Q1 2024 Inspired Entertainment Inc Earnings Call

Unknown Executive: Good morning everyone, and welcome to the Inspired Entertainment first quarter 2024 conference call. All lines have been placed on mute to prevent any background noise.

Good morning, everyone and welcome to the inspired entertainment first quarter 2024 conference call. All lines have been placed on mute to prevent any back on the ice after the Speakers' remarks, they loved our 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.

Unknown Executive: 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 would like to withdraw your question, press star one again.

You would like to withdraw your question Press Star One again. Please note that this event is being recorded please refer to the company's safe Harbor statement that appears in the first quarter 2024 earnings press release, which is also available in the investors section of the company's website at Ww that I N S E dotcom.

Unknown Executive: Please note today's event is being recorded. Please refer to the company safe harbor statement that appears in the first quarter 2024 earnings press release, which is also available in the investor section of the company's website at www.insee.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 the management's current expectations and beliefs and are subject to risk, uncertainties, and changes in circumstances.

D. C Harbor statement also applies to the base 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.

Unknown Executive: In addition, please note that the company will discuss both GAAP and non-GAAP financial measures. Our reconciliation is included in the earnings press release. With that completed, I would now like to turn the conference call over to Loren Will, the company's Executive Chairman. Mr. Will, please go ahead.

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.

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

Lorne Weil: Thank you operator.

Lorne Weil: Good morning, everybody.

Loren Will: And thank you for joining our first quarter conference call. Here with me are CEO Brooks Pierce, who will provide prepared remarks in a few moments, as well as Marilyn Jensen and Eric Herrera, who are available for Q&A. As we had more or less previewed a few weeks ago in our year-end conference call, the first quarter was, to put it mildly, a metaphor for Murphy's Law. To date, we've spent well in excess of $10 million in accounting, audit, and legal expenses in connection with the accounting restatement, much of which was below the line, but a meaningful proportion impacted EBITDA, and, of course, 100% of it impacted We had other significant one-time expenses in the first quarter.

And thank you for joining our first quarter conference call here with me, our CEO Brooks fears.

Lorne Weil: Who will provide prepared remarks in a few moments as well as viral and Jensen, Eric Herrera, who are available for Q&A.

Lorne Weil: As we had more or less previewed a few weeks ago in our year end conference call. The first quarter was to put it mildly a metaphor for Murphy's law.

Lorne Weil: To date, we've spent well in excess of $10 million in accounting audit and legal expenses in connection with the accounting restatement.

Lorne Weil: Much of which was below the line but.

Lorne Weil: But a meaningful proportion of impacted EBITDA.

Lorne Weil: And of course, 100% of an impact on cash.

Lorne Weil: We had other significant one time expenses in the first quarter.

Lorne Weil: And although our equipment sales backlog is currently at record levels delivery dates have moved into the second half of the year.

Lorne Weil: Similarly during the quarter, we continue to spend significantly for recurring revenue growth initiatives.

Lorne Weil: Which will have some impact in the second quarter.

Lorne Weil: But which we are confident we will continue to grow strongly throughout the year.

Loren Will: And although our equipment sale backlog is currently at record levels, delivery dates have moved into the second half of the year. Similarly, during the quarter, we continue to spend significantly on recurring revenue growth initiatives, which will have some impact in the second quarter, and we are confident will continue to grow strongly throughout the year. But before elaborating further on these and other developments, let me preface these remarks by saying that we are anticipating a dramatic improvement in Ibiza in the second quarter.

Lorne Weil: But before elaborating further on these and other developments, let me preface these remarks by saying.

That we are anticipating a dramatic improvement.

Lorne Weil: And EBITDA in the second quarter.

Loren Will: The interactive business recorded another very strong quarter in Q1. And we see no reason for this growth to decelerate, especially given the opening of important new markets and the Steady Introduction of New Products. The pullback in our virtuals business that we have been experiencing has run its course, and we have begun to see a resumption of growth that will be driven further by the new NBA and NFL games, as well as new markets.

Lorne Weil: The interactive business recorded another very strong quarter.

Lorne Weil: Q1.

Lorne Weil: And we see no reason for this growth to decelerate, especially given the opening of an important new markets.

Lorne Weil: The steady introduction of new products.

Lorne Weil: The pullback in our virtual business that we had been experiencing has run its course.

Lorne Weil: And we have begun to see a resumption of growth that.

Lorne Weil: That will be driven further by the new NBA and NFL games as well as new markets.

Loren Will: In the Hybrid Dealer area, we're live with one product, the Game Show Wheel, with a single customer in a single market. We're seeing strong, steady growth, which augurs well for the eventual expansion into a broader customer base and many more markets around the world, very importantly, from a product point of view. We will be launching the hybrid dealer roulette game in the summer. Roulette is, by a significant margin, the largest category in the live dealer sector and one of the very largest in the entire online gaming industry.

Lorne Weil: And the hybrid dealer area Re-live with one product the game show wheel.

Lorne Weil: It was a single customer in a single market.

Lorne Weil: And we're seeing strong steady growth trajectory.

Lorne Weil: Which augurs well for the eventual expansion into a broader customer base and <unk>.

Lorne Weil: Many more markets around the world.

Lorne Weil: Very importantly from a product point of view.

Lorne Weil: We will be launching the hybrid dealer roulette game in the summer.

Rule it is by a significant margin the largest category in the live dealer sector.

Lorne Weil: And one of the very largest in the entire online gaming industry.

Loren Will: And lastly, we're putting the finishing touches on some Vantage-driven growth initiatives in our gaming business, which we believe will add significantly to EBITDA, certainly beginning in 2025, again with some possible positive impact in the fourth quarter of this year. In our last conference call, Brooks referenced our plan to generate significant margin expansion through an operational restructuring that is currently underway, and which will generate several points of company-wide margin improvement. Again, mostly impacting 2025 and beyond, but the possibility of some impact yet in Q4 this year.

