Q2 2023 Inspired Entertainment Inc Earnings Call
<unk> on your telephone keypad to send a question do the same afterwards. Please note today's event is being recorded please refer to the company's safe Harbor statement that appears in the second quarter 2023 earnings press release, which is also available in the investors section on the Companys website.
At Www Dot I N S E I N C C.
<unk> and 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 know.
Now I would like to turn the call.
Conference call over to Lorne Weil, the company's executed chairman Mr. Weil. Please go ahead.
Thank you operator, good morning, everyone and thank you for joining our second quarter earnings call.
With me today are Brooks Pierce.
Our president and CEO and Stewart Baker, our CFO .
Second quarter, EBITDA was $26 2 million.
It was roughly in line with consensus.
Slightly up over last year, but at least a couple of million dollars less than we would consider.
Two have been the inherent earnings power in the business in the quarter.
As can be seen in the P&L that was in the earnings release quarter to quarter corporate expense increased by $800000 from $6 2 million in 2022 to.
To $7 million this year.
With a vast majority of this increase is due to the timing of our audit expenses.
As we reported some time ago, we changed auditors during 2023 or four 2023 from mark them to KPMG.
With a ladder now billing is on a different and unavoidably accelerated cycle.
In our leisure business.
We incurred a statutory $600000 increase in labor cost in the second quarter.
Due to the UK national living wage.
But we have since reconfigured and reengineering our processes.
Enabling us to offset this cost going forward beginning with the third quarter.
And we had about $1 million of equipment sale EBITDA.
Move out over the second quarter into the second half of this year.
Taken together these items will benefit the second half to the extent of at least $2 million of EBITDA.
And since we were anticipating a strong second half in any case.
Driven by growth in the digital businesses continued strength in the gaming business and a return to growth of leisure.
We remain more than comfortable with the current full year consensus.
EBITDA in our digital businesses pre corporate expense allocation grew by 14% year over year on a functional currency basis comprised of 28% growth in interactive.
And 11% in virtual sports.
As anticipated several quarters ago.
Our interactive earnings continued to accelerate.
Driven by platform enhancements high performing new games and additional customer integrations.
Recent growth in virtual sports has been moderating, but we're anticipating a strong reacceleration in virtual sports as we move into next year.
We expect that our gaming operator partners will be entering a number of new markets.
And catalyzed by our NFL license.
We're expecting to see significant activity in the U S market at the moment Brook.
Brooks will elaborate on much of this.
Our leisure business had a year to year decline in EBITDA in the second quarter.
Due almost entirely to the fore mentioned labor cost to increase <unk>.
Together with the previously reported loss of a pub customer.
But as we move through the year the combination of strong seasonality, new holiday park customers and improved cost structure.
Should drive leisure into positive growth by year end and I should add that.
The last couple of weeks.
The trading performance has been very very strong.
Lastly, but by no means least I should mentioned that trading performance in our core gaming business continues to be very strong.
Aided by the very successful rollout of our new vantage cabinet.
And here again Brooks will elaborate more in a moment and with that I'll hand, it over to growth.
Okay. Thank you Lorne and as I, usually do I'll try to add some color to the results of each of the segments of the business both in quarter two performance as well as what we're seeing and what we have planned for the second half of the year, which we're very excited about.
Our digital businesses interactive and virtual sports had double digit growth in revenue in the quarter compared to prior year.
And through the first half of the year and now represent 31% of our revenue excluding low margin sales and 62% of our EBITDA on a combined basis.
This continues the trend of shifting more of our business online and expect these businesses to contribute an even larger portion of our EBITDA going forward and generating significant cash flow with high margins and low capital intensity.
The interactive segment growth of 28% in both revenue and EBITDA was helped in large part by the launch of <unk> in both Michigan and Pennsylvania as we've outlined in previous calls and we expect that growth from this customer to continue as we add more and more of our best content with them and go live with them in New Jersey.
This month.
The growth of interactive was really across all geographic areas with Europe , Slash UK growth being 17% North America growth growing at a strong 52% and Latin America growing even faster, but on a small base.
We see these trends continuing because of the quality and quantity of the content. We're releasing every quarter, but we're also starting to see some real traction in some key markets for us like Italy with growth of over.
