Good morning, everyone, and welcome to the Inspired Entertainment Fourth Quarter and Full Year 2020 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note, this 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 fourth quarter 2020 earnings press release, which is also available in the Investors 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 make 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 over to Mr. Lorne Weil, the Company's Executive Chairman. Mr. Weil, please go ahead..

Thank you very much, operator and good morning, everyone, else. And thank you for joining our fourth quarter and year-end conference call. I'm joined as usual by Brooks Pierce, Stewart Baker and Dan Silvers.

At the risk stating the obvious, let me begin by saying that the fourth quarter of 2020 tried our patience like no other quarter I can recall over the course of my career in this industry and I'm sure, Brooks feels the same as well as those of you who might have followed us going back to our Scientific Games years or even before that to our Autotote years.

You'll know that we've dealt with some pretty strange quarters. We began the fourth quarter with a predictably very strong October continuing the month-to-month ramp up that began in the third quarter of 2020 following the worldwide lockdown that had occurred in the second quarter.

In October, we're in $6.8 million in EBITDA, a pretty healthy margin of 32% and revenues of $21.2 million. Most importantly, October EBITDA was nearly 20% above the EBITDA whereas in October 2019 and yet as mentioned in the press release.

The October performance itself was well below what we feel it's potential was because we were dealing with pub curfews from the beginning of the month and then the introduction of the tiered system with UK closures in the latter half of the month which significantly impacted both pub and betting shop revenues against which unfortunately there was very little cost offset possible [ph].

So I think we can say, with a high degree of confidence that absent these factors.

October revenue EBITDA and especially margins would have been very considerably higher than the October actuals and this begins to give us again some sense of the true earnings power of this business and this is further underscored by the fact that at least 90% of our business is derived from recurring revenues and therefore sustains itself from month-to-month except of course when there is a mandated government shutdown.

Yet despite the handicaps [ph] just mentioned above October performance was strong as it was and as I said 20% above 2019 was largely because of the realization of increased synergies from the Novomatic acquisition and most importantly the tremendous growth in our online business which as mentioned in the press release doubled between the fourth quarter of 2019 and the fourth quarter of 2020 and here again the vast majority of this growth is from multi-year recurring revenue contracts.

To refresh everyone's memory, we are into about $19 million at current exchange rate in EBITDA in the fourth quarter of 2019 and this is important because that was the first quarter following the completion of Novomatic acquisition. But before the issue of COVID had struck.

So at that time we talked about having high degree of confidence that we had established a baseline annual EBITDA level of about $80 million. I think we referred to that at the time is, as our par EBITDA.

And given the impact of increased synergies you've seen since then and of course the tremendous growth in our [technical difficulty] business that we had begun to see clearly over. We would have expected the fourth quarter of 2020 to come in well ahead of 2019.

Just this October, we had been well ahead of October 2019 and to therefore establish an annualized EBITDA baseline that was proportionately greater than that $80 million baseline. But of course this is where the strange and silver [ph] quarter kicked in and are one step forward was quickly followed by the proverbial two steps back.

The month of November saw the UK go back into complete lockdown and then in November an increasingly complicated and disrupted tiered system was reintroduced that despite significantly impacting revenues made effective cost management very difficult, if not almost impossible.

Notwithstanding the convoluted nature of the fourth quarter, we ended the year with above $47 million in cash and an undrawn revolver of nearly $28 million for total liquidity of about $75 million aided of course by the value added tax refunds that we have discussed previously at length.

I can say that our year-end cash balance would have been quite significantly higher and we've not used a good part of that refund to repay debt.

So we entered the first quarter lockdown with a strong liquidity cushion and because the ground rules were clear and simple from the outset and aided by the continuation of the UK furlough scheme which I believe now has been extended until September of 2021.

We were able to get our cost structure well aligned with the shutdown as was the case during the lockdown in 2020. We have in the first quarter continue to spend very heavily in support of our online business and the business continues to grow in response to this based upon the most recent announcement by the UK government.

We're planning on the reopening process beginning in April and then our retail business will be back essentially to normal at the end of June just as we begin the third quarter.

