Good evening, everyone, and welcome to the Inspired Entertainment Third Quarter 2023 Conference Call. Please note, today's event is being recorded. Please refer to the company's Safe Harbor statement that appears in the third quarter 2023 earnings press release, which is also available in the Investors section on the company's website. 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 over to Lorne Weil, the company's Executive Chairman. Mr. Weil, please go ahead.

Thank you, operator. Good evening, everyone, and thank you for joining our somewhat delayed third quarter conference call. With us this evening as usual is our CEO, Brooks Pierce. And joining us for the first time is our Interim CFO, Marilyn Jentzen. Marilyn has done an extraordinary job of overseeing the accounting work that’s taken place in the last 3 months. And for those of you who may not be familiar with Marilyn's background, although I think we’ve made it public in a few different places. She's a 10-year veteran of the big four accounting world. She's a former Senior VP of Finance of IGT. And she has a Wharton MBA, with a concentration in accounting. And thanks to her work and the work of her team, we today filed an amended 10-K for 2022, amended 10-Ks for the first and second quarters of 2023 and the delayed 10-Q for the third quarter of 2023. And with these filings, we are in full compliance with NASDAQ and with our lender group. This follows a 3-month process during which our internal organization was augmented by enormous outside accounting and audit resources provided by one of the most highly regarded and prestigious firms in the public accounting industry. Indeed, it's not an overstatement, I think to say that these are the most fully vetted financial statements I have encountered in my roughly 50 years of working in the public company arena. As mentioned in the press release, the first half of 2023 was unchanged from what had been previously reported last year, with a $1 million first quarter downward adjustment offset by a similar upward adjustment in the second quarter. And the full year 2022 EBITDA was adjusted downward by about 0.5% from $99.6 million to $99.0 million. EBITDA in the third quarter of 2023 was $26.7 million, slightly behind the third quarter of 2022. For a variety of reasons, which I'll clarify as I review the individual businesses in a moment, we think that $26.7 million very meaningfully understates the earnings power of the business at this time. Given that the fourth quarter is by now in the rearview mirror, given that we're in February, I think I can say that we expect the fourth quarter to be in line with consensus, and excluding the roughly $2 million impact of our fourth quarter computer systems hack to be nicely ahead of both consensus and Q4 2022. Now let me take a look at each of the businesses themselves. The Virtual Sports business continues to be as amazing a business as I've seen in all my years, super high margins, relatively low capital intensity, significant barriers to entry, which we have further strengthened with the NFL and NBA licenses, and tremendous long-term growth potential. Following a period of extraordinary growth that was driven by the addition of several new territories, we've talked about those a number of times in the past, and some great new products, we've been in a short-term plateau for a few quarters. And indeed, we saw a modest year-to-year EBITDA decline in the third quarter, which is mentioned in the press release was more than entirely occasioned by our major customer deliberately, and effectively pruning the user base, a process we think has run its course at this point. In a moment, Brooks will talk in some detail about why we think we're about to embark on a second exponential growth phase, driven by new products and more importantly, huge new geographies that operate in both the gaming and the lottery spaces. While growth in the Virtual Sports business has been in temporary pause the other part of our digital business Interactive, has validated the wisdom of the major investments we've been committing some time to content and platform development, Revenue and EBITDA in the third quarter grew 37% and 68%, respectively, with EBITDA margins expanding from 53% to 64%. It's important to recognize that this growth has been driven by only a small handful of iGaming jurisdictions in North America. And we're confident that the inevitable addition of new states and new provinces will further accelerate this growth. Taken together, the EBITDA of our combined Virtual Sports and Interactive Digital businesses accounted for 58% of our overall EBITDA in the first 9 months of 2023 from about 50% in 2022. Here again Brooks will add significantly more color in a moment. The most important development to report within our retail business is the phenomenal performance of the Vantage cabinet in both the betting shops and pub sectors. In a moment Brooks will review this subject in some detail, but along with the success of our asset light strategy, this cabinet and its associated content appears clearly to be a game changer in our recurring revenue retail businesses. Regarding the latter, we believe we have devised a restructuring program designed to recapture this lost income, which we hope to be able to discuss in our next conference call. Taking all these factors into account, we would expect to see reaccelerating growth in our retail businesses as we move through the fourth quarter and into 2024. And with that, I'll turn things over to Brooks.