230% year over year in the Netherlands, a growth of 95% year over year, but both growing off of a smaller base. In fact, we just had our best ever week in terms of both total handle and revenue in the interactive segment ever just last week.
Looking forward, we have some very exciting titles launching in the second half of this year, including Terminator.
Big Piggy bank and space invaders win and spin along with all of our usual holiday games around Halloween and Christmas and we will be introducing some exciting product innovations later this year that we think will accelerate this growth even further.
It's a very competitive space as you all know, but we're clearly delivering excellent growth and cash flow conversion in this part of the business.
Moving over to virtual sports as we talked about on our last quarterly call. The comps in this area are going to get tougher as we grew this segment of the business dramatically in 2022 through the launch of some innovative games the shift of more people playing online and some key new geographies, even with that our quarter. Two 2023 revenue was a record quarter.
<unk>.
We've consistently said that we believe that one of our biggest potential markets was in North America and that we're gearing our product and sales strategy to capitalize on this and we're starting to see the fruits of that strategy. Good example would be in Ontario, where virtual sports revenue was up 10% versus the same period last year and the total North American revenue.
Virtual sports was up 20% year over year.
Without even being live with our Homerun baseball game, our NFL licensed game and the highly anticipated hockey game that will launch in 2024 and baseball parlance, where in the very early innings of this.
So the product team has been working feverishly to have our NFL game ready for the September launch, but as you would expect it will take some time to get it rolled out to our customer base around the world. We expect very little contribution in the third quarter, but a greater contribution in Q4 and accelerating into 2024.
We're building multiple versions of the NFL product that we will be launching throughout the next six to 12 months similar to the multiple versions of soccer, we offer which currently is our most popular game.
We're working with several of the key sports betting operators and expect to be live with them over the rest of this year and even into early next year.
So our plan is that by the by this period in 2024, we'll have the product roadmap of North American focused content and the distribution with the largest sports betting operators alongside the addition of further states from the lottery vertical deliver on the internal expectations. We have for this segment of the business.
No doubt, it's taken a little longer than expected or hoped, but we have a clear vision now on the path to success for this part of the virtual business.
Moving on to the gaming side of the business. The highlight of both the gaming segment in the leisure segment has been the launch of the vantage cabinet in both areas and.
In gaming, we have now installed almost 50% of the customers were converting and are still seeing close to 10% improvement in the cash box as.
As we had mentioned before with the trials of vantage showing a 13% uplift in the cashbox, we had realistically expected there would be a modest fall off with the added density, but frankly, almost 10% growth is even better than our expectations with almost 50% installed.
We expect to finish the rest of the Betfred Paddy power installs by October and we will see the benefit of that for most of the fourth quarter.
We've also improved our operating efficiency as Lorne mentioned across both the gaming and leisure segments by combining our field engineers, both geographically and cross trained them on multiple products and the benefit of those operating efficiencies will now start showing in the second half of the year.
Finally, we are seeing good results from the installation of the terminals.
<unk> that we sold last year with approximately 600 terminals now installed which we hope will help us sell this product to other provincial operators and other U S. <unk> jurisdictions of distributed gaming.
Moving onto leisure, although the sample size is much smaller the growth we're seeing in the cashbox cashbox for vantage and pubs is approximately 14% and we will be aggressively rolling this product out with our key Cup pub customer excuse me over the rest of the year.
Our flex cabinet continues to be the best performing cabinet in the adult gaming centers base and as Lauren mentioned, we're in the seasonally highest periods for our holiday parks and the early results are encouraging and we expect this part of the business to be back in growth mode by year end.
Finally, we're making excellent progress in our new lottery system development and have now gone live with online wagering with later in the Dominican Republic and are seeing growth from this part of the business, particularly the online lottery part has picked up nicely as we've seen a 50% month over month revenue increase in July .
So in summary, we obviously have a lot of growth drivers to deliver in the second half across all segments of the company and our focus remains on execution of these to build momentum for the rest of the year and into next year, so with that I'll hand, it over to Stuart.
Thank you Brooks and good morning, all so as normal I'll give an overview of the financials.
One area, where comparability is helped in this quarters analysis versus the prior period's exchange rates.