Lorne Weil: And lastly were putting the finishing touches on some vantage driven growth initiatives in our gaming business.

Lorne Weil: Which we believe will add significantly to EBITDA certainly beginning in 2025.

Lorne Weil: Again with some possible.

Lorne Weil: Positive impact in the fourth quarter of this year.

Lorne Weil: In our last conference call Brooks referenced our plan to generate significant margin expansion.

Lorne Weil: Through an operational restructuring that is currently underway.

And which will generate several points of company wide margin improvement.

Again, mostly impacting 2025 and beyond.

But the possibility of some impact yet in Q4 this year.

Loren Will: In a nutshell, our plan is to separate the holiday park business, which is essentially a family entertainment-oriented business driven largely by amusement equipment, and St. David Buster's from the other parts of the leisure business, from the pub, motorway service, arcade, and bingo businesses whose business models are identical to that of our gaming business, but in different retail environments. So the functional elements of product engineering, manufacturing, platform, and content development, server hosting, and field service operations overlap almost perfectly, providing potentially huge benefits for consolidation.

And then that shell our plan is to separate the holiday Park business.

Lorne Weil: Which is essentially a family entertainment oriented business driven largely by amusement equipment.

Lorne Weil: I think David Busters.

Lorne Weil: From the other parts of the leisure business from the pub motorway service arcade and bingo businesses, whose.

Lorne Weil: Whose business model.

Lorne Weil: Models are identical to that of our gaming business.

Lorne Weil: But addressing different retail environments.

Lorne Weil: So the functional elements of product engineering manufacturing platform and content development server hosting and field service operations overlap.

Lorne Weil: Almost perfectly.

Lorne Weil: Providing potentially huge benefits to consolidation.

Loren Will: As we complete this consolidation, we can then begin to consider strategic alternatives for the holiday park business. In light of the foregoing, we're confident, as I said a moment ago, that we're seeing a very significant increase in EBITDA from the first to the second quarter of this year, perhaps on the order of give or take 50%, a sequential increase that will give us a strong platform for which to move into the back half of the year. And with that, I'll hand it over to Brooks.

Lorne Weil: As we complete this consolidation we can then begin to consider strategic alternatives.

Lorne Weil: For the holiday Park business.

Lorne Weil: In light of the foregoing, we're confident as I said a moment ago.

Lorne Weil: That we're seeing a very significant increase in EBITDA from the first to the second quarter of this year.

Lorne Weil: Perhaps on the order of give or take 50% sequentially.

Lorne Weil: The sequential increase.

Lorne Weil: That will give us a strong platform from which to move into the back half of the year.

Lorne Weil: And with that I'll hand, it over to Bruce.

Brooks H. Pierce: Okay, thank you Lauren, and I'll try to expand on several of the topics you covered in your remarks and relay our progress on some of the key initiatives we talked about in our year-end call, which ironically, only a month or so ago. The combined digital businesses, interactive, and virtual sports contributed more than 60% of our EBITDA in the first quarter, but were relatively flat compared to the prior year, but with the mix changing to more contribution from the interactive segment, but with most of the key growth drivers for virtual sports just starting to launch and with plans to accelerate throughout the year.

Bruce: Okay. Thank you Lauren and I will try to expand on several of the topics you covered in your remarks and relay our progress on some of the key initiatives, we talked about in our year end call that ironically, only a month or so ago.

Bruce: The combined digital businesses interactive and virtual sports contributed more than 60% of our EBITDA in the first quarter that are relatively flat compared to prior year, but with the mix changing to more contribution from the interactive segment, but with most of the key growth drivers for virtual sports just starting to launch and with plans to accelerate throughout.

Bruce: The year.

Brooks H. Pierce: The momentum we have been discussing in the interactive segment continued through the first quarter, with revenue being up 31% year over year on a functional currency basis and EBITDA being up 38% on the same basis. Even with these phenomenal growth rates, the numbers continue to grow, with April being our second largest month on record, and just last week being the highest revenue week we have ever had. This is testament to the strategy and execution of the interactive team, including our game design teams as well as the commercial teams, and is very broad-based across multiple tiers of customers in multiple geographies.

Bruce: The minimum or excuse me the momentum we have been discussing in the interactive segment continued through the first quarter with revenue being up 31% year over year on a functional currency basis, and EBITDA being up 38% on the same basis.

Bruce: Even with these phenomenal growth rates the numbers continue to grow with April being our second largest month on record and just last week the highest revenue we've ever had.

Bruce: The testimony to the strategy and execution of the interactive team, including our game design teams as well as the commercial teams and is very broad based across multiple tiers of customers in multiple geographies. Just for an example, we grew our market share in the U K in 2023 by 40% and then to our at our highest.

Brooks H. Pierce: Just for an example, we grew our market share in the UK in 2023 by 40% and are at our highest levels ever. We're rapidly expanding in more geographies, particularly in Latin America, as we've discussed in the past, and are confident that this part of the business will continue to thrive.

Bruce: Levels ever.

We're rapidly expanding in more geographies, particularly in Latin America as we've discussed in the past and are confident of this part of the business to continue to thrive. We're also excited about the early momentum for the hybrid dealer product in New Jersey, and will look to expand to our second state in the second quarter and to launch our roulette game by the end of the end of second quarter.

Brooks H. Pierce: We're also excited about the early momentum for the hybrid dealer product in New Jersey, and we'll look to expand to our second state in the second quarter and to launch our roulette game by the end of the second quarter and beginning of the third quarter, and then to deliver the first game to our next customer, Caesars. As we've discussed over the last few quarters on virtual sports, we've been impacted by a key customer modifying their player base to focus on players with sustainable value for them, and this has had an impact on our business.