During the third quarter of 2020, which is seasonally by far the strongest quarter for our Holiday Park business and actually therefore should be seasonally the strongest quarter for the whole company. Contribution from the Holiday Park business was minimal because of severe restrictions that were in effect throughout last summer.

Conversely, we're cautiously optimistic that this summer will be much stronger for the Holiday Park business with far fewer restrictions other than travel restrictions in the UK which ironically will be very beneficial to us, we think. In addition, we project that synergies from the Novomatic acquisition will have increased further.

And finally as discussed at length previously, but will nevertheless be discussed in greater detail in moment by Brooks. Our online business comprising both virtual sports and igaming [ph] components will in the second and third quarters of 2021 be far ahead of comparable periods in 2020.

Taking all these factors together, the impact of the summer, the increasing synergies and the tremendous growth in the online business. I think this gives us a way to think about not only the second and third quarter of this year 2021 once the lockdown ends, end of this month.

But also way of thinking about an annualized EBITDA level that will go far beyond the $80 million baseline we've discussed at the end of 2019 prior to the COVID interruptions. And with that, I'll hand the program over to Brooks..

Thanks Lorne and I'll add some more details to your commentary in the new reporting format that we've outlined in the release mainly starting with gaming then virtual sports, then interactive and then leisure.

So I'll update on the businesses that we're operating in the fourth quarter and are currently in the first quarter of 2021 which are interactive business as well as the online part of our virtual sports business. But also try to give some perspective on the reopening of our retail businesses and key markets like UK.

Where in the government has laid out a very specific timeline for segments of the industry that open and the operating conditions in which we'll able to open.

So starting with gaming, the retail aspects of our business as we talk about have more or less been closed in our key operating market such as the UK, Greece, Italy and North America since November is more and outlined and continue to be largely lockdown as of today other than Illinois.

The UK has announced that betting shops will be allowed to open as of April 12th albeit with some restrictions on the number of machines, per shop. They're opened as well as the dwell times in the facilities. Greece and Italy have yet to confirm when their betting shops will reopen.

But we're projecting that during the second quarter and with capacity at full by the time we've reached the second half of the year. As experienced in all territories, after the first and second lockdown since 2020, we expected to turn over will return to prior levels quickly and albeit 100% going into the second half of the year.

As you'll see in the release, we're migrating our business in Italy into a recurring revenue model for game content and platform only and will not providing service to this market going forward with Sisal being the first customer to move to this new model.

We expect to increase our margin significantly by doing this and play to our strengths and providing leading content and an open platform that we'll be working to migrate our Italian gaming machine business in total to this model.

Please note that this will not change our operating models in Italy for both our virtual sports business and our interactive business.

We're also pleased to deliver the first hundred terminals to our second North American customer the Western Canada Lottery Corporation and we believe that there are further opportunities in the Canadian Provincial markets going forward and we'll be pursuing these.

Our games continue to perform well in Illinois and we expect accelerating sales in that market going forward as operations there build back to a steady state.

Moving onto our virtual sports business, as Lorne commented previously the online segment grew dramatically and we grew that part of the business our recurring revenue by 90% in the fourth quarter and 58% for all of 2020 due impart to retail virtual being closed in those supermarkets and real sports either being shut down or reduced.

In this environment, we accelerated development on a key product initiative of ours. The launch of our Virtual Plug & Play or VPP as we call it and this is a product that seamlessly integrates into customers' existing website with all 14 of our sports currently.

This product went live with number of customers in fourth quarter of 2020 and we'll be going live in 2021 with number of key new customers including BetMGM, Caesars, [indiscernible] and others.

To give you an example, our launch in Turkey with this product with our partners from both Sisal in Italy, has been very successful and is on a run rate of producing over $1 million in annual revenue to us.

Just literally yesterday launched our Matchday product with them which is on VPP where players can bet on eight simultaneous virtual soccer games, all at once and create a number of interesting wagering option similar to what you would see with parlays and sports betting in the states. Obviously, the results are very early.

But day one was dramatically bigger than we had expected. In terms of our land based virtual customers we've talked over the many of these quarters about the Pennsylvania Lottery.

We're very happy to report that the PA Lottery has shown dramatic growth in 2020 with sales increasing by 255% compared to 2019 even with sports bar in Pennsylvania closed for a large part of the year and also after normalizing for promotions from the PA lottery.

