Inspired Entertainment, Inc. Q4 FY2022 Earnings Call

Good morning, everyone, and welcome to the Inspired Entertainment's Fourth Quarter 2022 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. Please note, today's event is being recorded. Please refer to the company's Safe Harbor statement that appears in the fourth quarter 2022 earnings press release, which is also available in the Investors section of the company's website at www.inseinc.com. It is now my pleasure to turn the call over to Lorne Weil, Executive Chairman. Please go ahead.

Thank you, operator. Good morning, everyone. Thank you for joining our year-end conference call. Here with me on the call as usual are Brooks Pierce, who, since our last call, has very deservedly added Chief Executive to his present title. I know you will all join me in congratulating Brooks on this great milestone. We also have our CFO, Stewart Baker, who, as you'll see in a moment, seems to have more than regained full strength since his illness some time ago. We are also joined for the first time this morning by Eric Carrera, an extremely talented finance and development executive, who recently rejoined Inspired as VP of Corporate Development. Eric was a key member of our finance and corporate development team at Scientific Games for many years, and later, a key part of our SPAC team that undertook the merger with Inspired around six years ago. Incidentally, Brooks and Eric are making this call from the ROTH Conference in California. So, if any of our listeners are attending ROTH, please feel free to track them down. I should also mention that after many years as the Chief Investor Relations Executive of Inspired, and before that Scientific Games, Aimee Remey has recently departed to pursue a really great and well-deserved opportunity elsewhere in the gaming world. Rather than try to replace Aimee, we have chosen instead to retain Jacques Cornet and his gaming team at ICR, a firm we are quite familiar with and highly confident in. One of the ICR principals did great work for us at Scientific Games while he was head of equity capital markets at Bear Stearns. And for the last few years, ICR has very successfully handled Investor Relations for the New York Exchange listed company, Tecnoglass, an organization with which I have had a close non-executive affiliation for several years. So, welcome Eric and Jacques. Congratulations again to Brooks, and to your continued great health. Stewart. As anticipated for some time, we reached a $100 million EBITDA milestone in 2022 far ahead of 2021 by any measure. As has been our practice in the past, we don't provide official forward-looking guidance, but the research community is generally pretty accurate in its consensus. And as '23 is unfolding so far, we don't expect that the 2022 milestone will stand for much longer. More important than the numbers themselves, our overarching strategy is playing out as well as we could have planned. Our combined digital businesses grew to account for 53% of our EBITDA in the fourth quarter of 2022, up from 46% a year earlier, driving us immeasurably towards a higher growth, higher margin, less capital-intensive business model. At the same time, our strategy of moving our retail business in the right direction is taking hold as well. During the fourth quarter, we signed contracts with Betfred and Paddy Power to deliver a combined 7,000 brand-new Vantage Cabinets through 2023. As we have explained previously, the step-down in EBITDA from these two major accounts occasioned by our capital-light strategy has pretty much run its course by the end of 2022. Because the new Vantage Cabinet has been showing a 13% win per day uplift in field trials, we can actually anticipate that as the year proceeds through 2023, we will in fact see an acceleration in EBITDA from these major accounts notwithstanding the very positive capital effect. About a month ago, we had seen while half of Inspired Entertainment attended the annual ICE Show in London, and now that Stewart has been dreading receiving the bill for this, but I had been attending and exhibiting at this show for roughly 20 years, and the response to the product range on our booth and the demos provided by our team were nothing like I have ever seen. Without doubt, the star of the show was the new Vantage Cabinet of the betting shop version discussed just now. In almost no time since its introduction, we built a backlog of close to 1,000 new Vantage Cabinets for the arcade, or as it is also known in the UK adult gaming center market. Our entry into this business came as a result of our Novomatic acquisition a couple of years ago, and