Good morning, everyone, and welcome to the Inspired Entertainment's Fourth Quarter 2022 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] Please note, today's event is being recorded. Please refer to the company's Safe Harbor statement that appears in the fourth quarter 2022 earnings press release, which is also available in the Investors section of the company's website at www.inseinc.com. It is now my pleasure to turn the call over to Lorne Weil, Executive Chairman. Please go ahead.

Thank you, operator. Good morning, everyone. Thank you for joining our year-end conference call. Here with me on the call as usual are Brooks Pierce, who, since our last call, has very deservedly has Chief Executive added to his present title. I know you will all join me in congratulating Brooks on this great milestone. We also have our CFO, Stewart Baker, who, as you'll see in a moment, seems to have more than regained full strength since his illness some time ago. We are also joined for the first time this morning by Eric Carrera, an extremely talented finance and development executive, who recently rejoined Inspired as VP of Corporate Development. Eric was a key member of our finance and corporate development team of Scientific Games for many years, and later, a key part of our SPAC team that undertook the merger with Inspired around six years ago. Incidentally, Brooks and Eric are making this call from the ROTH Conference in California. So, if any of our listeners are attending ROTH, please feel free to track them down. I should also mention that after many years as the Chief Investor Relations Executive of Inspired, and before that Scientific Games, Aimee Remey has recently departed to pursue a really great and well-deserved opportunity elsewhere in the gaming world. Rather than try to replace Aimee, we have chosen instead to retain Jacques Cornet and his gaming team at ICR, a firm we are quite familiar with and highly confident in. One of the ICR principals did great work for us at Scientific Games, while he was head of equity capital markets at Bear Stearns. And for the last few years, ICR has very successfully handled Investor Relations for the New York Exchange listed company, Tecnoglass, an organization with which I have…

Okay. Thank you, Lorne, and thank you for the congratulations on the title change, but more importantly, my sincere thanks for the guidance and mentorship you have given me over the last 30 years now. Now into the business itself and our performance in quarter four for the full-year, and as I normally do, I'll dive a little deeper into each segment and provide perspective on what we're seeing ahead for quarter one and 2023. The business overall continues to perform extremely well, and we're encouraged by the results, and certainly the momentum that's carrying into 2023. Although we reported four segments, we view the business a bit more simplistically into the digital business, Virtual Sports and Interactive, and the land-based business gaming, which includes lottery and leisure. Digital business is characterized by higher growth rates, higher margins, lower capital intensity, and increasing opportunities for growth particularly in North America, digital now represent more than 50% of EBITDA. Land-based business is lighter from a CapEx standpoint than it has been in the past. This business is characterized by recurring revenues and growth coming from increasing the cash box of our installed base by leveraging our content capabilities across various types of venues, including betting shops, pubs, lottery, retail, adult gaming centers, holiday parks, motorway service centers and bingo halls. The land-based business also has tremendous operating synergies. We're in the midst of consolidating the service organizations across our retail business in the U.K. When we acquired Novomatic Technology business in the U.K. a few years ago, we kept the two field organizations as separate to start the process, but we've now embarked on a consolidation plan that will generate significant savings starting in the second-half of this year. Lorne constantly reminds us of the Jack Welch adage that anybody can…

Thank you, Brooks. Good morning. As has been mentioned already, we are very pleased with the performance in the quarter and the year, as a number of metrics have already been covered, I'll keep the overview of the numbers brief and also give a short update on a couple of other areas. As with recent quarters, we have been impacted by exchange rates, which come into play in a few places, but none more so than the conversion of functional currency GDP results to the reported U.S. dollar results. In Q4 of 2022, the average pound to dollar rate was 118 compared to 135 in Q4 of '21, a fall of 13%. Across the full-year, the average rate declined to 1.23 from 1.37. For this reason unless stated otherwise, I'll keep comments to functional currency variances to best focus on the underlying trends of the business. So, overall, in the fourth quarter, revenue grew 34%. And as a reminder, while the full-year number comparison to the prior-year does include the impact of lockdowns, there's no such impact in Q4. And as such, this is a like-for-like trading environment. On a segmental basis, gaming grew 61%, Virtual Sports grew 56% and Interactive grew 24%. While gaming's growth is obviously positively impacted by the delivery to Western Canada, gaming service revenue also grew an impressive 14%. Leisure declined 4% for the reasons mentioned by Brooks. It's also worth mentioning in this segment that motorway services revenue grew by 17% and the holiday part revenue growth was impacted by a tough comparative that included the benefit of a performance bonus in the prior-year. Adjusted EBITDA overall was up by a similar amount to revenue growing 33% year-on-year, and as such margins were comparable year-on-year, ironically also 33%, a thesis is that as the…

Thank you, Stewart. It's always nice to hear our report that's that positive. And no, I don't have anything further to add. Operator, so if you can open the call up to questions please.