We believe that those outlets will start to reopen, the sports bar that is and we're looking to launch an updated football product to the second channel with our horse racing product in the market later this year.

We're also very happy to be launching our second North American lottery with the DC Lottery and we'll go live with that in the second quarter and interestingly it will be the first installation in North America where we'll be replacing an existing product. So we'll have a measuring stick to base against.

And finally, we signed an agreement with Larry Collmus is the announcer for all the Triple Crown races and did our virtual Kentucky Derby Race this summer to be the voice of our virtual horseracing product in North America which is really part of our strategy to localize our content.

So moving onto the interactive segment, this segment has shown obviously tremendous growth as we've discussed in the release basically doubling in size in 2020 and we're continuing to see the strength of that segment in the first quarter of the year thus far.

And this really comes down to a strategy that we've consistently articulated on these calls and as based on a few key drivers which include the following. Number one, successful integration we have 42 new customers and five new aggregators in 2020 across multiple geographies.

An increased pipeline of delivery of new content to our customers by increasing our game releases by 55% in 2020 and adding some very successful titles including Centurion Megaways, Reel King Megaways. Our entire line of Cash Pots games and Gold Cash Free Spins.

We have a number of new titles that will be released this year including Cops 'N' Robbers Megaways and we're building Bespoke new content specifically for the North American, Greece, Belgium and Italian markets.

Speaking of Greece, this was one of the new geographies that really grew substantially and it really validates our omnichannel strategy as we've talked about many times about how we're positioned in the retail side in Greece.

This was really borne out with the number one online game being the same as our number one retail game namely Super - Hot Fruits.

Lastly, a pipeline of new markets to come online in 2021 that we're obviously very excited about be Michigan and West Virginia and upon successful completion of our licensing in Pennsylvania that one will come on board as well.

We're also recently just gone live in both Spain and Germany and see key new international markets like the Netherlands, Romania and Colombia all being added yet this year.

So in summary, the combination of our online business really is a key focus of this strategy and the company and growth going forward even as we expect our retail businesses to rebound quickly in 2021.

Last but not least, talking about leisure business which includes the pub side, the holiday parks and motorway service which have been as we've talked about the most impacted by the restrictions in the UK as they rely completely on footfall traffic.

So we showed in the third quarter last year even with some of the restrictions Lorne mentioned, the power of the earnings of this business between the lockdowns and would expect these to benefit the most with the lifting restrictions in the UK.

The UK government has advised that indoor hospitality and leisure can open from May 17 and advance bookings are extremely strong with most locations already actually sold out for peak holiday weekends and the phrase that they use staycation. So folks staying in the UK travels expected to be very robust through 2021.

We've right sized the business through the integration process in 2020 and would expect margins in this business to improve substantially with the increased demand across a significantly lower cost base.

So in summary, all indicators are leading us to forecast internally that second half of this year will be a clear demonstrations of the earnings power inspired, the significantly growing online business combined with the recovered and I think this is key, locals based retail business.

So with that, I'll pass it back to - I think it's going back to Lorne..

Thanks Brooks. That was great. I think operator now we can turn the program over to Q&A, please..

[Operator Instructions] and so the first question comes from David Bain with B. Riley. Please go ahead..

Great, thank you and congratulations on what looks like an excellent run rate as we normalize.

My first question would be some of the checks that we're speaking with their citing, the potential online restrictions from the UK that could actually come in tandem with sort of pruning of gray area sites and our assumption would be that would boost traffic to regulated sites that carry your content.

Understand there could be headline risk and other risks to consider.

Can you discuss your view as to what we may see out of UK as it relates to regs?.

Brooks, you want to talk about that..

Sure. I think your thesis is right in terms of directing more business to the regulated markets and that I think will benefit us in terms of the potential regulations on the UK Gambling Commission has sought on our input as they're forming what will be probably revision of the Gambling Act coming at some point this summer.

So we've had a voice in doing this and obviously we're very mindful of responsible gaming. But we don't think that the changes that we believe are going to come down will materially impact our business going forward. In terms of if there's stake limits or game design theories because of many of these things we've already even incorporated.

So we're not expecting a big impact from many of the changes that might come down..