Okay, thank you, Lorne, and thanks to all of you for joining the third quarter call. And as I usually do, I'll try to add some color and detail to Lorne's overarching comments to give some further clarity on the business progress as we see it and what we're working on in terms of future developments. Certainly echo Lorne's statement about the efforts put forth by both Marilyn and the entire finance team on the accounting work it's done to take us to get to today and frankly, want to give thanks to the whole Inspired team who has endured this process along with other challenges, including the hack to our IT systems and the recovery from that in such a professional way. As we've mentioned in the press release, the hack will have penalized us by approximately $2 million primarily through the reduction in our ability to deliver games, the slowdown in integrations and other productivity reductions. Good news is we feel like the future is bright for Inspired and that's what the team and I are laser focused on. First, let me give you some details on the Virtual Sports business alongside Lorne's comments. I agree completely that it is an amazing business with all the characteristics Lorne mentioned. But the most important of which is the fact that I feel like we're in the first quarter of the game in this business. The main drivers of the growth in the business are new products, licensed products and new geographies. And we're in the very early stages in each of those categories. We've launched the NFL license game with our largest customer, and we're seeing exactly what we hoped with the NFL game growing in revenue weekly without cannibalizing our existing NFL Alumni game. First half of '24, we'll see the game launched across additional North American operators like BetMGM and Rush Street. And we hope to add other operators as we go through the year. And we're also seeing more interest from European and Latin American operators to this product. And we'll be rolling it out to these customers also over the course of '24. As always, it takes some time to do the integrations and coordinate promotions with operators, particularly in some of the newer virtual sports markets like North America. But we are more confident than ever, that there's a robust market for this product, and that licensed brands will drive incremental play. We are very excited to have signed a license with the NBA as well. And it will be our first, but certainly not our last foray into the archived version of virtual sports wherein footage of previous NBA games will be constructed into a virtual sports format. And we're confident that this will resonate with the vast NBA worldwide brand and many of the markets we serve. We expect to launch this product in the second quarter of 2024, with our large customer in Greece, who have approximately 3,000 retail locations as well as a major online presence. And we're already working with them OPAP and the NBA, to do a major marketing and promotion launch for this product. And importantly, it will be an incremental channel not replace an existing virtual channel in Greece. We're also down the path on our hockey game, as we've talked about in the past and hope to launch that also in 2024. And expect that will be a very popular new game in key markets like the U.S., Canada and Nordic and Eastern European areas. So clearly you can tell we're very bullish on both licensed brands like the NFL and NBA, and the new product supporting these that we'll be rolling out this year. In terms of additional geographies besides North America, that's, as I said, in the very early stages, we're obviously incredibly excited about the opportunity we see in Latin America and particularly in Brazil. We're fortunate to have Virtual Sports specifically included in the recent sports betting law that passed in Brazil. And we've been working in that market in advance for months to help build interest and our unique offerings. As most of you will know, soccer or football, depending on where you're from, is the biggest virtual sport for Inspired and represents more than 75% of our business currently, and Brazil is an incredibly passionate population when it comes to this sport. And as we've seen in other markets like Greece, Italy, Turkey and Morocco, having a passionate fan base for a sport is a great precursor for the success of virtual sports in that market. So we'll have a team down in Brazil actually next week for several meetings with operators and we believe that Brazil will be a market for our products, including our gaming alongside Virtual Sports that will be much like our other key markets of U.K., North America, Greece and Italy that will be very strong for our digital businesses. As Lorne mentioned in his remarks, it's not out of the ordinary for a business segment that has seen the growth that we've seen out of Virtual Sports to experience a period of moderating growth, and ours was exacerbated by the change in policy by our biggest customer with their players. But we are confident that the strategy of additional licensed sports in either new or newly