the revenue and profitability have been quietly, but very rapidly accelerating since. As the number of traditional betting shops declined in 2019 and 2020, in response to the reduction in maximum stakes that many of you will recall, we discussed at that time, the number of arcades has actually grown sharply in tandem, helping to drive the growth in our overall gaming business we are now experiencing. So, this seems to be one of those very rare cases where the law of unintended consequences surprises us with an unintended dividend. Based on hugely positive customer response, we expect the Vantage Cab C will have a comparable impact on our pub business. Our leisure sector overall had a very successful 2022 far ahead of 2021. But as you can see in the press release, there was a hiccup in the fourth quarter. Most of this decline was attributable to currency movements, but there was some weakness in the business itself, mostly timing-related that Brooks will get into in greater detail in a moment. But for now, let me say that we confidently expect to see market share gain and more rapid conversion to an all-digital estate and perhaps most importantly, higher revenue per day, all of which will combine to restore the leisure business to a more appropriate level of profitability. The performance of our digital business speaks for itself. The EBITDA for the Virtual Sports and Interactive businesses combined was $15.6 million in the fourth quarter of 2022, 40% above the level of the fourth quarter of 2021. The Virtual Sports business accelerated dramatically during the depths of COVID, which many of us will remember when both live sports and live gaming businesses' venues were shut down across Europe, leaving online Virtual Sports as the only game in town, so to speak. The general thinking at that time was that once both live sports and live venues came back onstream, the Virtual Sports business would revert to its prior level. But not only did it not retreat to pre-COVID levels, it continued to accelerate, as illustrated by the most recent fourth quarter numbers, which saw 36% year-over-year growth in revenue and 56% growth measured in functional currency. Underlying this amazing trajectory has been a combination of organic growth with existing customers, new geographies, new customers, and very effective new product development. Likewise, the Interactive business defied predictions that it would retreat in the post-COVID world, and indeed has lately begun to reaccelerate, posting EBITDA growth of 21% in the fourth quarter, essentially all of it coming in North America; another aspect of our overall strategy that seems to be working well. In the longer-term, Interactive growth will be driven predominantly by the coming online of new jurisdictions. But in the shorter-term, there are several important drivers to our own Interactive business. We recently completed our integration with FanDuel and expect to go live by the end of March, an extremely important development given FanDuel's strength in the iGaming market, and because the timing of our entry into the Pennsylvania market lagged our other states, we feel we still have significant growth potential left in Pennsylvania. Last week we completed some very important enhancements to our platform that should drive growth in all markets. Let me lastly say a few words about our lottery activities. Our results in our flagship operation in the Dominican Republic are continuing to run well ahead of expectations. With a population of 12 million, 2,500 retail locations, and revenue well into nine figures, our Dominican Republic lottery operation is comparable in size and scope to many of the state lotteries in the United States and around the world. Since taking over this operation about a year ago, we have been running the retail network while at the same time working on the development of the iLottery platform, and we expect that this will launch before the end of March. There are three very important benefits to this launch. It will enhance the profitability of the DR operation itself, it will give us a captive location to test, refine, and showcase our iLottery content, and it will give us an iLottery platform that we can use worldwide. And finally, a word on our stock repurchase program. In the fourth quarter, we purchased about 40,000 shares at an average price of $9, and since the inception of the program, we have repurchased a little over 1 million shares at an average price of $9.79. We have significant room remaining in our repurchase authorization, and we will continue to monitor this carefully. And with that, I'll hand it over to Brooks.

