Inspired Entertainment, Inc. Stock

Thank you. Good afternoon, everyone, and welcome to the Inspired Entertainment second quarter 2026 conference call. All participant lines have been placed on mute to prevent any background noise. After the speaker's prepared remarks, we will open the call for a question and answer session. Please note that today's event is being recorded. Before we begin, please refer to the company's forward-looking statements that appear in the second quarter 2026 earnings press release and in the accompanying slide presentation, both of which are available in the investor section of the company's website at www.earnings.com. I-N-S-E-I-N-C dot com. These also apply to today's conference call. Management will be making forward-looking statements within the meaning of United States securities laws.

These statements are based on management's current expectations and beliefs and are subject to various risks, uncertainties, and other factors that may cause actual results to differ materially. from those expressed or implied in such statements. For a discussion on these risks and uncertainties, please refer to the company's filings with the Securities and Exchange Commission. During today's call, the company will discuss both GAAP and non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures can be found in today's earnings release and slide presentation. which are both available on the website. With that, I would now like to turn the call over to Lorne Wheel, the company's executive chairman. Mr. Wheel, please go ahead.

Thank you, operator. Good afternoon. And thank you for joining our second quarter conference call. I'll begin with some overarching comments, and we'll then hand it over to Brooks, who will discuss the business in the significantly more detail. As you'll hear in a few minutes, there was a lot going on in the first half of the year. And there's even more in the second half. Revenue and EBITDA of $61 million and $27 million, respectively, in the quarter were about where we expected. And EBITDA was a little ahead of consensus. Comparison to the second quarter of 2025 isn't too meaningful because of the exclusion in 2026 of the the divested holiday park revenue and income, which were seasonally strong in 2025, as well as the impact of pub restructuring.

At the same time, however, it's instructive to compare the first and second quarters of 2026 to each other to get a sense of sequential momentum. In that case, second quarter revenue and EBITDA were 6% and 14% respectively from the first quarter, despite the impact of the near doubling of the UK Remote gaming duty beginning in April, a subject to which I will return in a moment. As a result of the combined Holly Park sale and pub restructuring, together with the momentum in our continuing digital and retail businesses, our EBITDA margin expanded by 1000 basis points year over year to 45%. In parallel, we have year to date retired 23 million in debt, repurchased over 700,000 shares and reduced our net leverage to three. So four confirms our 2026 EBITDA target range of 112 to 118 million. and guides to free cash flow conversion for the year of 20% plus of EBITDA. For reasons I will explain more fully later on the call, the true operating free cash flow of the business in 2026 has in fact been significantly better than it was in the past. what can be seen from the reported results. And for the year, we expect that on a pro forma basis, it will be in excess of 25% versus the 20% shown on the slide.

The impact of the increase in the UK gaming duty, which went into effect on April 1st, something we need to unpack a little more fully in order to fully understand how the rest of the year will unfold. As illustrated in slide 5, worldwide year-over-year growth in interactive revenue and EBITDA in the second quarter were 15% and 13% respectively. A decent but totally anomalous result in that historically interactive EBITDA has consistently grown. grown meaningfully faster than revenue due to operating leverage in the business. The cause of the second quarter anomaly is of course the UK remote gaming duty. On slide five, we illustrate that our UK gross gaming revenue in the second quarter was 40% up year over year. I should emphasize this was our gross gaming revenue, not the gross gaming revenue of the UK market itself. But the near doubling of the tax largely negated this growth, thereby depressing the margin.

The compounding effect of the increase in our GGR of 40% with the doubling of the tax rate meant that in absolute terms, our tax impact went up two and a half times from year to year. For the balance of the year, the anomaly will continue to distort year-to-year comparisons, but sequentially the situation will be quite different. In a moment, Brooks will show how in each of the last three years, consecutive second half interactive volume growth was well ahead of first half, with EBITDA growth even faster. Since the increased tax was fully in effect in this year's second quarter, we can anticipate that as we move through the balance of this year, the sequential relationship between EBITDA and revenue will revert to the historic pattern.

showing operating leverage. And with that, I'll hand it over to Brooks. Okay, thanks, Lorne. As usual, I'll provide more detail on our business segment in the second quarter and share an update on the key initiatives we're focused on for the second half of the year. Our Q2 results demonstrate continued progress in transforming the business into a more digital-led, less capital-intensive model, while increasing adjusted EBITDA, expanding EBITDA margins, generating stronger cash flow, and giving us the flexibility to continue deleveraging and repurchasing the shares where appropriate. We discussed these priorities for some time and we are pleased to see the benefits coming through. with EBITDA margin reaching 45% by the end of the second quarter, tracking in line with our full year guidance. Moving over to slide 7, retail solutions performed very well in the quarter, executing against our margin expansion strategy following last year's sale, the holiday parks business and the restructuring of our pub segment. And as a result, the business delivered EBITDA margins before corporate allocation of more than 50% for the first time. Performance was driven by continued cash box growth across our UK retail businesses, including the licensed betting offices, MSAs, pubs, AGCs, and bingo.

As previously discussed, William Hill closed just over 200 shops during the quarter, and these closures were largely their lower performing locations. which improved the performance of the remaining William Hill estate. At the same time, we successfully redeployed the removed terminals across our broader estate with further placement opportunities still ahead. In Greece, we delivered year-over-year cash box growth and further expanded our market-leading share, supported by our latest Vantage cabinets and our best-in-class content. The Vantage Flank cabinet has delivered particularly strong gains in Greece, which were reinforced by Allwin's additional order of more than 2,000 replacement machines. We expect to begin delivering those units in the fourth quarter of this year as part of the ongoing refresh of our Greek estate, with 32% of our 9,000 terminals yet to be refreshed. We also installed 125 terminals for AGLC in Alberta this quarter, further strengthening our position in the important Canadian VLT market. A key part of our retail solution strategy is continually refreshing content to keep players engaged.

