Good morning, everyone, and welcome to the Inspired Entertainment First Quarter 2024 Conference Call. Please note, today's event is being recorded. Please refer to the company's safe harbor statement that appears in the first quarter 2024 earnings press release, which is also available in the Investors 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 the 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, and thank you for joining our first quarter conference call. Here with me are CEO, Brooks Pierce, who will provide prepared remarks in a few moments; as well as Marilyn Jentzen and Eric Carrera, who are available for Q&A. As we had previewed a few weeks ago in our year-end conference call, the first quarter was, to put it mildly, a metaphor for Murphy's Law. To date, we've spent well in excess of $10 million in accounting, audit and legal expenses in connection with the accounting restatement, much of which was below the line, but a meaningful proportion impacted EBITDA, and of course, 100% of that impacted cash. We had other significant one-time expenses in the first quarter. And although our equipment sales backlog is currently at record levels, delivery dates have moved into the second half of the year. Similarly, during the quarter, we continued to spend significantly for recurring revenue growth initiatives, which will have some impact in the second quarter, but which we are confident will continue to grow strongly throughout the year. But before elaborating on these and other developments, let me preface these remarks by saying that we are anticipating a dramatic improvement in EBITDA in the second quarter. The Interactive business recorded another very strong quarter in Q1, and we see no reason for this growth to decelerate, especially given the opening of important new markets and the steady introduction of new products. The pullback in our Virtuals business that we have been experiencing has run its course, and we have begun to see a resumption of growth that will be driven further by the new NBA and NFL games as well as new markets. In the Hybrid Dealer area, we're live with one product, the game show wheel, with a single customer in a single market, and we're seeing a strong, steady growth trajectory, which augurs well for the eventual expansion into a broader customer base in many more markets around the world. Very importantly, from a product point of view, we will be launching the Hybrid Dealer Roulette game in the summer. Roulette is, by a significant margin, the largest category in the live dealer sector and one of the very largest in the entire online gaming industry. Lastly, we're putting the finishing touches on some Vantage-driven growth initiatives in our gaming business which we believe will add significantly to EBITDA, certainly beginning in 2025, again, with some possible positive impact in the fourth quarter of this year. In our last conference call, Brooks referenced our plan to generate significant margin expansion through an operational restructuring that is currently underway and which will generate several points of company-wide margin improvement, again, mostly impacting 2025 and beyond, but the possibility of some impact yet in Q4 of this year. In a nutshell, our plan is to separate the holiday park business, which is essentially a family entertainment-oriented business, driven largely by amusement equipment, think Dave & Buster's, from the other parts of the Leisure business, from the pub, motorway service, arcade and bingo businesses, whose business models are identical to that of our Gaming business but addressing different retail environments. So the functional elements of product engineering, manufacturing, platform and content development, server hosting and field service operations overlap almost perfectly, providing potentially huge benefits to consolidation. As we complete this consolidation, we can then begin to consider strategic alternatives for the holiday park business. In light of the foregoing, we're confident, as I said a moment ago, that we're seeing a very significant increase in EBITDA from the first to the second quarter of this year, perhaps on the order of, give or take, 50% sequential increase. That will give us a strong platform from which to move into the back half of the year. And with that, I'll hand it over to Brooks.

