Q1 2025 Inspired Entertainment Inc Earnings Call
Speaker Change: Good morning, everyone, and welcome to the Inspired Entertainment first quarter 2025 conference call.
Please note today's event is being recorded.
Speaker Change: Please refer to the company's Safe Harbor Statement that appears in the first quarter 2025 earnings press release.
Speaker Change: which is also available in the investor section of the company's website at www.inthink.com
Speaker Change: This State Farber statement also applies to today's conference call, as the company's management will be making certain statements that will be considered forward-looking
Speaker Change: These statements are based on management's current expectations or beliefs and are subject to risk, uncertainty and changes in circumstances.
Speaker Change: In addition, please note that the company will discuss both GAP and non-GAAP financial financial measures.
Speaker Change: A reconciliation is included in the earnings press release. Did that complete it? I would now like to turn the conference over to Lauren Will. The company's executive chairman, Mr. Will, please go ahead.
Speaker Change: Thank you operator. Good morning everyone and thank you for joining our first quarter call with me here as usual our Brooks Pierce, James Richardson and Eric Carrera.
Speaker Change: Following the close of the quarter, we have successfully negotiated the refinancing of our existing publicly syndicated bonds.
Due in June , 2026 [inaudible]
Speaker Change: with a five-year sterling-denominated floating rate financing with Barclays and HQ Vora.
Speaker Change: We expected the signed definitive agreements and to have the new financing in place next month.
Speaker Change: As previously discussed, we hope to complete the sale of our Hall of A Park business in the relative near term, and we intend to use the proceeds towards the leveraging. Finally, it's compared to our existing bonds.
Speaker Change: The new financing will allow much greater flexibility going forward. All in all then, we're very pleased to have successfully negotiated this financing in the less than ideal environment. Thank you very much.
Speaker Change: with two lenders with whom we have had great relationship for many years. Let me stay on this issue of deleverging for a little bit.
Speaker Change: Once we finalize the sale of our holiday park business, we will have the best of the part of our business with the highest relative capital intensity.
Speaker Change: As we explained in the past, our recurring retail betting shop revenue at the UK and Europe is at this point predominantly capitalite.
Speaker Change: and in North America, our retail business is a combination of equipment sales and recurring content revenue, similarly involving essentially no cat-backs.
Speaker Change: So, our one remaining capital intensive retail segment is the UK pub business and here again we have begun to implement a plan to mirror our other retail businesses where we will sell the equipment.
Generating Recurring and Predictable Content and Server Platform Fees and Minimize Cap-X.
Speaker Change: As with the case with our betting shop business there will be some loss of pub revenue with the transition phase since there will no longer be a return of capital component in pricing but this will be ultimately outweighed by the free cash flow of the leveraging benefit.
Speaker Change: Our goal with all these initiatives is to get our annual CapEx to around 25 million, almost all of the content related for both our retail businesses and more importantly our rapidly growing, very profitable digital businesses.
Speaker Change: So let me then turn to a discussion of our digital businesses. Our interactive business continues on its incredible growth trajectory, with revenue and EBITDA in the first quarter of its 49% and 79% respectively over Q1 2024.
Speaker Change: in margins expanding from 54% in 2024 to 64% in 2025, demonstrating the incredible scalability of this business.
Speaker Change: Virtually every week since the close of the corridor has recorded a new high.
Speaker Change: Our business in the United States in the first quarter grew by 90% against underlying market growth of about 20%, reflecting the quality and quantity of our content and the intensity of our encounter management.
Speaker Change: And bear in mind that we have only begun to see the potential for hybrid dealer.
Speaker Change: It's pretty clear at this point that looking at has the individual stakes in the United States are being forced to be far less dependent on the federal government.
Speaker Change: in terms of healthcare, education, housing and so forth. And there will be a predictable requirement for to reduce sources of state revenue. This isn't a scapegoat.
Speaker Change: I have mentioned previously that in states like Michigan, New Jersey, Pennsylvania, and most recently Delaware, eye gaming, where our interactive business participates, overwhelms sports betting in terms of revenue and profitability.