And during the quarter, we sold subscription game packs to both and to more than ninety two percent of our Illinois terminal base, which has driven the best performance in that market. We've seen the date. We're also leveraging our omnichannel strategy by bringing successful online titles into retail and early results are encouraging. Wolf It Up has proven to be a top game in multiple retail markets in the UK and North America, demonstrating our ability to translate online game success into retail performance. Moving over to slide 8, the interactive business continued to perform well with adjusted EBITDA growing approximately 13% year-over-year despite the impact of the UK remote gaming tax, nearly doubling from 21% to 40% beginning on April 1st. Then we continued to gain market share in the UK, which helped offset some of the tax impact we had previously guided to. As Lorne mentioned, UK gross gaming revenue grew 40% year over year in the second quarter, underscoring the strength of our content and the continued demand for our games. On this slide, you'll see the pattern of interactive plays over the last four years and how each year the lines overlay one another in virtually the same way.

As you can see, that pattern didn't change in 2026, despite the introduction of the UK tax changes on April 1st. If this historical pattern continues for the remainder of 2026, 26 as it has in prior years. We expect the second half of the year to grow in a similar trajectory, giving us confidence in our second half targets. We've also continued to gain share in North America, led by the performance of our cash bank family games across operator customers. took advantage of the World Cup fever and released several soccer-themed skins on our most popular franchise brands. And these games kept players as engaged as the World Cup did for fans across the globe. In July, we launched on day one of Alberta's newly regulated market with all major operators, and we're very excited about this market. we see further opportunity to leverage content that has already proven successful throughout Alberta through AGLC and also Ontario and expand our presence over time. Hybrid dealers also gaining momentum with turnover increasing 13% and GGR increasing 25% from Q1 to Q2.

In Q2, we launched our branded Wolf It Up roulette game with DraftKings and added key UK operators such as Betfred, which contributed to this growth. We're also developing a bespoke BetMGM game based on the Price is Right license for delivery by the end of the year. hybrid dealer may not become as large as we originally anticipated, it certainly represents a focused opportunity within Interactive and we continue to see attractive growth potential as we expand our offerings and add new customers. And finally, we've committed significant resources to expanding our iLottery eInstance capabilities expect to begin delivering games into that vertical next year with plans that further leverage our content creation capabilities in all of these areas. Moving over to slide 9, we continue to invest in our content creation capabilities, including the building out of our newest content studio in Manchester. Be Real Games is generating a lot of buzz. Sorry about that. I couldn't help it. It's expected to launch its first game by year end.

As I've said before, the feedback we hear most often from operator customers is that they love our content, they just want more of it. So our new studio is expected to produce one additional game per month with a focus on developing more market-specific content that complements and expands our portfolio of franchise brands. We anticipate moving to slide 10, we anticipate stronger momentum across Interactive in the second half, which is traditionally higher than the first half due to our seasonal holiday game releases, one of our key strengths. The fourth quarter in particular has been our strongest period with last year's revenue increasing by over 17% and adjusted EBITDA increasing 23% compared with the third quarter. And we expect a similar seasonal uplift in 2026. In addition, we have several upfront custom game development payments scheduled for the fourth quarter, which we expect will provide an additional incremental benefit. Moving over to slide 11, a virtual sports segment delivered another quarter of stable results supported by several key initiatives launched late in the quarter that we expect to drive growth in the second half of the year.

BetMGM now has a fully integrated sportsbook solution in New Jersey and Ontario and turnover increased 50% from Q1 to Q2 with early July results showing continued growth. We also launched with BetMGM in Alberta and with other key customers there, including Bet365. Overall virtual sports revenue increased 3% sequentially, driven in part by the rollout of our Soccer 4.0 with the BetBuilder feature to key customers, as you can see in the slide. including Alwyn in Greece and Batano across Latin America. During the World Cup period, these customers saw a 6% increase in turnover generated from this product, and we'll continue to roll this product out to additional customers on a worldwide basis. Momentum is also building through the broader distribution of our virtual sports portfolio to sportsbook providers such as Playtech, where we recently just went live with the Malta Lottery. Moving over to Latin America, our partnership with Altanar delivered significant growth with turnover up 55% and GGR up 61% from Q1 to Q2 while adding several new customers and building a strong pipeline. We're also expanding in the lottery space with a Q3 launch anticipated with the Mass Lottery through our partnership with Aristocrat Interactive, which will bring us to being live in four lottery states.

We expect to update the market later this year on a few key customer additions and product enhancements. Virtual Sports remains a unique, differentiated product with high margins and significant barriers to entry, and we continue to view it as an important part of our digital strategy. Overall, we're pleased with the second quarter and the first half results, and we look forward to updating you on our continued progress in the second half. And with that, I'll hand it back over to Lauren.

Thanks, Brooks. That was a great deep dive into the range of initiatives going on throughout the company. In slide 12, we summarize the transformation we anticipate playing out through the end of 2027. The midpoint of EBITDA and EBITDA margins are expected to reach 130 million and 47% Leverage is projected to decline to under 2.5% and free cash flow conversion should comfortably be between 25% and 30%. Let me now return to the subject of pro forma free cash flow that I referenced earlier on. As a result of the contractual working capital adjustments associated with the restructuring of our pubs business. We had a one-time non-recurring cash outflow in the first half of 2026 of approximately $7 million, which is fully reflected in the reported free cash flow numbers. In that case, the free cash flow projection for the year of $23 million, shown in slide 13, becomes $30 million on a pro forma basis, or over 25% of EBITDA. our business mix swings more towards less capital intensity and our declining leverage generates interest savings, we can expect that the conversion percentage will continue to improve from 25%.

And then finally on slide 14, not to beat a dead horse, but all this comes together in the slide where we reprise the elements of the 2627 plan. I think that speaks for itself and there really doesn't require much comment. And with that, we can turn operator to Q&A, please.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster.

Your first question comes from the line of Ryan Sigdahl with Craig Hallam Capital Group. Your line is now open. Please go ahead.

Hey, good afternoon, guys. I want to start on interactive, staring at slide five, but the growth We talked to some of the business owners that we talked to. So that has decelerated pretty substantially. You explained that UK tax increase in the flow through of that, just given your share of gaming revenue click into that what the uk revenue performance was versus elsewhere or what the mix of the uk is or somehow to try and get a better underlying performance of x us or or ex UK, excuse me, from an interactive standpoint? Yes, well,.

