the end of the year, it might be down to two. So, we've got plenty of cash. We're generating plenty of cash. So, we certainly have the resources to do it. but we're not going to do anything unless it really makes sense.
spk01: And Barry, one other thing, it's probably obviously it's prescient today with all the news with Penn and ESPN, et cetera, et cetera. You know, M&A can benefit us in other ways as the sports betting space is getting more and more competitive and M&A is going on in that space. And with the NFL license, that we have, which is something that we assume that, you know, all the sports betting operators are going to want this product, kind of the rising tide should lift all boats. And we think that will be very beneficial to us. So we're, you know, we're happy to see, you know, how big and competitive the sports betting business is because we think it will, obviously, as we've talked about many, many times, virtual sports is complementary to the sports betting business. And in the rest of the world, it's roughly 10% to 15%. of sports betting. So we're delighted to see sports betting continuing to grow in the way it is.
spk03: Awesome. Thanks so much, guys. Thanks, Barry. Our next question comes from Jordan Bender from JPMP Securities.
spk10: Please go ahead.
spk02: Great. Thanks for taking my question. I want to start my follow up. You guys talked about in the virtual sports segment, just kind of the comps getting tougher into the back half of the year. Is it kind of fair to assume that that is, you know, mid single digit growth in 2H and then you mentioned in 24, that's when it starts to reaccelerate again. Is that kind of the right way to think about it?
spk06: Yeah, I think it is. I mean, I think as Brooks was saying in his part that a major driver of the growth in virtual sports is the opening up of new geographic markets. Because after, in the absence of a game changing product like the NFL football game that Brooks talked about, you know, after a couple of years, you know, the new markets tend to, you know, after a big growth period, tend to flatten out a little bit. So going back a year or so ago for a period of time, we had a significant, you know, increase in new territories, you know, that kind of slowed down. And then the growth, you know, with a time lag of a year or 18 months begins to slow down too. But But now looking ahead, and I think your numbers are right in terms of the short-term growth expectations, but from our conversations that we're having with our customers, they are preparing to enter a number of new geographies over the course of the next year or 18 months, together with the impact of the NFL game that I think We're pretty confident we'll reaccelerate the business in the states where effectively each state is like a different country. So I think, yeah, I think a year from now, I'm comfortable that we'll be back on a growth cycle as we were, let's say, a year ago because we'll have the new geographies combined with the NFL product.
spk02: Okay, that's great color. And then I guess my second one here is just on the margin within the virtual sports segment. It seems like, you know, quarter after quarter here, we continue to talk about that hitting new highs. You know, where are you guys seeing the leverage from that keeps pushing up that margin? And, you know, I guess if we look in the 24, is it kind of fair to assume that as revenues keep going up, you're going to continue to gain that operating leverage that you've seen over the last, like, 18 months or so?
spk06: Yeah, well... the big, and you can see it in our interactive business too. As the interactive business grows, the margin is, you know, either the gross margin or the EBITDA is growing faster than the revenues are because this is a classic case of, you know, build once, sell many times. You know, we build a game and then The operating costs, apart from marketing, is simply the cost of electronically delivering the game to the customer base. So as the customer base grows, the costs really don't grow. So in theory, it's a business where the margin will continue to get better almost to infinity as the sales grow, unless the growth is driven by something that requires some huge incremental expense that we right now don't have. And at this moment, I can't see what that is. So at least for the foreseeable future, I don't see the revenue margin dynamics changing.
spk01: Yeah. And I think, Jordan, that Lauren's comment on geographies and expanding geographies just accentuates that because for us to go into a new geography for either virtual sports or our iGaming business, it is selling the same thing and further expansion. So when I mentioned in my comments about how Italy has grown substantially for us and how the Netherlands has grown substantially for us, I mean, that's been a very pointed focus for us to try and get more markets to grow like we've seen in North America and UK and Greece, et cetera, et cetera. So we are starting to see the benefit of kind of more effort and more markets and then obviously whatever new markets open.
spk04: Great. Thank you very much. Sure thing. Thanks.
spk10: Our next question comes from Edward Engel from Roth MKM. Please go ahead.
spk11: Hi, thanks for taking my question. Appreciate the kind of the cadence of the Vantage rollout. I just wanted to kind of two quick ones on that. Would you expect all of this kind of rollout that you've talked about in the past to be finished by the end of this year? And then of those kind of 6,000 that you pointed out, is that all for sale at low margin or is any of that kind of investment on your balance sheet? Thanks.
spk01: Yeah, it's all low-margin sale, and certainly in the LBO or betting shop business, we'll be done with Patty Power and Betfred this year, but the William Hill conversion will go into next year. And in terms of the pubs, most of it will be done, or a big chunk of it will be done this year, but there will also still be some lingering conversions in the pubs market next year. On our balance sheet of the pub.
spk06: What Brooks was saying about the bedding shop business, in answer to your question, those 6,000 machines is all in the bedding shops and they're all being bought, effectively financed by the customers. In the pub business, we continue to make the CapEx and obviously we derive the benefit of the increased cash box that is driving, but for a variety of reasons, our capex on a game in the pub business is much, much lower than the capex would have been on a game that we were putting into the betting shops. That's helpful, Collier.
