Inspired Entertainment, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Interactive: Continues on growth tier with accelerating revenues and expanding margins. Seasonal games strong, e.g., Golden Halloween Winner in Oct. Christmas theme games ready for Dec. Adding Peru and South Africa in Q4; plan to add studio capacity.
• Virtual Sports: Impact from largest customer decline, but other customers' recurring revenue growing. New licenses and Brazil expansion planned, though delayed by various issues.
• Gaming: Cost savings initiatives taking effect. Deliverables in Q4 2024 and Q1 2025. Introduced Valiant cabinet for North America. Lottery Systems making progress on cloud-based system.
• Leisure: Strong Q3 performance due to operating leverage. Content, cabinet, and service strategies in other segments yielding results.
• Cash: Ended Q3 with $36.5M cash, up from $23.5M Q2. Expect cash balance $50M-$55M by end of Q1 2025, Q4 2024 in between.
• Holiday Parks: Projecting $5M free cash flow in 2025. Plan to consolidate and reengineer remaining retail businesses.
• CFO Change: James Richardson joining as CFO Jan 1, 2025; Marilyn Jentzen to stay as Transformation Officer.

Segment Performance

• Interactive: Revenue increased 40% over Q3 2023, EBITDA up 47% Y/Y. Adjusted EBITDA margin at 67.6%. October set new monthly revenue high. Adding Peru and South Africa in Q4 2024. Plan to add studio capacity. Revenue contribution from Interactive is growing due to strong game roadmaps and new markets.
• Virtual Sports: Impacted by largest customer decline, but other customers' recurring revenue grew 11% Y/Y. New licenses (NFL, NBA, NHL) and Brazil expansion, but delayed by customer resource issues, tech integrations, and regulatory approvals.
• Gaming: Revenue excluding low-margin sales up 4% Y/Y, EBITDA up 29% Y/Y. Cost savings initiatives. Deliverables in Q4 2024 and Q1 2025. Introduced Valiant cabinet. Lottery Systems grew 8% Y/Y.
• Leisure: Revenue up 5% Y/Y, EBITDA up 17% Y/Y. Strong in historically busiest quarter. Reviewing strategic options for holiday parks, but other segments' content, cabinet, and service strategies are bearing fruit.

Guidance

• Expect cash balance to be between $50 million and $55 million at the end of the first quarter of 2025, with Q4 2024 in between.
• Comfortable with consensus for 2025 given multiple growth levers like Interactive growth, Hybrid Dealer potential, and structural margin improvement.

Risks

• Virtual Sports delayed by customer resource issues, technical integrations, and regulatory approvals.
• Customer concentration impact on Virtual Sports revenues, though other customer segments growing.

Question and Answer

Q: Thoughts on 2025 growth levers and consensus.

A: Lorne Weil stated they're comfortable with consensus but no specific guidance yet, noting multiple growth levers like Interactive growth, Hybrid Dealer potential, and restructuring.

Q: Capital allocation focus on M&A vs share repurchases.

A: Lorne Weil said balance sheet is good, can debt finance acquisitions, and no conflict with share repurchases.

Q: Update on gaming product refreshes, esp. Vantage with William Hill.

A: Brooks Pierce said similar uplift to Betfair/Paddy Power, Illinois strategy working with ongoing subscriptions.

Q: Bespoke content model for Hybrid Dealer.

A: Brooks Pierce said blend of bespoke (upfront fees) and standard products, with recurring revenue.

Q: UK market for Interactive, regulatory and market share.

A: Brooks Pierce said growth, higher market share due to retail machine base in UK.

Q: Timing of 40% margin goal.

A: Brooks Pierce and Lorne Weil said driven by mix shift to digital, but timing hard to pinpoint.

Q: Hybrid Dealer customer data, who customers are.

A: Brooks Pierce said MGM data shows growing active and repeat players, Brazil as test market.

Q: Challenges with Virtual Sports customer integration.

A: Brooks Pierce said regulatory issues and need to get DraftKings/FanDuel onboard, with Brazil as next big market opportunity.