Speaker Change: So looking back over the arc of the 50 year history of the relationship between gaming and state finances, we can see pretty clearly how this is going to play out and we're ideally positioned to benefit.
Speaker Change: Our virtual sports business continues to show a remarkable level of profitability, although obviously accompanied by difficult dynamics.
Speaker Change: While the year-over-year quarterly decline in virtual sports EBITDA unfortunately masks the overall strength and acceleration of the rest of the business, the sequential performance is telling a somewhat different story. [inaudible]
Speaker Change: The data from the last several weeks is indicating that the business has ostensually stabilized and as Brooks will discuss a far greater detail driven by a number of important initiatives. We expect the business to return to year over your growth.
Speaker Change: by the third quarter or certainly the second half of this year.
Speaker Change: Together with the Strength and our Interactive and Retail Businesses, this would allow for an acceleration in aggregate comfort.
Speaker Change: And with that, I'm pleased to hand things over to Brooks. Okay, thank you, Lauren. I'll go through each business segment in some detail. My remarks would be a little longer than usual as we have the number of items to cover.
Brooks Pierce: to give a comprehensive perspective on what we're seeing in the business and the markets we serve.
Speaker Change: So again, just reiterating what Warren said, let's start with the interactive segment that continues to produce incredibly strong results
Speaker Change: and that momentum is carrying over into the second quarter with Q1 revenue increasing 49% and as Lauren mentioned, the Jezody Bidon increasing 75% over the same period, continuing the trend of substantial growth and increased operating leverage.
Speaker Change: All of this growth is broad-based geographically where we've seen the biggest growth year over years in North America, where we've now added Delaware through our partnership with Fresh Street, and the partnership is off to an outstanding start.
Speaker Change: Our game designers have increased their focus on U.S. style games, which has really paid off with leading titles like Wolf it Up and Big Piggy Bank. They use a unique game mechanic that's resonated with players.
Speaker Change: We recently completed a tour of some of the key US operators and they affirmed that our games are continuing to grow with them and that they are some of their key titles.
Speaker Change: Additionally, we're excited to be adding some key markets later this year in North America and abroad with our games going live in West Virginia as well as in South Africa.
And let's go over to Hybrid Tealer.
Speaker Change: So, hybrid dealer which comes from a combination of the game design and virtual design teams is a product category we've talked about a lot and is now scaling rapidly.
Speaker Change: So this product has three derivatives at the moment. So the branded wheel games, single zero roulette, and four ball extra bet roulette. But we have many more derivatives in development that we're excited to get out to the market.
Speaker Change: Our branded wheel games are live with both Bette MGM and Caesars in New Jersey and in Michigan with Bette MGM and with Caesars going live in Michigan and Ontario likely in the second quarter this year.
Speaker Change: We'll also deliver this product to the Pennsylvania market once we receive the requisite regulatory approvals.
Speaker Change: Bed MGM bonus city has now been live for over 14 months and has enjoyed sustained performance and even has seen substantial increases in total value played over the last two months.
Speaker Change: We're obviously gratified to see that this product has the staying power and continues to be enjoyed by players more than a year after its launch.
Speaker Change: We now also have both single zero relat live in the UK with bet 365 and with GameSys and Integrated with Relax which has it deployed with a number of operators.
Speaker Change: We expect to go live with a lot of Quebec. In May and expect that that will be a key launch for us. We'll also be rolling this out with a number of operators in Brazil, here in the second quarter and later in the year starting with Bet 365 in Brazil.
Speaker Change: And then moving on to the latest derivative game, the four ball extra bet game, now live with the game's this and relax and the early results are encouraging
Speaker Change: We'll be rolling this out to bet 365 and bet MGM in New Jersey later this quarter as well as to another to a number excuse me of additional integrators in multiple markets.