[Operator Instructions] Your first question comes from the line of Barry Jonas from Truist Securities. Your line is open.

Hey, guys. Good morning. First off, congratulations to Brooks, and I guess my first question -- I know you are not giving guidance -- EBITDA guidance for the full-year, but there is clearly a lot of positive things you have highlighted for 2023. So, maybe as you roll it altogether, can you give any more color on how you see the consolidated EBITDA growth trajectory this year, and then any thoughts on seasonality as well? Thanks.

Well, Barry, if we gave the clear perspective on how all of the positives roll together to produce a consolidated EBITDA for 2023, I think that would probably be considered guidance. So, I don't think we can do that, but I think we feel good about the consensus numbers that through the full-year 2023 are out in the market, and we are going to do everything we can to outperform the consensus. That's about all I can say.

Okay, that's helpful. And it was pretty helpful color on the Dominican lottery and specifically iLottery. I guess as you think about the growth potential for content and platform, curious to get your thoughts around new jurisdictions legalizing or even more looking to sort of attacking existing markets for competitive wins?

Nobody knows what's going to happen with new iLottery jurisdictions. I think where we are right now is I think we are quite a ways behind where everybody would have expected we would be at this point. There is only a handful of lotteries in North America that have iLottery. There are a bunch that we know won it, and are working to make it happen, but I think it's really -- it's impossible to say at this point what's going to happen for sure. In terms of our own strategy, I think we are focused in the short-term on our content strategy, because there really isn't much opportunity at least in North America for our platform. I don't think any of the existing lottery operators are interested in particularly in changing their platform supplier. But I think as the industry grows, more and more of the revenue will be in the content side as well. But I also should say, Barry, that we are looking at a number of jurisdictions as opportunities for both platform and content outside United States. So, the DR in that sense is a demo site for us, because there are dozens of lotteries around the world, particularly in Europe that would be -- and Latin America that would be opportunities for us.

Yes, Lorne, and let me just add one more thing, and thanks Barry, for the -- well, thank you. One of the things, the nice thing about -- frankly, ironically, that things are going a little bit slower in the iLottery side is, it really does give us this opportunity, as Lorne mentioned, in the Dominican Republic to refine the product and test whether it's content, whether it's platform. So, frankly, the fact that it's going a little bit slower, I think ultimately may lead to an advantage for us, as we build out our product and our content in a market like the DR, where we can pretty much test everything. So, it's not the worst thing in the world for things to be going a little bit slower for, at least from our perspective.

Yes, that's a very good point. Thanks, Brooks.

Got it. Well, excited for the Dominican Analyst Day whenever that happens. Thanks so much for all the color, guys. I appreciate it.

And your next question comes from the line of David Bain from B. Riley. Your line is open.

Awesome. Thank you. I reiterate Barry's comment on the Analyst Day. Congrats, Brooks, and happy to hear about that.

I thought you were going to ask for an analyst week.

Yes. No, that sounds even better. Perfect. Well, yes, so the iLottery very helpful. Next, I mean obviously, Virtual Sports obvious growth engine here, I mean unique scarce to me anyway versus other products in gaming. Can you give us the set up for this year versus last year? I mean how should we view potential growth maybe going forward over the next couple of years, I mean, given where we're at today? If you can kind of big picture it, that'll be helpful. Is it mid-innings or is it still a young product?

You want to take a shot at that, Brooks?

Yes, I think we feel obviously these growth rates are tremendous, and at some point it's going to flatten out a little bit, but we certainly feel like we have a number of amazing opportunities in geographies around the world with a number of new products that are coming out. Some of the things that we've done, Dave, to increase the frequency, I mean we've taken the betting cycles down, and a number of markets going from three minutes to two minutes to even one minute. And we've seen a commensurate uplift in the revenue, which really kind of helps validate the product and we think it certainly works in every market. But obviously the biggest market that we've been talking about for quite some time is North America, and we've made progress there. I mentioned in my remarks about how Ontario has now gotten to be a significant market for us. And we've been having a number of conversations with both lottery operators and sports betting operators. And I think people are coming around to the idea that this is a product that's viable. In terms of the sports betting operators, this is a great product for them to add to their mix. So, we feel like we've got a lot of runway across all of the Virtual Sports business.

