Q4 2023 Inspired Entertainment Inc Earnings Call

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. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.

Operator: 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.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one again.

If you'd like to withdraw your question press the Star one again. Please note that today's event is being recorded.

Operator: 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 at www.inseinc.com. 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 gap and non-gap 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 Will, the company's executive chairman. Mr. Will, please go ahead.

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 investors section of the company's website at Www Dot I N S E ink dot com.

The 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 at the S. E C. These.

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.

Lorne Will: Thank you, operator. Good morning, everybody.

Lorne Weil: Thank you operator, good morning, everybody.

Lorne Will: Thanks for joining us on the fourth quarter conference call. With us this morning are our CEO Brooks Pierce, Interim CFO Marilyn Jensen, and VP of Corporate Development Eric Herrera. Brooks, as usual, will make prepared remarks, and Marilyn and Eric are available to answer 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.

Lorne Weil: Thanks for joining.

Lorne Weil: The fourth quarter conference call.

Lorne Weil: With us this morning are our CEO Brooks Pierce.

Lorne Weil: Interim CFO, Maryland Jensen.

Lorne Weil: And VP of corporate development, Eric Carrera Brooks as usual will make prepared remarks, and Maryland and Eric.

Lorne Weil: Are available to answer.

Lorne Weil: To answer your questions when we get to the <unk>.

Speaker Change: Q&A section.

Speaker Change: Since it's only been a few weeks since our last call Theres not a lot new to report in accordingly.

Speaker Change: I'll make my remarks fairly brief in a moment Brooks will talk in some depth about the key developments.

Lorne Will: 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 well as full year EBITDA of $100.5 million. Full year EBITDA from our overall digital business. Rising, 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 that later on this morning we will be filing the 2023 10K. And so anyone who wants more detailed information beyond what's in the press release will probably be able to get that, I'm guessing, probably by no later than noon.

Brooks H. Pierce: That will be driving our progress over the balance of the year.

Brooks H. Pierce: Fourth quarter EBITDA of $26 5 million was in line with previous consensus and modestly ahead of 2022.

Brooks H. Pierce: It was full year EBITDA of $100 5 million.

Full year EBITDA from our overall digital business.

Brooks H. Pierce: Comprising the virtual sports and interactive segments.

Brooks H. Pierce: Grew by 12% from $56 2 million.

Brooks H. Pierce: In 2022 to $63 1 million.

Brooks H. Pierce: In 2023, while maintaining EBITDA margins.

Brooks H. Pierce: 75% from year to year.

Speaker Change: No small feat.

Speaker Change: Given the competitive environment that we are participating in.

Speaker Change: Let me mention here.

Speaker Change: Later on this morning, we will be filing.

Speaker Change: The 2023 10-K.

Speaker Change: And so anyone who wants more detailed information beyond what's in the press release that'll be available what I'm guessing probably by no later than that.

Speaker Change: Within the digital business there was some interesting cross currents the interactive business accelerated throughout the year.

Lorne Will: Within the digital business, there were some interesting crosscurrents; 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 for virtual sports will be in 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...

Speaker Change: Hitting revenue growth of close to 50% in the fourth quarter.

Speaker Change: At the same time, it's somewhat paradoxically.

Growth in virtual sports moderated over the course of the year.

Speaker Change: I think the peak EBITDA in virtual sports was the first quarter of 'twenty 'twenty.

Speaker Change: Three.

Speaker Change: The explanation of this apparent paradox has to deal with a relative market share of the two businesses.

Speaker Change: In the interactive segment there are many competing supplier so even when there are no new markets opening.

Lorne Will: There is a significant opportunity to grow the business by increasing market share, and this was very much the case in 2023, driven by 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. On the other hand, 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 via market share gain is somewhat constrained. New markets are, in turn, 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 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.

Speaker Change: There is significant opportunity to grow the business by increased market share.

Speaker Change: And this was very much the case in 2023.

Speaker Change: Driven by steady production of new superior content.

And an increasing commitment to worldwide accounting for it.

Speaker Change: In a moment Brooks will talk about these dynamics in more detail, including expectations for our new hybrid HELOC product with it.

Brooks H. Pierce: Performing extraordinarily well.

Brooks H. Pierce: Conversely, our market share in the virtual sports business is considerably higher.

Brooks H. Pierce: So absent the opening of new markets and the opportunity to grow market share.

Brooks H. Pierce: She sees me to grow via market share gains is somewhat constrained.

Brooks H. Pierce: New markets are in turn driven by a combination of a favorable regulatory climate.

Brooks H. Pierce: And the development is important.