While the pound to dollar rate with little lower at $1. <unk>. This year. This is 126 in 2022. This gap is much smaller than it has been in previous quarters.
The consistency with prior quarters I'll use the functional currency variance when explaining movements. So.
It's also worth noting that given where the rate currently is and where it was last year in the third quarter. We expect in Q3 FX will become a tailwind.
So we lose that complexity around that the vintages, but we gained one with low margin hardware sales.
Remember these are in relation to the stage refresh in the U K.
Vantage terminals replace eclipse terminals, which have been out for about 10 years now.
Historically, we have capex these either some or all of them but.
Now I have an agreement from our large customers that they will do so will cost.
However, as we are selling terminals the revenue needs to be booked as does the cost of sale.
Positively distorting revenue growth negatively distorting EBITDA margins.
So in this analysis in the earnings release, we've tried to provide the clarity. So you can see the results, including and excluding the sales and as the rollout will likely continue into the fourth quarter. This will be relevant to the rest of the year.
So look at the numbers.
Overall revenue grew 13%, including these low margin sales and 7% excluding them.
As has already been mentioned interactive revenue grew at 28% and.
In virtual sports grew 8% with elastic coming up against tougher comparisons in the land based business gaming revenue was up 24%, including these low margin sales and 6% excluding them.
It's also pleasing to be reporting that has returned to top line revenue growth growing 2% compared to the decline in the fiscal year on year and 4%.
And an adjusted EBITDA level, we grew 1%, which is clearly a smaller growth rate that we've been seeing recently, so it's worth giving some color here.
No. One has mentioned we are phasing difference with the order to change, which causes a 3% impact on growth rates.
In addition in the prior year the nature of hardware sales and gaming will higher margin as casino terminals don't carrying ongoing revenue per content.
We've spoken many times over the years about how these type of sales peak and trough three quarters.
And this happens to be quarter, when they were low in the <unk>.
At this period of time.
The other big area of impact is wage inflation, particularly in the leisure segment, which is the biggest statin doses.
Closer I think faster than revenues and not a trend.
<unk> continued nor do we expect it to based on what we can see based on the combination of cost reduction measures as well as revenue growth drivers that Brook spoke about.
Notwithstanding that overall EBITDA growth for the company was below longer term trends, it's worth pointing out that both interested in virtual sports double digit rates of 28% and 11% respectively.
Further down the income statement depreciation and amortization was up 5% will generate $5 million.
This excludes amounts appear to just from Q1 of <unk> 6 million. So excluding this was broadly in line.
You may have seen in the earnings release that we have revised prior year numbers for this chip to this judge based on software assets being amortized earlier than initially recorded.
For the avoidance of doubt this revision does not impact revenue adjusted EBITDA capex or cash flows.
Okay.
There were no exceptional SG&A charges in the period, but the interest line to show an increase of $1 $3 million year on year.
To be clear this is not reflective of increased borrowings or all of the cost of borrowings as a rate is fixed at seven 875% until the middle of 2026.
But instead reflects forex differences on cash balances are mark to market movements on FX hedges.
So turning attention to the balance sheet.
In the quarter was $10 6 million down from $11 1 million in the same quarter last year and from $11 6 million in the first quarter of this year and we finished the quarter with $42 million of cash.
It gives us a net leverage.
And looking at the last 12 months EBITDA on a functional currency basis.
On capital allocation that we've seen we only purchased a normal amount of stock in the quarter, but still have just under $15 million of this facility available and are constantly evaluating both stock and debt repurchases.
And finally, while we are working to try and file the 10-Q today. It may end up not being possible given the revisions to amortization.
This isn't possible without details later today with <unk> information easily entity in the Q and the form of an updated investor presentation.
And expect the Q to follow shortly after.
So with that I'll now hand back to loan for any closing remarks before opening it up to Q&A.
Thank you Stuart.
That was an excellent.
Financial summary, I don't have any.
Further prepared remarks, so operator.
You can please open the program to Q&A.
At this time I would like to remind everyone in order to ask question Press Star and then the number one on your telephone keypad, we will pause for just a moment to compile the Q&A roster.
Yeah.
Your first question comes from David <unk> from <unk>. Please go ahead.