Okay, awesome. And then, thanks, Brooks. So from a content kind of creation perspective, you have iLottery, Virtual Sports, Interactive, Land-based. Can you give us a sense as to how the team is aligned? And if there's going to be any sort of changes like dedicated lottery studios, maybe from a CapEx perspective, something to think about? Or are they just really just feeding into one another? How do you kind of set this up as you broaden categories and strengthen categories going forward?

Yes, I mean it's a great question, and honestly, the content teams, if you had seen what we've done at ICE, really across the whole business, they really are kind of hitting on all cylinders. But at some point, we're going to run into -- particularly if we gain some momentum in the iLottery content space, where we're probably going to have to add capacity in terms of content. We did actually hire someone on the iLottery side who used to work for us at tie games, and he's created three games that you'll see coming out this year that we're pretty excited about. But it's certainly not out of the realm of possibility that we would add additional studio capacity, whether that be build it ourselves or potentially acquire it. So, generating kind of world-class content is really what we're all about, and we're certainly going to make sure that we have enough capacity to produce it.

Awesome. Thank you.

Thanks, Dave.

Your next question comes from the line of Ryan Sigdahl from Craig Hallum Capital Group. Your line is open.

Good morning. Congrats on the performance in 2022 and to Brooks, I want to start with gaming to Paddy Power, Betfred transitioning to the asset light model this year. Curious what that transition timeline looks like throughout the year. And then, secondly, do you have any other smaller customers that you haven't talked about that are also transitioning? Curious, more so around the supply chain and installing 7,000 cabinets with those two, but is there enough capacity to do more beyond that?

Yes, so I'll talk a little bit about the operational side, but I think Stewart probably should talk a little bit about the financial side. Yes, look, we've done this before where we've replaced a number of cabinets and we do it in partnership with our customers because we're going to install 7,000 terminals, but they're over a huge number of locations. So, from an operational standpoint, it's a lot of coordination literally from supply chain all the way through to working with our customers to get them installed in all the locations. So, that's pretty much going to take most of kind of the second, third and maybe even bleed a little bit into the fourth quarter before we'll have all of these terminals replaced. I don't know, Stewart, is there anything in terms of -- Well, I guess Ryan is just going back a little bit in terms of the forward inventory that we've done to be able to be able to deliver all this stuff, we made a conscious decision to go out and deal with anything in relation to the supply chain and get on the front foot, I think, as Stewart said in his remarks, so it's a big challenge, but we feel pretty confident about it.

Talk about any other customers potentially beyond those two to transition?

Not meaningful in terms of in the U.K. But I think I did mention that we have one jurisdiction that now is active on trial and we expect another one, both of these in North America. But this would be an order in one location of kind of 150 terminals and another one it could be up to 1,000 terminals. So, it shouldn't stretch us in any way. But we've got to go through and have successful trials with them. But obviously if we're successful there will be two more markets in North America where we'll have a presence, which is what we ultimately want to do is build a big North American gaming business.

Then just one on Interactive, so congrats on FanDuel integration, good to see that finally done; curious the timeline on the other two major iGaming operators, your leaders I guess in the U.S. market. DraftKings, beyond Pennsylvania, which I believe you're live only in that state and then that MGM and then maybe beyond those. Any updates on Caesars and Penn and some of the others?

Yes, so DraftKings were live within Connecticut and New Jersey as well. And interestingly, I don't think, we don't disclose down to the customer level, but our performance with DraftKings as of late has been very good. And MGM is our biggest customer in the iGaming space and they continue to produce their leader, I guess certainly nationwide they continue to produce amazing results with us and we have a great relationship with them. I can tell you that all of them are very excited about some of the content that we have coming out. I mentioned Terminator license, licensed brands really do resonate in the North American market, probably more so and around the rest of the world. So, we're obviously with our background with Scientific Games, with licensed products, we're very familiar with that space. So, I think you'll see more and more of that going forward as a way for us to kind of differentiate ourselves.

Great. Thanks, guys. Good luck.

Thanks, Ryan.

Your next question comes from the line of Jordan Bender from JMP Securities. Your line is open.