launched territories will propel sustainable growth for this segment going forward. Moving on to the Interactive segment of the digital business, as shown, as Lorne mentioned, incredible growth throughout 2023, with revenue growth in the third quarter of 38%, and this segment really continues to click on all cylinders. This is a result of improved games and quantity of games released alongside dedicated account management to ensure that our games are positioned appropriately on our operator sites. We have a roadmap of content in the first half of '24 that frankly looks like the strongest roadmap we've ever had for all of our key markets, including U.K., North America, Greece, Italy and going forward in Latin America, and specifically Brazil. Additionally, we're in the process of building our next game studio, whose primary focus will be bespoke content for the North American market. To date, we supported the North American market from our U.K studios. And considering that we've had some very strong results, but we see new states coming on in iGaming and new opportunities in our retail business in North America and think a dedicated studio will accelerate our online retail growth in this key market. Our omni-channel strategy has been validated in the U.K and Greece in particular, as we leverage our retail game content alongside our online content. And we're gaining share in each of those markets and we'll be looking to replicate that success in North America. Many of you will have seen the recent announcement about the stakes limits in the U.K being adjusted to ₤2 for those under 25 years old, and ₤5 for those over 25 years old. We've been an active participant in these discussions and are fully prepared for this outcome that will start in the fall, we expect it to have a very modest impact. And our game designers have been planning for this for a long time. And frankly, we feel that this is probably a good thing for the market long-term. Many of you will have seen a product that we introduced at G2E, a revolutionary product that we call Hybrid Dealer. And we recently showed it even more extensively at ICE in London. So we've now soft launched that with BetMGM and have worked through all the technical and regulatory steps alongside them. And they are planning a big marketing push now that the Super Bowl is behind them. And we look forward to reporting on that in future calls. We also expect to go live with Roulette in the second quarter of '24 and expect that this will be the larger of the product segments and will apply to a broader set of our customer base. Our booth at ICE was filled with operators wanting to see this product and our pipeline of potential customers is extremely full. And we'll be working throughout 2024 to be delivering this product segment to as many key operator customers as possible. Overall, we feel like we've positioned the digital segments of our business as Lorne noted, for continuing along this great growth trajectory. Moving over to the retail businesses, whose characteristics are also in our lower growth and stable businesses with recurring revenue streams, based largely on our participation in the cashbox. But we also have a component of one-time sales in that business that can move from quarter-to-quarter impacting performance when looking at the narrow lens of one quarter and that's what we saw in Q3 of '23 with some sales moving into the fourth quarter. The biggest news in these businesses is the phenomenal success of the Vantage cabinet and that we are much further down the road in the replacement and asset light strategy we're driving in these segments. We've completed the full installation of Vantage cabinets in both the Betfred and Paddy Power shops and the Vantage cabinet continues to produce an uplift of close to 11% for these operators over the cabinets they replaced. We've now installed over 1,200 Vantage cabinets in our pubs business, which represents about 19% of our state. And we're seeing actually a greater uplift with daily cashbox in the pubs segment up 21% versus the machines they replaced. We're now starting to place these cabinets in other venues such as AGCs, Motorway Services, and Bingo venues. On the sales front, in North America, we've seen improved performance in our terminals in Illinois with a brand new game pack that's proving to be very successful. And we're working with several key prospects in the Canadian market and we look to report on that in future quarters. As Lorne mentioned, we certainly have some cost pressures in the holiday park segment of the leisure business, that we have plans to mitigate and are working diligently across the entire business to find economies and efficiency improvements to run our business segments more profitably, and we'll report on that progress on that front in subsequent quarters. So even though we haven't had formal calls due to the restatement, we've obviously been very hard work building what we think is a growing, diverse and profitable business. So with that, I'll hand it back over to Lorne, for any closing remarks before we open up to Q&A.

