Inspired Entertainment, Inc.

Good morning, everyone, and welcome to the Inspired Entertainment fourth 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 would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one again. Please note that today's event is being recorded. please refer to the company's safe harbor statement that appears in the fourth quarter 2023 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, everybody. Thanks for joining the fourth quarter conference call. With us this morning are our CEO, Brooks Pierce, Interim CFO, Marilyn Jensen, and VP of Corporate Development, Eric Herrera. Brooks, as usual, will make prepared remarks, and Marilyn and Eric are available to answer questions when we get to the Q&A section. Since it's only been a few weeks since our last call, there's not a lot new to report, and accordingly, I'll make my remarks fairly brief. In a moment, Brooks will talk in some depth about the key developments that will be driving our progress over the balance of the year. Fourth quarter EBITDA of $26.5 million was in line with previous consensus and modestly ahead of 2022, as was full-year EBITDA of $100.5 million. Full-year EBITDA from our overall digital business comprising the virtual sports and interactive segments grew by 12% from 56.2 million in 2022 to 63.1 million in 2023, while maintaining EBITDA margins of 75% from year to year, no small feat given the competitive environment that we participate in. Let me mention here, Later on this morning, we will be filing the 2023 10K, and so anyone who wants more detailed information beyond what's in the press release, that'll be available, I'm guessing, probably by no later than noon. Within the digital business, there were some interesting cross-currents. The interactive business accelerated throughout the year, hitting revenue growth of close to 50% in the fourth quarter. At the same time, somewhat paradoxically, growth in virtual sports moderated over the course of the year. I think the peak EBITDA in virtual sports was the first quarter of 2023. The explanation of this apparent paradox has to do with the relative market share of the two businesses. In the interactive segment, there are many competing suppliers, so even when there are no new markets opening, there is significant opportunity to grow the business by increased market share. And this was very much the case in 2023, driven by steady production of new superior content and an increasing commitment to worldwide account management. In a moment, Brooks will talk about these dynamics in more detail, including expectations for our new hybrid dealer product, which is performing extraordinarily well. Conversely, our market share in the virtual sports business is considerably higher. So absent the opening of new markets, the opportunity to grow by a market share gain is somewhat constrained. New markets are in turn driven by a combination of a favorable regulatory climate and the development of important and game-changing new content. Here again, Brooks will elaborate on why we think The markets in both North and Latin America are at an inflection point, driven by new products such as the NBA and NFL games, as well as additional sports licensing deals on the horizon. And indeed, we're seeing in the first quarter virtual sports EBITDA ticking up a little after having been flat or slightly down for a few quarters. Lastly, I should mention that it's clear from the earnings release Our retail businesses continue to perform well and benefit from tailwinds from both the new Vantage Cabinet, which again, Brooks will elaborate on in a moment, and new market opportunities in North America.

And with that, I'll hand it over to Brooks. Okay, thank you, Lorne. And as I usually do, I'll go into a little bit more detail on the segments of our business, and we'll also give an update on some of the products that have launched recently and the plans for rolling them out across 2024. Our interactive business continues to perform strongly and across all geographies with both the UK and North America showing excellent growth quarter over quarter. Overall, our interactive revenue for the fourth quarter was up nearly 50% year over year and up 10% quarter over quarter. Fourth quarters is usually a strong quarter for interactive, particularly with our strong portfolio of holiday themed games. And this quarter was no exception with strong titles like Cops and Robbers, Big Money Christmas, and Santa's Winter Wilds. Inspired is becoming known as a leading content provider of all seasonal games. As we are reporting after our Q1 2024 has already completed, the strong momentum in our interactive business continues and just last week we had the highest revenue week in our history. Our roadmap continues to be very strong throughout the first half of the year and we're looking forward to expanding our presence in Latin America and particularly Brazil throughout 2024. We're very encouraged about the early progress we're seeing with our hybrid dealer product that will be reported as part of our interactive segment going forward. Although at this point it's early days with only our bonus city product being launched with BetMGM and only in New Jersey, we are seeing excellent growth in turnover, GGR, and active players and hit new highs on each of those metrics last week. BetMGM has been a great partner for this launch and have designed a compelling marketing program to support the launch and we're anxious to get this product out in more markets with both MGM and then later in the year with Caesars and other customers, and particularly with the launch of Roulette early in the second half of the year. We expect Roulette to be the stronger of the two games, and we have some unique features as we develop this product category, both in North America and around the world with additional operators. As we discussed in our last call, we've seen some moderating of the trajectory of the virtual segment off of its all-time highs in the first half of 2023, as Lorne just mentioned, in large part due to some of the things that he had mentioned, including the challenges that we face for some of those things. But the good news is we have a number of key product launches as well as additional customers and geographies that we expect will take this segment back to growth mode. We've launched the NFL game with several customers, and as expected, it's resonating with players and is growing the football product within virtual sports. We'll be going live with additional customers throughout the year and expect the NFL game to be a strong performer in the North American market. We'll launch our NBA archive product with OPAP in Greece, our strong partner, who have already shown the ability to grow virtuals across their channels. OPAP's retail virtuals business is really a true success story with multiple channels of virtual sports across their more than 3,000 retail locations. OPAP grew their retail virtuals turnover and gross win by 21% in 2023 versus 2022, and frankly, a very mature market. Soccer is, of course, the biggest sport in Greece, but basketball is now up to 10% of their product mix, and with a big marketing push behind the NBA launch in Greece and the fact that one of the best players in the NBA is Greek, We expect this market to flourish throughout 2024. On the product side, alongside with the rollout of the NFL and NBA games, we expect to launch our hockey game by the end of the year, and it looks amazing in the early days, and we would expect this game to be strong with our North American customers, but particularly in Ontario, which is already becoming a very strong virtuals market. We'll update on that product as we get closer to launch date in the fall. We're also extremely excited by the early developments with operators in Brazil and expect that to be a key market for us going forward. A market of over 200 million people that are so passionate for soccer doesn't come along very often, and we've spent a lot of time down there recently and have shown our soccer products to multiple stakeholders in the market and all agreed that this should be a very, very strong product in Brazil. We're bullish on the pipeline of licenses, products, and geographies, and expect that by the second half of the year we should be back in growth mode in virtual sports. Our land-based business continues to ride the success of the launch of our Vantage cabinet into the market in both our gaming and leisure segments. We've seen low double-digit growth from two of our largest betting shop operators in the UK, and we are now up to approximately 20% of our estate in the pub segment having been converted to Vantage. And Vantage is now the highest performing cabinet in the pub sector. We're also seeing a strong sales pipeline to large operators in the adult gaming center segment in the UK and expect to be rolling out Vantage across all of these verticals throughout 2024. Our holiday parks business is gearing up for their busiest time of the year with Q2 and Q3 being the strongest quarters for that part of the business. Lastly, we've recently initiated a program to improve our cost base across the business and have a dedicated team working across all aspects of the business to find savings and synergies to drive an increase in our EBITDA margins closer to our internal target of 40% and look forward to reporting on the progress of that initiative as we go throughout the year. With that, I'll hand it back to Lorne before any closing remarks before opening up the Q&A. Thanks, Brooks.