Brooks H. Pierce: And game changing new content here again Brooks will elaborate.

Brooks H. Pierce: Why do we think.

Brooks H. Pierce: The markets in both North and Latin America are at an inflection point.

Brooks H. Pierce: Driven by new products, such as the NBA and NFL games as.

Brooks H. Pierce: As well as additional sports licensing deals on the horizon and indeed.

Lorne Will: And indeed, we're seeing 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.

Brooks H. Pierce: We're seeing in the first quarter virtual sports EBITDA ticking up a little.

Brooks H. Pierce: After having been flat or slightly down for a few quarters.

Brooks H. Pierce: Lastly, I should mention that is clear from the earnings release.

Brooks H. Pierce: Our retail businesses continue to perform well and benefit from tailwind from both the new vantage cabinet, which again Brooks will elaborate on in a moment.

Brooks H. Pierce: And new market opportunities in North America, and with that I'll hand, it over to Brooks.

Brooks H. Pierce: Brooks. Okay, thank you, Lorne.

Brooks H. Pierce: 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 will also give an update on some of the products that have launched recently and the plans for rolling them out across 2024.

Brooks H. Pierce: 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. Fourth quarters are 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 and Robbers, Big Money Christmas, and Santa's Winter Wilds.

Brooks H. Pierce: Our interactive business continues to perform strongly and 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.

Brooks H. Pierce: Fourth quarter is usually a strong quarter for interactive, particularly with our strong portfolio of holiday themed games. In this quarter was no exception with strong titles like cops and robbers Big money Christmas and Santos Winter Whiles inspired is becoming known as a leading content provider of all seasonal games as we are reporting after all.

Brooks H. Pierce: 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, which will be reported as part of our interactive segment going forward. Although at this point, it's the 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.

Brooks H. Pierce: Our Q1 2024 has already completed the strong momentum in our interactive business continues in just last week, we had the highest revenue week in our history our.

Brooks H. Pierce: 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.

Brooks H. Pierce: 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.

Though at this point, it's early days with only our bonus city product being launched with bet MGM and only in New Jersey, we're seeing excellent growth in turnover G. G. R. In active players and hit new highs on each of those metrics last week that.

Brooks H. Pierce: 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, and 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.

Brooks H. Pierce: Bet MGM has been a great partner for this launch and have 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 and particularly with the launch of <unk> early in the second half of the year, we expect <unk> to be the stronger the.

Two games and we have some unique features as we developed this product category, both in North America and around the world with additional operators.

Brooks H. Pierce: 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 in our last call, we've seen some moderating of the trajectory of the virtual segment off of its all-time highs in the first half of 2023, as Loren just mentioned, in large part due to some of the things that he had mentioned, including, you know, the challenges that we face for some of those things. But the good news is we have a number of key product launches that, 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 responding with players and is growing the football product within virtual sports.

Brooks H. Pierce: As we discussed in our last call we've seen some moderating of the trajectory of the virtual segment off of its all time highs in the first half of 2023 as Loren just mentioned in large part due to some of the things that were that he had mentioned including.

Brooks H. Pierce: 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 in geographies that we expect will take this segment back to growth mode. We've launched the NFL game with several customers and as expected its resonating with players and as <unk>.

Brooks H. Pierce: Knowing the football product within virtual sports will be going live with additional customers throughout the year and expect the NFL game to be a strong performer in the North American market.

Brooks H. Pierce: 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, and it is, frankly, a very mature market. Soccer is, of course, the biggest sport in Greece, but basketball is now up to 10% of their product mix.

Brooks H. Pierce: We'll launch our NBA archived product with <unk> in Greece, our strong partner, who have already shown the ability to grow virtual across their channels.

Brooks H. Pierce: <unk> retail virtual business is really a true success story with multiple channels of virtual sports across their more than 3000 retail locations.

Brooks H. Pierce: Tap grew their retail virtual as turnover and gross win by 21% in 2023 versus 2022, and frankly, a very mature market saw.

Brooks H. Pierce: <unk> 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.

Brooks H. Pierce: 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. And it looks amazing in the early days, and we would expect this game to be strong with our North American customers, but particularly in Ontario, which is already becoming a very strong virtual reality market. We'll update on that product as we get closer to its 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 that 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, and they all agreed that this should be a very strong product in Brazil.

Brooks H. Pierce: On the product side alongside with the rollout of the NFL and NBA games, we expect to launch our hockey game by the end of the year and it looks amazing and the early days and we would expect this game to be strong with our north American customers, but particularly in Ontario, which is already becoming a very strong virtual market.