Okay. Thank you, Lorne, and thank you for the congratulations on the title change, but more importantly, my sincere thanks for the guidance and mentorship you have given me over the last 30 years now. Now into the business itself and our performance in quarter four for the full-year, and as I normally do, I'll dive a little deeper into each segment and provide perspective on what we're seeing ahead for quarter one and 2023. The business overall continues to perform extremely well, and we're encouraged by the results, and certainly the momentum that's carrying into 2023. Although we reported four segments, we view the business a bit more simplistically into the digital business, Virtual Sports and Interactive, and the land-based business gaming, which includes lottery and leisure. Digital business is characterized by higher growth rates, higher margins, lower capital intensity, and increasing opportunities for growth particularly in North America, digital now represents more than 50% of EBITDA. The land-based business is lighter from a CapEx standpoint than it has been in the past. This business is characterized by recurring revenues and growth coming from increasing the cash box of our installed base by leveraging our content capabilities across various types of venues, including betting shops, pubs, lottery, retail, adult gaming centers, holiday parks, motorway service centers and bingo halls. The land-based business also has tremendous operating synergies. We're in the midst of consolidating the service organizations across our retail business in the U.K. When we acquired Novomatic Technology business in the U.K. a few years ago, we kept the two field organizations as separate to start the process, but we've now embarked on a consolidation plan that will generate significant savings starting in the second half of this year. Lorne constantly reminds us of the Jack Welch adage that anybody can grow if they don't have to worry about making money, and anybody can make money if they don't have to grow. But the true test of a successful company is its ability to do both. We are 110% committed to doing both across the enterprise. Within digital our Virtual Sports business continues to deliver record results with full-year 2022 revenue up 71% on a functional currency basis and EBITDA up 83% on a functional currency basis. Year-on-year, the mix between online and retail Virtual Sports and assets is at roughly 80% online and 20% retail, but both are showing growth across multiple product lines and across multiple geographies, including the U.K., Italy, Greece and Morocco. These trends are continuing in the first quarter, and in addition, we have a number of product enhancements and launches like our home run shootout games scheduled for the end of the first quarter, the beginning of the second quarter that we believe will continue to contribute to these record results. We're also encouraged by the progress we're making in our North American Virtual Sports business as Ontario is now a significant market for us. Our two U.S. lottery customers in Pennsylvania and D.C. are performing well, and we're building a pipeline of additional lottery and sports betting operator opportunities in states that we expect to launch later this year and into 2024. We're very excited about some of our titles coming out over the next few quarters, including a licensed Terminator game that I've seen that looks amazing and it's eagerly anticipated by our customers. As Lorne mentioned, our booth at ICE was at capacity throughout, and the positive feedback we received from our customers on new games and new products confirms our belief that this business segment also has tremendous momentum coming into 2023. Moving on to the gaming side, Q4 was a quarter of significant achievement for us as we successfully delivered our largest North American gaming machine sale to Western Canada Lottery Corporation of 820 Valor Terminals. This was achieved through a great partnership with our customer in Saskatchewan under some very difficult weather and operating conditions, and we're extremely proud of the whole group that delivered this important project. Q4 was also significant due to the contract signed with Betfred and Paddy Power in the quarter on the backs of the successful trial of the Vantage Cabinets, which, as Lorne mentioned produced a double-digit uplift in the cash box of the trial machines. We'll be very busy throughout 2023 delivering these approximately 7,000 machines across the estates of both customers, a not insignificant operational and logistics challenge. Lorne covered thoroughly in his remarks about the pipeline of Vantage cabinets that we'll be delivering to the AGC market in 2023. But these terminals also come with the tail of content fees beyond the initial sale, which has grown tremendously over the last two years and is building a base going forward as our installed base gets bigger and bigger. Looking forward, we're in the early stages of trials with two customers in North America that if successful will build a larger footprint for our North American gaming machine business. As Lorne mentioned earlier, our leisure business and more specifically the Pub segment had a challenging fourth quarter. While this continues to be a key strategic market for us, we experienced a rare and we confidently believe temporary loss of market share in 2022, the impact of which peaked in the fourth quarter. At the same time, we signed a very strategic new holiday parks customer, which by midyear should generate equivalent earnings. We'll roll out the Vantage product throughout the Pub market, driving both regained machine share and higher per machine income and therefore we feel confident that we should end the year nicely ahead in leisure. Lorne covered the lottery activities in detail in his remarks and I share his enthusiasm for this vertical as it really is in our DNA. Many of our biggest customers around the world, such as OPAP, Caesar, Lottomatica and the Morocco National Lottery are operators that we've had a ton of experience with throughout our careers, and we're starting to see momentum build worldwide, but particularly in North America, for our iLottery content, our Virtual Sports, and eventually iLottery and retail lottery platforms based on our work in the DR, which we believe will be transferable to other lottery jurisdictions worldwide. With that, I'll hand it over to Stewart for some further remarks.