Thanks, Brooks. I don't really have anything to add to what Brooks and I have already said, I'm sure we'll have plenty to talk about as we get into the Q&A. I can look at our screen and see who's in line to ask questions and haven't had an opportunity to do so for 6 months. I should also mention that Marilyn Jentzen, our CFO will not be making any prepared remarks this evening. We've released a gigantic amount of financial information today and it's enough just to try to digest that. But Marilyn is here and ready to answer any finance or accounting related questions that you might have, and or anything else that she feels like she wants to answer. With that, operator, can you please open the program up to Q&A?

Thank you, sir. Our first question comes from the line of Barry Jonas from Truist Securities. Please go ahead.

Hey, guys. Good evening. Nice to have you back. Wanted to ask about Hybrid Dealer, which was something we all saw at G2E. Wanted to get a little more detail on it, actually, is this sort of meant to be a replacement or complimentary for the live dealer experience? And how big do ultimately think Hybrid can get?

Well, I would say it's complimentary. But as we've talked about Barry, kind of individually, it's an important differentiation from the live dealer market. And that there's not the same operating costs, there's not the same setup costs. So there's a number of economies that the Hybrid Dealer offers to the operators. So certainly what we're seeing with BetMGM and with future customers, I think we've mentioned Caesars has been signed up, is it's to their incentive to try and drive traffic to Hybrid Dealer. I just actually saw the fully fleshed out BetMGM marketing plan, and we're super excited about that. So I don't think anyone expects that it's going to replace live dealer, but I think the operators are extremely motivated to drive as much to this business as possible as an additive to live dealer.

The other I think the other point to add to that, Barry is, I think what Brooks is saying, is absolutely right, as far as certainly what we call the Tier 1 operators, MGM, Caesars, et cetera, et cetera, et cetera, and even maybe the Tier 2 operators, but there are a huge number of operators who can't afford any of the other product. So for these people it's not a question of whether our business is adding to the live dealer or replacing the live dealer, they just don't have it. And this is going to give literally hundreds of operators now for the first time a product that has this function. So, yes, like we're incredibly excited by MGM, but frankly, we're just as excited about the other end of the market that has never had a product before.

Great. And then just for a follow-up, I wanted to ask you about capital allocation. You've been purchasing back stock. Curious if you can say whether that's continued into the Q4 and just get your thoughts on prioritization whether that's more share repurchases M&A debt.

We have not been able to continue our stock purchases into the fourth quarter due to our blackout period. Since the situation in the third quarter began, we have not bought any stock, and it is unclear when we will be able to do so. At this moment, we won't be able to purchase any stock until we report the fourth quarter and file the full 2023 10-K.

Got it. And then I guess just beyond that thoughts, M&A or how you are thinking about prioritizations once this is fully concluded with the accounting issues.

I think, I probably feel more comfortable having that conversation after we report the fourth quarter and filed a 10-K, then everything to do with this will be behind us and we'll be free to talk about whatever we want to talk about.

Thank you. Our next question comes from the line of Jordan Bender from Citizens JMP. Please go ahead.

Good afternoon, everyone. With some of the M&A in the space recently, I think it shines a spotlight back on the lottery space. So what's your take on the progress within the iLOTTERY industry and maybe the long-term uplift coming from that business as well?

In the United States, the iLOTTERY business is evolving similarly to the iGaming sector, with states that haven't yet adopted it showing strong performance. However, the pace at which new states are introducing regulations for either iGaming or iLOTTERY has not been as rapid as we had anticipated. I believe that this trend needs to change for several reasons. Looking ahead, I anticipate an acceleration in the iLOTTERY business. We are preparing for this by making significant strides on the cloud-based lottery system we are developing in the Caribbean. Recently, we launched the iLOTTERY component of that platform, which will serve two main purposes. First, it’s a product we can use to enter the platform market in other regions if we decide to. More crucially, it will act as a test bed for iLOTTERY products we intend to introduce on that platform. This includes not only traditional electronic instant tickets but also virtual sports, which we view as a substantial opportunity in the lottery industry. Interestingly, the slower market progress has actually provided us with more time to finalize our product offerings and organize our operations. I agree that the merger and acquisition activity in the industry, such as Scientific Games' acquisition and Aristocrat's purchase of the deal games, signals that significant developments are on the horizon in this sector, and we are very enthusiastic about it. However, it's clear that the evolution is not happening as quickly as many expected.