Brooks H. Pierce: We'll update on that product as we get closer to launch date in the fall.

Brooks H. Pierce: 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.

Brooks H. Pierce: Market of over 200 million people that are so passionate for soccer doesn't come along very often and we've spent a lot of time than that down there recently and have shown our soccer products to multiple stakeholders in the market and all agree that this should be a very very strong product in Brazil.

Brooks H. Pierce: We're bullish on the 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 and virtual sports.

Brooks H. Pierce: Our land based business continues to ride the success of the launch of our vantage cabinet and to 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 U K and we're now up to approximately 20% of our state and the pub segment, having been converted to vantage and vantage is.

Brooks H. Pierce: 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. Meanwhile, 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're now up to approximately 20% of our estate in the pub segment, having been converted to Vantage. And Vantage is now the highest-performing cabinet in the pub sector. We're also seeing a strong sales pipeline for Vantage 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.

Brooks H. Pierce: Now the highest performing cabinet in the pub sector. We're also seeing a strong sales pipeline to large operators in the adult gaming centers segment in the U K and expect to be rolling out vantage across all of these verticals throughout 2024.

Brooks H. Pierce: 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.

Brooks H. Pierce: Lastly, we recently initiated a program to improve our cost base across the business and have a dedicated team working across all aspects of the business defined savings and synergies to drive an increase in our EBITDA margins to closer to our internal target of 40% and look forward to reporting on the progress of that.

Brooks H. Pierce: Initiative as we go throughout the year.

Brooks H. Pierce: Our Holiday Parks business is gearing up for its busiest time of the year, with Q2 and Q3 being the strongest quarters for that part of the business. Lastly, we 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%. We look forward to reporting on the progress of that initiative as we go throughout the year. With that, I'll hand it back to Lorne for any closing remarks.

Brooks H. Pierce: With that I'll hand, it back to Lorne for any closing remarks before opening up to Q&A.

Brooks H. Pierce: Yes.

Thanks Brooks.

Lorne Weil: Operator, I think it's.

Lorne Weil: Sorry, if you open the program up for Q&A. Please.

Thank you we will now begin the question and answer session. If you've dialed in and I would like to ask a question. Please press star one on your telephone keypad you raise your hand and joined the queue if you'd like to withdraw your question simply press Star one again.

I called upon to ask your question and our listening via loud speaker on your device. Please pickup your handset and ensure that your phone is not on mute when asking your question. Your first question comes from the line of Barry Jonas with Truth Securities. Please go ahead.

Lorne Will: Remarks before opening up the Q&A.

Operator: Thanks, Brooks. Operator, I think it's fine if you open the program up for Q&A, please.

Operator: Thank you. We will now begin the question-and-answer session. If you've dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you'd like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Your first question comes from the line of Barry Jonas with Truist Securities. Please go ahead.

Lorne Weil: Hey, there. This is remains Bonnie on for Barry Thanks for taking our question.

Bonnie: Now that we're rounding the corner on the accounting issues here.

Bonnie: Any thoughts on M&A here, given recent consolidation using the space.

Thoughts regarding our M&A or the.

Bonnie: Yes.

Yes.

Speaker Change: Yes, I guess, both first one on your front end, maybe just in general.

Speaker Change: Think about the space.

Speaker Change: Well, yes, I mean.

We're obviously seeing.

Speaker Change: Consolidation.

Rameen Sobhani: Hey there, this is Rameen Sobhani 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 here, given recent consolidation news in the space?

Speaker Change: Some of it seems to make more sense to me than others, but.

Speaker Change: It's kind of hard to know whats in other People's mind, sometimes.

Unknown Executive: [inaudible]

Speaker Change: Okay.

Rameen Sobhani: Thoughts regarding our M&A or the...

Speaker Change: We're always thinking about M&A.

Speaker Change: <unk>.

Unknown Executive: Yeah, I guess both, you know, first on your own front and maybe just in general. What do you think about the space?

Speaker Change: But.

Speaker Change: Our primary.

Speaker Change: Our focus right now is.

Lorne Will: Well, yeah, I mean, we're obviously seeing consolidation. Some of it seems to make more sense to me than others, but. You know, it's kind of hard to know what's in other people's minds sometimes.

Speaker Change: Maximizing the revenue and earnings and growth potential of.

Speaker Change: Of our business and if things present themselves that makes sense.

Speaker Change: We will consider it but I would say right this minute.

Speaker Change: M&A is not at the top of the list of what we're focused on.