I'll try to answer the question and see if this is what you're looking for. You know, obviously, as we put with the statistics on here, you know, the in the UK specifically was up 40%, but obviously the impact of the tax had the negative impact that you've seen on the on the revenue and EBITDA performance. In terms of gaining, in essence, you know, we think we gained share in the second quarter in the UK. The official UK GC numbers aren't out yet, but certainly in our conversation with some of our biggest operators, I'm sure. operator customers, they've said to us that we're continuing to kind of climb the ladder of performance with them. So even though the tax had obviously a pretty negative impact, frankly no more than what we had originally anticipated or guided to. But in essence, we're continuing to grow in both the North American and the UK markets.

Are you able to give what growth was ex-UK?.

I don't think we do we break that out, Eric?.

We don't break it out, but we can get back to you. Why don't we get back to you, Ryan, on that one? so we don't give you a number that's 100%.

we know for sure that the revenue growth outside of the UK was significantly higher than it was in the UK, just because the increase in the tax, I mean, if the tax had doubled from 5% to 10%, that would have been relatively insignificant. When the tax doubles from 20%, the 40%, if you go through the algebra, the, you know, what would have been a 20, indexing and a $20 tax becomes almost a $60 tax. And that comes straight off the top in terms of revenue. So the revenue was... positive in the UK, which is a miracle. Most of most operators had obviously significantly declining revenues, but it was less than the 15% global in my remarks, Ryan, is that once we lap the second quarter. So when we get to next year, then the year-to-year comparisons will have the same tax rate. So if our, uh, GGR continues to grow 40%, our revenues will continue to grow 40% and we'll see a re-acceleration back to where we were before.

But unfortunately, we have to suck it up for the balance of this year. Sticking on taxes, I think, yes,.

Yes, Sticking on Tax is a think tank in the UK. They've recommended increased tax on online gambling last year, now they're backing an increase to B2 gaming machines in this year's budget. Curious, what you guys are hearing boots on the ground there and any, any thoughts you may have around that.

Yes, well, I think one of the things that we're hearing is that the, you know, the industry probably in the online gaming tax, there was, you probably will know that there were a bunch of different factions. You know, horse racing had one view, the betting shops had another view, and the AGCs had yet another view. I think seeing how draconian the measures were and doubling of the tax rate, I think everyone in the industry now feels like they need to be aligned against this. And you've probably read, obviously read one side about increasing the taxes, but you obviously see on the industry side. What the potential job loss and and high street kind of decimation could be if there if the taxes were going up, like this group had suggested. So, look, it's impossible to predict, but we're certainly hearing and hopeful that it will be. If there's any increase in tax, it will be measured. and not what that group has suggested.

Very good. Good luck, guys. Thank you.

Your next question comes from the line of Matthew Mouse with B. Riley Securities. Your line is now open. Please go ahead.

Matthew DeJong, Josh Pardue, As Matthew offer Josh, thank you for taking my questions so I had a similar kind of question on interactive i'm just wondering, you know it's step down revenue step down sequentially slightly. Matthew DeJong, Josh Pardue, i'm wondering, is this more of the trough for the year, and how are you thinking about the sequential path from here into the seasonally strong fourth quarter.

Yes, I mean, I think the view is that and we tried to illustrate this in the slide with some of the history is that we think sequentially, you know, the, the interactive business historically over the last few years has grown. The 3rd quarter is better than the 2nd quarter. The 4th quarter is better than the 3rd quarter and we see nothing. to change our views on that. So we expect it to grow sequentially quarter. I mean, the key thing is, just to come back to your observation, is... is the second quarter sequential.

observation you made is completely due to the tax. The underlying business is growing like crazy. So now that the tax is in the calculation in the second quarter, the third quarter will reflect the full growth. in the GGR because there'll be no increase in the tax to offset it. So the second quarter is definitely a trough and the third and fourth quarter should look very good.

Great. Sounds good. Last question for me is mainly just on free cash flow conversion. I mean, you're guiding to 20% plus this year. I'm wondering what carries the conversion higher in the back half? And as leverage approaches closer to 2.5 times, does that open a refinancing that brings down the cash interest you're paying?.

Yes, so the main difference is that, as I mentioned in my remarks, that in the first half, we had this $7 million working capital adjustment associated with the restructuring and shutting down of part of our pubs business. And that was pure cash outflow that directly impacted the free cash flow in the first half, which we don't expect to see in the second half. Well, we know we won't see it in the second half. without overly complicating it. That's the main reason. Got it. Great. That was all for me. I'll hop back in queue. Thanks.

Your next question comes from the line of Barry Jonas with Truist. Your line is now open. Please go ahead.

Hey guys apologies if this was addressed but you know the UK growth offsetting the UK tax increase very impressive help us understand how do you think those gains will be sustainable I mean is this really just content driven or do you think once you lap the William Hill reallocation.

the allocations, market share gains potentially slow. Thank you. Well, the William Hill allocations, the William Hill allocations, that's all the retail thing, Barry. So that wouldn't have anything to do with the digital market.

BUT THE DANCE, THE... GO AHEAD, BARRY. I'M SORRY. NO, NO, APOLOGIES THERE. Yes, JUST HOW WE UNDERSTAND THE SUSTAINABILITY OF THESE MARKET SHARE GAMES.

Yes, I mean, I think, look, we've shown pretty consistent growth in the UK. over the last few years, I think we've gone from three or 4 percent to over 11, approaching 12 percent. And I think as we talked about in the second quarter where, you know, a lot of people might be kind of exiting the market because of some of these constraints, we're pretty much doubling down in the U.K. And part of our new content will be producing games not only for North America but for the U.K. as well. So we're, you know... we're confident that we'll continue to, you know, continue to grow our share in the UK.