Okay. Thank you, Lorne. And I'll try to expand on several of the topics you covered in your remarks and relay our progress on some of the key initiatives we talked about in our year-end call, which was only a month or so ago. The combined digital businesses, Interactive and Virtual Sports, contributed more than 60% of our EBITDA in the first quarter but are relatively flat compared to the prior year, though the mix has changed to more contribution from the Interactive segment, with most of the key growth drivers for Virtual Sports just starting to launch and plans to accelerate throughout the year. The momentum we have been discussing in the Interactive segment continued through the first quarter, with revenue being up 31% year-over-year on a functional currency basis and EBITDA being up 38% on the same basis. Even with these phenomenal growth rates, the numbers continue to grow, with April being our second largest month on record, and just last week, the highest revenue week we have ever had. This is a testimony to the strategy and execution of the Interactive team, including our game design teams as well as the commercial teams, and is very broad-based across multiple tiers of customers in multiple geographies. Just for an example, we grew our market share in the U.K. in 2023 by 40% and are at our highest levels ever. We're rapidly expanding in more geographies, particularly in Latin America, as we've discussed in the past, and are confident this part of the business will continue to thrive. We're also excited about the early momentum for the Hybrid Dealer product in New Jersey, and we'll look to expand to our second state in the second quarter and to launch our Roulette game by the end of the second quarter, the beginning of the third quarter, and then to deliver the first game to our next customer, Caesars. As we have discussed over the last few quarters on Virtual Sports, we've been impacted by a key customer modifying their player base to focus on players with sustainable value for them, and this has had an impact on our business. There is a silver lining here, however, as we've seen the stabilization of the Virtuals business at these levels for the last few quarters and saw the remainder of our online Virtuals business grow 27% year-over-year. We just went live today, actually yesterday, with OPAP and our NBA licensed archived footage product with strong marketing support, and we look forward to its success as OPAP has proven to be a very strong retailer, with Virtuals growth in their retail footprint growing more than 20% last year. We continue to roll out our latest NFL game to more customers, and we're seeing growth there. I just saw the first few clips from our latest motion capture football shoot, and it's honestly amazing how much this technology has improved over the last few years. We did full motion capture shoots for both football and hockey, and both products will be live later this year, and they'll set the standard from a visual perspective in the Virtual Sports business. As I said, we're confident this will drive player engagement and revenue and EBITDA growth for Inspired and our operator customers. Gaming segment headwinds are primarily due to a couple of key items. First is the loss of a service contract for SSBTs that we were providing to a customer that has decided to bring that service in-house. The second factor is due to a delayed rollout of our Vantage cabinet with a key customer who's not reaping the benefits yet of the double-digit growth we are seeing with our other customers in the sector. We're hopeful that this will be mitigated by year-end and will be a significant EBITDA contributor starting in Q4 this year but fully realized in 2025. We announced the sale of 720 Valor terminals to WCLC that we will deliver by the end of the year, which will be a big driver of the improvement in gaming performance by year-end, and we are seeing improved performance and good take-up on our game subscriptions to our Illinois customers. Lastly, our backlog of equipment sales in the AGC segment in the U.K. is robust and will help drive improvement in Q2 and throughout the rest of the year. Q1 is the seasonally lowest quarter for the holiday park segment, and we are gearing up for growing that part of the Leisure business in Q2 and peaking by Q3. The pubs business continues to perform well with the Vantage cabinet. Most of our revenue in this part of Leisure is in weekly rentals, and we are aggressively installing Vantage cabinets in Q2 to reach our targeted installed base as we move into the second half of the year. Our MSA business, our motorway services, has been challenged by extensive road works in the U.K. impacting footfall in that part of the business, but we hope to see that improve also by the second half of the year. Lastly, as Lorne mentioned, we're laser-focused on our cost reduction plan to reach our target of 40% EBITDA margins, and a number of these plans are being implemented right now. However, the benefit of those is not expected to contribute until later in the year and will be offset to some degree by the cost to implement these changes, but we are confident that these necessary steps will be actioned and contribute to improved margins and cash flow in the second half of the year. And with that, I'll hand it back over to Lorne for Q&A.

Thanks, Brooks. That was an excellent summary. Operator, if you can open the program now to Q&A, please.

Our first question comes from Barry Jonas from Truist Securities.

I wanted to start on the Hybrid Dealer. Is it possible maybe to give any more color on early performance? And I'm also wondering if you've seen or been communicated any comparisons you can share relative to the live dealer product.

Yes. So as Lorne mentioned, and I think I mentioned in our remarks, it is still relatively early days. It's one product in one market in New Jersey. But what we've seen is a steady growth, with some peaks of significant plays where we have some days with very large player engagement. That's really what we're looking for: the number of players and the stickiness of the product. As Lorne also mentioned, and you would know from following the industry, Roulette is probably a much bigger driver of the game performance. So I think we'll hold off on talking about any comparisons until we have a little bit more data, both in terms of having more than one market in New Jersey, Michigan is hopefully the next market, and obviously, adding the Roulette game. So as we talk in our next call, perhaps in August, maybe we can provide more on that point.

Okay. Great. We'll definitely follow up then. And then, Lorne, I really appreciate the comments on sort of the sequential increase you expect Q2 on Q1. But just curious, last quarter, you talked about being comfortable with full year consensus. Do you still feel the same way at this point?