Great. Thanks, so much I guess first Brooks you mentioned the lottery in tandem with virtual sports could you give maybe an example, or two of new potential virtual stores concepts that could operate or be offered in a traditional lottery outlet or sales environment.
And as you are having those discussions whats your best take on when we may see agreements understanding that lotteries don't often very fast like some other industries.
Yes, well that part is definitely true.
But I think we've seen already with both Pennsylvania and DC that the lottery vertical is definitely a good one for virtual sports, but clearly the NFL Lauren can comment on this as well.
It's something that the lottery industry is tremendously excited about because they've they've never really been able to get an NFL license like we have so all I can tell you is that we are an accelerated conversations with a number of state lotteries.
Largely driven by the NFL license.
And so we expect to see.
To be able to announce something through the course of the rest of the year, but youre right. It does take a little bit longer to get decisions made in this space and obviously to do the integrations and get it implemented.
Concepts, where it could actually reported to more of a traditional kind of ticket.
Our numbers format.
Yes.
Yes, I mean, the reality is as you know the the outcome of a virtual sports game is literally just like a keno game or.
Moderate draw.
So we've had a number of conversations with lotteries.
About could this be a new enhanced kind of exciting way to accelerate their growth and the draw games space. So we've had our product people on the lottery state lottery product people with having a number of conversations so whether it will be a new kind of a highly innovative advanced version of <unk>.
Or even.
As a draw game, we think virtual sports will slot in very nicely to the lottery product offerings.
Awesome and then just.
I guess Stuart maybe if you could review to the best of your ability I know some of this is out of your hands.
As operators, but kind of the sales waiting of low margin.
Customer transitions over.
Over the next few quarters the waiting there and then I don't know if Brooks Loren you mentioned I didn't hear it if you discuss the network lift from vantage cabinets today.
So let me start with the first one then.
So in terms of number of terminals is probably the easiest way of thinking about it in the second quarter, we delivered around 930 low margin sales generating.
And $4 $4 million of revenue in the second in the third quarter, we expect to do just over 4000 and then in the fourth quarter, we expect to do just over 1000.
Perfect.
Yes.
I did mentioned I am sorry go ahead, if you want to finish if theres anything I missed it then.
Yes, so on the on the vantage cabinet, while we talked about it is if you remember we said in the trial, we were seeing in the 13% uplift, which was very nice and we always had assumed that that when you have so many more terminals that there would be a slight drop in the cashbox, but frankly, we've been very pleasantly.
<unk> with now.
Almost half of the terminals installed the uplift in the Cashbox is still at roughly 10%, which is very meaningful for our operator customers and obviously bodes well for us going into the fourth quarter when we're fully deployed.
You really know about the pulp to yes, sorry, Lorne was saying.
The other part of it then maybe we'd probably haven't.
Elaborated on this as much as we should have is the vantage cabinet.
Slightly different version of vantage cabinet is going now into the pubs market as well.
And the early numbers that we're seeing in the pubs market is actually even better than the <unk> business at 14%. So by the end of the year and we're going to have thousands of vantage terminals and multiple segments of our business and hopefully continuing to produce the results that we're seeing thus far so.
That's a very nice tailwind for us.
Obviously in the fourth quarter, but moving into next year.
Awesome. Thank you.
Youre welcome. Thanks.
Okay.
Our next question comes from Barry Jonas Suntrust Securities. Please go ahead.
Good morning, guys as we think about the growing importance of digital to the business can you talk about how you think about the synergies with the land based side.
Yes, there is.
<unk>.
I mean, there are two important synergies.
The origin is the content development in this so called.
Omnichannel strategy that a lot of people think is.
As has been and will continue to be key.
To succeed in the business overall, so we.
Our start in the in the digital business was our land our main land based customers in the U K.
The William Hill's Patty powers and actually even in the U K operators in the U K that are not <unk>.
Customers like Ladbrokes and coral when they first.
Launched online gaming in the U K. The first games that were launched were the same games that had been played on.
Machines in the shops, so people would played in the shop.
<unk> had a couple of games that they really like they get home they play them on their phone or on their computer.
So.
The the the.
The whole idea of developing games in retail seeing what works in retail and hang transferring those games to online is sort of the origin and that continues to be a very important driver of the business. So we.
We get.
One of the reasons, we're able to introduce so many games.