The other point to add to that, Barry, is that in the UK, is the one market where we have a very significant you know, retail machine estate. And we know one of the major drivers of online performance is the multi-channel effect of people seeing the games in betting shops and arcades and so forth. And then when they leave playing those games on their phone or on their computer. So, uh, as we introduce more and more new games into the retail market, in addition to the introduction of games just.

for online, we're creating that push for our games. Yes, I think that Lauren's right. And that probably goes also away in validating the kind of disparities between our market share and the UK versus, you know, what we're getting in North America. Our UK shares more than double what we have in North America. Both are growing nicely. But Lauren's right. The footprint where you go any place in the UK where there's a gaming machine, you're going to see our games. And naturally, people play them online.

Obviously, we get that same benefit in Greece.

Got it. Just for a follow-up question, you know, you repaid debt and bought back stock in the quarter. How do you think about capital allocation priorities from here? Thank you. We're thinking about it in the same way.

There's clearly benefit to debt reduction, because obviously it not only produces a dollar for dollar absolute reduction in interest costs, It helps the computation of the stock value. And as we hit leveraging points, our spread declines. So we get a double or even a triple whammy or for paying down debt. On the other hand, you don't have to be a financial advisor financial genius to believe that at the kind of levels of SOG price where we are now. You know there's tremendous benefit to allocating stock to allocating cash to share repurchase. So I think. We're certainly going to allocate all of our excess cash one way or another to debt repayment stock repurchases and the proportions will probably shift from quarter to quarter depending upon specifically what we're trying to accomplish, but we certainly intend to continue to do both.

Perfect. Thanks, Lauren. Thanks, Brooke. See you guys out in Vegas. Sounds great. Thanks, Barrett.

Your next question comes from Jordan Bender with Citizens. Your line is now open. Please go ahead.

Hey, everyone. Thanks for the question. Maybe just follow up on Barry's question a little bit. You know, there's the provision that as your leverage gets lower, your interest rates drop up under debt and you kind of just talked about the mix between buying back stock and paying down debt, but is it kind of fair to assume then that M&A just could be off the table for the time being as you kind of seek lower leverage levels? No, I wouldn't ever put M&A off the table. You know, we have a pretty.

carefully designed template in terms of how we think about M&A. But if we have an M&A opportunity that Has significant synergies with our existing business. and which can immediately be accretive, then we'll definitely consider it. So yes, I mean, certainly, certainly to give the full picture of. Of. capital allocation, we would consider debt reduction, share repurchase, and potential acquisitions. But when we get that question on these kinds of calls about capital allocation, I don't want to speak for Barry, but normally the question asker is referring to debt reduction and share repurchase.

Understood. Okay. And then, you know, in the slides here you have – on the interactive slide you have higher incremental margin as interactive scales, which obviously makes sense. You know, we can kind of look back historically. We kind of talked about the interactive EBITDA margin in the quarter that somewhat took a down, but you know, with margins within that business kind of sitting here and here at all time highs, like realistically, um, you know, where can we kind of get EBITDA margins to over the next couple years?.

Just to be sure I'm answering that question, Jordan, are you talking about overall or just a just interactive? just your interactive margins. Just yes. I mean, look, obviously with the scaling opportunities, we think we can increase those margins. of several points, but I don't think it's going to be, this is not going to be a 10 or 15% swing. This is, I think the interactive margins are close to 70%.

now already, which is pretty healthy. Okay. Yes, the question, I guess, would have been, are we near kind of that ceiling? But you did answer that the way I was trying to ask it. So I appreciate it, and thank you very much.

Sure thing. Your next and final question comes from Chad Bainon of Macquarie, Carolina.

is now open. Please go ahead. Hi, Brooks, Lauren, and team. Thanks for taking my question. I wanted to start with retail solutions. So you talked about in the presentation, the 2,000 terminals that'll be delivered in Greece. Wanted to confirm that those are kind of the standard rev share that you already have out there. and then I'm assuming the capex for the year the 30 to 35. Is it fair to assume that a good amount of that comes from this deliverable? I'll start with that one, and then I have a couple follow-ups. Thanks. Thanks.

Well, in regards to the terms, yes, there's nothing, there's nothing changing. From the kind of last batch, the only thing I would say is the slant terminal that's kind of doing extraordinarily. Well, it's probably going to be more of the mix a, because that's the stuff that's probably makes the most sense to replace. And because it's higher performing from a yield management standpoint, they're going to take more slant terminals than they are.

our up rights. But just in terms of the capex, Eric, you want to? Eric Miller yes, sure. Just that capex, we referenced cash capex. So, it excludes any capex that is customer funded, which would be Greece, among some other you know, businesses, so you can't exclude it, just to answer your question, Ted. Okay, perfect. Thank you for that.

Also on retail solutions, it sounds like Chicago, process continues to move along. I think there's been a few dozen applications and potential licenses at this point. Is this factored into the fourth quarter? And how are you thinking about the opportunity for Chicago VLTs?.

Well, if it gives you any indication, I'll be in Chicago all next week. So I think you can read from that that I think it's a pretty important market for us. You know, I know a cell reported earlier and they talked about having the Chicago maybe actually going in the fourth quarter where they had originally said it was the first quarter of 2027. We're kind of dependent on, it's obviously dominated by two big operators, J&J and NSL, who we have very good relationships with both. So we're monitoring close. We still think Chicago is going to be a very strong market. whether it's fourth quarter of this year or, you know, moving into 2027. It's kind of hard to tell. My guess is if I had to guess, I would say we'll get some this year, but probably more next year.

Thank you. Safe travels out there. And then lastly, I want to thank you for your time. Around just the World Cup exposure with your virtual product, I know the placement with BetMGM was improved, but just any commentary in terms of if there was, you know, more penetration, more exposure to customers, either in the United States or in some of the bigger European markets.

Yes, I wouldn't say it was more exposure per se, although obviously that MGM, this was the 1st time with the World Cup that we would have had them where the other customers, you know, bet 365 and baton. We would have had that in the past. I think we've, you know, we said in the slide presentation, we had an uplift of about 6%. Some of that was World Cup, but some of that was also probably the product, you know, this soccer 4.0, which is the latest greatest graphics and included the bet builder functionality, which is. Essentially, like, same game parlay. So I think some combination of all of those helped us for the for the World Cup. World Cup and it'll be interesting to see as we go through the year, particularly now with MGM. We've been saying for a long time we really wanted a big sports betting operator in the States to be having a fully integrated virtual package and now MGM does and we would hope that some of the others will come along with that.