Lorne Will: You know, we're always thinking about M&A. But our primary focus right now is, uh, maximizing the revenue and earnings and growth potential of our business, and if things present themselves that make sense, we'll consider them, but I would say, rate this minute. Um... M&A is not at the top of the list of what we're focused on.

Speaker Change: Got it that makes sense.

Speaker Change: And just a quick follow up.

Speaker Change: As far as the NFL product.

Speaker Change: Are you 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 that product is going to be on the virtual segment overtime.

Rameen Sobhani: Got it. That makes sense. And just a quick follow-up. You know, as far as the NFL product, are you guys seeing any kind of position for 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 that product is going to be for the virtual segment over time?

Speaker Change: Yeah, well in terms of cannibalization frankly, its good news and that although the NFL game is outperforming the NFL a game.

Speaker Change: The overall combined.

Speaker Change: As our colleagues and we'd like to highlight American football, but we call it football.

Brooks H. Pierce: Yeah, well, in terms of cannibalization, frankly, it's good news, and although the NFL game is outperforming the NFL as a whole, the overall, so combined, as, as our colleagues would like to call it American football, but we call it 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 and bigger contributor, because that's obviously the market that resonates the most. Maybe just expanding on that a little bit, as I was talking about in my remarks on the NBA, the NBA has an attraction in some of our markets, probably more so than the NFL, obviously, Greece being We're excited. My, my Philadelphia Eagles will open their season next year in Brazil, which is, which is great. So, you know, we kind of feel great about, honestly, all the licensed content and virtual sports.

Speaker Change: Segment is continuing to grow but but again, it's relative in terms of soccer is the predominant virtual sports.

Speaker Change: Product, but obviously as we start going into North America.

We'll see football being a bigger and bigger contributor because thats, obviously, the market where it resonates the most and maybe just expanding on that a little bit as I was talking about in my remarks on the NBA.

Speaker Change: The NBA has an attraction in some of our markets probably more so than the NFL, obviously increase being a perfect example of that but we expect frankly, our strategy is to get life.

Speaker Change: License 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 read because I read the same things. The NFL is really focus on trying to become more and more global we're.

Speaker Change: We're excited by my Philadelphia Eagles will open their season next year in Brazil, which is which is great. So.

Speaker Change: You kind of feel great about honestly all of the licensed content and virtual sports.

Speaker Change: Yes.

Speaker Change: Great. Thanks, so much for taking my question I appreciate it.

Brooks H. Pierce: Great. Thanks so much for taking our question. I appreciate it.

Speaker Change: No problem.

Speaker Change: Your next question comes from the line of David Bain with B Riley. Please go ahead great.

Operator: No problem.

David Brian Bain: Your next question comes from the line of David Bain with B Reilly. Please go ahead.

David Brian Bain: Great. Thank you and congratulations for putting the filing issue behind you it seems.

David Brian Bain: One Loren you mentioned virtual sports has ticked up Q1should we view <unk> virtual sports is close to kind of a trough absolute level before the back half ramp from new content and maybe yes, I think yes, I think basic basically what.

David Brian Bain: Great, thank you, and congratulations on putting the filing issue behind you, it seems. One, Lauren, you mentioned virtual sports have ticked up in one queue. Should we view four queue virtual sports as close to kind of a trough absolute level before the back half ramp from new content? And maybe, yeah, I think, yeah.

Loren: What we see as you kind of plot out of the third quarter, the fourth quarter and the first quarter is that.

Loren: Is that and we've talked previously about what was driving that.

Lorne Will: Yeah, I think basically, basically what we see if you kind of plot out the third quarter, the fourth quarter, the first quarter, is that, and we've talked previously about what was driving that. Uh, you know that, and so forth.

Loren: That.

Loren: Dip down.

Loren: And so forth is it.

Loren: It has.

Loren: That process seems to have ended and has ticked up in the first quarter definitely.

Lorne Will: It seems that that process seems to have ended and has ticked up in the first quarter. And now, having said that, you know, we're still, you know, considerably behind where we were in the first quarter of 2023, which was, you know, the peak. Uh, we would like the This upward trend to have happened sooner, but at least it's happening. And, you know, as we move through the year, as Brooks said, I'm pretty comfortable that we're going to see that accelerate. So that's where we are right now, Dave. Yeah.

Loren: Now having said that.

Loren: We're still.

Loren: Okay.

Loren: Considerably behind where we were in the first quarter of 2023, which was the.

Loren: The peak.

Loren: We would like the.

Loren: This upturn until it happens sooner but.

It's happening.

Loren: And.

Loren: As we move through the year as Brooks said.