Let me answer that in a slightly different way, and then you can draw your inference from it. So we're pretty comfortable that, as I said a second ago, we'll see a 50% increase, conceivably more, from the first quarter to the second quarter. We know from experience that the third quarter is typically the seasonally peak quarter. So there's no reason to think that the third quarter won't be better than the second quarter. Generally, the fourth quarter is not that strong, but as I mentioned and as Brooks mentioned, we have a tremendous and growing backlog of equipment sales that will occur largely in the fourth quarter. So I think if you think about it in those terms and put all those pieces together, I think you can get to where we're still pretty comfortable with $1 million or $2 million up or down from where the consensus is.

Our next question comes from the line of Ryan Sigdahl from Craig-Hallum Capital Group.

Want to start on Virtual Sports. So EBITDA up slightly sequentially, revenue down slightly sequentially. I guess any structural change to the longer term? We're at kind of historical margins you've seen from that segment. And then can you talk through any trends you've seen thus far in Q2?

Yes. So Ryan, as you know, we're in the very early days, in fact with the NBA, day 2, of a product that we think is going to have very wide appeal across the business, not just in North America but throughout the world. So the drivers that we see for the business going forward are, obviously, the NBA and the NFL. We'll have the new hockey game coming out as well in the fall and then some new geographies. Brazil is obviously lining up to happen this year. So we're expecting to see growth return in the Virtual Sports business. In terms of the second quarter, so far, with whatever we are, 6 weeks, 5 weeks into the quarter, it's a pretty steady state. Last week happened to be a very good week. But we'll report on that when we can. We're not seeing anything that's changed dramatically so far in the second quarter.

And then just a follow-up kind of as you think about other markets. You mentioned Brazil, but we've seen recent launches with an operator in Spain, with ComeOn Group in Scandinavia. But can you talk through kind of maybe not as talked about, but various markets around the world and the potential for Virtual Sports there?

Yes. As you know, soccer, or football, is the primary product in Virtual Sports. In Latin America, particularly in Brazil, we see significant potential due to its large population and the transition to a regulated market in a country passionate about soccer. We believe this market has the most promise. Additionally, countries like Peru and Colombia, where we see growth in iGaming, are also likely to embrace Virtual Sports. We are optimistic about these developments. In North America, this is a crucial year for us. There has been some encouraging early data from Ontario, which gives us confidence that as we attract more customers in North America, this will resonate with players.

Our next question comes from the line of Jordan Bender from Citizens JMP.

I want to talk about the consolidation that we're seeing here in the U.S. in the slot supplier market. Typically, that could bring some disruption when we go through consolidation cycles like this. Does this bring opportunity for you guys to maybe expand or gain some market share here in the U.S.?

Yes, I believe we are not currently in the areas experiencing disruption, such as Class II, Class III, or HHR. However, that doesn't mean we couldn't enter those markets since we have the expertise and technology to do so. I view the validation we received from WCLC as significant, as they took a chance on us as a new supplier two years ago and later reaffirmed their confidence by providing us with 100% of their capital again. This confirms that our product is effective in the VLT markets, which is where we are concentrating our efforts, specifically on the regulated G2S and VLT markets. We are confident that our content would also resonate in other markets.

Great. And then on the follow-up, your margin goal of 40%. Now that those processes are underway, can you just talk about how you get there, is this more of a revenue growth mix or is it more just kind of through some of your cost controls?

Yes, I mean I think it's both. I think there are actions that we have to take that we probably shouldn't comment on at this point. But we think that there are ways to increase efficiency and improve. As Lorne alluded in his remarks, there's a very big functional overlap, and that’s something that we'll try to accelerate and take the benefit of. It’s come out in the press in the U.K. publicly that we're going to fully outsource manufacturing, so that's yet another improvement we’ll see going forward. So a number of cost initiatives. Then on the revenue driver side, as you'll note, we talk about the digital businesses a lot because they are the fastest growing, highest margin part of the business. As that continues to expand, it’s just going to boost our margins. As Lorne mentioned in his remarks, on the gaming side, we have a couple of initiatives that we think will both increase revenue and drive it at a higher margin. So you take the totality of all of those things, and that's why we're comfortable targeting these 40% margins. But as these things always do, they just take a little bit of time.