Thank you, Brooks. Good morning. As has been mentioned already, we are very pleased with the performance in the quarter and the year. As a number of metrics have already been covered, I'll keep the overview of the numbers brief and also give a short update on a couple of other areas. As with recent quarters, we have been impacted by exchange rates, which come into play in a few places, but none more so than the conversion of functional currency GBP results to the reported U.S. dollar results. In Q4 of 2022, the average pound to dollar rate was 1.18 compared to 1.35 in Q4 of '21, a fall of 13%. Across the full year, the average rate declined to 1.23 from 1.37. For this reason, unless stated otherwise, I'll keep comments to functional currency variances to best focus on the underlying trends of the business. So, overall, in the fourth quarter, revenue grew 34%. And as a reminder, while the full-year number comparison to the prior year does include the impact of lockdowns, there's no such impact in Q4. And as such, this is a like-for-like trading environment. On a segmental basis, gaming grew 61%, Virtual Sports grew 56%, and Interactive grew 24%. While gaming's growth is obviously positively impacted by the delivery to Western Canada, gaming service revenue also grew an impressive 14%. Leisure declined 4% for the reasons mentioned by Brooks. It's also worth mentioning in this segment that motorway services revenue grew by 17% and the holiday park revenue growth was impacted by a tough comparative that included the benefit of a performance bonus in the prior year. Adjusted EBITDA overall was up by a similar amount to revenue growing 33% year-on-year, and as such, margins were comparable year-on-year, ironically also 33%. A thesis is that as the digital businesses grow faster than the land-based businesses, our overall adjusted EBITDA margin will increase. With Virtual Sports adjusted EBITDA margin for the quarter of 83%, and Interactive margin of 51%, the four trading segments combined by excluding corporate grew EBITDA margin from 38.6% to 41.6%. However, the prior-year corporate number benefited from some non-repeatable benefits and the current year had the opposite impact, meaning that the total overall company margin stayed the same. Overall, for the full-year, revenue increased 53% and adjusted EBITDA increased 73%. As touched on previously, the first few months of 2021 were impacted by COVID lockdowns, which obviously dampened the prior-year comparatives in gaming and leisure. But this isn't the only factor contributing to the growth rates, with Virtual Sports revenue increasing 71%, and Interactive increasing 13%. As an aside, it will be great going forwards to be able to talk about year-to-date results without discussing the impact of lockdowns. To further down the income statement for the quarter, profit before tax grew to $5.9 million from a loss of $2.7 million in the prior year. For the twelve-month period, it grew from loss of $38.3 million to a profit before tax of $25.5 million. Earnings per share for the full year grew from a loss of $1.60 in 2021 to positive $0.84 per basic share and $0.77 per diluted share in '22. Turning attention to cash, we started the quarter with $37.4 million and ended it at $25 million, a decrease of around $12.4 million, with the breakdown as follows. Firstly, the quarter included a biannual interest payment of around $11 million. Secondly, there were significant working capital outflows, the majority of which we expect to reverse in 2023. The biggest of these was in accounts receivable due to the timing of sales in the quarter, and I'm pleased to say in all cases the largest revenue items have now turned to cash in the first quarter. We also saw an increase in inventory holdings. As mentioned in the release, this was deliberate to get us on the front foot of any potential supply chain challenges and the amount of terminals we expect to deliver in 2023. In prior years, we would not have had the cash to be able to make these short-term investments and would have suffered with loss or delayed sales results, and to this, less net secured senior debt at year-end of $258 million. And net EBITDA leverage in dollars of 2.6 times, significantly reduced from the 4.2 times at the end of 2021. We expect this meaningful reduction in net leverage trend to continue during the close of 2023. While we are on the subject of borrowings, I will take the opportunity to remind you the interest rate on our bond is fixed, and while we do have a call option in May, our bonds don't expire until June 1st 2026. So, with that, I return to where I started, and reiterate that we are pleased with the results we are reporting today, and are excited about the opportunities ahead of us. I will now hand it back to Lorne.

