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 speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] 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 Weil, the company's Executive Chairman. Mr. Weil, 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 Jentzen, and VP of Corporate Development, Eric Carrera.

Brooks as usual will make prepared remarks and Marilyn and Eric are available to answer your 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 10-K. And so anyone who wants more detailed information beyond what's in the press release, that will 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 market share, excuse me -- 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 of both North America 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 quarter 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 'n' 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 on 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 the 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. Operator, I think it's fine if you open the program up for Q&A, please..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Barry Jonas with Truist Securities. Please go ahead..

Hey there, This is [Ramin Sabani] (ph) for Barry. Thanks for taking our question.

Now that we're rounding the corner on the accounting issues here, do you have any thoughts on M&A here given recent consolidation years in the space?.

Thoughts regarding our M&A or the --..

Yeah, I guess both.

First on your front and maybe just in general, what you think about the space?.

Well, yeah. I mean, we're obviously seeing consolidation. Some of it seems to make more sense to me than others, but it's kind of hard to know what's in other people's mind sometimes. We're always thinking about M&A, but our primary focus right now is maximizing the revenue and earnings and growth potential of our business.

And if things present themselves, that makes sense. We'll consider it, but I would say rate this minute. M&A is not at the top of the list of what we're focused on..

Got it. That makes sense. And just a quick follow-up.

As far as the NFL product, are you guys seeing any cannibalization on your existing NFL game? And I guess where would you say you are as far as the growth timeline and how material do you think that product's going to be on the Virtual segment over time?.

Yeah, well, in terms of cannibalization, frankly, it's good news and that although the NFL game is outperforming the NFLA game. The overall, so combined as our colleagues would like to call it American football, but we call it football segment is continuing to grow. But again, it's relative in terms of soccer is the predominant Virtual Sports product.

But obviously as we start going into North America, we'll see football being a bigger and bigger contributor because that's obviously the market where it resonates the most, maybe just expanding on that a little bit as I was talking about in my remarks on the NBA.

You know, the NBA has an attraction in some of our markets, probably more so than the NFL. Obviously, Greece being a perfect example of that.

But we expect -- frankly our strategy is to get licensed games, yes to accelerate our growth in the North American market but frankly as additional products for you know our customers on a worldwide basis and I'm sure you read because I read the same things. The NFL is really focused on trying to become more and more global. We're excited.

My Philadelphia Eagles will open their season next year in Brazil, which is great. So we kind of feel great about, honestly, all the licensed content in Virtual Sports..

Great. Thanks so much for taking our question. Appreciate it..

No problem..

Your next question comes from the line of David Bain with B. Riley. Please go ahead..

Great. Thank you and congratulations for putting the filing issue behind you it seems. One, Lorne, you mentioned Virtual Sports has ticked up in 1Q. Should we view 4Q Virtual Sports as close to kind of a trough absolute level before the back half ramp from new content and maybe just [part of that] (ph)..

Yeah, I think basically what we see if you kind of plot out the third quarter, the fourth quarter, and the first quarter is that -- and we've talked previously about what was driving that you know that dip down and so forth. It has – that process seems to have ended and has ticked up in the [first] (ph) quarter definitely.

Now having said that, we're still considerably behind where we were in the first quarter of 2023, which was the peak. We would like this upturn to have happened sooner, but at least it's happening. And as we move through the year, as Brooks said, pretty comfortable that we're going to see that accelerate. So that's where we are right now, Dave..

Yeah, and because it's, you know, not only is it kind of exciting new products with the NFL and NBA, but it also takes time to get that distributed to our customers on a worldwide basis.

So that's why we talk about how the second half of the year when we've had some opportunity to not only get it out to the market but actually get it more broadly distributed to all of our customers. That really should be the driver. And by the way, welcome back Dave..