Bruce: At the beginning of the third quarter, and then to deliver the first game to our next customer Caesars.

Bruce: As we have discussed excuse me over the last few quarters on virtual sports we've been impacted by a key customer modifying their player base to focus on players with sustainable value for them and this has had an impact on our business. There is a silver lining here. However, as we've seen the stabilization of the virtual business at these levels for the last few key.

Brooks H. Pierce: There is a silver lining here, however, as we've seen a stabilization of the virtuals business at these levels for the last few quarters and saw the remainder of our online virtuals business grow 27% year over year. We just went live today, actually yesterday, in OPAP with our NBA-licensed archive footage product with strong marketing support, and we look forward to its success as OPAP has proven to be a very strong retailer with Virtual's growth in their retail footprint growing more than 20% last year.

Bruce: <unk> and saw the remainder of our online virtual business grow 27% year over year.

Bruce: We just went live today actually yesterday and.

Bruce: Oh Pap with our NBA licensed archive footage products with strong marketing support and we look forward to its success as <unk> has proven to be a very strong retailer with virtual as growth in their retail footprint growing more than 20% last year.

Brooks H. Pierce: We continue to roll out our latest NFL game to more customers, and we're seeing growth there. But I just saw the first few clips from our latest motion capture football shoot, and it's honestly amazing how much this technology has improved over the last few years. We did full motion capture shoots for both football and hockey, and both products will be live later this year.

Bruce: We continue to rollout our latest NFL game to more customers and we're seeing growth there, but I just saw the first few clips from our latest motion capture football should and it's honestly amazing how much. This technology has improved over the last few years, we did full motion capture shoots for both football and hockey and both products will be live later this year.

Brooks H. Pierce: And as I said, we're confident this will drive player engagement and revenue and even though growth for Inspired and our operator customers. Gaming segment headwinds are primarily due to a couple of key items. First is the loss of a service contract for SSBT's that we were providing to a customer that has decided to bring that service in house.

Bruce: And they will set the standard.

Bruce: From a visual perspective, and the virtual sports business and as I've said, we're confident this will drive player engagement and revenue and EBITDA growth for inspired and our operator customers.

Loren Will: The second factor is due to a delayed rollout of our Vantage Cabinet with a key customer who's not reaping the benefits yet of the double-digit growth we're seeing with our other customers in the sector. We're hopeful that this will be mitigated by year-end, and we'll be a significant EBITDA contributor starting in Q4 this year but fully realized in 2025. We announced the sale of 720 Valor terminals to WCLC that we will deliver by the end of the year, which will be a big driver of the improvement in gaming performance by year end.

Bruce: Gaming segment headwinds are primarily due to a couple of key items first is the loss of the service contract for SSP Ts that we were providing to a customer that has decided to bring that service in house second.

Bruce: Second factor is due to a delayed rollout of our vantage cabinet with a key customer who is not reaching the benefits yet of the double digit growth, we're seeing with our other customers in the sector. We are hopeful that this will be mitigated by year end and will be a significant EBITDA contributor starting are contributors starting in Q4 this year, but fully realized.

Bruce: In 2025.

Bruce: We announced the sale of 720 valor terminals TWC LC that we will deliver by the end of the year, which will be a big driver of the improvement in gaming performance by year end and we are seeing improved performance and good take up on our game subscriptions to our Illinois customers.

Loren Will: And we are seeing improved performance and good take-up on our game subscriptions for our Illinois customers. Lastly, our backlog of equipment sales in the AGC segment in the UK is robust and will help drive improvement in Q2 and throughout the rest of the year. Q1 is the seasonally lowest quarter for the holiday park segment, and we're gearing up for growing that part of the leisure business in Q2 and peaking by Q3.

Bruce: Lastly, our backlog of equipment sales and the AGC segment in the U K is robust and will help drive improvement in Q2 and throughout the rest of the year.

Bruce: Q1 is the seasonally lowest quarter for the holiday Park segment, and we're gaining Mary gearing up for growing that part of the leisure business in Q2, and peaking by Q3.

Loren Will: The pubs business continues to perform well with Vantage Cabinet, and as most of our revenue in this part of Leisure is in weekly rentals, we are aggressively installing Vantage Cabinets in Q2 to reach our targeted install base as we move into the second half of the year. Our MSA business, or motorway services, has been challenged by extensive roadworks in the UK, impacting footfall in that part of the business, but we hope to see that improve also in the second half of the year.

Bruce: Pubs business continues to perform well with vantage cabinet and as most of our revenue in this part of leisure is in is in weekly rentals. We are aggressively installing vantage cabinets in Q2 to reach our targeted installed base as we move into the second half of the year, our MSA business. Our motorway services has been challenged by.

Bruce: That road works in the UK impacting footfall in that part of the business, but we hope to see that improve also by the second half of the year.

Loren Will: And finally, as Lorne mentioned, we're laser focused on our cost reduction plan to reach our target of 40 percent EBITDA margins, and a number of these plans are being implemented right now, but the benefit of those changes is not expected to contribute until later in the year and will be offset to some degree by the cost to implement these changes, but we are confident that these necessary steps will be carried out and contribute to improved margins in cash flow in the second And with that, I'll hand it back over to Lorne for Q&A.

Bruce: And finally as Lauren mentioned, we're laser focused on our cost reduction plan to reach our target of 40% EBITDA margins and a number of these plans are being implemented right now but.