Loren: Im pretty comfortable that we're going to see that accelerate so that's that's where we are right now Dave yes, because it's.

David Brian Bain: Yeah, and because it's it's

Loren: Not only is it 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.

Brooks H. Pierce: You know, not only are they 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. So that's why we talk about how the second half of the year, when we have 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. By the way, welcome back, Dave.

Loren: So that's why we talk about how the.

Loren: 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.

Dave: Thanks, Brad I appreciate that.

Speaker Change: Awesome and you guys mentioned that the hybrid dealer exclusive with bet MGM I know that rolls off in a few months and you go live with.

Brooks H. Pierce: 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?

Dave: Bet MGM Caesars in the back half but.

Dave: 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 Ken to live casino.

Ken: Yeah, I mean, it's a great question I mean, it's really interesting as we look at the pipeline because it's kind of exactly what you would want is that we have the biggest operators that are very interested in it for the reasons that they have but frankly some of the mid tier and lower tier operators in terms of volume.

Brooks H. Pierce: Yeah, I mean, it's a great question. I mean, it's really interesting as we look at the pipeline, because it's kind of exactly what you would want, the biggest operators that are very interested in it for the reasons that they have, but frankly, some of the mid tier and lower tier operators, in terms of volume, this is an opportunity for them to get in, you know, the so-called, in parentheses, live dealer market without having, I don't know, That's why I said so-called parentheses. Thanks. It's always great to have Lauren right across the table from me when we do these things.

This is an opportunity for them to get in the so-called in parentheses live dealer market without having no no. That's why I said so called for entities.

Speaker Change: Thanks, It's always great to have Lauren right across the table from the only thing.

Speaker Change: But anyway.

Speaker Change: Yeah. So I think the I think that pipeline is pretty robust as well because this is a product that from a cost standpoint.

Brooks H. Pierce: But anyway, yeah, so I think the pipeline is pretty robust as well because this is a product that, from a cost standpoint, can be launched fairly easily. And from a branding standpoint, can be modified pretty quickly and fairly inexpensively. So it really does kind of open the whole funnel for the hybrid dealer product. And that's what we're seeing.

Speaker Change: B launch fairly easily and from a branding standpoint can be modified pretty quickly.

Speaker Change: Fairly inexpensively, so it really does kind of open the whole funnel.

Speaker Change: Two for the hydro deal with product and that's what we're seeing.

Speaker Change: Okay, great. Thanks for you Bill.

Speaker Change: Okay.

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

Chad C. Beynon: Good morning, Congrats on the results. Thanks for taking my question.

Lauren you finished your I'm sorry, Brooks you finished your prepared remarks.

David Brian Bain: Okay, great. Thanks, you both.

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

Chad C. Beynon: Touching on a 40% margin goal.

Chad C. Beynon: Can you kind of help us think about when this could be achieved or more importantly is this something that just comes with scale as the digital businesses grow and that's such a high margin business and good flow through or will there be extra steps that that could improve margins in 'twenty four and early.

Chad C. Beynon: Morning, congrats on the results. Thanks for taking my question. Lauren, you finished your, or I'm sorry, Brooks, you finished your prepared remarks touching on a 40% margin goal. Can you kind of help us think about when this could be achieved, or more importantly, is this something that just comes with scale as the digital businesses grow and that's such a high-margin business and good flow through, or will there be extra steps that could improve margins in 24 and early in 25 that are more hands-on Thanks.

Chad C. Beynon: <unk> 25.

Chad C. Beynon: Is that are you know.

Chad C. Beynon: That are more hands on versus just getting the benefits of scale.

Speaker Change: Well, let me I'll start in the first part and then maybe I'll, let Laura comment on the second part so sure in terms of <unk> as our business continues to grow on the digital side of the business and with the margins that Lauren mentioned.

Roughly 75%, that's just going to bring up our overall EBITDA margins.

Brooks H. Pierce: I'll start in the first part and then maybe I'll let Lorne comment 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, you know, at roughly 75%, that's just going to, you know, 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, you know, how kind of how we view these segments in that regard. Yeah.

Speaker Change: But I think my remark was really mostly about.

Laura: Really getting after some of the cost structure of the business to improve the margins across all segments, but maybe loren wants to talk about how kind of how we view these segments in that regard, yes, well if you look.

Laura: At.

Loren: The composition of the overall margin you've got the average where it where it is in the <unk>.

Loren: And.

Loren: The digital businesses.

Loren: Margin.

Loren: Very much higher than that.

Loren: The gaming business.

Lorne Will: Yeah, well, if you look... At the, you know, the composition of the overall margin, you've got the average where it is in the 30s. The Digital Businesses.