I would just add to that slightly. If you look at the pattern of the max debt on our businesses online. Let's say in particular virtuals what tends to happen is, player plays very large bets on a few number of live events like this one soccer game that takes 90 minutes.

They might bet a $1,000 or $5,000 on that and then they'll play a bunch of virtual soccer games with $1, $2 while that game is playing out. So I think, if at least of what we've been reading one of the main things they're thinking about is lowering the maximum bet on online betting.

I think certainly it could impact the segment of the business where people are betting very large amounts of money on live sporting events. But not only not impact ours but again we might benefit because we could see some switching from those large bets the small size bets that people typically make on virtuals..

Okay, great. That's very helpful. I guess my next one would be to better understand the forward strategy on route penetration domestically. So as you are well aware Pennsylvania distributing gaming could arise from budget negotiations.

Are there are strategies for partnering and prepping for new routes as the primary plan or is the primary plan to penetrate existing or more mature routes.

What do you think we'll see as we go through 2021, 2022?.

So while we'll certainly be going after the existing routes aggressively as we talked about going in WCLC will help us then we'll have performance data. That we'll probably be able to report on next quarter and certainly in Canada, everyone knows what everyone else is doing. So it will be very interesting to see how we stack up live.

Similar to when we went into Illinois and have our games performed kind of the first or second and pretty much every venue, we're in. So if we get that kind of performance in Canada, we feel very confident about that. In terms of the new markets like Pennsylvania, it will be interesting to see how it develops.

I mean if it develops like Illinois where it's the route operators like Cell [ph], JNJ [ph] and if it happens to be operators that are already in Illinois and go into Pennsylvania then certainly, we have a relationship with them. But if it ends up being the existing casino operators the Penn Nationals, the Parks, whoever it maybe that taken over.

We certainly Lorne and I from our experience going to be in the business 25, 30 years know all of these folks very well and obviously they'll take a look into Illinois and Canada experience and I think David as you know, this market has been pretty much two of our competitors have had this space to themselves for a long time.

So I think everyone from the operator side is quite happy to have kind of new entrant whose proven performance to kind of make it a bit more competitive..

Very good, all right thanks guys..

The next question comes from Ryan Sigdahl with Craig-Hallum. Please go ahead..

Congrats all the customer wins and execution challenging quarters to say the least. I want to start with the UK markets.

So we now have visibility to reopening, what are you hearing from your key customers, when we come back online? Are you expecting kind of steady state going forward potentially new business, operators looking to slim down operations etc.?.

Well I would say they've had experience with this from the prior lockdown and we were very happy and as I think they were to see how quickly things rebounded and certainly like you read in the UK papers, is the whole country has been locked down for quite a while and there's this as they determine in the UK the coil [ph] effect that they're expecting which will be on people getting laid [ph] out and have lots of money in their pocket.

So we're booking very positively towards the return of retail. I think as you would know there's the whole issue of the William Hill side of the business and who may buy that part of the business and still yet to be determined. But we feel very good about the return of the retail business..

Then just shifting over the online piece, really nice sequential growth, new wins. So looking at October, November, December kind of sequential growth. How do you think about that potentially continuing to grow in 2021 and then if I just kind of run rate exit trends on 2020? It indicates another near triple digit type growth here in 2021.

Is that reasonable I think [indiscernible]?.

Well I give my version and if Stewart wants to either give his version or say that my version is too aggressive. We'll give him the chance to do that. I mean all I can tell you is from what we're seeing in January and February is that, the pace is continuing to accelerate.

Certainly what we don't know is when retail comes back and we're expecting that there'll be some softening. But obviously not nearly down to the rate where we before and I think we were encouraged by the number of new markets that we're going into and some of the new markets that have come just come on like Greece for example.

But you would see the numbers you've seen out of Michigan thus far we're obviously not participating in Pennsylvania at this point which is a very big market. So Spain as I mentioned before.

I just think we have any softening that may happen by having retail come back I think we'll be have probably more than mitigated by the potential of the new markets that we're going into and obviously we've made great games, we still have a bunch of great games to go and we'll continue to increase our pipeline to produce more and more game.

So I don't know if that answers your questions. But that's my view of it..