spk03: Thank you.
spk10: Our next question comes from Ryan Sigdahl from Craig Hallam. Please go ahead.
spk05: Good morning. This is Will on for Ryan. Thanks for taking our questions. First wanted to touch on FanDuel. So it seems like the launch and rollout is going well. Gave an update on New Jersey. Curious on when you think Pennsylvania might launch. And then in addition to that, are you supplying virtual sports to FanDuel?
spk01: Well, in terms of Pennsylvania, we're already live with FanDuel in Pennsylvania. In terms of New Jersey, I would say it's going to happen this month. It's always subject to final testing and regulators, but we're scheduled to go, I think, maybe even next week. Can't really comment specifically on virtual sports other than what I said in my remarks and that we're in discussions with many of the operators, the sports betting operators, in particular because of the NFL license. So when we can announce something in that regard, we will.
spk05: Fair enough. And then maybe as a quick follow-up, MLB Shootout launched during the quarter, I believe. How has that performed, and has it helped accelerate any traction at all?
spk01: Well, it hasn't launched yet, so... It will go live this quarter, I think, with Bet365 first, and then we'll go into others. So when we have our next quarterly call, we'll obviously be able to update what's happened both in the NFL game and the home run shootout. So you can highly anticipate that in the third quarter call.
spk05: Great. Thanks, guys.
spk04: You're welcome.
spk10: Thanks. Our next question comes from Chad Bagon from the Quarry. Please go ahead.
spk00: Morning. Thanks for taking my question. Wanted to revisit the margin question. So on the non-new machines that are coming in at low margins, can you help us think about where gaming and leisure margins are versus, you know, maybe how you were thinking about it last year? whether it's wage, utilities, freight costs, et cetera, a lot of moving pieces on the inflation side. Just wondering if that same store margin business is starting to look a little bit better here. Thanks.
spk01: Stuart, you want to handle that one?
spk08: Yeah, sure. Hey, Chad. So in terms of leisure segment, let's start there. This might be a bit easier. As we said, there's the impact on the top line of the declining or the lost pieces that we took out from the pub business in Q3 or the last year that's now annualizing. And we've got the new impact of additional holiday parks, which boosts it, particularly in this Q3 period that we're in now. And then there's the wage inflation piece that we talked about that's particularly, you can see in Q2. So we think that for the cost reduction reasons that we talked in the prepared remarks and then the benefit of the um the additional holiday parks revenue we think um leisure margins will be back where they were um and as lauren said we're certainly back into ebitda growth as well as revenue growth on the gaming side of the business um yeah obviously the low margin sales to betfran and paddy power distorting the numbers at the moment if you take away those numbers there's a bit of a um in quarter year-on-year decline um as we had the high margin product sales in Q2 of last year, but they jump around as we spoke about over the years. There's no declining trend there, it just happens to be a lower quarter this time versus a high comparative. All the upside that we're seeing from Vantage will fall to margins, there'll be no additional cost on that, and then we've got the additional cost reduction measures in gaming as well. putting all those pieces together, at least similar margins, if not improving margins in gaming. Excellent.
spk00: Thank you on that. And then here in the US, there's some really good momentum in North Carolina. I think two bills have been put forward from the separate houses on distributed gaming legalization. If this market legalizes, I guess maybe a two-parter on this. One, if this market legalizes, would you be ready to get into that market given what you've done in some other distributed markets? And then secondly, Lauren, how are you just thinking overall if this passes, how other states might look at this as a source for revenues? Thanks.
spk01: Sure. Yeah. Well, we obviously monitor that very closely and certainly depending on how it goes in North Carolina. But if it does pass and they expand into distributed gaming similar to what they've done in Illinois and the, you know, the provincial markets in Canada. Yeah, that's right. That's right in our sweet spot. Distributed gaming is where it's a large number of locations with few numbers of machines where downloading content makes a huge difference. That's our absolute sweet spot. We've always believed that distributed gaming was going to be a growth driver in this industry, that the growth or the building of a bunch of big casinos going forward probably seems to have slowed down. If North Carolina were to do it, that might be a tipping point for other states, as we've seen with gaming legislation throughout the years, is generally when one state does it, surrounding states feel like they're impacted and they tend to pass it as well. So, yeah, we're obviously big advocates for distributed gaming because we think it fits perfectly with our kind of what we do everywhere else in the world.
spk00: Thanks, Brooks. Appreciate it.
spk04: Okay, Chad, you're welcome.
spk10: I will now turn the call back over to Lorne Wheel for closing remarks.
spk06: Thank you, operator. Once again, thanks to all of you for joining the call. I know everyone is anxious to get off the phone because there's a very exciting conference call that will begin at 9 o'clock. I might even listen to it myself. But in the meantime, let me just iterate that we are very ebullient, very positive about where we're going to be in the second half of the year. A lot of things we've been working on are coming together very nicely, and I think we're going to be very happy with the year come the end of December. We look forward to speaking to all of you in three months, and thanks again.
spk10: Ladies and gentlemen, that concludes today's call. Thank you for all joining. You may now disconnect.
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