Bruce: But the benefit of those is not expected to contribute until later in the year and will be offset to some degree by the cost to implement these changes, but we are confident that these necessary steps will be actions and contribute to improve margins and cash flow in the second half of the year and with that I'll hand, it back over to Lauren for Q&A.

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

Lauren: Thanks Brooks.

Lauren: It was an excellent summary.

Lauren: Summary.

Lauren: Operator, if you can open the programme now to Q&A. Please.

Unknown Executive: Thank you. We will now begin the question and answer session. If you have 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 would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question or listen via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking questions. Again, it is Star 1 to join the queue. And our first question comes from the line of Barry Jonas from Truvia Securities. Please go ahead. Hey guys,

Speaker Change: Thank you we will now begin the question and answer session.

Barry Jonathan Jonas: Hey guys, Thank you for taking my questions.

Speaker Change: <unk> I would like to ask a question. Please press star one on the telephone keypad to raise your hand and join the queue.

Speaker Change: I would like to withdraw your question simply press Star. One again, if you are called upon to answer. Your question you are listening via loud speakers.

Speaker Change: Please pickup your handset ensure that your phone is not in yet asking question again star one to join the queue and our first question comes from the line of Barry Jonas from <unk> Securities. Please go ahead.

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

Barry Jonathan Jonas: Hey, guys. Thank you for taking my questions wanted to start on the hybrid dealer is it possible maybe to give any more color on early performance and I'm also wondering if you've seen or been communicated.

Barry Jonathan Jonas: Any comparisons you can share relative to the live dealer product. Thank you.

Barry Jonathan Jonas:

Brooks H. Pierce: Thanks, Barry. Yeah, so as Lauren mentioned, and I think I mentioned in our remarks, it is still relatively early days. It's It's one product in one market in New Jersey. But what we've seen is pretty steady growth with some spikes of some big plays where we have some days where we have some, you know, very big players engaged. And that's really what we're looking for: the number of players and the stickiness of the product.

Speaker Change: Thanks, Barry Yeah, So as Lauren mentioned and I think I mentioned in our remarks.

Speaker Change: Is still relatively early days, it's one product in one market in New Jersey, but what we've seen is a pretty steady growth with some spikes.

Speaker Change: Some big plays where we have some days, where we have some some very big players engaged and that's really what we're looking for is the number of players and the stickiness of the product, but as Loren also mentioned and you would know from obviously following the industry like you do roulette is probably a much bigger driver of of the game.

Brooks H. Pierce: But as Lauren also mentioned, and you would know from obviously following the industry like you do, roulette is probably a much bigger driver of the game performance. And so I think we'll hold off on talking about any comps until we have a little bit more data, both in terms of having more than one market in New Jersey; Michigan is, hopefully, the market that will go next. And then obviously adding the roulette game. So as we talk on our next call, I guess in August, maybe we can give some more at that point. Okay.

Speaker Change: Performance and so I think we'll hold off on talking about any comps until we have a little bit more data.

Speaker Change: Both in terms of having more than one market in New Jersey, Michigan is hopefully the market that we'll go next and then obviously, adding the roulette game. So as we talk in our next call I guess in August maybe we can give some more.

Speaker Change: At that point.

Barry Jonathan Jonas: Okay, great. We'll definitely follow up then. And then, Lauren, we really appreciate the comments on sort of the sequential increase you expect in Q2 over Q1. But just curious, you know, last quarter you talked about being comfortable with full year consensus. You know, do you still feel the same way at this point?

Speaker Change: Okay, Great. We'll definitely follow up then and then Loren you really appreciate the comments on sort of the sequential increase you expect Q2 on Q1, but just curious last quarter, you talked about being comfortable with full year consensus.

Speaker Change: You still feel the same way at this point.

Speaker Change: Okay.

Loren Will: Let me answer that in a slightly different way, and then you can draw your own inference from it. So Uh, you know, we're pretty comfortable that, as I said a second ago, we'll see a 50% increase and conceivably more from the first quarter to the second quarter. [inaudible] We know from experience that the third quarter is typically the seasonal peak quarter, so... There's no reason to think that the third quarter won't be better than the second quarter.

Speaker Change: Let me answer that in us why only different way and then you can draw.

Speaker Change: Yeah.

Speaker Change: Your inference from it so.

Speaker Change: We're pretty comfortable that as I said, a second ago, we will see a 50% increase.

Speaker Change: And seasonally more from the first quarter to the second quarter.

Speaker Change: We know from experience that.

Speaker Change: The third quarter is typically the seasonally peak quarter. So.

Speaker Change: There is no reason to.

Speaker Change: I think that the third quarter won't be better than the second quarter.

Loren Will: Generally, the fourth quarter is not that strong, but... As I mentioned, as Brooks mentioned, we have, you know, a tremendous and growing backlog of equipment sales that will occur largely in the fourth quarter. So, I think, if you think about it in those terms and you put all those pieces together, I think you can get to where we're still pretty comfortable with, you know, a million or two up or down from where the consensus is.

Speaker Change: Generally the fourth quarter is not that strong but.

Speaker Change: As I mentioned as Brooks mentioned, we have a.

Speaker Change: A tremendous and growing backlog of.

Speaker Change: Equipment sales that will occur largely in the fourth quarter.

Speaker Change: So I think if you think about it in those terms and you put all those pieces together.

Speaker Change: I think you can get to where.

Speaker Change: We're still pretty comfortable with.

Speaker Change: A million or two up or down from where the consensus is.

Barry Jonathan Jonas: Great. All right. Thank you so much. I appreciate it.

Speaker Change: Great.

Speaker Change: Alright. Thank you so much I appreciate it.

Unknown Executive: Our next question comes from the line. Our next question comes from the line of Brian Sigdahl from Craig Hallam Capital Group. Please go ahead.

Speaker Change: Our next question.