Our next question comes from the line of David Bain from B. Riley Securities.

I would like to revisit what you were discussing, Brooks. You mentioned some changes in Leisure and hinted that the holiday park segment may not be as synergistic as the others. I'm trying to understand the revenue and EBITDA specifically from that segment within Leisure.

I have to consult our accounting experts. I don't know that we break that out.

David, we break that revenue in our KPIs, and that's probably the most level we’re willing to sort of be concerned about at this stage.

But can I assume it's lower margin? And obviously, it's very seasonal, correct?

Yes, much lower margin.

Okay. That's helpful. And then I guess back to the M&A topic that Jordan mentioned, regarding the announcement yesterday that I'm sure you've digested by now, any new thoughts around M&A? Are we seeing different private M&A multiples than we're seeing in the public?

Well, I think the AGS announcement, which was at least a 40% premium over the recent stock price, and the multiple was, at least I think, a turn and a half or two turns higher than where they have been. So that's at least one data point. There are other instances. The most significant was the acquisition of Aristocrat buying Neo, and that was for 15x EBITDA. Now the difference there is that Neo is essentially a 100% digital business, while AGS is more like 90% retail equipment business. This explains the difference in multiples between those two. But yes, generally, particularly, there hasn't been that much in the retail business like the AGS deal, but over the last couple of years, there have been several acquisitions or M&A in the digital area like the Neo deal, and those multiples have tended to be generally double what those companies were when they were independent. I think this is sort of the general state of affairs. Just my own view is that the acquisition or going private of AGS is very clever, and I think the buyer is going to have a very, very successful investment.

Our next question comes from Chad Beynon from Macquarie.

On the Interactive business, you talked about some nice market share gains in one of the biggest markets in the world, the UK&I. Are you able to tell us kind of where your market share stands or just talk about opportunities to grow that even more in the U.K? Secondly, I know you talked about this last month. Any changes in terms of how you're seeing the white paper implementations in Interactive? I know you talked about it in Virtuals, but any change in Interactive?

Sure. Yes. Since it’s kind of the first time we’ve really talked about our market share in the U.K., we can share that it’s at our highest levels ever, and we’ve grown substantially over the last few years, but still, we’re at roughly 7%, so there’s continued headroom for us to grow. Interestingly, there’s not as much public data in North America, but we think our market share in North America is between 2% and 3%. For us, being able to consistently provide good games on time to increase our market share in North America is a huge opportunity. Increased market share is almost kind of 100% margin falling to the bottom line. So clearly, we’re focused on that market as well, and we’ve talked in the past about having a dedicated studio to the North American business, which we’ll comment on as we develop. Even though the business is growing at consistently 30% year-over-year, we still think we have plenty of headroom just because we have such a small market share. In terms of the white paper, probably the single biggest thing in the white paper is the allotment of B3 machines, which is still yet to be determined. But if they increase the number of B3 machines, we would view that as a very big opportunity to add to our equipment backlog because we believe there’ll be some increased terminal deployments in the U.K. The rest of it is kind of baked into our operating model. So I don’t think there’s much that we’d see in the white paper that would have any real impact.

Okay. Perfect. Regarding the accounting items you mentioned at the beginning of the call, should we anticipate any more in the second quarter? Lorne, I recall you outlined the impact for Q1. Could you elaborate on that again, please?

Yes, in the first quarter, it was approximately $5 million. I don’t think I specifically addressed it earlier. I mentioned that it has been $10 million since the entire episode, and while I noted that a portion of that is below the line, we spent $5 million in the first quarter.

Okay. And anything to expect in Q2 or Q3? Or is this behind us?

I think that we'll have some additional charges, but much less than $5 million as we continue some of the remediation efforts around our material weaknesses, but we would expect those to be much less, and then additional legal costs, but that's it.

There are no more questions at this time. I will now turn the conference back over to Lorne Weil for closing remarks.

Thanks, operator. Again, thanks, everyone, for joining. I think the first quarter clearly is not indicative of where the company is right now and where we see it progressing through the balance of the year. I think it's just one of those quarters that inevitably happens. But the second and third quarters and the quarters beyond will be dramatically improved from the first quarter. By the time we get to the end of the year, we're going to be very pleased with where we are. So thanks again for joining, and we'll speak to you again in 3 months.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.