And I don't have much to add I think - sorry it is Stewart, I just jumped in to add Brooks asked [indiscernible] add further I think you hit with right points there, Brooks..

And then last one from me just point of clarification. I guess Lorne I thought you mentioned significant debt paid down that proceeds. I guess it looks like debt was relatively unchanged sequentially.

So I guess were you talking after quarter or am I missing something there?.

Stewart, you want to clarify that just exactly when we paid that standalone [ph] revolver?.

I think that's the key point. It was on the revolver which we paid down in quarter. So we now not only revolver utilized and then there was also an effectively six-month interest payment right at the start of the quarter in question which again reduced the liability owning to lenders..

Great, thanks guys. Good luck..

[Operator Instructions] your next question comes from Chad Beynon with Macquarie. Please go ahead..

This is Aaron on for Chad. Thanks for taking my question. I appreciate the comments on the Holiday Park business and the recovery in the second half.

Can you just give any details about your recovery in your other markets and how you think about seasonality there?.

Are you referring to? Just to clarify the question. Are you talking about just the leisure part of the business or you're talking about the return of all parts of the business in other markets? I just wasn't sure about the question..

Yes, sorry. I mean all parts of the business..

Yes, well I'll take a shot and then Lorne obviously add in. I think the dynamic is probably less about seasonality then it is other than the leisure business which clearly is not seasonality.

But I think the rest of the business is really more about when retail comes back, how strongly does it come back and we have a thesis for that and we've seen it from the past lockdown and then obviously what impact that has on both the online virtual sports as well as online slot content and we expect that there'll be some softening.

But coming from a significantly more than double as we've talked about baseline case. and really in terms of the leisure business it really is a very I think Lorne mentioned the third quarter in the leisure business is where we get the lion share of our revenue and we haven't really since the acquisition of this - from Novomatic.

We haven't really had a clear, clean season where we've had the Holiday Park side of the business not impacted. So we're looking forward to that..

Brooks, you want to talk about what we think is likelihood the timing or the trajectory say of Italy or Greece another the geographic part of the problem or the issue rather than the market segment issue?.

Yes, I mean I think what we think in Greece and Italy as you probably remember Greece was the first country that came back in the lockdown last time when we were kind of word, we're getting is that, we expect Greece to probably to come back before Italy.

But as we've mentioned we expect that both of them will come back at some point in the second quarter and if the history is any indicator, should be back to kind of 100% run rate by the second half of the year..

Got it, thank you. It's very helpful..

This concludes our question-and-answer session. I would now like to turn the conference back over to Lorne Weil for any closing remarks..

Thank you, operator. I don't have too much to add to what Brooks and I have already have talked about or for the Q&A.

I think you can sense from our comments that from what we're seeing across the business and trends that we're seeing that we're I think it's probably fair to say have never been more positive or optimistic regarding again what we're talking. We referred to as the earnings power of the business.

And as the retail part of the business reopens along with this continued tremendous growth, we've seen in the online business that we're going to reach levels of income that are considerably beyond not only anything we've ever done before. But even that we've talked about.

The other point I'll make and then I'll wrap up is, one of the things that we're seeing clearly in the industry now is this idea of the omnichannel or multi-channel strategy where major operators are both in the retail channel and the online channel. I think is becoming is a more and more and more powerful phenomenon.

If you look at the results that most of the major operators have been reporting. You can certainly see this in their revenue growth and you can really see it in the profitability. So while we talk a little bit about maybe there'll be some attenuation in the growth of our online business as the retail business comes back on.

I actually see it differently that because so many of our major customers are omnichannel players that and where their retail footprint is a tremendous driver of traffic to their websites where we supply the content that as the retail business comes back. I actually think it will help the online business not [indiscernible].

Obviously, we won't know until it happens. But I have a strong suspicion that actually we're going to see an acceleration. So anyway I think that's about [indiscernible] what we want to say today. We're again we're ebullient you should pardon the expression as we've ever been notwithstanding the lockdown.

We're continuing to spend really as much money as we can driving the growth parts of your business and obviously, we appreciate all of you sticking with us and we look forward to talking to you in another quarter, thanks. And thanks operator, you can wrap it up now..

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect..