Good morning, everyone, and welcome to the Inspired Entertainment Second Quarter 2024 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remark, we will have 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 second quarter 2024 earnings press release which is also available in the Investors section of the Company's website at www.inseinc.com. This safe harbor statement also applies to today's conference call as the Company's management will be making certain statements that will be considered forward-looking under securities laws and rules of the SEC. These statements are based on management's current expectations or beliefs and are subject to risks, uncertainties, and changes in circumstances. In addition, please note that the Company will discuss both 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.

Good morning, and thanks for tuning in to our second quarter conference call. Joining me this morning are CEO, Brooks Pierce; CFO Marilyn Jentzen; and VP of Corporate Development, Eric Carrera. I'll start with an overview to try and frame how we're thinking about the second quarter. and then turn it over to Brooks to elaborate on a number of very interesting and exciting initiatives that will be driving growth in the second half of this year and beyond. In our first quarter conference call, we shared that we thought our second quarter EBITDA would grow sequentially by at least 50% from the first quarter, and we ended up the quarter about 56.5% ahead, which I think is ahead of consensus as well and reflects the fact that pretty much all areas of the business are hitting on eight cylinders. The interactive business was once again the star of the show with revenue and EBITDA of 40% and 69%, respectively, ahead of Q2 2023, meaningfully outpacing the growth in the market. Market share gains were driven by new customers, new geographies, and most importantly, the launch of new products. In a moment, Brooks will discuss in some detail our Harbir dealer initiative, which we forecast will grow to become by far the largest component of our interactive portfolio. as we add new products to the category, broaden our customer base, and expand into new geographies throughout the world, again, which Brooks will discuss in a moment. In terms of profitability and cash flow, Virtual Sports continues to be our highest performing business with EBITDA margins in excess of 80% and cash conversion even higher. I don't think I have ever seen another business perform at these levels in all my years of doing this. Following a lengthy period of sustained…

Thank you, Lorne, and I'll give a little bit more color on the individual business segments and some perspective on the second half of 2024 and the drivers for the business going into 2025. The Interactive segment continued its strong growth trajectory and increasing revenue by 40% year-over-year and 6% adjusted EBITDA growth year-over-year and sequential quarter-over-quarter growth in revenue of 16% and adjusted EBITDA growth of 39%, showing the operating leverage that exists in this segment of the business. The momentum is carried through with July being our highest revenue in history and the first week of August, actually being the highest individual revenue, we've ever recorded. There are several factors that are leading to this performance, including a great content road map with consistent delivery of high-quality games, the addition of key customers, end markets, and our ability to gain market share in mature markets like the U.K. So let me give some examples of what I'm talking about. We introduced 40% more gains in Q2 versus Q1 with many exclusive games with key customers in the quarter. We launched Fan Duel in Connecticut and now serve 100% of that market and have added fanatics and parks in key states and serve above 90% of customers in the three biggest markets of New Jersey, Pennsylvania, and Michigan, and we expect to go live in both West Virginia and Delaware before the end of the year. We reached 8% market share for slots in the U.K., the highest we've ever been and quadruple what we were just several years ago, and grew our blended share of table games and slots in the U.K. from 5.4% a year ago to 7% in Q2, representing 30% growth in a very mature market. The largest component of this increase is due to…

Thanks, Brooks. I don't really have any further remarks at this time. So operator, if you could please open the program to Q&A.

We will now begin the question-and-answer session. [Operator Instructions]. The first question comes from the line of Barry Jonas with Truist Securities.

M&A and specifically take privates happening in the gaming tech space right now. Really curious to get your thoughts on how you see Inspired's positioning here.

Our positioning is to run the business as well as we possibly can and focus on the kind of performance and creation of initiatives that Brooks and I talked about just now, and we're not really worrying about the M&A and take private activity other than we continue, obviously, to look at acquisition for ourselves. But our focus is on growing the business.

And then obviously, you've outlined a lot of exciting initiatives into next year. But curious how you're thinking about capital allocation here specifically share repurchases.

Yes. Well. Obviously, we think our stock is almost laughably undervalued, and buying back stock is something we want to do. I think we all know that our liquidity has been significantly impacted by this whole restatement mess that thank God we are done with. But we probably by now have something close to $20 million more cash on the balance sheet than we have the second. So I think right now, prudence would say to focus capital allocation on rebuilding our cash. Our internal forecast is as we get into the fourth quarter, maybe even in the latter part of the third quarter, we'll see a very, very significant increase in our cash balances because the businesses are performing beautifully and we're coming into our strongest period. So I think, as we get into the latter part of the year, and if our cash builds the way our forecasts are indicating that it is then without question, our capital allocation focus would shift to going back to share repurchase.

The next question comes from the line of Jordan Bender with Citizens JMP.

Nice to see you launched content agreements with several companies during the quarter. Can you help us frame how much more runway do you have with customers or operators that you're currently not working with in the U.S. Gaming market?

Yes. Not too many, to be honest, Jordan, when I mentioned in my remarks that we're now 100% in Connecticut and over 90% in all the other big three markets. There's not a lot of customers left and those that are relatively small that we're not live with. So this has been something we've talked about for quite a while. We wanted to get the coverage of the markets. So we're pretty close to being there. Now obviously, that doesn't talk about some of the new geographies, particularly like Brazil, where the operators are starting to get their licensing in line. And obviously, we'll do the same kind of thing that we've done in the States, which is we want to cover all of that market as it goes live. But yes, in the states, we're pretty close to being where we need to be.