Thanks, Brooks. Appreciate that. Awesome. And you guys mentioned that the Hybrid Dealer exclusive with BetMGM, I know that rolls off in a few months and you go-live with the Roulette -- with BetMGM, and Caesars in the back half. But it seems like the larger operators clearly see the potential cost savings and branding opportunities from the product.

Can you maybe elaborate on discussions with mid-tier operators? Do they see this as an opportunity for something, you know, to get involved akin to live casino?.

Yeah, I mean, it's a great question. I mean, it's really interesting as we look at the pipeline because it's kind of exactly what you would want is that we have the biggest operators that are very interested in it for the reasons that they have.

But frankly, some of the mid-tier and lower-tier operators in terms of volume, this is an opportunity for them to get in the so-called in-parentheses live dealer market without having -- no, I know, that's why I said so-called parentheses. Thanks. It's always great to have Lorne right across the table from me on these things.

But anyway -- yeah, so I think that pipeline is pretty robust as well, because this is a product that from a cost standpoint can be launched fairly easily, and from a branding standpoint can be modified pretty quickly and fairly inexpensively.

So it really does kind of open the whole funnel for the Hybrid Dealer product, and that's what we're seeing..

Okay, great. Thank you both..

Your next question comes from the line of Chad Beynon with Macquarie. Please go ahead..

Morning, congrats on the results. Thanks for taking my question. Lorne, you finished your -- I'm sorry, Brooks you finished your prepared remarks touching on a 40% margin goal.

Can you kind of help us think about when this could be achieved or more importantly is this something that just comes with scale as the digital businesses grow in that's such a high margin business and good flow through or will there be extra steps that could improve margins you know in ‘24 and early in ’25 that are more hands-on versus just getting the benefits of scale, thanks..

Sure, well -- I'll start on the first part and then maybe I'll let Lorne come on the second part. So, sure, in terms of, look as our business continues to grow on the digital side of the business and with the margins that Lorne mentioned at roughly 75%, that's just going to, you know, bring up our overall EBITDA margins.

But I think my remark was really mostly about really getting after some of the cost structure of the business to improve the margins across all segments. But maybe Lorne wants to talk about how we view these segments in that regard..

Yeah, well, if you look at the composition of the overall margin. You've got the average wherever it is in the 30s. And the digital businesses margin very much higher than that.

The Gaming business and parts of the Leisure business [rate] (ph) around the average and then the Holiday Park business has been consistently operating at margins appreciably and I guess, in a way, unacceptably below the average.

So we're looking at a number of alternatives for how we deal with the profitability of Holiday Parks and how we can get that up.

So that way, effectively, we're bringing the average up both by pulling it up from the top where the digital margins are so high and pushing it up from underneath by dealing with the lower margin of the Holiday Park business.

And we've got some very good productive ideas that I think will be in a position to talk perhaps more about when we report on the first quarter in a few weeks..

Perfect, thank you. And then with respect to leverage, how you're thinking about where you want to be right now given the -- I guess prolonged period of higher rates. Is there a target net leverage goal and then how does that affect buybacks? Thanks..

Well, it's always been our plan to try to consistently be under 3, 2.5 probably a better place. And I think we're comfortably in the debt zone. We've talked a lot about buybacks and obviously we're anxious to continue with buybacks. But having said that, our primary goal is to take full advantage of the opportunities we have in the businesses.

We're not going to do anything to jeopardize that, so I think, you know, rank order and going back to the earlier question about M&A, I think I would put developing the business first. Certainly making sure that our credit profile is where we want it to be and then absolutely buybacks last M&A..

Thank you very much. Appreciate it..

Thanks Chad..

Your next question comes from the line of Ryan Sigdahl with Craig-Hallum Capital Group. Please go ahead..

Hey guys.

I just want to stay on Virtual Sports to start, but curious I think you're with MGM, BetRivers, Bet365 live today, but can you give an update on the pipeline of the other operators, namely the other big couple majors in the US? And then secondly on that, you had a deal with Kambi, I guess is that an integration into all of Kambi's B2B customers or will it be an opt-in option for each of those operators individually?.