But I'll be very interested to see how when food football season starts American football for anyone who's questioning whether that's soccer or football. see if we're getting some continued uplift that we saw that came out of the World Cup. excited about a number of things in the second half of the year for virtual sports. Thanks, Brooks. Appreciate it, guys. Okay, Chad. Thanks.

There are no further questions at this time. I will now turn the call back to Lauren Wheel, Executive Chairman, for closing remarks.

Thank you, operator. And again, everyone, thank you for taking the time to listen to the call. I think we're pretty much on the trajectory that we've been talking about for some time. were, as I think should have been clear from my remarks and Brooke's, were very sanguine about the third and fourth quarter and as we move into 2027. And we're excited to meet with you again in three months and tell you how we're doing. So thanks again.

This concludes today's call. Thank you for attending. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Thank you, operator. Good morning, everyone. I'm Lorne Weil, Executive Chairman of the company. And on behalf of Inspired Entertainment and the Board of Directors, I would like to welcome you to the 2026 Annual Meeting of Stockholders and call the meeting to order. Stockholders have had the opportunity to submit questions in advance of the meeting through the virtual meeting website and stockholders attending today's meeting may submit questions during the meeting through the text box on their screen.

The company will respond to the questions submitted through the site and writing after the call and post the Q&A in the stockholder meeting section of our website. Carys Damon, our Corporate Secretary, will be serving as Secretary of the meeting. To begin, I have a few housekeeping matters to announce. Continental Stock Transfer & Trust Company, the company's transfer agent, has provided an affidavit confirming the mailing of the notice of the Annual Meeting of Stockholders in the proxy statement, together with the company's 2025 annual report on Form 10-K on April 23, 2026 to each stockholder of record as of April 8, 2026, the record date for the meeting.

The affidavit will be appended to the minutes of this meeting. Jeffrey Rubin, a representative of our outside legal counsel has been appointed to act as inspector of election at this meeting. His oath as inspector has been submitted and will also be appended to the minutes of this meeting. The inspector has informed me that the holders of the majority of the 26,675,353 shares entitled to vote at the meeting are present in person or represented by proxy.

Accordingly, with a quorum being present, this meeting is declared open to proceed with its business. The meeting will consider 4 proposals, each of which is described in our proxy statement, including the vote required for approval. The first proposal is election of 7 directors of the company. The Board of Directors has nominated and recommended the election of, and I hereby move that we elect as directors yours truly Lorne Weil, Michael Chambrello, Ira Raphaelson, Desiree Rogers, Steven Saferin, Katja Tautscher and John Vandemore, each to hold office until the 2027 Annual Meeting of Stockholders or until their successors are duly elected and qualified.

I second the mention

The next matter to be considered is the proposal to approve on an advisory basis, the compensation of the company's named executive officers or so-called say-on-pay. A discussion of this proposal on the text of the resolution can be found on Page 32 of the proxy statement. Information with respect to named executive officer compensation as described in the section of the proxy statement entitled Executive Compensation. I move that we approve the say-on-pay proposal.

I second the motion.

The next matter to be considered is the proposal to approve on an advisory basis, the frequency of the advisory vote on say-on-pay, so-called say-on-frequency. A discussion of this proposal can be found on Page 33 of the proxy statement. The choices are to hold say-on-pay bolts every year, every 2 years or every 3 years. The Board of Directors recommends a frequency of once every 3 years. I move that we vote on the say-on-frequency proposal.

I second the motion.

The fourth matter to be considered is the ratification of the appointment of CBIZ, CPAs, P.C. as the independent auditor of the company for the fiscal year ending December 31, 2026. The Board of Directors favors this proposal, and I hereby move that the ratification proposal being approved.

I second the mention.

We will now proceed to vote on the 4 proposals. The time is now 10:04 a.m. on Monday, May 20 -- excuse me, on May 27, 2026. And the polls are open for voting on the matters presented. Please remember that if you've already submitted your proxy, your shares have been voted accordingly. You do not need to vote today unless you are voting for the first time or want to change your previous vote.

[Voting]

Since those desiring to vote have now done so, I now declare the polls closed at 10:05 a.m. If the inspector has completed the tabulation, I now ask the inspector to announce the preliminary results of the voting.

Mr. Chairman, a plurality of the votes of the shares present at the meeting and by proxy has voted for the election of A. Lorne Weil, Michael Chambrello, Ira Raphaelson, Desiree Rogers, Steven Saferin, Katja Tautscher and John Vandemore as Directors, each to hold office until the 2027 Annual Meeting of Stockholders or until their successors are duly elected and qualified. A majority of the shares present or represented by proxy at the meeting have voted in favor of the advisory vote on the compensation of the company's named executive officers.

A plurality of the shares present or represented by proxy at the meeting has voted in favor of 1 year for the frequency of holding the advisory vote on the compensation of the company's named executive officers. A majority of the shares present or represented by proxy at the meeting has voted to ratify the appointment of CBIZ, CPAs, P.C. as the independent auditor of the company for the fiscal year ending December 31, 2026. Accordingly, each of the proposals submitted to a stockholder vote at the 2026 Annual Meeting has been approved by the stockholders.

The inspector will be furnishing a written report that will be appended to the minutes of this meeting, and we will file a Form 8-K with the SEC within 4 business days that discloses the detailed voting results of the meeting. There being no further business, I will entertain a motion that the meeting be adjourned.

I move that the meeting be adjourned.

All in favor?

Yes.

All opposed? The meeting is adjourned.

Good morning, everyone, and welcome to the Inspired Entertainment First Quarter 2026 Conference Call.[Operator Instructions] Please note that today's event is being recorded.

Before we begin, please refer to the company's forward-looking statements that appear in the first quarter 2026 earnings press release and in the accompanying slide presentation, both of which are available in the Investors section of the company's website at www.inseinc.com.