Thank you, Stewart. It's always nice to hear our report that positive. And no, I don't have anything further to add. Operator, if you can open the call up to questions, please.

Your first question comes from the line of Barry Jonas from Truist Securities. Your line is open.

Hey, good morning everyone. First, congratulations to Brooks. My first question is about the EBITDA growth trajectory for the full year. I understand you are not providing guidance, but you have mentioned several positive highlights for 2023. As you summarize, could you offer more insight into how you see consolidated EBITDA growth this year and any thoughts on seasonality as well? Thanks.

Well, Barry, if we gave the clear perspective on how all of the positives roll together to produce a consolidated EBITDA for 2023, I think that would probably be considered guidance. So, I don't think we can do that, but I think we feel good about the consensus numbers that through the full year 2023 are out in the market, and we are going to do everything we can to outperform the consensus. That's about all I can say.

Okay, that's helpful. And it was pretty helpful color on the Dominican lottery and specifically iLottery. I guess as you think about the growth potential for content and platform, curious to get your thoughts around new jurisdictions legalizing or even more looking to sort of attacking existing markets for competitive wins?

Nobody knows what will happen with new iLottery jurisdictions. Currently, we are significantly behind where many expected us to be. Only a few lotteries in North America have iLottery, although several are interested and are working to implement it. It's difficult to predict the outcomes at this point. Regarding our strategy, in the short term, we are focusing on our content strategy, as there aren't many opportunities for our platform in North America right now. Existing lottery operators don't seem keen on changing their platform supplier. However, as the industry develops, more revenue will likely come from the content side. Additionally, we are exploring opportunities for both platform and content in various jurisdictions outside the United States. In that regard, the Dominican Republic serves as a demo site for us, since there are numerous lotteries worldwide, especially in Europe and Latin America, that represent opportunities for us.

Yes, Lorne, and let me add one more thing, and thank you Barry for the question. One of the positive aspects of things moving a bit slower on the iLottery side is that it provides us with the opportunity, as Lorne mentioned, in the Dominican Republic to refine the product and test whether the focus should be on content or on the platform. So, the slower pace may ultimately benefit us as we develop our product and content in a market like the DR, where we can test everything. Therefore, it’s not necessarily a negative that things are progressing slowly from our perspective.

Yes, that's a very good point. Thanks, Brooks.

Got it. Well, excited for the Dominican Analyst Day whenever that happens. Thanks so much for all the color, guys. I appreciate it.

And your next question comes from the line of David Bain from B. Riley. Your line is open.

Awesome. Thank you. I reiterate Barry's comment on the Analyst Day. Congrats, Brooks, and happy to hear about that.

I thought you were going to ask for an analyst week.

Yes. No, that sounds even better. Perfect. Well, yes, so the iLottery very helpful. Next, I mean obviously, Virtual Sports is an obvious growth engine here, unique and scarce to me anyway versus other products in gaming. Can you give us the set up for this year versus last year? I mean, how should we view potential growth maybe going forward over the next couple of years, given where we're at today? If you can kind of big picture it, that'll be helpful. Is it mid-innings or is it still a young product?

You want to take a shot at that, Brooks?

Yes, I think we feel obviously these growth rates are tremendous, and at some point, it's going to flatten out a little bit, but we certainly feel like we have a number of amazing opportunities in geographies around the world with a number of new products that are coming out. Some of the things that we've done, Dave, to increase the frequency, I mean we've taken the betting cycles down in a number of markets going from three minutes to two minutes to even one minute. And we've seen a commensurate uplift in revenue, which really kind of helps validate the product and we think it certainly works in every market. But obviously the biggest market that we've been talking about for quite some time is North America, and we've made progress there. I mentioned in my remarks about how Ontario has now gotten to be a significant market for us. And we've been having a number of conversations with both lottery operators and sports betting operators. And I think people are coming around to the idea that this is a product that's viable. In terms of the sports betting operators, this is a great product for them to add to their mix. So, we feel like we've got a lot of runway across all of the Virtual Sports business.