And Jordan, perhaps it's Brooks. One additional point I would mention is, we previously discussed that we have launched a couple of iLOTTERY games, particularly with Loto-Québec, due to their unique technical setup that worked well for us. The games have been around for about a year, with one still in the top five and the other in the top 25. The content we create for both our iGaming and retail businesses is certainly applicable to the lottery sector. I would agree with what Lorne mentioned; having a slower pace may not be detrimental for us since we know we have content and can develop content that will resonate in iLOTTERY.

Great. And then on the follow-up, I don't think I missed it. But did you guys comment on all the conversion units done as we sit here today? I think William Hill was supposed to last into the new year?

Yes, we mentioned that Betfred and Paddy Power have completed their processes. However, William Hill is not finished yet as there is an ongoing trial. The success we are experiencing with our other major customers is also unfolding with William Hill. When we are able to comment on the status of William Hill, we will, but I want to emphasize that the trial we have with William Hill is progressing very well at the moment.

Great. Thank you very much.

Thank you. Our next question comes from the line of Ryan Sigdahl from Craig-Hallum Capital Group. Please go ahead.

Hey, good afternoon, guys. I want to jump over to Virtual Sports. So revenue declined in the quarter. I guess it's plateaued a little bit here. But I guess what's your visibility and confidence to reaccelerate that business and timeline to do that? And as you think about kind of the hurdles to getting all the newly licensed, whether it's homerun shoot out NBA, NFL, you have a ton of new product that seems like it should resonate, but I guess, what's the biggest barrier to getting that faster into the market?

Yes, I agree with you. We believe that this serves as a baseline for growth along with the new market in Brazil that we discussed. It involves various technical aspects, signing up customers, and obtaining regulatory approval. This complexity has contributed to the time taken, but I genuinely feel we are at a crucial turning point now with BetMGM and Rush Street going live. I believe their success will positively influence other operators as well. Our strategy, particularly with these licensed brands, is centered around the fact that Virtual Sports is new to U.S. betting consumers. We see the strength of brands like the NBA and NFL as an effective means to introduce this to the North American market. We are already observing positive results from Ontario, which has been in operation for some time. However, I would say that 2024 will be the critical year for demonstrating our potential in North America.

Good. Then for my follow-up question just overall, like you said, well, you did say in line Q4 with where consensus is which is a modest EBITDA growth. So I guess what's your confidence in getting back to EBITDA growth in Q4, and then again into 2024? Thanks. Good luck, guys.

Thanks, Ryan. Do you want to …

Yes, well, I'm not sure whether you asked the question at the end Ryan, or you're just kind of signing off. But if you ask that as a question, then I think what we're comfortable seeing right now is we feel, obviously it's February. So we were and we've scrubbed the Q4 numbers already very comprehensively. So I think we're comfortable saying what I said in my prepared comments that Q4 should be in line with consensus. If you adjust it for the $2 million hit we took with the hacking, it would put us comfortably to have consensus and certainly ahead of last year. As far as what we think going beyond that, I think, again, I'd rather wait until the end of the first quarter, and when we report the fourth quarter and filed the 10-K and then maybe we'll be able to talk more comfortably about '24.

Very good. Thank you, Lorne.

Thank you. Our final question comes from the line of Chad Beynon from Macquarie. Please go ahead.