To the online market that drives I'm not sure if Brooks mentioned, an appetite I think.
First six months, our interactive is up 50% over last year something close to that.
<unk>.
We're able to introduce that many new games because we have.
Installed base of 50000 or more.
Machines in retail and retail locations that we can amortize that.
Total.
Software development expense again actually that's ironically.
Where this issue that Stuart mentioned earlier about.
Our having to revise the.
The amortization of this game software just because we're doing so many games and so many people are doing them that this kind of just slipped but.
I think continuing in the future again.
The ability to.
Have.
A huge retail base that lets us really understand what works and what doesn't.
And having.
Both a retail and an online.
Business to be able to amortize the cost of the content development I think is a huge benefit and I think without question.
Is why we have been able to build.
Such a successful <unk> gaming business that is so profitable. So quickly I think if we didn't have our retail business. We wouldn't have been able to do that at a 1 billion years.
And Barry just one last point I'd add to that I think it's interesting that you see it's somewhat different by geography. So.
Obviously, where we have big install bases of retail terminals in the UK and in Greece. What you would see is the same content. That's at the top of the board for both online and retail in those markets, but it would be different content in Greece, then it would be in the UK, so having the ability to be able to develop games.
Vic to geographies.
Really does kind of enhance our growth and as I mentioned, it's a very competitive space.
So that's certainly a big advantage that we have and hopefully as we grow our north American VLT business will start getting even more and more traction from that in North America as well.
That's extremely helpful and just as a follow up.
<unk> been some M&A activity in the space since your last call I just wanted to get your thoughts on your appetite for M&A here.
Well.
Our appetite from M&A for M&A.
It continues to be.
Strong as it always has been but.
We've talked about this a number of times Barry we're not going to do an M&A just for the sake of doing M&A. So we can acquire some earnings I think we.
We have a pretty clear template.
What we're interested in.
We don't have any intention.
Of doing anything that would be considered a significant diversification.
<unk> strongly of the opinion that.
Sticking to your knitting is the best strategy.
We're looking at lots of stuff.
We're not going to overpay, we're not going to.
Do anything that's dilutive.
<unk>.
But as things come along.
That fit that tablet and the numbers work.
She has to do it obviously.
Our.
Lance sheet right now is really strong as Stuart said.
Leverages.
Right now two and a half I would imagine by the end of the year it might be down to two.
So we and we've got plenty of cash we're generating plenty of cash. So we certainly have the resources to do it but.
But we're not going to do anything unless it really makes sense.
And Barry one other thing Thats, probably obviously its depressions today with all the news with.
With Penn and ESPN et cetera et cetera.
M&A can benefit us in other ways as the sports betting space is getting more and more competitive and M&A is going on in that space.
With the NFL license that we have which is something that we assume that that all sports betting operators are going to want this product kind of a rising tide should lift all boats and we think that will be very beneficial to us.
We are happy to see how big.
Big and competitive the sports betting businesses, because we think it will obviously as we've talked about many many times virtual sports is complementary to the sports betting business in the rest of the world is roughly 10% to 15% of sports betting. So we're delighted to see sports betting continues.
Going to grow in the way it is.
Awesome. Thanks, so much guys.
Thanks Barry.
Yes.
Our next question comes from Jordan Bender from J P. M. P Securities. Please go ahead.
Great. Thanks for taking my question I'll answer my follow up you guys talked about in the virtual sports segment, just kind of the comps getting tougher in the back half of the year is it kind of fair to assume that that is mid single digit growth in two weeks and then you mentioned I need 24, that's when it starts.
Reaccelerate again is that given the right way to think about it.
Okay. Yeah, I think it is I mean, I think as it Brooks was.
Saying in his.
His parts at a major driver.
Of the growth.
In virtual sports is the opening up of new geographic markets.
Because after.
In the absence of Av.
Okay.
A game changing product like the NFL football game that Brooks talked about.
After a couple of years, the new markets tend to.
After a big growth period tends to flatten out a little bit.
So.
Going back a year or so ago for a period of time, we had.
A significant.
Increase in new territories that kind of slow down.
And then the growth with.
With a time lag of a.
A year or 18 months begins to slow down too but.