Okay, awesome. And then, thanks, Brooks. So from a content kind of creation perspective, you have iLottery, Virtual Sports, Interactive, Land-based. Can you give us a sense as to how the team is aligned? And if there's going to be any sort of changes like dedicated lottery studios, maybe from a CapEx perspective, something to think about? Or are they just really just feeding into one another? How do you kind of set this up as you broaden categories and strengthen categories going forward?

Yes, that's a great question. The content teams at ICE have been performing exceptionally well across the entire business. However, if we gain traction in the iLottery content area, we may need to expand our content creation capacity. We recently hired someone from our past team who has developed three games for iLottery that we are excited to launch this year. It's certainly possible that we will increase our studio capacity, whether by building it ourselves or through acquisition. Our focus is on producing top-quality content, and we will ensure we have sufficient capacity to deliver it.

Awesome. Thank you.

Thanks, Dave.

Your next question comes from the line of Ryan Sigdahl from Craig Hallum Capital Group. Your line is open.

Good morning. Congrats on the performance in 2022 and to Brooks, I want to start with gaming to Paddy Power, Betfred transitioning to the asset light model this year. Curious what that transition timeline looks like throughout the year. And then, secondly, do you have any other smaller customers that you haven't talked about that are also transitioning? Curious more so around the supply chain and installing 7,000 cabinets with those two, but is there enough capacity to do more beyond that?

I'll discuss the operational aspect while Stewart can cover the financial side. We've previously replaced several cabinets in collaboration with our customers, and this time we're looking to install 7,000 terminals across many locations. Operationally, this involves significant coordination throughout the supply chain and ensuring timely installations at all sites. We anticipate that most of this will occupy us through the second and third quarters, possibly extending into the fourth quarter before all terminals are replaced. Stewart, is there anything you’d like to add? Regarding the inventory, we've proactively addressed supply chain issues, as Stewart mentioned, which presents a significant challenge, but we are optimistic about managing it.

Talk about any other customers potentially beyond those two to transition?

Not meaningful in terms of the U.K. But I think I did mention that we have one jurisdiction that now is active on trial and we expect another one, both of these in North America. But this would be an order in one location of kind of 150 terminals and another one it could be up to 1,000 terminals. So, it shouldn't stretch us in any way. But we've got to go through and have successful trials with them. But obviously if we're successful there will be two more markets in North America where we'll have a presence, which is what we ultimately want to do is build a big North American gaming business.

Then just one on Interactive, so congrats on FanDuel integration, good to see that finally done; curious the timeline on the other two major iGaming operators, your leaders I guess in the U.S. market. DraftKings, beyond Pennsylvania, which I believe you're live only in that state and then that MGM and then maybe beyond those. Any updates on Caesars and Penn and some of the others?

Yes, so DraftKings is live within Connecticut and New Jersey as well. And interestingly, I don't think, we don't disclose down to the customer level, but our performance with DraftKings as of late has been very good. And MGM is our biggest customer in the iGaming space and they continue to produce their leader, I guess certainly nationwide they continue to produce amazing results with us and we have a great relationship with them. I can tell you that all of them are very excited about some of the content that we have coming out. I mentioned the Terminator license, licensed brands really do resonate in the North American market, probably more so and around the rest of the world. So, we're obviously with our background with Scientific Games, with licensed products, we're very familiar with that space. So, I think you'll see more and more of that going forward as a way for us to differentiate ourselves.

Great. Thanks, guys. Good luck.

Thanks, Ryan.

Your next question comes from the line of Jordan Bender from JMP Securities. Your line is open.

Great, thanks for taking my questions, and congrats again, Brooks. I want to start on the Virtual side. So, the margins for Virtual continued to get stronger, they did throughout 2022. As we look forward in '23, are the margins you're generating now something that we should think about as being sustainable at these levels? Thank you.