Speaker Change: Neil says it's a very busy time with this product category and we'll start sharing metrics later in the year as it settles in but I can say safely that the combination of continued growth in the core eye gaming segment along with the accelerating roll out of hybrid dealer has us feeling very good about the segment of the company. [inaudible]
Speaker Change: Going over to the virtual business, we're encouraged by the stabilization we've seen in the business after a clearly challenging start to January due to the move to a fully taxed and regulated market in Brazil that's been discussed broadly across the industry.
Speaker Change: We were no different and we're impacted as well, but have seen a steadying in that market from our two biggest customers in the last few months.
Speaker Change: We're focused on launching our license content such as the NFL, NBA, and NHL. They cater to a North American audience with key operators in North America and we aim to be able to go live with BEDMGM during the second half of the year.
Speaker Change: In Brazil, although it's early days, we launched a Brazil specific soccer game in Portuguese and with local stadium views. The early performance numbers are encouraging, with one operator showing stakes growth of over 25 percent, and we'll be deploying this version to our largest Brazil customers over the next several months.
Speaker Change: In Greece, O-Paps adding a fourth virtual sports channel to its retail state that should drive incremental play.
Speaker Change: and we've also just gone live in Turkey through our partnership with Cecil Flutter to add our virtual products in 2,000 retail shops with monitors. In addition, another 3,000 shops where customers would be able to bet using a QR code.
Speaker Change: Finally, we're excited to launch our V lottery game with the Virginia lottery, here on the second quarter, which will be our first online lottery deployment in North America through a partnership with the Ristocrat Interactive and with a very successful I-Lottery operator in the Virginia lottery.
Speaker Change: We're very active in the lottery space of both North America and around the world and they expect us to be a very good channel to the virtual sports product
Speaker Change: Moving on to the gaming segment, the business continues to perform well through a combination of new cabinets with the key customers, as well as cost savings initiative being realized despite some macro economic challenges in the retail sector in the UK.
Speaker Change: In Greece, we also expect to see the benefit of the rollout of our news terminals in the market throughout this year and have a road map of strong local based content that will be delivered
Speaker Change: And in Illinois, it's early in the trial period, but we are seeing strong performance from our portrait style, valiant cabinet, and our game subscriptions were taken up by almost all customers in the market, leading to the strongest game performance since we went live there several years ago.
Speaker Change: First quarter, last year, I was at the second quarter this year, which caused a disconnect in the performance numbers and now that we've had that holiday period, we've seen strong results at the holiday parks over that holiday weekend.
Speaker Change: With that, I'll hand it back over to Warren for any closing remarks. Thanks, Brooks. That was a great summary of the album.
Lauren: Actually an incredible range of activities going on in the company right now but I don't have any further comments to make so operator if you can please turn the program over to Q&A.
Speaker Change: Alright, at this time I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster.
Speaker Change: Our first question comes from the line of Barry Jonas from Truist Securities. Please go ahead.
Speaker Change: Hey guys, the main question we're getting now is just on the tariffs in the US. Can you maybe just talk about the ramifications on the business, both on the cost side and also if you're seeing any changes in operator or player behaviors? Thank you.
Speaker Change: Yeah, Tariff is not a big issue for us because really the only impact could potentially be in sales in Illinois, which is not a huge part of our business.
Ironically, being kind of UK-based.
Speaker Change: We have an opportunity to sell and to the Canadian markets that we think actually the tariff issue could actually potentially help us but frankly the tariff issue not a big issue for us as we're seeing it right now.
Well, there was all part of the way, um...
Speaker Change: Barry, there was a thing in the press this morning, I didn't have a chance to read it carefully, but something about announcing that President Trump.
Speaker Change: and did some kind of trade deal with the UK. So, if that's actually the case.
Speaker Change: Then we absolutely don't have any issue, you know, with Terrace obviously.
Speaker Change: One of your customers reported last night on the interactive side and said not really seeing much just confirming across your US interactive base, it's the same thing, no expected ramifications.
No, not at all. From a consumer perspective.
Speaker Change: No, I mean, as I said in my remarks, obviously the first quarter was great and the trends continue and now that we're halfway through the second quarter, we're not seeing any slowing down at all in the interactive numbers.