Loren: And in parts of the leisure business.

Loren: Right around the average.

Lorne Will: Margin, very much higher than that. The gaming business, and parts of the leisure business, are right around the average. And then the Holiday Park business has consistently been 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 bringing the average up both by pulling it up where the digital margins are so high and pushing it up from underneath by dealing with the lower margin of the holiday park business. And we've got some very good, productive ideas that I think we will be in a position to talk about, perhaps more about when we report on the first quarter in a few weeks.

Loren: And then the holiday Park business has has been consistently.

Loren: Operating at margins.

Loren: Appreciably and.

Speaker Change: Okay, I guess in a way unacceptably below the average so we're.

Looking at a number of alternatives.

Speaker Change: For how we deal with the.

Speaker Change: The profitability of holiday parks, and how we can get that up.

Speaker Change: So so that way effectively we're bringing the average up both by pulling it up.

Speaker Change: From the top or the digital margins are so high and pushing it up from underneath.

Bye bye dealing with the lower margin of the holiday part business and we've got some very good.

Speaker Change: Productive ideas that I think we'll be in a position to talk.

Speaker Change: Perhaps more about when we report on the first quarter in a few weeks.

Chad C. Beynon: And then with respect to leverage, how you're thinking about where you want to be right now, given, I guess, a prolonged period of higher rates. Is there a target net leverage goal, and then how does that affect buybacks? Thanks.

Speaker Change: Perfect. Thank you.

Speaker Change: And then with respect to leverage how youre thinking about where you want to be right now given the <unk>.

Speaker Change: Ah, yes prolonged period of higher rates is there a target net leverage goal and then how does that affect buyback.

Speaker Change: Buyback thanks.

Speaker Change: <unk>.

Speaker Change: Well.

Lorne Will: Will It's always been our plan to try to consistently be under three. Two and a half, probably.

Speaker Change: It's always been our plan to try to consistently be under three.

Speaker Change: <unk>.

Speaker Change: Two and a half probably.

Speaker Change: A better place.

Lorne Will: Better Place, and uh... I think we're so I think we're comfortably in the debt zone. We've talked a lot about buybacks, and obviously, we were 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, you know, rank order and going back to the earlier question about M&A, I think I would put developing the business first. Um... [inaudible] certainly making sure that our credit profile is where we want it to be and then absolutely buybacks and lastly M&A.

And.

Speaker Change: I think were so I think we're comfortably in the in the zone.

Speaker Change: Okay.

Speaker Change: We've talked a lot about buybacks and obviously, we were anxious to continue with buybacks, but having said that.

Speaker Change: Our primary.

Speaker Change: Goal is to take full advantage of the opportunities we have in the businesses that we're not going to do anything to jeopardize that so I think.

Speaker Change: Rank order and going back to the earlier question about M&A I think I would put.

Speaker Change: Developing the business first.

Speaker Change: Sure.

Speaker Change: Certainly making sure that our.

Our credit profile is where we want it to be.

Speaker Change: And that absolutely buybacks last M&A.

Speaker Change: Thank you very much I appreciate it.

Chad C. Beynon: Thank you very much. I appreciate it. Thanks, Chad.

Speaker Change: Thanks, Chad.

Operator: Transcribed by https://otter.ai

Speaker Change: Your next question comes from the line of Ryan <unk> with Craig Hallum Capital Group. Please go ahead.

Operator: Your next question comes from the line of Ryan Sigdahl with Craig Hallam Capital Group. Please go ahead.

Ryan Ronald Sigdahl: Hey, guys. I want to stay on virtual sports to start, but Carys, I think you're with MGM, Bett Rivers, and Bett 365 Live today, but can you give an update on the pipeline of the other operators, namely the other big couple majors in the U.S.? And then, secondly, on that, you had a deal with Canby. I guess, is that an integration into all of Canby's B2B customers, or will it be an opt-in option for each of those operators individually?

Ryan: Hey, guys.

Ryan: You want to stay on our virtual sports to start but curious I think you are with MGM bet River is about 365 live today, but can you give an update on the pipeline of the other operators, namely the other big couple of majors in the U S. And then secondly on that you have to deal with can be I guess is that an integration into all of <unk>.

Ryan: Customers or will it be an opt in option for for each of those operators individually.

Brooks H. Pierce: Yeah, so in terms of letting me answer the Canby part first. Yeah, obviously, we'll have the integration with Canby that will make it available to all their customers, but it will be kind of a combined effort between our folks and theirs on getting their customers to kind of sign up for virtual sports.

