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. 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. 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 the 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 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 that 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 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. The 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 has 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, 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 moderation 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 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 has 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, in 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 the rollout of the NFL and NBA games, we expect to launch our hockey game by the end of the year. It looks amazing in the early days, and we would expect this game to be strong with our North American customers, particularly in Ontario, which is already becoming a very strong Virtuals market. We'll update on that product as we get closer to the 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 who are so passionate about 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 who all agreed that this should be a 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. 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 or 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. Your first question comes from the line of Barry Jonas with Truist Securities. Please go ahead.

Hey there, this is Ramin Sabani 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 given recent consolidation years in the space?

Do you have any thoughts on M&A given recent consolidation years in the space?

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 minds 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. If things present themselves that make sense, we'll consider it, but I would say right now, 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 is going to be on the Virtual segment over time?

Yeah, well, in terms of cannibalization, frankly, it's good news that although the NFL game is outperforming the NFLA game. Overall, the combined, as our colleagues would like to call it American football, but we call it the football segment is continuing to grow. But again, it's relative in terms of soccer being the predominant Virtual Sports product. But obviously, as we start going into North America, we'll see football being a bigger contributor because that's obviously the market where it resonates the most. Perhaps I could expand 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. 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 our customers on a worldwide basis, and I'm sure you've 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?

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 we've talked previously about what was driving that dip down and so forth. It has – that process seems to have ended and has ticked up in the first 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. As we move through the year, as Brooks said, we're pretty comfortable that we're going to see that accelerate. So that's where we are right now, Dave.

Yeah, and because it's not only 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. 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. 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 to get involved akin to live casino?

It's a great question, and as we examine the pipeline, it's clear that we have significant interest from major operators for various reasons. Additionally, mid-tier and lower-tier operators see this as a chance to enter the live dealer market. The pipeline is quite strong because this product is relatively easy to launch in terms of cost, and it can be adapted quickly and affordably from a branding perspective. This opens up many opportunities for the Hybrid Dealer product, which is what we're observing.

Okay, great. Thank you both.

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

Good morning, congratulations on the results. Thank you for taking my question. Brooks, you finished your prepared remarks by mentioning a 40% margin goal. Can you help us understand when this might be achieved? More importantly, is this something that will naturally come with scale as the digital business grows, considering it's a high margin business with good flow-through, or will there be additional steps that could enhance margins in 2024 and early 2025 that require more hands-on efforts rather than just reaping the benefits of scale? Thank you.

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 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. The digital businesses margin is very much higher than that. The Gaming business and parts of the Leisure business rate 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 raising 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. 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.

Thank you. Regarding leverage, can you share your thoughts on your current position considering the ongoing period of higher rates? Is there a target for net leverage, and how does this influence buybacks?

Well, it's always been our plan to try to consistently be under 3, 2.5 probably a better place. 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 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?

In response to your question about Kambi, we will have the integration that will be accessible to all their customers. It's going to be a collaborative effort between our teams and theirs to encourage their customers to sign up for Virtual Sports. This process is still in the very early stages. Regarding the other operators in North America, it's probably best not to comment on that right now, but I can assure you we're actively discussing opportunities with them. We'll hold off on further details until we have something we can share.

It's good to see the low double-digit revenue increase per machine. Do you believe that's something that can be maintained? Can you provide any insights on underlying player metrics that indicate if this trend is likely to continue, improve, or worsen? Also, how do you anticipate this will impact your expansion 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 about two to three quarters now, so there's been plenty of time to have it bet-in. Both operators showed 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. The fact that the product's been out for six to nine months and it's still doing that kind of business obviously bodes well for us. We have a big customer that we hope to be rolling Vantage out to either later in the year or the beginning of next year. On the Pub segment, it's really driven by how aggressive we want to be in 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 is if you're willing to comment, I know you’re not guiding, but do you expect EBITDA to be up year-over-year, and what is your confidence behind that?

You had to ask that question. We don't provide guidance, but I feel compelled to mention that we are comfortable with where the full year consensus is, which is modestly up from 2023. Based on our current perspective, it appears to be weighted more towards the latter part of the year and less towards the beginning. We are pleased that the temporary decline in the Virtuals business seems to have ended, and we are starting to see it recover in the first quarter as I mentioned earlier. However, it’s still not significantly beneath the levels of the first quarter of 2023, so it will take time for the various initiatives in Virtuals that Brooks discussed to gain momentum, with much of it expected in the second half of the year. We are building an impressive backlog in product sales, stronger than we have seen before. Recently, we secured a significant new order from Western Canada Lottery, but we likely won’t be shipping that until the fourth quarter. Additionally, the first quarter still has some lingering unusual items due to the accounting restatement and other factors. To reiterate, we are fine with the full year consensus, but the combination of a slight delay in the strong recovery of Virtuals and the strong backlog in equipment sales, which is primarily for the latter half of the year, suggests we will see a shift from the early part of the year to the latter part. 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 thank you everyone for joining. Our 10-K will be filed sometime this morning, and for anyone interested in more details, there will be plenty of information available. We look forward to the first quarter, which will return to our normal schedule, likely around May. We are excited to speak with you then, so thank you.

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