Inspired Entertainment, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• EBITDA for Q2 was $28.4 million, up 15% year-over-year, with margins improving to 35%.
• The Interactive business was the primary growth driver, with North America contributing half of the EBITDA growth. Superior game content and account management were key drivers for North American performance.
• The company refinanced its credit facility and is working on converting a floating rate Sterling facility to fixed rate debt. The holiday park sale is expected to close by the end of October, aligning the business mix more towards digital.
• Brooks Pierce detailed segment performances, including Interactive's strong growth, Virtual Sports' stabilization and innovation plans, Gaming's robust quarter, and Leisure's transformation towards a capital-light model.

Segment Performance

• Interactive: EBITDA grew nearly 50% year-over-year in Q2. Achieved eighth consecutive quarter of over 40% year-over-year adjusted EBITDA growth, with adjusted EBITDA margin expanding to 67%. Hybrid Dealer is in early development, with multiple versions of Roulette and wheel games deployed, and progress seen with various customers.
• Virtual Sports: Stabilized in Q2, with EBITDA margin of 72% in Q2. The segment has strong cash contribution, and product innovations are planned for the second half, including a bespoke soccer game for Brazil and initiatives in the lottery vertical in Virginia.
• Gaming: EBITDA increased 35% year-over-year in Q2, driven by William Hill and a new contract with Jenningsbet. The Vantage cabinet is performing well across multiple markets.
• Leisure: Undergoing structural transformation with the holiday park sale in progress, and the pubs business being moved to a capital-light model.

Guidance

• Virtual Sports is expected to continue sequential growth in the second half, with product innovations and customer additions aiming for year-over-year growth by year-end.
• Hybrid Dealer is in early development but showing progress, with new products planned, including a game with FanDuel set to launch in September.
• Gaming anticipates continued growth from existing customers, with opportunities in Canadian provinces, Illinois' replacement cycle, and Brazil.
• The Leisure segment's transformation is expected to align with digital growth and help achieve the target EBITDA margin of 40%.

Risks

• No specific risks explicitly discussed in the transcript, but general market and regulatory uncertainties could impact business performance.

Question and Answer

• Q: Talk more about the momentum in Hybrid Dealer. A: Hybrid Dealer has a mix of Tier 1 and Tier 2 customers, including through aggregators like Relax and Games Global. Some products like roulette and wheel games are doing well, while others need innovation, with product demonstrations planned at G2E.
• Q: Is Virtual Sports expected to see an inflection point in EBITDA growth? A: Likely in Q4 rather than Q3, with new products and customer additions in markets like Brazil and the U.K. expected to drive growth.
• Q: What are the growth drivers for the Gaming segment? A: Existing customers in Canadian provinces and Illinois, the replacement cycle in Illinois, and potential in Brazil, along with the performance of the Vantage cabinet.
• Q: Which new international markets are promising for Hybrid Dealer? A: Early stages, similar to the iGaming rollout, with focus on existing markets like North America, U.K., Greece, and Brazil, with a bespoke game for FanDuel in September.
• Q: What are the capital deployment priorities? A: Growth of digital businesses is capital-light, so first priority is funding business growth, followed by debt reduction, and then consideration of share repurchases.