Ryan: Yes. So in terms of let me answer that can be part first yes, we'll have obviously, we will have the integration with <unk> that will make it available to all their customers, but it will be kind of a combined effort between our folks and their folks on getting their customers to kind of sign up for virtual sports.

Ryan: So that's that's kind of in its very early stages on I know exactly what you're asking in terms of the other operators.

Brooks H. Pierce: So that's, you know, that's kind of in its very early stages. I know exactly what you're asking in terms of the other operators. But in North America, it's probably best that we just not comment on that. But you can, as you can imagine, we're obviously having, we are, we always have active discussions with those. So we'll, we'll just kind of park that until something comes along that we can talk about

Ryan: And in.

Ryan: In North America, it's probably best that we just not comment on that but you can as you could imagine we're obviously having.

Ryan: We always have active discussions with those so we'll just kind of parked out until something is that we can talk about.

Fair enough.

Ryan Ronald Sigdahl: Fair enough. Vantage, nice to see the low double-digit revenue increase per machine. Do you think that's sustainable, or, I guess, anything from an underlying player metric standpoint that you can elaborate on if that's, you know, kind of the right trend going forward, similar, worse, better, and then how do you think that'll play as you expand into the pubs?

Ryan: Vantage nice to see that.

Ryan: Low double digit revenue uplift per machine.

Ryan: Do you think thats sustainable or I guess anything from an underlying player metric standpoint that you can elaborate if that's kind of the rate trend going forward similar worse better and then how you think that will play as you expanded the pumps.

Ryan: Yes.

Brooks H. Pierce: Yeah, it's interesting that you asked that because I was just showing Lauren some numbers from last week and, you know, two of our biggest betting shop operators. So Vantage has been out for, you know, kind of two to three quarters now. So there's been plenty of time to have it bet on and, you know, both operators showed just last week was a perfect example of numbers that were, you know, in one case slightly higher than that and the other case kind of right on the numbers. So the fact that the product's been out, you know, for six to nine months, and it's still doing that kind of business obviously bodes well for us, and, you know, we obviously have a big customer that we will hope to be rolling out Vantage to either later in the year or at the beginning of next year.

Ryan: Interesting that you asked that because it was just showing lorenz some numbers from last week.

Ryan: In two of our biggest.

Ryan: Betting shop operators, so vantage has been out for.

Ryan: Two to three quarters now so theres been plenty of time to have it bed in and.

Ryan: Operators show just last week was a perfect example of numbers that were in.

Ryan: One case slightly higher than that in the other case kind of right on the numbers. So the fact that the product's been out.

Ryan: For six to nine months, and it's still doing that kind of business obviously.

Ryan: Bodes well for for for US and we obviously have a big customer that we will hope to be rolling vantage out.

Ryan: Either later in the year at the beginning of next year.

Brooks H. Pierce: And then on the pub segment, it's really driven by, you know, how aggressive we want to be in rolling Vantage out to the pub segment. We're 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.

Ryan: And then on the pub segment, it's really driven by.

Ryan: How aggressive we want to be enrolling vantage out to the pub segment.

Ryan: And we're at kind of 20%, thus far and you'll see as we go through the rest of the year, we will continue to.

Ryan: 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.

Ryan Ronald Sigdahl: Very good. Last question I have, if you're willing to comment and they're not guiding, but do you expect EBITDA to be up year over year and what is your confidence behind that?

Ryan: Okay.

Speaker Change: Very good last question I have if youre willing to comment and you're not guiding but do you expect EBITDA to be up year over year and kind of your confidence behind that.

Speaker Change: [laughter].

Unknown Executive: [inaudible]

Speaker Change: You had to ask that question.

Ryan Ronald Sigdahl: That's my question, too.

Speaker Change: Thanks.

Lorne Will: So, well, you know, we don't, it's always been our policy not to give guidance. But, um... I feel like I was about to do a JFK Let Me Say This About That, so... I think we're comfortable.

Speaker Change: So well you know we don't.

Speaker Change: He has been our policy not to give guidance.

Speaker Change: But.

Speaker Change: Okay.

Speaker Change: I feel like those.

Speaker Change: To do a J F. K, let me say this about that so.

Speaker Change: I think we're comfortable.

Lorne Will: Right now, with where the full year consensus is, which is, I think, modestly up from 2023.

Speaker Change: Right now with where.

The full year consensus is which is I think modestly up from two.

Speaker Change: 2023.

Speaker Change: But.