And then just kind of a follow-up, and maybe a consumer or market-related question, but I think Greece has been kind of a headwind for the Company, at least it was in the 1Q. Is there any update there in terms of what you're seeing from a market perspective?

Yes. I think it has been a headwind for everybody. We're still the #1 by performance in Greece, but kind of everybody has seen a little bit of softening in the Greek market. One of the things that I talked about was we expect to be installing some new equipment in Greece. Some of our competitors have actually already put some new equipment in. So, it took a little bit of time, but we'll be putting in some new equipment in Greece end of this year, the beginning of next year that we hope will actually propel our share of the market to maybe even a bigger lead, but that's probably the biggest driver. But yes, Greece in general has just been a little bit soft, kind of circa €4 or €5 a day in what we call Inspired share over the last kind of six months.

The next question comes from the line of Chad Beynon from Macquarie.

Look on the hybrid dealer and Lorne, you kind of touched on this as well, just in terms of it being potentially the biggest component of growth and maybe long-term, kind of the biggest contributing factor for your earnings. How should we expect for this to ramp? Do you think this will be an evolution for a few years in terms of a customer acceptance? Or do you think hybrid dealer adjacent to live dealer can become as big of a component of maybe North American revenues, I think, in the United Kingdom and some other European markets, it's 30%. But yes, how do you see the evolution for the segment and then more importantly for you guys?

Yes. I mean, that's an interesting question. I think in the short term, we probably have more demand than we have capacity right now. Obviously, we've -- we're rolling out that BetMGM into multiple markets, and we've announced the deal with Caesars. But quite frankly, the pipeline of deals that we've got across the business, not only in North America but around the world, is more than we can actually handle because we're also building product, as we talked about. We've got the roulette product and multiple variations of the roulette product. But from a strategy standpoint, we ultimately want to get to a fairly generic roulette product and a fairly generic side-bet roulette product so we don't have to spend as much time on the bespoke side. But going forward, to third quarter and fourth quarter of this year is going to be all about getting these games built and getting these customers live. And then I think rolling into 2025, there's kind of endless opportunities for us, both in derivatives of the relet game. We hope to do a crafts game. We'll obviously broaden our distribution to customers. And I think that's part of what both Lorne and I have talked about having this be such a meaningful contributor. The sequencing was developing the product, getting it out there, seeing if there's customer acceptance, and seeing if the take-up is what we'd hoped for and that it was sticky, and that players return to it. And all of that, we've kind of checked all of those boxes. So now it's really all about building the product as fast as we can and rolling it out as fast as we can.

One other point to add there, Chad, is in terms of your question about how big can the hybrid dealer business be relative to the traditional live dealer business. There are dozens, if not hundreds of online gaming operators around the world who simply can't afford the traditional live dealer product just because the cost of producing it is just so much higher than ours. So right now, obviously, we're focused on the top tier operators because they are the ones that want but as Brooks talked about, as we develop a generic product, that's not branded for MGM or branded for Caesars. Now for the very first time, there's a product that's available to the second- and third-tier operators who simply don't participate in that business right now. So we see that as a huge potential to expand the overall size of the market.

And then shifting to the lottery segment. Any updates in terms of what you guys are doing there or how you kind of view the opportunities within that category?

Yes. I mean a couple of things. We're working pretty actively with a number of lotteries. You probably saw that we announced a deal with [SciGames] to get our content through their content integration hub. Obviously, Lorne, in particular, but we included to have a lot of experience in the lottery industry. And we think our product would work very well. And frankly, we think hybrid dealer would work very well in the lottery segment as well. A company of our size, there's only so many of these things that you can do simultaneously. But we are very bullish on the lottery market, and we think we'll have some announcements about some additional customers in that segment coming up in the next quarter or 2.

The next question comes from the line of Ryan Sigdahl with Craig-Hallum.

Two on Interactive. One, you guys have had strong growth. A lot of that is market expansion, customer expansion, et cetera, through most of that in the U.S. you have hybrid dealer now coming in. But what's your confidence to maintain this level of revenue growth for the next several quarters? And then secondly, on hybrid dealer, do you have any player insights on kind of demographics and who is playing the game thus far? I know it's a small sample size, but is it the traditional live dealer player that's now playing both? Is it want someone that didn't play a live dealer and an [RNG] player, et cetera, et cetera? But any player help you can give would be good.

Sure. Yes. In terms of the iGaming stuff, like I mentioned, July is the highest month we've ever had. And last week, which August is typically actually a slower period was the highest revenue week we've ever had. So I'm encouraged by that, as I also mentioned in my remarks, we're now rolling out Progressive games for the first time, and we think there's some more headway or there's some more opportunity there. Clearly, Brazil is a big market that's going to come on. So we see the growth trajectory, circa 30% or higher to be sustainable here at least for the foreseeable future. In terms of your question about hybrid dealer. So the interesting thing about the mix of hybrid dealer is that the main thing we wanted our players returning. But we have a very interesting mix of players that are betting lots of money, so-called Wales, but we also have a huge number of players that are playing on an everyday basis. So the granularity of what else those customers are doing, that's really with our operators. And frankly, we probably need to sit down with BetMGM in particular, and talk about that because that will probably drive a little bit of product enhancement. But what we're seeing that we care about the most is the number of players, active players, and the number of returning players, and the mix of how they play big players versus small players. This is kind of exactly what we would hope for it goes really across the full spectrum.

That concludes the question-and-answer session, and this concludes today's conference call. Thank you for your participation. You may now disconnect.

Thank you, operator, and thanks, everybody, for participating this morning.

You're welcome. Bye.