Speaker Change: Got it. So appreciate the commentary about the holiday park business sound and reworking the pub business. Does that sort of set you on the path to hit that 40% even to large in target you've talked about in the past and maybe just the sense of timing to achieve that goal broadly speaking.
Yeah, so um...
Speaker Change: I think it's more, once it's done, it more than sets us on the path. It pretty much guarantees that we're going to have Ibadam margins, you know, comfortably over 40%.
We're cautiously optimistic that we will conclude that...
Speaker Change: Well, certainly this year, and hopefully, you know, within the next few months.
Speaker Change: Got it. All right. Thank you so much, Gus. Mm-hmm. Thanks, Mayor.
Oh
Speaker Change: Our next question comes from the line of Ryan Sigdahl, from Craig Hallum Capital Group. Please go ahead
Speaker Change: Hey, good morning guys. I want to go to virtual sports, so if I look at comments from March 17th when you reported Q4, so quarter almost over, it said we had indeed we passed the inflection point
Speaker Change: We've seen stabilization in virtual sports in the first quarter thus far.
etc. etc. I guess what happened? Because-
Speaker Change: The numbers stepped down in a pretty big way sequentially even bigger year over year. I get the reasons and we've heard the same thing from Brazil, the transition period, flutter set at last night, etc. But just a friction with customers. But I guess what happened
Speaker Change: From the last time you guys spoke at the tail end of the quarter to I guess the results in the quarter
Speaker Change: Yeah, I mean, I think we'll a couple things. In terms of the stabilization, now obviously here we are, you know, in the early part of May, so we have another, you know, five weeks.
Speaker Change: when we talked about it in March. But now that we're in the early part of May, we just have more time to be able to see that it really has stabilized. But I will say in terms of the volatility of the course of the 13 or 14 weeks.
You know, there's ups and downs [inaudible]
Speaker Change: But just of it, Ryan, just to make it clear, you know, when we talked...
in March in the year-end conference call. So we at that point we had had...
January February March, most of March, results.
Speaker Change: and although we knew that the first quarter itself was going to be down sequentially from the fourth quarter, although at a diminishing rate.
Speaker Change: We saw pretty clearly in March that that that that once we had that step down from the fourth quarter that that had stopped that we had had definitely levels out.
Speaker Change: in January , February , March, and we still saw that in April and so far in May. So I think...
Speaker Change: You know, of the virtual sports volume and we should be heading upwards from here
Speaker Change: Great. Glad to hear the debt refinance. Anything you can share from a term standpoint? How that the rate may or may not share the existing?
Yeah, so let me start answering that Ryan by saying that in that refi, you know, we had...
Speaker Change: very importantly to minimize the call protection so that we have maximum flexibility.
Speaker Change: For example, to either refinance or to make a major M&A transaction going forward.
Speaker Change: We wanted a floating rate to take advantage of the downward sloping forward so when you're sterling curve.
Speaker Change: and ideally we also wanted a starting rate that was inside where our current bronze were creating.
Speaker Change: in a pretty tough market and I think we accomplished all these.
Speaker Change: to give in obviously that their trade-offs among them, you know, we could have agreed to a fixed rate and had other better terms but I think the idea was to get the best possible package of stuff.
Speaker Change: So with the rate reduction that coincidentally and fortuitously was announced this morning by the Bank of England
over, so-called Sonya, is a little over 10 percent.
Speaker Change: and given the slope of the curve and the currently projected rate productions.
Speaker Change: We feel that will comfortably be at about 9.5% by the end of this year.
and beyond that, we have…
Speaker Change: Two steps down in the spread as we delivered, beginning with the anticipated sale of our holiday park business later this year.
So in terms of an interest expense number...
Let's say Ryan for modeling purposes
Speaker Change: I think 30 million in interest for 2026 is a very safe number.
Speaker Change: as either the Sonya Ray drops more or more likely, we get the benefits from
Speaker Change: This is a little higher than where we are now, but from a cash point of view...