Lorne Will: But, from where we're looking at things now, I think it will be somewhat more weighted to the back end of the year and somewhat less to the front end of the year. The main issues are... Yeah, well, we're obviously quite pleased that the temporary decline in the virtuals business seems to have run its course, and we're seeing it. You know, now beginning to click back up in the first quarter, as I mentioned in my remarks, it's still not insignificantly below where it was in the first quarter of 2023. So it's going to take some time for the whole range of initiatives and virtuals that Brooks talked about to get us accelerating, and a lot of that stuff we'll see in the second half of the year.

Speaker Change: From where we're looking at things now I think.

It will be.

Speaker Change: Somewhat more weighted to the back end of the year and somewhat less in the front end of the year.

Speaker Change: The main issues are.

Speaker Change: That well we are.

Speaker Change: We're obviously quite pleased that the.

Speaker Change: The temporary decline in the virtual business seems still it's run its course and we're seeing it.

Speaker Change: Now beginning a click back up.

Speaker Change: In the first quarter as I mentioned in my remarks.

Speaker Change: Still.

Speaker Change: Not in significantly below where it was in the first quarter of 2023, so it's going to take some time.

Speaker Change: For the whole range of initiatives and virtually that Brooks talked about to get us accelerating.

Speaker Change: A lot of that stuff, we'll see in the second half of the year.

Speaker Change: Sure.

Lorne Will: Uh, and we have, And we are building really a tremendous backlog. Uh, in, um..., product sales as strong as we've ever seen just in the last couple of days. A couple of days ago, we signed a very significant new order from Western Canada Lottery, which again, we probably won't be shipping until the fourth quarter. So And in the first quarter, we've still got some lingering, unusual stuff relating to the accounting restatement and so forth. So I think just reiterate, I think we're fine with the full year consensus, but the combination of a little bit of lag in the picking up strongly of virtuals, together with the very strong equipment sales backlog that's heavy. Related to the back end of the year, I think we'll see a shift from the early part of the year to the latter part of the year. I hope that's sufficient.

Speaker Change: And we have.

And we have.

Speaker Change: We're building really a tremendous backlog.

Speaker Change: In.

Speaker Change: And product sales as strong as we've ever seen just in the last.

Speaker Change: A couple of days, we signed two very significant new order from Western Canada the lottery.

Speaker Change: Again, we.

Speaker Change: We probably won't be shipping until the fourth quarter. So.

Speaker Change: And then in the first quarter, we still got some lingering.

Speaker Change: Unusual stuff relating to.

Speaker Change: The accounting restatement, so forth so I think.

Speaker Change: Just to.

Speaker Change: I'll reiterate I think we are.

Speaker Change: Fine with.

Speaker Change: Full year consensus.

Speaker Change: But the combination of Av.

Speaker Change: A little bit of lag in the picking up.

Speaker Change: Strongly or virtual <unk>.

Speaker Change: Together with that.

Speaker Change: Very strong equipment sales backlog that's heavily.

Speaker Change: Related to the back end of the year I think we will see a shift from early from the early part of the year to the latter part of the year I hope that's sufficient.

Ryan Ronald Sigdahl: Very helpful. Thanks, Brooks. Thanks, Lauren.

Speaker Change: Very helpful. Thanks, Brooks Thanks Lauren.

Lorne Will: Transcribed by https://otter.ai

Thanks, Ross that I will hand, the call back to Lorne Weil for any closing remarks.

Operator: Thank you, operator. And again, thank you everyone for joining us. Just as a reminder, our 10K will be, uh... filed sometime this morning, and anybody who wants to dig deeper, there'll be plenty of stuff in there. And we look forward to it. I guess the first quarter would be, I mean, we, you know, we're now back on our normal schedule. So our first quarter will be when it normally would be, I guess, in May-ish. And we look forward to talking to you then, so thanks.

Lorne Weil: Thank you operator.

Again, thank you everyone for joining.

Speaker Change: Just as a reminder, our 10-K will be.

Lorne Weil: File at some time this morning.

Lorne Weil: <unk>.

Lorne Weil: Anybody who wants to dig deeper there'll be plenty of stuff in there.

Lorne Weil: And.

Lorne Weil: We look forward to.

Lorne Weil: I guess, the first quarter would be.

Lorne Weil: <unk>.

We're now back on a normal schedule. So our first quarter will be when it normally would be I guess and it may ish.

Lorne Weil: And we look forward to talking to you then sell things.

Speaker Change: That does conclude today's meeting thank you all for joining and you may now disconnect.

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

Speaker Change: [music].

Speaker Change: Yes.

Yes.

[music].

Speaker Change: Yes.

Speaker Change: [music].