From my perspective yes, from my perspective, there's no reason that the margins would be any different than what we're seeing. It's obviously a great business in terms of the growth rates and the margins. And really there's no capital for us per se, really. It's just developing the content. So, unless Stewart feels or Lorne feel any differently, I don't see any reason why margins will be any different than where they are.

No, I agree.

Go ahead, Stewart.

I agree. I mean, the business is growing, so it does continue to get a bit more operating leverage, but there's only so far that those margins can go right. And so, we might see a small increase in '23 over '22, but that's obviously the margins are high to begin with this business that we love.

Great. And then, for my follow-up, absent M&A and kind of how should we think about the capital allocation priorities in '23? You've been repurchasing shares throughout the year. I mean is that kind of how we should think about where cash is going for the year?

Yes, I think repurchasing shares is certainly in the capital allocation mix. I think the way our businesses are growing right now, there certainly isn't any feeling that we need to generate growth by acquisition because we have pretty much as much growth as we can handle consistent with our balance sheet targets. We're always looking for smaller tuck-in strategic acquisitions that can strengthen one of our businesses and give us assets or access to markets that we don't have. I'd say right now, philosophically, our M&A attitude is we don't need to be paying unnecessarily high prices to buy earnings, but we're very interested in strengthening our competencies and adding to our asset base. So, I think that's how we're thinking about it, and I think that's realistically what you might be able to expect in 2023.

Great. Thanks.

Your next question comes from Chad Beynon from Macquarie. Your line is open.

Good morning. Thanks for taking my question. Also echo my remarks to Brooks. Congratulations. Brooks, I wanted to start with the gaming business and congrats on delivering all the Western Canadian orders in the fourth quarter. I know you talked about a few new markets that you're kind of thinking about for '23. But as we think about North American opportunities on the retail gaming side, as we look at a couple of years, is this still a priority to continue to get licensed and kind of color in the white space in other markets, or is it just harder to do, just given the types of machines you're currently offering in the market? Thanks.

Yes, thanks, Chad. Look, we think we have plenty of runway, you know this, but for everyone we'll explain, we're targeting the VLT market primarily with G2S because that's the technology that we've kind of built our business on. So, there's a number of opportunities across the Canadian provinces, certainly Oregon. So, those are the markets that we're going for. Illinois is obviously now pretty much moved into a replacement market. I would say that doing anything in the Class 3 or historical horse racing or any of that space is not something that we're contemplating at the moment. But we certainly have the competency to be able to go into those markets if we chose to. But right now we see line of sight to the VLT, G2S market as really the primary driver for our growth.

Okay, perfect. Thanks. And then, Stewart, just in terms of CapEx for the year, I don't know if you provided that number, I'm sure it will be in the Q, but could you help us with that and then a number for '23 and then also as an addendum to that, will the Betfred games that are deployed, will those kind of show an inflated CapEx number for this year? I know that will be a no margin when it's printed from a P&L standpoint, but just trying to understand the free cash flow dynamics? Thank you.

Yes, so let me start on the last bit, so in terms of the Betfred and Paddy Power, so they'll go through revenue and cost of sales, as you say, approximately no margin. So, no impact on CapEx, but will negatively impact overall EBITDA margin. So, we're going to try and make that as clear as possible going forward so we can strip that out. In terms of overall CapEx for the year, the '23, sorry '22 came in as we talked about on the prior call, just around the $40 million mark, and in '23 gets slightly complicated because some of the CapEx that we've got does come with an upfront cash consideration from customers. So, if we strip that out, it's probably in the region of kind of mid-$30 million, slightly up from where we talked about before. But see, there's a bit of inflation from those numbers that we talked about before, but also there's a lot of opportunities for us to invest in internally.

Okay, that's great. Thank you, all. I appreciate it.

Thanks, Chad.

And there are no further questions. At this time, Mr. Lorne Weil, I will turn the call back over to you for some final closing remarks.

Thank you, Operator. I don't have much to say other than obviously we're very happy with our performance last year. We're very optimistic about our performance in 2023. We appreciate all of your support, and we look forward to speaking with you in about three months. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.