This also applies to today's conference call. Management will be making forward-looking statements within the meaning of United States securities laws. These statements are based on management's current expectations and beliefs and are subject to various risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied in such statements. For a discussion of these risks and uncertainties, please refer to the company's filings with the Securities and Exchange Commission.

During today's call, the company will discuss both GAAP and non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures can be found in today's earnings release and slide presentation, which are both available on the website. With that, I would now like to turn the call over to Lorne Weil, the company's Executive Chairman. Mr. Weil, please go ahead.

Thank you, operator. Good morning, everyone, and thanks for joining our first quarter conference call. Once again, we've prepared a slide deck to help focus the conversation, and Brooks and I will be using that for the balance of the program. So beginning with Slide 3. We continued in the first quarter to see the benefits of steps taken in 2025. As been reported previously, we took 2 important actions in 2025 to alter the balance of our portfolio. We sold the holiday park business, which we've discussed a number of times, and we restructured the pubs business to significantly reduce both capital and labor requirements.

Overall, we've reduced company headcount by about 1/3 from over 1,500 to around 950 and cut our annualized capital spending from the mid-$40 million to the low $30 million. Adjusting for the onetime impact of the holiday park and pub restructuring, which I'll discuss a little bit more in a moment, our continuing revenue grew by 15% year-to-year, driven in large part by 38% revenue growth in Interactive.

Our Q1 reported EBITDA grew by 29%. Our EBITDA margin expanded by 1,100 basis points. We paid down $13 million in debt, and we bought back close to 400,000 shares. So it was a very busy quarter.

Slide 4 illustrates a little more clearly what's going on with revenue. The actions taken in holiday parks and pub together had the effect of reducing revenue in the first quarter of 2025 by about $10 million from $60 million to $50 million, as illustrated in the slide. And then driven importantly, but by no means exclusively by Interactive growth, discontinuing revenue of $50 million grew by 15% to a little more than $57 million in the first quarter of 2026.

Interactive is certainly the primary growth driver, but as Brooks will discuss in more detail in a minute, our retail business has been performing very well in all its worldwide markets.

The sustained interactive growth illustrated in Slide 5 has in turn been driven importantly by superior content development as has the retail business, though obviously to a lesser extent. In the retail business, the markets themselves are growing less quickly and particularly in the U.K. and Greece, our market share is much higher. In just a moment, Brooks will elaborate on our content strategy, including the bringing on stream of the new studio. But along with the focus on content development, we've been entering new markets, winning new customers, strengthening our accounts management team in order to maximize the benefit of our content. And with that, I'll hand it over to Brooks.

Okay. Great. Thanks, Lorne. And moving to Slide 6 and to build on the points you made. Our core strength and focus is on developing the best content and delivering it wherever it's consumed, including retail, online or in any number of geographies worldwide.

One of our key markets is North America, which is now over 30% of our interactive GGR overall and continuing to grow. And as you can see on Slide 6, we continue to climb the ladder in the Eilers U.S. online report, moving up to fourth in the April report from #8 just a year ago. We're continuing to increase our share in both North America and the U.K. This is not-- is driven not just by content alone, but by a consistent road map of high-performing new game releases -- we've also enhanced our account management teams to work more closely with our operator partners on securing prime placements and supporting promotional activity for exclusives as a key part of our offering.

On Slide 7, you can clearly see that we've built a portfolio of high-performing content across the last few years with growth accelerating since January of 2025. We've seen these trends continue into April, where we ended the month on a high note with our highest ever single day total value played.

These continuing results validate our strategy, and we're excited to bring an additional studio online in the second half of the year to continue to feed our operator partners with more great content that they've come to count on.

Turning to the U.K. As of April 1, the increased tax rate from 21% to 40% came into effect in our Interactive business. With just over a month of data, the impact we are seeing tracks exactly with what we had forecast. Importantly, despite the step-up, we saw our U.K. Interactive revenue grow in April, driven by our continuing share gains.

Our U.K. GGR in April was more than 40% higher than a year ago, offsetting the tax increase and net-net resulting in our revenue growing by more than 10%. Where we see others retrenching in the U.K. market, we see opportunity to continue to grow our share, and we're committed to the resources to leverage this opportunity. Even with the tax headwind, the U.K. continues to demonstrate strength and resilience of this segment.

Moving to Slide 8. We're seeing the benefits of both strong content and the rollout of new machines across several key customers and geographies in our Retail Solutions business, proving that this phenomenon exists beyond Interactive. In the U.K., William Hill, in particular, but frankly, our entire U.K. LBO business showed positive momentum in the first quarter, and we expect that to continue.

We also added 2 new customers, Jenningsbet and Corbett's and signed a multiyear contract extension with Paddy Power early in the second quarter. In Greece, our win per unit per day increased 11%, led by our recently introduced Valor Slant top machine, and we will continue upgrading over the rest of 2026 and into 2027. We believe that this machine refresh will continue to drive growth in the Retail Solutions segment.

In North America, we're cautiously optimistic about the expansion into Chicago and see the broader Illinois market as a good opportunity for us over the next 12 to 18 months. And combined with our growing footprint across several Canadian provinces, we're starting to see the beginning to -- of the--providing the scale that we really need in North America.

So moving to Slide 9. As we've talked about over the last year, we've seen stabilization in Virtual Sports despite the ongoing headwinds in Brazil, which remains a key market for us. Unfortunately, growth we are seeing in other regions is currently being offset by performance in Brazil. However, we see a clear path to growth supported by additional key customers and upcoming product releases as well as the tailwind from the World Cup.

Moving to Slide 10, which I think really validates what we've been talking about for some time, optimizing our portfolio is delivering the outcome we expected, divesting the lower margin, more capital-incentive -- Lorne keep your phone off -- Divesting the lower margin, more capital-intensive and less strategic holiday parts business, along with the restructuring of our pubs estate to be less capital and labor-intensive which had the exact impact we are expecting.

As a result, the shift to higher-margin digital businesses, combined with improved retail performance is leading to overall growth in EBITDA, margin expansion and significant improvement in cash flow. And all of this is underpinned by our continued focus on delivering the best content to support this strategy. So I'll turn it back over to Lorne.