Speaker Change: <unk>.

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

Brian: Hey, good morning, guys.

Ryan Ronald Sigdahl: I want to start on virtual sports. So EBITDA up slightly, sequentially, revenue down slightly, sequentially. I guess any structural change for the longer term or kind of historical margins you've seen from that segment? And then can you talk through any trends you've seen thus far in

I want to start on virtual sports, so EBITDA up slightly sequentially revenue down slightly sequentially I guess any structural change to the longer term or kind of historical margins you've seen from that segment.

Brian: And then can you talk through any trends you've seen thus far in Q2.

Brooks H. Pierce: Yeah, so, you know, Ryan, as you know, we're kind of in the very early days, in fact, with the NBA, day two of a product that we think is going to have very wide appeal across the business, not just in North America but, you know, throughout the world. So, the drivers that we see for the business going forward are obviously the NBA and the NFL, and we will have the new hockey game coming out as well in the fall, and then some new geographies. Brazil, obviously, is lining up to hopefully happen this year.

Speaker Change: Yeah. So.

Speaker Change: Ryan as you know, we're we're kind of in the very early days in fact with the NBA day too.

Speaker Change: Of a product that we think is going to have very wide appeal.

Speaker Change: Across the business not just in North America, but throughout the world.

Speaker Change: So the drivers that we see for the business going forward is obviously, the NBA and the NFL will have the new hockey game coming out as well in the fall.

And then some new geographies, Brazil, obviously is lining up to hopefully happen. This year. So we're expecting to see growth return in the virtual sports business.

Brooks H. Pierce: So, you know, we're expecting to see growth return in the virtual sports business in terms of the second quarter. Thus far, with whatever we are six weeks, five weeks into the quarter, it's pretty steady state. Last week happened to be a very good week, but we'll, you know, we'll kind of report on that when we can, but we're not seeing anything that's changed dramatically so far in the second quarter.

Speaker Change: In terms of the second quarter.

Speaker Change: Thus far with whatever we are six weeks five weeks into the quarter.

Speaker Change: Steady state.

Last week happened to be a very good week.

Speaker Change: But we will we will.

Speaker Change: Kind of report on that one we can but where we're not seeing anything that's changed dramatically so far in the second quarter.

Brooks H. Pierce: And then just a follow-up, kind of as you think about other markets, you mentioned Brazil, but we've seen recent launches with an operator in Spain, with Come On Group in Scandinavia, but can you talk through, maybe not as we talked about, but various markets around the world and the potential for virtual sports there? Yeah, I mean, I think the same way you did.

And then just a follow up kind of as you think about other markets you mentioned, Brazil, but we've seen recent launches with an operator in Spain with come on group in Scandinavia, but can you talk through kind of maybe not as talked about but various markets around the world and the potential for virtual sports there.

Brooks H. Pierce: Yeah, I mean, as you would know, the predominant product in virtual sports is soccer or football, depending on where you are and where you're speaking. And particularly in Latin America, with Brazil, obviously, because of the size of the population, and because of the fact that they're going to a regulated market, and, you know, there's a soccer-mad market, that's the one that we think has the most hope.

Speaker Change: Yeah, I mean, I think the as you again as you would know.

Speaker Change: The predominant product.

Speaker Change: In virtual sports is soccer or football depending on where you are where you are speaking.

Speaker Change: And particularly in Latin America, with Brazil, obviously, because of the size of the population because of the fact that theyre going to a regulated market.

Speaker Change: <unk>.

Speaker Change: As a soccer crazy market. That's the one that we think has the most hope but there is no doubt the peruse the columbia's of the world.

Brooks H. Pierce: But, you know, there's no doubt, you know, the Peru's, the Columbia's of the world, where you see iGaming expansion in some of these markets, virtual sports should, should come along as well. So we're, you know, we're kind of bullish on all of that. And clearly, North America, we still have to, you know, I think I mentioned it on the call last time that this is the year for us to kind of put up or shut up in North America.

Speaker Change: Where you see I gaming expansion in some of these markets virtual sports should should come along as well. So we're we're kind of bullish on.

Speaker Change: And all of that.

Speaker Change: And clearly in North America, we still have to I think I had mentioned it on the call.

Speaker Change: Last time this is the year for us to kind of put up or shut up in North America.

Brooks H. Pierce: And so, you know, we're seeing some early data coming out of Ontario with a big customer that's helping us feel confident that as we get to more and more customers in North America, this will appeal to players.

Speaker Change: And so we're seeing some early data coming out of Ontario, with a big customer Thats thats, helping us feel confident that as we get to more and more customers in North America that this will.

Speaker Change: This will appeal to players.

Speaker Change: Thanks, Good luck guys.

Speaker Change: Thanks Ryan.

Unknown Executive: Our next question comes from the line of Jordan Bender from Citizens JMP. Please go ahead.

Speaker Change: Our next question comes from the line of Chardan Benjamin from citizens JMP. Please go ahead.

Jordan Maxwell Bender: Good morning, everyone. You know, I want to talk about the consolidation that we're seeing here in the U.S. in the slot supplier market. Typically, that could bring some disruption. You know, when we do go through consolidation cycles like this, does this bring opportunities for you guys to maybe expand or gain some market share here in the U.S.? Thank you.

Chardan Benjamin: Good morning, everyone.

Chardan Benjamin: Talk about the consolidation that we're seeing here in the U S. In the thoughts of player market.

Chardan Benjamin: Typically that could bring some disruption when we do go through consolidation cycles like this business.

Chardan Benjamin: <unk> opportunity for you guys to maybe expand or gain some market share here in the U S. Thank you.

Brooks H. Pierce: Yeah, I mean, I think, certainly, I mean, we're not in some of the space where the disruption is happening. So we're not in class two or class three or HHR.