Great, thanks for taking my questions, and congrats again, Brooks. I want to start on the Virtual side. So, the margins for Virtual continued to get stronger, they did throughout 2022. As we look forward in the '23, are the margins you're generating now something that we should think about are these sustainable at these levels? Thank you.

From my perspective yes, from my perspective, there's no reason that the margins would be any different than what we're seeing. It's obviously a great business in terms of the growth rates and the margins. And really there's no capital for us per se, really. It's just developing the content. So, unless Stewart feels or Lorne feel any differently, I don't see any reason why margins will be any different than where they are.

No, I agree.

Go ahead, Stewart.

I agree. I mean, the business is growing, so it does continue to get a bit more operating leverage, but there's only so far that those margins can go right. And so, we might see a small increase in '23 over '22, but that's obviously the margins are high to begin with this business that we love.

Great. And then, for my follow-up, absent M&A and kind of how should we think about the capital allocation priorities in '23, you've been repurchasing shares throughout the year. I mean is that kind of how we should think about where cash is going for the year?

Yes, I think repurchasing shares is certainly in the capital allocation mix. I think the way our businesses are growing right now, there certainly isn't any feeling that we need to generate growth by acquisition because we have pretty much as much growth as we can handle consistent with our balance sheet targets. We're always looking for smaller tuck-in strategic acquisitions that can strengthen one of our businesses and give us assets or access to markets that we don't have. I'd say right now, philosophically, our M&A attitude is, we don't need to be paying unnecessarily high prices to buy earnings, but we're very interested in strengthening our competencies and adding to our asset base. So, I think that's how we're thinking about it, and I think that's realistically what you might be able to expect in 2023.

Great. Thanks.

[Operator Instructions] Your next question comes from the line of Chad Beynon from Macquarie. Your line is open.

Good morning. Thanks for taking my question. Also echo my remarks to Brooks. Congratulations. Brooks, I wanted to start with the gaming business and congrats on delivering all the Western Canadian orders in the fourth quarter. I know you talked about a few new markets that you're kind of thinking about for '23. But as we think about North American opportunities on the retail gaming side, as we look at a couple of years, is this still a priority to continue to get licensed and kind of color in the white space in other markets, or is it just harder to do, just given the types of machines you're currently offering in the market? Thanks.

Yes, thanks, Chad. Look, we think we have plenty of runways, you know this, but for everyone we'll explain, we're targeting the VLT market primarily with G2S because that's the technology that we've kind of built our business on. So, there's a number of opportunities across the Canadian provinces, certainly Oregon. So, those are the markets that we're going for. Illinois is obviously now pretty much moved into a replacement market. I would say that doing anything in the Class 3 or historical horse racing or any of that space is not something that we're contemplating at the moment. But we certainly have the competency to be able to go into those markets if we chose to. But right now we see line of sight to the VLT, G2S market is really the primary driver for our growth.

Okay, perfect. Thanks. And then, Stewart, just in terms of CapEx for the year, I don't know if you provided that number, I'm sure it will be in the Q, but could you help us with that and then a number for '23 and then also as an addendum to that, will the Betfred games that are deployed, will those kind of show an inflated CapEx number for this year, I know that will be a no margin when it's printed from a P&L standpoint, but just trying to understand the free cash flow dynamics? Thank you.

Yes, so let me start on the last bit, so in terms of the Betfred and Paddy Power, so they'll go through revenue and cost of sales, as you say, approximately no margin. So, no impact on CapEx, but will negatively impact overall EBITDA margin. So, we're going to try and make that as clear as possible going forward so we can strip that out. In terms of overall CapEx for the year, the '23, sorry '22 came in as we talked about on the prior call, just around the $40 million mark, and in '23 gets slightly complicated because some of the CapEx that we've got does come with an upfront cash consideration from customers. So, if we strip that out, it's probably in the region of kind of mid-$30 million, slightly up from where we talked about before. But see, there's a bit of inflation from those numbers that we talked about before, but also there's a lot of opportunities for us to invest in internally.

Okay, that's great. Thank you, all. I appreciate it.

Thanks, Chad.

And there are no further questions. At this time, Mr. Lorne Weil, I will turn the call back over to you for some final closing remarks.

Thank you, Operator. I don't have much to say other than obviously we're very happy with our performance last year. We're very optimistic about our performance in 2023. We appreciate all of your support, and we look forward to speaking with you in about three months. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.