Speaker Change: given a very significant reduction in CapEx as I noted previously, we should be well ahead in terms of free cash flow.
Hopefully that answers your question.
Speaker Change: That was very, very helpful. Thank you, Lauren. And flexibility, yeah, is very important in this market and with everything I've going on looking forward to hearing the holiday Park sale. And that's it for us. Thanks. Good luck guys.
Thanks, Ryan.
Speaker Change: Your next question comes from the line of Jordan Bender from Citizens. Please go ahead.
Jordan Bender: Good morning everyone. I maybe want to follow up on the prior conversation.
Speaker Change: You mentioned several times, need tension, the deleverage and impasse quarters, you've been comfortable with the balance sheet. Is that new way of thanking really just a function of the terms of the new debt? They just become more favorable as leverage continues to fall? Is that kind of what you're getting that learn?
with a new dead deal where we, where we benefit.
Speaker Change: from de-leveraging. It gives us plenty of incentive to de-leverage, but...
Speaker Change: because we were pretty confident that we were going to be delivering. We were willing to enter into a deal where we would get to where we feel we want to be, you know, once we delivered. So I think I think the deliveraging is...
It has always been sort of implicit [inaudible]
Speaker Change: as our fastest growing and most profitable and least capital intensive business as a digital business and the slower growing business is the retail business.
Speaker Change: but the sale of holiday parks and the, let's say, remodeling of our of our park business
Speaker Change: Great. And moving back to Brazil, it was fairly well telegraphed, that market had a slow start and it's good to see your scene stabilization there.
Speaker Change: Carrera is on the adoption rate of the new wave of players to the virtual sports market and we've all seen the estimates for the size and potential Brazil. But is there any kind of aspirational number in terms of revenue that you could look to drive from that market? Thank you.
Um, yeah, I mean, I want to think that I mentioned-
Speaker Change: is the performance that we'd seen from this kind of localized content. I mean obviously it's a very soccer slash football crazy market and that's where the majority at least in the virtual sports.
Speaker Change: is played out. We saw it with one of our smaller customers, the huge uplift. We actually just went live yesterday with one of our two big customers in Brazil with that product, and we saw very nice day yesterday, obviously very early days.
Speaker Change: You know, the thing that we need to do in Brazil quite frankly is we need to get, you know, we have the two biggest customers.
Speaker Change: Bet365 and Patano, which we think represent about 40% of the market. Yeah, add, entertain, and with sporting bed, and we kind of have half the market, but we need to get the other half of it.
Speaker Change: You know, a little bit longer than probably we would hope to develop, but we are very bullish based on what we see from our existing customers that Brazil is going to be a very, very strong market for virtual sports.
Great. Thank you very much.
No problem.
Speaker Change: Your next question comes from the line of Chad Beynon from Aquarius, let's go ahead.
Chad Baynon: Good morning. Thanks for taking my question. I wanted to ask about just trends that you're seeing outside of the U.S. or North America. I think we all have a pretty good handle in terms of the consumer here, but as we look
Chad Baynon: to really kind of focus in on that, but but any additional color just in terms of if you're seeing the consumer in those areas holding up through this period. Thank you. Yeah, yeah, sure. Yeah, and I know, you know, some of the operators in the UK have already reported, maintained which is not a retail customer bars, but they reported they were I think down 4%.
So the overall market for us is up.
Chad Baynon: In Greece, it's relatively flat but as we've talked about in the past, we're just rolling out some of our new terminals so we would expect that to give us a lift.
Chad Baynon: over the course of the year, but Greece as a market itself is relatively flat. I'd say the same thing for Italy. So, you know, UK is the only one that we're seeing a little bit of softness.
Chad Baynon: with customers that have had the vantage terminal for over a year, but thankfully William Hills kind of hitting on on also unders for us so the market itself in totals up for us.