Speaker Change: Yeah, I mean I think.

Speaker Change: Certainly I mean, we're not in some of the space, where the disruption is happening. So we're not in class II class III or HHR.

Brooks H. Pierce: But that's not to say that, you know, we couldn't be because we certainly have the skill set and the technology to be able to do that. I guess the way I would look at it, Jordan, is the validation that we got from WCLC, in that two years ago, they took a leap of faith, going with us as a new supplier. And then subsequently, two years later, once again, gave us 100% of their capital, which to me is an affirmation that our products work in the VLT markets. So that's where our focus is, you know, all the regulated G2S, and VLT markets. But do we think that the, you know, the content that we have would resonate in those other markets? Sure, no doubt.

Speaker Change: But that's not to say that we couldnt be because we certainly have the.

Speaker Change: The skill set and the technology to be able to do that I guess the way I would look at it.

Speaker Change: Orden is the validation that we got from WC LC and.

Speaker Change: And that two years ago.

Speaker Change: A leap of faith.

Speaker Change: Going with us.

Speaker Change: As a new supplier and then subsequently two years later once again gave US 100% of their of their capital, which to me is an affirmation that our products working in the VLT markets. So that's where our focus is.

Speaker Change: All the regulated <unk> VLT VLT markets, but do we think that.

Speaker Change: The content that we have.

Speaker Change: Would resonate in those other markets sure no doubt.

Brooks H. Pierce: Great. And then on the follow-up, you know, your margin goal of 40%, you know, can, now that those processes are kind of underway, can you just talk about, you know, how you get there between, you know, is this more of a revenue growth mixed online, or is it more just kind of through some of your cost controls? Thank you. Yeah. I mean, I think it's both.

Speaker Change: Okay, Great and then on the follow up your margin goal of 40% now that that those processes are kind of underway can you just talk about.

Speaker Change: How you get there between is this more of a revenue growth mixed online or is it more just kind of it through some of your cost controls. Thank you.

Brooks H. Pierce: Yeah, I mean, I think it's both. I think it's, you know, there's some actions that we have to take that we probably shouldn't comment on at this point. But we think that there are ways to increase efficiency and improve, kind of, as Lorne alluded in his remarks, there is a very big functional overlap. And so that's something that we'll, you know, obviously try and accelerate and take advantage of that. It's, you know, come out in the press in the UK publicly that we're going to fully outsource manufacturing.

Speaker Change: Yes, I mean, I think it's both.

Speaker Change: I think it's.

Speaker Change: There is there are some there are some actions that we have to take them, we probably shouldnt comment on at this point.

But we think that there is ways to increase the efficiency and improve kind of as Lorne alluded in his remarks is there's a very big functional overlap.

Speaker Change: And so that's something that we'll obviously try and accelerate and take the benefit of that.

Speaker Change: It's come out in the press in the UK publicly that we're going to fully outsource manufacturing.

Brooks H. Pierce: So that's yet another improvement that we'll see going forward. There are a number of cost initiatives. And then on the revenue driver side, it's, it is, as you'll note, we obviously talk about the digital businesses a lot because they're the fastest growing, highest-margin part of the business. And as that continues to expand, it's just going to expand our margins. But we do, as I think Lorne mentioned in his remarks, on the gaming side, we have a couple initiatives that we think will both increase and drive revenue, but also at a higher margin. So you take the totality of all of those things. And that's why we're comfortable in, you know, targeting these 40% margins. But, as these things always do, they just take a little bit of time.

So that's yet another improvement that we'll see going forward. So a number of cost initiatives and then on the revenue driver side. It is.

Speaker Change: As you'll note, we obviously talk about the digital businesses a lot because they are the fastest growing highest margins part of the business and as that continues to expand its just going to expand our margins, but we do as I think Laura mentioned in his remarks.

Speaker Change: On the gaming side, we have a couple of initiatives that we think will both increase and drive the revenue, but also at a higher margin. So you take the totality of all of those things and Thats why we are comfortable in targeting these 40% margins, but as these things always do they just take a little bit of time.

Great. Thank you.

Speaker Change: Youre welcome.

David Bain: Our next question comes from the line of David Bain from B. Riley Securities. Please go ahead. Great, thank you.

Speaker Change: Our next question comes from the line of David Bain from B Riley Securities. Please go ahead, great. Thank you good morning, good morning Brooks.

David Bain: Great, thank you. Good morning, Lauren. Good morning, Brooks. I was hoping we could go back to what you were just discussing, Brooks. Obviously, you discussed some changes in leisure and potentially beyond that, and you seem to indicate that the holiday park segment of that was less synergistic than the rest, and I guess I'm trying to get, you know, an idea of what revenue and EBITDA are from that particular segment.

David Bain: I was hoping we can go back to what you were just discussing Brooks.

David Bain: Obviously, you discussed some changes in leisure and potentially beyond that with.

David Bain: You seem to indicate that the holiday Park segment of that was less synergistic than the rest and I guess I'm trying to get.

David Bain: An idea of what is revenue and EBITDA from that particular segment within leisure.

Unknown Executive: I'll have to look at our accounting experts.

David Bain: Okay.

Speaker Change: To look at our accounting experts I don't know that we break that out right.

David Bain: Great.

Unknown Executive: Hey Dave, we break out the revenue for Holiday Park in our KPIs, and that's probably the highest level we're willing to be transparent on.

David Bain: Yeah.

Speaker Change: We break out the revenue for holiday Park, and our Kpis and Thats probably the most.

Speaker Change: Level.

Speaker Change: To be transparent on at this stage.