Thanks, Brooks. Just to refocus a little on the numbers, Slide 11 is once again a snapshot of where we were at the end of the first quarter. Year-to-year growth in EBITDA was 29%. Digital accounted for about 60% of our EBITDA and our leverage had declined to 3x. More importantly, Slide 12 analyzes what happened with cash. We generated about $16 million in free cash flow, which we used to both repurchase stock and repay debt. Obviously, this won't occur every quarter because every other quarter, we have a semiannual cash interest payment to make. But over the course of the year, with cash generation being fairly steady and annual cash interest in the mid-30s and declining as we deleverage, our leverage free cash flow conversion as a percent of EBITDA is comfortably in the 20s and hopefully growing.

Cash flow conversion and other key metrics are summarized in the targets on Slide 13. As we move through this year, we're projecting the underlying trends we've been seeing will continue. We expect to see steady sequential growth in EBITDA from Q1 onward now that most of the seasonality has been removed with the holiday park sale. And in parallel, we're targeting strong cash flow conversion and declining leverage driven by both the paydown of debt and growing EBITDA. In terms of asset allocation, we will look to continue to both debt repayment and share repurchase. And with that, we'll open the program up to questions.

Your first question is coming from the line of Barry Jonas of Truist Securities.

Thank you for all the helpful color so far. Just a couple for me. I think we've heard from some competitors about macro and geopolitical issues impacting the top line and perhaps the cost environment. But just -- I think I asked this last quarter, but I wanted to see if you had any updated thoughts there you could share.

No. I think we're probably aligned with pretty much everyone else, and it's something that we're watching very closely. We're not seeing the impact of it thus far, but we're obviously mindful of it. And I think the first quarter is kind of positively reinforcing that. But as we all know, you kind of have to keep your head on a swivel about this stuff.

Got it. Okay. And then I think the ramp of Interactive has been fairly impressive over the past few years. But the Virtual business is one where I think years ago, we maybe had higher expectations. And maybe just wanted to kind of get your thoughts. I think before we saw some of the near-term challenges, we were thinking kind of like a mid-teens percentage of OSB handle was a decent long-term target for Virtuals. But curious if you have any updated thoughts about the longer-term opportunity here.

Yes. I think it's an interesting question. I think I would say that we're probably a little frustrated in the growth that we would have expected from Virtual Sports. Just to put it in a little bit of context, at least as it relates to North America, obviously, online sports betting is in 39 states. And right now, we're technically only allowed to go in a couple of states. So obviously, one of the things that we would hope is to add both additional states, but also additional operators. I think we have some product initiatives that are coming out that will help. We obviously expect to get some tailwind from the World Cup. That might have been aggressive to think that it was going to be a mid-teens percentage as a part of online sports betting. It's probably more like maybe mid- to high single digits is probably the right number to think about.

I think there's another issue that I think is very important, Barry, too, which is that the opportunity for virtual sports is certainly in North America is not limited to basically a companionship with online sports betting. And that is in the lottery space. Without going into a lot of detail right now, I can tell you that we're seeing some very interesting developments with some of the most important lotteries in North America regarding the opportunity for virtual sports there. And I think definitely, as we move through this year, we'll see a couple of very meaningful developments that I think will be a tipping point for the virtual sports.

Your next question is coming from the line of Ryan Sigdahl from Craig-Hallum Capital.

This is Will on for Ryan. First wanted to ask on the guide. You reiterated adjusted EBITDA but increased the margin. So it implies that revenue a little bit lower than you expected. Curious what's the main factor going into that? Is it mostly U.K. iGaming taxes, Virtuals? Or is it something else entirely?

I think it's -- I guess, how I would characterize it is just a slight tweak. We're seeing the margins continue to increase. And obviously, you've done the math on the revenue, but I think that's it's just a guide. But we certainly feel very confident, and that's why we've upped the EBITDA margin targets. But I don't see this as a big fundamental shift of it by any stretch of the imagination.

That's fair. And then just a quick follow-up. I wanted to ask sort of on the Interactive expansion you ended up launching in South Africa, Fanatics and West Virginia. Curious what the future expansion opportunities look like and how much more you think you have to run?

Yes. Sure. I think we've talked about this a number of times, and Lorne may want to add to my commentary because I know he talks about it a lot is look, we're going into the regulated markets where we think it makes sense, expanding in markets like West Virginia and South Africa. But I think what we feel over the longer term is there's going to be a large opportunity for expansion of iGaming in North America. Particularly with everything that's happening in terms of the states not getting the kind of support from the federal government that they've gotten in the past, and we think that there's going to be an opportunity for more and more states. Obviously, there was a whole big thing about this in D.C. recently. Virginia has talked about it.

So I think it's an underappreciated -- no one knows what the timing of that is going to be, but we feel like there's going to be more states that will come on board. And frankly, if that were the case, that really takes no more for us from an infrastructure or cost standpoint to deliver these additional states other than a little bit of bandwidth cost. So we see that -- we don't know when, but we see that as a huge opportunity to be transformative for us.

Your next question is coming from the line of Chad Beynon of Macquarie.

Brooks and Lorne, I wanted to stick on Interactive, just given the -- how important this is and the growth that you highlighted here in the first quarter. Just thinking about the new studio, new game launches and how AI can build upon that. Could you help us think about maybe some of the tried and true games that have done well? And then with this new studio, will that all be incremental and how we use AI to just get games quicker to market for your partners?

Yes. No, thanks, Chad. That's a great question. And I think the reality is, yes, I think the single biggest thing from the Interactive side that we've been talking about for a while, and I think we've talked about this. We've looked long and hard for potential acquisitions in the space as a tuck-in to add more capacity and didn't find anything that made sense for us and finally decided that we were going to build the studio ourselves, and that's well down the path, and we'll start producing games in the second half of the year.

And on your comment on AI, yes, I mean, for sure, the utilization of AI across the business, but certainly in the game development side of things accelerates the ability for us to deliver games faster, which is something that I think is going to be important for us as we go forward. So adding capacity, adding kind of different types and styles of games to broaden our portfolio and getting more games out faster through utilizing AI is clearly a big strategy of ours.