But now looking ahead I think your numbers are right in terms of the short term growth expectations, but.
Sure.
From our conversations that we're having with our customers.
They are.
Preparing to enter a number of new geographies over the course of the next year or 18 months.
Together with.
The impact of the NFL game that I think.
We're pretty confident we will.
<unk> reaccelerate that business in the states, where effectively each state is like a different country.
So I think.
<unk>.
Yes, I think a year from now.
We'll be.
I'm comfortable that we'll be back.
On.
On a growth cycle.
We were let's say a year ago, because we will have the new geographies combined with the NFL product.
Okay. That's great color and then I guess my second one here is just on the margin within the virtual sports segment seems like quarter. After quarter here, we continue to talk about that hitting new highs.
Seeing the leverage from that keeps pushing up that margin.
If we look into 'twenty four is it kind of fair to assume that as revenues keep going up youre going to youre going to continue to gain operating leverage that you've seen over the last like 18 months yourselves.
Yeah, well the big.
And you can see it in our interactive business too as the interactive business grows.
The margin is the.
Either the gross margin or the EBITDA is growing faster than.
<unk>.
The revenues are.
This is a classic case of build once sell many times.
We build a game.
And then.
The the operating costs apart from marketing is simply.
The cost of electronically delivering the game to the customer base. So.
As the customer base grows.
The costs.
We really don't grow as so it.
<unk>.
In theory.
It's a business where.
The margin will continue to get better.
Almost to infinity as the sales grow unless unless the growth is driven by something that requires.
Some huge incremental expense that we right now don't have and at this moment I can see what that is so.
So at least for the foreseeable future I don't see the revenue.
Margin dynamics changing yes.
Yes, and I think Jordan that Barnes comment on geographies and expanding geographies, just accentuates that because for us to go into a new geography for either virtual sports or or our gaming business.
It is selling the same thing in.
Further expansion, though when you when I mentioned in my comments about how Italy has grown substantially for us and how the Netherlands has grown substantially for us.
It's been a very pointed focus for us to try and get more markets to grow like we've seen in North America, and UK in Greece et cetera, et cetera. So we are starting to see the benefit of kind of more effort and more markets and then obviously whatever new markets open.
Great. Thank you very much.
Sure. Thanks. Thanks.
Our next question comes from Edward Engel from Roth and km. Please go ahead.
Hi, Thanks for taking my question I appreciate the kind of the cadence of the vantage rollout I just wanted to kind of two quick ones on that.
Would you expect all of this kind of rollout that you've talked about in the past to be finished by the end of this year.
And then of those kind of 6000 that you pointed out is that all first sale at low margin or is any of that kind of investment on your balance sheet.
Yeah.
So yes, it's all low margin sale and certainly in the.
LBO or betting shop business will be done with Paddy power and Betfred.
This year, but we would the William Hill conversion will go into in to next year.
In terms of the pubs most of it will be done or a big chunk of it will be done this year, but would also still be some lingering conversions in the pubs market next year on our balance sheet.
So.
Ed.
What Brooks was saying about the betting shop business and answer to your question. Yes. That's all those 6000 machines is all in the betting shops and that they are all being bought effectively financed by the customers.
In the pub business, we continue to make the capex.
And obviously, we derive the benefit of the increased.
Cashbox it is driving but the for a variety of reasons.
Our capex.
On a game in the pub business is much much lower than the Capex would have been on a game that we were putting into the betting shops.
Okay.
That's helpful color. Thank you.
Yes.
Yes.
Okay.
Our next question comes from Ryan <unk> from Craig Hallum. Please go ahead.
Good morning. This is will on for Ryan Thanks for taking our questions.
First wanted to touch on fan dual so it seems like the launch and rollout is going well give an update on new Jersey I'm curious on when you think Pennsylvania might launch and then in addition to that are you supplying virtual sports sandal.
Well in terms of of Pennsylvania were already live with with <unk> in Pennsylvania.
In terms of New Jersey, I would say, it's going to happen in this month.
Always subject to final testing and regulators, but were scheduled to go I think maybe even next week.
Can't really comment specifically on virtual sports other than what I said in my remarks and that we are in discussions with.
Many of the of the operators the sports betting operators in particular because of the NFL license. So.
When we when we can announce something in that regard we will.