David Bain: But can I assume it's a lower margin, and obviously it's very seasonal, right? Okay. Yeah. Much lower margin. Okay, okay. Thank you, that's helpful. And then I guess, you know, back to the M&A, what Jordan asked somewhat about, with regard to the announcement yesterday that I'm sure you've digested by now, any kind of new thoughts around M&A, and are we seeing different private M&A multiples than we're seeing in the public? [inaudible]

Speaker Change: Can I assume it's lower margin and obviously, it's very seasonal yes, okay, yes, much lower margin.

Speaker Change: Okay. Okay.

Speaker Change: That's helpful.

Speaker Change: And then I guess.

Speaker Change: Back to the M&A, what Jordan asked.

Speaker Change: Somewhat about with regard to the announcement yesterday that I'm sure you've digested by now.

Speaker Change: Any kind of new thoughts around M&A and are we seeing different private M&A multiples than we're seeing in the public.

Loren Will: Well, I think the AGS announcement, which was a 40% premium over the recent stock price, and the multiple, it was at least a turn-and-a-half or two turns higher than where they had been, so... That's at least one data point. You know, there are other instances, the most significant of which was the acquisition of, which I think is probably finally about to close. It has closed, yeah, or it has closed.

Speaker Change: Well I think the.

Okay.

Speaker Change: The Ags.

Speaker Change: Great.

Announcement, which was.

Speaker Change: I think it was a 40% premium over the recent stock price.

Speaker Change: And the multiple that was it.

Speaker Change: <unk> I think.

Speaker Change: Turning a half or two turns higher than where they had been so.

That's at least one data point there are other instances.

Speaker Change: The most significant was the acquisition of <unk>.

Speaker Change: Which I think is probably finally about to close.

Speaker Change: Yes.

Speaker Change: It has closed off.

Loren Will: Aristocrat, And that was for 15 times EBITDA. Now, which is a significantly different multiple obviously than what AGS is getting bought for, but the difference there is that, um, NEO is essentially 100% a digital business. And I think, um... And I think AGS is a terrific company, as you know, but I think, you know, they're probably more like 90% retail equipment business. So that would account for the difference in multiples between those two.

Speaker Change: Aristocrat.

<unk> neo.

Speaker Change: <unk>.

Speaker Change: And that was for 15 times EBITDA now.

Speaker Change: The.

Speaker Change: Which is a significantly different multiple obviously then what Ags is is getting bought four but the difference there is that.

Speaker Change: Neo has essentially 100% digital business.

Speaker Change: And I think.

Speaker Change: And I think Ags is a terrific company as you know.

Speaker Change: But I think.

Speaker Change: They're probably more like 90%.

Speaker Change: Retail equivalent business, so that would account for the difference in multiples between those two.

Loren Will: But yeah, I mean, I think generally... Particularly, I mean, there hasn't been that much in the retail business like the AGS deal, but over the last couple of years, there have been. [inaudible] several acquisitions or M&A in the digital area like The NEO, and those multiples have tended to be generally, you know, double what those companies were when they were, you know, independent companies. So. I think this is sort of the general idea.

Speaker Change: But yes, I mean I think generally.

Speaker Change: Sure.

Speaker Change: Particularly I mean, there hasnt been that much.

Speaker Change: In the retail business like the Ags deal, but there over the last couple of years they have been.

Speaker Change: Several acquisitions or M&A in the.

Speaker Change: Digital area like.

Speaker Change: The neo and those multiples have tended to be generally.

Speaker Change: Double what those companies were.

Speaker Change: When they were independent.

Speaker Change: Independent company so.

Speaker Change: I think this is sort of the general.

Loren Will: You know, state of affairs, just for what it's worth, I think. The, My own view is the acquisition or the going private of AGS is very clever, and I think the buyer is going to have a very, very successful investment.

Speaker Change: State of affairs, just for what it's worth I think.

Speaker Change: My own view is the.

Speaker Change: The acquisition or Theyre going private.

Speaker Change: Ags is very clever and I think the.

Speaker Change: The buyer is good.

Speaker Change: Is it going to have a very very successful investment.

David Bain: Okay, very good. Thank you, guys.

Speaker Change: Okay very good thank you guys.

Speaker Change: Yeah.

Unknown Executive: Again, for those who would like to ask a question, please press star 1 on your telephone keypad and wait for a name to be announced. And our next question comes from the line of Chad Beynon from Macquarie. Please go ahead.

Speaker Change: Again, we would like to ask a question. Please press star one on your telephone keypad anything in performance and our next question comes from the line of Chad Beynon from Macquarie. Please go ahead.

Chad C. Beynon: Morning. Thanks for taking my question. On the interactive business, you talked about some nice market share gains in one of the biggest markets in the world, the UK and I. Are you able to tell us kind of where your market share stands or maybe just kind of talk about opportunities to grow that even more in the UK? And then secondly, I know you talked about this last month, but any change in terms of how you're seeing the white paper implementations in interactive? I know you talked about it in virtuals, but any change in interactive? Thanks.

Chad C. Beynon: Good morning, Thanks for taking my question.

Chad C. Beynon: On the interactive business you talked about some some nice market share gains in and one of the biggest markets in the world The U K and I.

Chad C. Beynon: Are you able to tell us kind of where your market share stands or maybe just kind of talk about.

Chad C. Beynon: Opportunities to grow that even more.

Chad C. Beynon: In the UK and then secondly, I know you talked about this last month any change in terms of how you are seeing.

Chad C. Beynon: The white paper implementations and interactive I know you talked about it in virtual but any change in interactive. Thanks.

Brooks H. Pierce: Sure. Yeah, well, since you maybe, I'll answer this question in kind of two parts. Yeah, it's kind of the first time we've really talked about our market share in the UK. And we, you know, because it's kind of public information, we can track that. So the fact that we're at our highest levels ever and have grown pretty substantially over the last few years, but still, you know, we're roughly 7%. So there's, again, continued headroom for us to grow.