Hi, afternoon. Thanks for taking my question. Hi, Lorne. Hi, Brooks. First, just wanted to hit on the Vantage cabinet uplift. I know you had talked about this on prior calls. And it looks like what you had forecasted is coming true in terms of the double-digit increase. Can you talk any more just in terms of if that has been stable since those have been deployed? And then Brooks, could you just touch on, so the white paper change. Do you think that could affect the, I guess, the increase in terms of the cabinets here? Or like you said that might already be factored in? Thanks.

Sure thing, Chad. Yes, I mean, the good news is we've been kind of fully deployed in Paddy Power and Betfred for multiple quarters now. And it is the growth has remained in double digits. So we are very confident about that and the William Hill trial is actually showing even better results. So I think we feel quite good about that. And obviously, it's seeing an even bigger impact in the pubs business, some of which is fixed fee and some of which is recurring revenue. So hopefully that will start flowing through in the results and we'll obviously talk about that as we can. In terms of the white paper and the stakes limit thing, this has been talked about ad nauseam, it came in exactly as we predicted. I'm not sure we would have predicted that it was going to be age driven, but we thought it would be some kind of split, either be five or two. So I think it's actually pretty much as we expected. It will supposedly be implemented in September. So I just don't think it will have a material impact on us this year, and frankly, with game design and the operators, we hope to over the course of the year mitigate what very small impact that may have. So it just doesn't feel like a big thing to us. Because people just aren't betting, when you think about it, when you're playing online, people just aren't generally staking ₤5. So it just doesn't have the same kind of impact, like it did with the triennial for sure. I mean, we're in the same category.

Okay, appreciate it. In terms of margins outside of the accounting nuances, in a $2 million hit, how should we think about inflationary impacts I guess in the digital business or the retail and leisure business, as we kind of get into '24. Are there still lingering inflationary measures, supply chain, et cetera? Or if the business is flat to slightly up, could we assume that on the same-store basis margins could follow suit as well? Thanks.

In our digital businesses, there’s really no inflationary pressure to mention, unlike in other parts of the business that involve large field service organizations. We're definitely seeing this in the Interactive segment, where the lack of inflation allows the business to scale effectively, enabling revenues to grow while margins expand even faster. The same applies to the Virtual Sports sector. While we haven't seen significant margin growth in the past couple of quarters, we've experienced substantial margin acceleration in the past few years as revenues rose. As Brook mentioned, we anticipate that revenues will reaccelerate as we progress through 2024. In the retail sector, we have a significant field service component with hundreds of employees. There have been increases in the U.K. minimum wage and living wage, along with various factors that make margin improvement more challenging compared to our digital businesses. So, we are definitely experiencing inflationary pressure. However, we believe we can restructure our operations to mitigate much of that impact. Consequently, we feel optimistic that our 2024 margins will be at least on par with those of 2023, despite facing inflationary pressures. I wouldn't expect our adjusted EBITDA margin for 2024 to be lower than what we achieved in 2023, even after accounting for unusual factors.

Yes, I believe it's important to note, Chad, that we've discussed the U.K. consumer sentiment and concerns regarding a potential recession in previous calls. The current results indicate that the U.K. consumers have found ways to adapt, which is reflected in their gaming activities, particularly through the performance of the Vantage cabinet. The atmosphere in the U.K. suggests there's a noticeable decrease in discussions about consumer issues and inflation, which is encouraging.

Great. Appreciate it all. Thank you very much.

No problem, Chad.

Thank you. There are no further questions at this time, Mr. Lorne Weil, Executive Chairman, I turn the call back over to you.

Thank you, operator. Again, thanks, everybody, for joining today and thanks for your support over the last several months. We obviously appreciate it. And we're happy that we've come to what we think is a pretty good place right now. And we are pretty enthusiastic about 2024. So I guess we'll be speaking to you now fairly soon since we're most of the way through the first quarter. And we look forward to reporting more to you at that time. So thank you. Thanks, operator.

Thank you. This concludes today's conference call. We thank you for participating, and you may now disconnect.