Speaker Change: Great. Thank you. And then, Lauren, last quarter, I believe it was, you made a comment just in terms of
Speaker Change: Sounds like things are progressing pretty well in all the initiatives, you know, continue to look good as we kind of get through the year. Has anything changed just in terms of how you view the contribution of EBITDA for the year?
No, I mean, I think the...
The Interactive
is
Really so far outperforming where.
Speaker Change: Without the benefit of any new states is kind of pretty remarkable.
And I think for all the reasons that Brooks said,
We're starting to feel
Speaker Change: and the data is supporting it, you know, pretty good about, you know, where virtuals is headed. So, I think
of ultimately divesting.
Speaker Change: The holiday park business and the tremendous performance we're seeing from digital, I would imagine that by the end of the year, we'll be at least at the level that we talked about last time and it's not a fire.
Speaker Change: You know, what we would classify as Tier 2 operators, you know, under this relaxed integration. We're starting to see a pretty broad base support for this, you know, on a pretty much everyday basis.
Speaker Change: That side of the business is growing. So now it's really about how can we get that out to as many customers as possible? It's definitely not a demand issue. It's a supply issue that we've got to get this out to as many customers as we can. But that's only going to add to the percentage of the business of the EBITDA contribution that will be digital. So let's move on to the next slide.
Thank you, boss.
You're welcome.
Speaker Change: Your final question comes from the line of Josh Nichols from B.R.I. Lee Securities Please Go ahead.
Josh Nichols: Thanks for taking my question. Very nice step up during the quarter in cash. I just want to talk a little bit about...
Speaker Change: How should we be thinking about free cash flow generation going forward, just given the dynamics you have with increasing high margin digital revenue, you have as well as CapEx light model that you've been implementing in this new debt facility?
Yeah, I mean, I think-
you know, a specific number because we
We tend to try not to get involved in.
You know, guidance per se, but-
Certainly, all the components.
Uh, that would go into...
Defining what are pre-cash-low, are moving positively, Ebidah is obviously going up.
The portion of Ebidah that has...
as I mentioned before, we've got a little bit.
of increase in interest expense, but...
Speaker Change: That will be far more than offset by a decline in CAPEX, which we think as I said earlier is going to probably settle it around 25 million year, which is way below where it is now.
Um, so I think-
our free cash flow conversion.
is going to steadily increase.
Speaker Change: They're going to be years when it's going to be up or down depending upon how working capital plays itself out, you know, it always seems.
Speaker Change: Thanks, and then just last follow up for me just there's a lot of irons in the fire so to speak, particularly I think for the second half that provides some very interesting opportunity [noise]. If you would pick what you'd probably most excited about I'm guessing hybrid dealer if you could just talk about.
Speaker Change: Is the expectation there that as this ramps that [noise] you think that the the growth rate that that business is seen is is sustainable or could even possibly accelerate presumably it's not a very big right percentage of.
Speaker Change: Avenue today, but that should be increasing given the opportunities you've talked about over the last couple of quarters. Yeah. I mean, I think you answered. The question very well is that is exactly how we feel is that hybrid dealer look.
Speaker Change: Super excited about how just the core eye gaming business is growing and we're taking share and the performances has been phenomenal and its early days with hybrid dealer, but its clear.
Speaker Change: The example, I looked at was or that I mentioned was the bed MGM bonus wheel. That's been out now for 14 months and this is it's not like eye gaming, where you know they have a kind of a short lived trajectory and then they fade out. This is a game that's been out for 14 months.
Speaker Change: Excited about from a growth standpoint, starting from pretty small start but yeah. That's by the end of the year I think we'll certainly be able to guide to how big we think that business can be for us.
Speaker Change: Appreciate it thank you.
Speaker Change: You're welcome.
Speaker Change: I will now turn the call back over to Mr will for closing remarks. Thank you operator, [noise] and thank you everyone for.
Speaker Change: Joining us on our call we know that.
Speaker Change: Ken has their call starting at nine so for those of you who are still on our call.
Speaker Change: We will now release you to jump on the pin call.
Speaker Change: Thank you for your support and we look forward to talking to you in a few months. Thanks.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.