Speaker Change: Sure, Yeah, well, maybe I'll answer.

Speaker Change: Your question in kind of two parts yes.

Speaker Change: Just kind of the first time, we've really talked about our market share in the U K, because it's kind of public information, we can track that.

Speaker Change: So the fact that we're at our highest levels ever and have grown pretty substantially over the last.

Speaker Change: A few years, but still were roughly 7%.

Speaker Change: So there's again continued headroom for us to grow I think interestingly, there's not as much public data in North America, but we think our market share in North America is somewhere between 2% and 3% so for us being able to consistently provide good games.

Brooks H. Pierce: I think interestingly, there's not as much public data in North America, but we think our market share in North America is, you know, somewhere between two and 3%. So for us, being able to consistently provide good games on time to increase our market share in North America is a huge opportunity. And as you can imagine, you know, the increased market share is almost a 100% margin falling to the bottom line.

Speaker Change: On time.

Speaker Change: To increase our market share in North America is a huge opportunity and as you can imagine.

Speaker Change: Increased market share is almost kind of a 100% margin fall into the bottom line. So clearly we were focused on that market as well and we've talked in the past about having a dedicated studio to the North American business, which will will comment on as we develop so.

Brooks H. Pierce: So clearly, we were focused on that market as well. And we've talked in the past about having a dedicated studio for the North American business, which we'll comment on as we go. So even though the business is growing at, you know, kind of consistently 30% year over year, we still think we have plenty of headroom just because we have such a, you know, such a small market share. In terms of the white paper, probably the single biggest thing in the white paper is the allotment of B3 machines that's still yet to be determined.

Speaker Change: Even though the business is growing at kind of consistently 30% year.

Speaker Change: Year over year, we still think we have plenty of headroom just because we have such a such a small market share in terms of the white paper, probably the single biggest thing in the White paper is the allotment of <unk> machines, that's still yet to be determined.

Speaker Change: But if they increase the number of <unk> machines, we would see that as a very big opportunity to add to our equivalent backlog because we think there'll be some increased.

Brooks H. Pierce: But if they increase the number of B3 machines, we would see that as a very big opportunity to add to our equipment backlog because we think there'd be some increased terminal deployments in the UK. But the rest of it is, you know, kind of already baked into the operating model. So I don't think that there's much other than that that we see in the white paper that would have any real impact. Okay, perfect, thank you.

Speaker Change: Terminal deployments in the U K, but the rest of it is kind of been baked in already into the operating models. So I don't think that there is there is much that other than that that we see in the white paper that would have any real impact.

Chad C. Beynon: Okay, perfect. Thank you.

Chad C. Beynon: And then on the accounting items that you talked about at the outset of the call, should we expect any more in the second quarter? And I'm sorry, Lauren, I believe you quantified in terms of the impact for Q1. Could you hit on that again, please?

Speaker Change: Okay perfect. Thank you.

Speaker Change: And then on the accounting.

Speaker Change: The accounting items that you talked about it.

Speaker Change: Yes.

Speaker Change: Outside of the call.

Speaker Change: Should we expect any more in the second quarter and I am sorry, Lorne I know I believe you quantified in terms of the impact for Q1 could you hit on that again please.

Speaker Change:

Speaker Change: All right.

Loren Will: I think it's, yeah, Q1 was about 5 million. I don't actually think I commented on it. You said it had been 10 since the whole episode started. Right, you said a bunch was below the line. Yeah, some of it's, you know, 5 million is what we spent in the first quarter.

Lorne Weil: I think it's yes Q1, it was about $5 million I don't actually think I did comment on the study said.

Lorne Weil: It's been 10 since since the whole episode already set a bunch was below the line we have some that some of that.

Lorne Weil: 5 million is.

Lorne Weil: That's what we spend in the first quarter.

Chad C. Beynon: Okay, anything to expect in Q2 or Q3? Or is this behind us?

Okay, and then anything to expect in Q2 or Q3 or is this behind us.

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

Speaker Change: I think that will highs and some additional charges, but much less than $5 million and as we continue to manage that remediation effort and around our material weaknesses that we would expect to be much less and then.

Speaker Change: Additional.

Speaker Change: Legal costs, but that's it.

Chad C. Beynon: Okay, thank you very much.

Speaker Change: Okay. Thank you very much.

Speaker Change: Okay.

Loren Will: There are no more questions at this time. I will now turn the conference back over to Lauren Will for closing remarks.

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

Loren Will: Thanks, Operator. Again, thanks, everyone, for joining us. I think the first quarter clearly is not indicative of where the company is right now and where we see it progressing through the balance of the year. I think it's just one of those. Inevitably, this happens, but, you know, the second and third quarters and the quarters beyond will be dramatically improved from the first quarter, and I think by the time we get to the end of the year, we're going to be very pleased with where we are so, Thanks again for joining us, and we'll speak to you again in three months.

Thanks, operator.

Larry: Thanks, everyone for joining.

Larry: I think.

Larry: I think the first quarter clearly is not indicative of where the company is right now and where we see it.

Larry: Progressing through the balance of the year I think it's just one of those.

Larry: Quarters of that.

Larry: Inevitably happens but.

Larry: The the.

Larry: Second and third quarters and the quarters beyond.

Larry: We will be.

Larry: Dramatically improved from the first quarter and I think.

Larry: By the time, we get to the end of the year.

Larry: We're going to be very pleased with where we are so.

Larry: No.

Speaker Change: Thanks, again for joining and we'll.

Speaker Change: Speak to you again in three months.

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

Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.

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