Inspired Entertainment, Inc. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Refinancing: Successfully negotiated refinancing of existing publicly syndicated bonds due in June 2026 with a 5-year sterling-denominated floating rate financing, expecting to finalize agreements next month.
• Deleveraging: Plan to sell holiday park business in the near term to deleveraging. The holiday park is the most capital-intensive segment. U.K. pub business plan to be transformed to be capital light like other retail businesses.
• Digital Business: Interactive shows strong growth with 49% revenue and 75% EBITDA growth in Q1. Virtuals stabilizing with key initiatives. Hybrid Dealer scaling rapidly, with sustained performance from products like BetMGM Bonus City.
• Gaming Segment: Performed well despite retail challenges in U.K., with new cabinets and cost savings initiatives, and rollout of new terminals in Greece.

Segment Performance

• Leisure: Hurt by U.K. Easter holiday slippage to the second quarter, onetime product sales slipping into the second quarter, disturbances in Brazil due to new regulations/taxes, and a $1 million EBITDA loss from lease revenue reclassification.
• Interactive: Q1 revenue grew 49% and adjusted EBITDA grew 75% over Q1 2024. North America Interactive business grew 90% against ~20% market growth. Hybrid Dealer product category is scaling rapidly with multiple derivatives in development and live with key operators like BetMGM, Caesars, etc.
• Virtuals: Showed stabilization after initial challenges. Key initiatives include launching licensed content (NFL, NBA, NHL), Brazil-specific soccer game, Greece expansion, Turkey partnership, and Virginia lottery game deployment.
• Gaming: Performed well with new cabinets for William Hill (5,000 Vantage terminals installed on time/budget), Greece terminal rollout, and strong performance in Illinois trial with portrait-style Valiant cabinet.

Guidance

• Refinancing of bonds expected to be in place next month, providing greater flexibility.
• Hoping to complete sale of holiday park business soon to aid deleveraging.
• Hybrid Dealer expected to continue scaling, contributing to EBITDA growth.
• Aim to have EBITDA margins comfortably over 40% once deleveraging initiatives are completed.

Risks

• U.K. Easter holiday slippage negatively impacted Leisure business.
• New regulations and taxes in Brazil affected Virtuals and Leisure.
• Tariff issues could potentially impact sales, though not a major current concern.
• Retail sector challenges in the U.K. affected Gaming segment performance.

Q: Talk about tariffs' ramifications on the business, cost side and player behavior?

A: Tariff not a big issue for the business. Minimal impact on Interactive business in U.S., and potential benefit in Canadian markets due to U.K. base.

Q: Virtual Sports stabilization and friction with customers?

A: Stabilization seen, continued volatility but trends positive, with initiatives like licensed content and localizing in Brazil to drive growth.

Q: Debt refinance terms comparison to existing?

A: Refinance extends maturity to 5 years, floating rate, starting rate ~10% with expected reduction to ~9.5% by end of 2025, aiming for lower interest expense with deleveraging.

Q: Deleverage and balance sheet thinking?

A: New debt deal incentivizes deleveraging, sale of holiday park and pub business transformation accelerate deleveraging.

Q: Brazil Virtual Sports revenue aspirations?

A: Focus on localizing content, targeting big customers like bet365 and Betano, and expanding market share in Brazil.

Q: Trends outside U.S./North America?

A: U.K. retail challenges but iGaming growth, Greece and Italy relatively flat but new terminals to lift Gaming segment.

Q: Digital EBITDA contribution guidance?

A: Interactive outperforming expectations, Virtuals on track, Hybrid Dealer scaling to boost digital EBITDA contribution.

Q: Free cash flow generation?

A: EBITDA up, CapEx light model, interest expense increase offset by CapEx reduction, free cash flow conversion expected to increase.

Q: Excitement about Hybrid Dealer?

A: Hybrid Dealer showing sustained performance, big operators on board, expected growth with more customers coming on board like FanDuel by end of year.