Yeah, so in terms of -- let me answer the Kambi part first. Yeah, we'll have – obviously, we'll have the integration with Kambi that will make it available to all their customers but it will be kind of a combined effort between our folks and their folks on getting their customers to kind of sign up for Virtual Sports.

So that's kind of in its very early stages. I know exactly what you're asking in terms of the other operators in North America. It's probably best that we just not comment on that but you can -- as you could imagine we're obviously having -- we always have active discussions with those.

So we'll just kind of park that until something is that we can talk about..

Fair enough. Vantage, nice to see the low double-digit revenue uplift per machine.

Do you think that's sustainable or I guess anything from an underlying player metric standpoint that you can elaborate -- if that's kind of the [right] (ph) trend going forward, similar, worse, better? And then how do you think that'll play as you expand into the Pubs?.

Yeah, it's interesting that you asked that because I was just showing Lorne some numbers from last week and you know two of our biggest betting shop operators. So Vantage has been out for kind of two quarters to three quarters now, so there's been plenty of time to have it bet-in.

And both operators show, just last week was a perfect example of numbers that were, in one case, slightly higher than that and the other case kind of right on the number. So the fact that the product's been out for six months to nine months, and it's still doing that kind of business obviously bodes-well for us.

And we obviously have a big customer that we will hope to be rolling Vantage out, either later in the year or the beginning of next year. And then on the Pub segment, it's really driven by how aggressive we want to be and rolling Vantage out to the Pub segment.

We're at kind of 20% thus far, and you'll see as we go through the rest of the year, we'll continue to convert a number of cabinets to Vantage in the Pub segment, which obviously will be a contributor as we go forward through the rest of the year..

Very good.

Last question I have -- if you're willing to comment I know you’re not guiding, but do you expect EBITDA to be up year-over-year and kind of your confidence behind that?.

You had to ask that question. So well, you know -- we don't -- it's always been our policy not to give guidance. But I feel like I was about to do a JFK, let me say this about that. So I think we're comfortable right now with where the full year consensus is, which is I think modestly up from 2023.

But from where we're looking at things now, I think it will be somewhat more weighted to the back end of the year and somewhat less the front end of the year.

The main issues are that while we're obviously quite pleased that the temporary decline in the Virtuals business seems to let’s -- run its course and we're seeing it, now beginning to click back up in the first quarter as I mentioned in my remarks.

It's still not in significantly below where it was in the first quarter of 2023, so it's going to take some time for the whole range of initiatives and Virtuals that Brooks talked about to get us accelerating, and a lot of that stuff we'll see in the second half of the year.

And we have -- we're building really a tremendous backlog in product sales, as strong as we've ever seen just in the last couple of days, we signed a very significant new order from Western Canada Lottery, which again we probably won't be shipping until the fourth quarter.

So -- and in the first quarter, we've still got some lingering unusual stuff relating to the accounting restatement and so forth.

So I think just to reiterate, I think we're fine with the full year consensus, but the combination of a little bit of lag in the picking up strongly of Virtuals together with the very strong equipment sales backlog that's heavily related to the back-end of the year, I think we'll see a shift from the early part of the year to the latter part of the year.

I hope that's sufficient..

Very helpful. Thanks, Brooks. Thanks, Lorne..

Thanks, Ryan..

With that, I'll hand the call back to Lorne Weil for any closing remarks..

Thank you, operator, and again, thank you everyone for joining. Just as a reminder, our 10-K will be filed sometime this morning, and anybody who wants to dig deeper, there'll be plenty of stuff in there.

And we look forward to -- I guess, the first quarter would be, I mean -- we're now back on our normal schedule, so our first quarter will be when it normally would be, I guess, in May-ish. And we look forward to talking to you then, so thanks..

That does conclude today's meeting. Thank you all for joining and you may now disconnect..