Fair enough and then maybe as a quick follow up.
MLB shoot out launched during the quarter I believe.
Formed and has it helped accelerate any traction at all.
Well it hasn't launched yet so.
It will go live this quarter.
That 365 first and then we'll go into others. So when we when we have our next quarterly call.
Obviously be able to update.
What's happened both in the NFL game and the homerun shoot out so that's.
You can highly anticipate that in the third quarter call.
Great. Thanks, guys.
Youre welcome. Thanks.
Our next question comes from Chad Beynon from Macquarie acquiring please go ahead.
Good morning, Thanks for taking my question wanted to revisit the margin question. So on the.
The non <unk>.
New capex or the non.
New machines that are coming in at low margins can you help us think about where gaming and leisure margins are versus maybe how you were thinking about it last year.
Whether it's wage utility freight cost et cetera, a lot of moving pieces on the inflation side, just wondering if that same store margin business.
Starting to look a little bit better here. Thanks.
Stewart do you want to you want to handle that one.
Yes sure.
So in terms of leisure segment, let's start with that.
Might be a bit easier.
As we said that the impact on the top line of the declining.
Well the last pieces that we took out from the pump business.
Q3 over the last year, that's now Annualizing.
Annualized Inc, and we've got the new impact additional holiday parks, which boosts it.
Particularly in this Q3 that we're in now and then there's the wage inflation piece that we talked about this particularly.
You can see in Q2, so we think that.
The cost reduction reasons that we took.
In the prepared remarks, and then the benefit of the additional holiday Pos revenue we think.
Leisure margins will be back where they were.
And as Lauren said decently back into EBITDA growth as well as revenue growth on the gaming side of the business.
Obviously, the low margin sales to Bedford and Paddy power distorting the numbers at the moment, if you take away those numbers, there's a bit of a.
In quarter year on year decline.
As we had the high.
Margin product sales in Q2 of last year, but they jump around as we spoke about over the years. There's no declining trend. There is just happens to be a lower quarter. This time versus a high comparative.
All the upside that we're seeing from vantage, who full to margins will be no additional cost on that and then we've got the additional.
Cost reduction measures and gaming as well so.
Putting all those pieces together.
At least similar module did not improve the margins in gaming.
Excellent. Thank you on that.
And then here in the U S. There's some really good momentum in North Carolina, I think two bills.
I have been put forward from the separate houses on distributed gaming legalization.
If this market legalized is I guess, maybe a two parter on this one if this market legalize this would you be ready to get into that market given what you've done in another.
Some other distributed markets and then secondly, Laura how are you just thinking overall if this passes how other states might look at this as a source for revenues. Thanks.
Sure Yes.
We obviously monitor that very closely and certainly depending on how it goes in North Carolina, but if it does pass and they expand into distributed gaming similar to what they've done in Illinois and the.
The provincial markets in Canada, Yes, that's right that's right in our sweet spot distributed gaming, where it's a large number of locations with few numbers of machines were downloading content makes a huge difference that's that's our absolute sweet spot. So.
We've always believed that distributed gaming was going to be a growth.
Driver in this in this industry that.
The growth or the building of a bunch of big casinos going forward, probably seems have slowed down so if north Carolina, where to do it.
That might be a tipping point for other states as we've seen with gaming legislation throughout the years is generally when one state does it surrounding states feel like they're impacted and they tend to pass it as well so.
Yes, we are.
Obviously big.
Advocates for distributed gaming, because we think it fits perfectly with our kind of what we do everywhere else in the world.
Thanks Brooks appreciate it.
Okay. Chad you are welcome.
I will now turn the call back over to Lorne Weil for closing remarks.
Thank you operator.
Once again thank.
Thanks to all of you for joining the call I know everyone is anxious to get off the phone because there is a very exciting conference call beginning at nine o'clock.
I might even listen to it myself.
But.
In the meantime.
Let me just iterate that.
We are very very positive about where we're going to be in the second half of the year.
A lot of things we've been working on are coming together.
Very nicely.
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We're going to be very happy year come into December so.
We look forward to speaking to all of you in.
Three months and.
Thanks again.
Ladies and gentlemen that concludes today's call. Thank you for Olive Garden, you may now disconnect.