Okay. Great. And then on the Retail business, focusing on units in North America. I know there were a few bills to grow the distributed gaming markets in a few states that didn't get across the end line, but you mentioned Chicago, which I think is coming in the fourth quarter. Where else can you go in the U.S.? Are you looking to get licensed in other markets? I know Louisiana, Georgia, Nebraska, et cetera, have similar types of markets that are growing on a same-store basis. But just wanted to know if you could help us on the TAM in that market.

Yes. I think what we've consciously tried to do here is to build at the right pace for us. We obviously mentioned in the release, we've got multiple Canadian provinces that are now kind of ordering machines on a yearly basis, and that's very important for us. Illinois and in particular, Chicago, assuming everything goes as expected, we will start in the fourth quarter and then will be a bigger part of next year.

And I think we mentioned on a prior call that we had done or at least in a press release that we've developed in concert with Gaming Arts, a game that will go on their Class III cabinet. So we think that should be a proof point for us that our content will work in Class III. And then obviously, that opens up a number of opportunities across Class III and Class II.

And then specifically, on the distributed question that you had, we kind of have to take it on a market-by-market basis. So each one has its own nuances. Montana, Nevada, Louisiana, each have their own kind of unique attributes. So we went with what we thought was the best and most likely place for success first, but we certainly are looking at not only the North American market for distributed gaming, but frankly, distributed gaming on a worldwide basis.

At this time, there are no further questions. Operator?

Your next question is coming from -- it's coming from the line of B. Riley Securities.

This is Matthew on for Josh Nichols from B. Riley. I guess just on the Virtual Sports side, I was wondering, how should we think about the Playtech deal alongside the World Cup? Is the timing going to allow you guys to have content live on Playtech's network ahead of the tournament or maybe during it? Or is that more of like a second half and 2027 revenue driver?

Yes. I'd say it's more of a second half. We look -- we think this is a great opportunity for us to get our product into the Playtech network. I think our first customer should go live here shortly. But I would say it's much more of a second half and going into 2027 opportunity for us.

Got it. And then also, I guess, in terms of like BetMGM Sportsbook tab integration in New Jersey, I mean pretty sure it's been live for a couple of months now. I'm wondering like is there any early reads that you see there on player engagement and how that can possibly lead to future operator signing with you guys?

Yes. I mean I think it's probably a mixed bag. I think the results from BetMGM in Ontario have been very good, probably not quite as good as we had hoped so far in New Jersey, but we're working with BetMGM in particular, about where we're positioned on the site and some promotional stuff. So I think it's a little early. I think maybe it's 4 to 6 weeks that we've been out with them. So it doesn't happen overnight, but we certainly feel very bullish, and we're having some conversations some of the other big sports betting operators, I think, that are looking to broaden their portfolio.

And to just add on to Lorne's comment, we do think both on an online basis and importantly, in a retail basis that virtual sports or monitor gaming, as they call it, in the lottery industry is a very big opportunity for us that's underappreciated. So we would expect over the next kind of 6 to 12 to 18 months, having some pretty meaningful contribution coming from that as well. So even though the Virtual Sports business is relatively flat, there's a number of opportunities that we see that we think can get that business back to growing.

Last question for me, just on the Interactive side. Maybe on the hybrid dealer pipeline, -- if I remember correctly, I think DraftKings and Betfred were expected soon to be signed. I'm wondering like where that stands and how the rest of the funnel is shaping up.

Yes, you're right about both of those. I would have expected that we would have them live at this point, but it's probably going to be June for that. So we'll start. And as we talked about before, this is the games that have the combination with our slot content that has done very well. The Wolf it Up game is the first one that will go out. And we'll be rolling it out to a number of customers starting in June. So when we have our next call in August, I guess, we'll be able to talk about that in a little bit more detail.

There's no other questions in queue at this time, and that concludes our Q&A session. I will now turn the conference back over to Lorne Weil for closing remarks. Please go ahead.

Thank you very much, operator. And again, thanks, everyone, for joining the call this morning. I think you can tell we're feeling very positive about where the business is. The one issue that had been a concern had been this issue of the U.K. tax, but at least so far in the second quarter, we've been able to more than offset the impact of the tax by our growth in gaming revenue in the U.K. So the business is really in very good shape. We're buying back stock. The leverage is coming down. The margins are going up, all the things that have been our objectives for a while. So hopefully, this will continue through the second quarter. And we'll look forward to reporting in 3 months. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Good morning, everyone, and welcome to the Inspired Entertainment Fourth Quarter and Full Year 2025 Conference Call. [Operator Instructions] Please note that today's event is being recorded.

Before we begin, please refer to the company's forward-looking statements that appear in the fourth quarter 2025 earnings press release and in the accompanying slide presentation, both of which are available in the Investors section of the company's website at www.inseinc.com. These also apply to today's conference call. Management will be making forward-looking statements within the meaning of the United States securities laws. These statements are based on management's current expectations and beliefs and are subject to various risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied in such statements. For a discussion of these risks and uncertainties, please refer to the company's filings with the Securities and Exchange Commission. During today's call, the company will discuss both GAAP and non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures can be found in today's earnings release and slide presentation, which are both available on the website.

With that, I would now like to turn the call over to Lorne Weil, the company's Executive Chairman. Mr. Weil, please go ahead.

Thank you, operator. Good morning, everyone, and thank you for participating in our year-end conference call. As it happens, Brooks and I are doing this call from a major lottery conference in Florida, where there is a lot of buzz about the things we have going on in the lottery space including the amazing cloud-based lottery platform we launched a few weeks ago that you may have read about in the recent press release. We won't have much more to say about lottery today in our prepared remarks, but we're happy to elaborate in the Q&A, and we certainly expect to be talking more about it in the coming quarters.

That said, I'll begin the call today with a few introductory remarks concerning the fourth quarter and full year and then hand it over to Brooks to discuss the quarter in detail.

Beginning with Slide 3, I think we can look at the quarter as an important milestone in the steady transformation that's been occurring in the company. As we've discussed previously, hopefully not ad nauseam, the transformation continues to be led by the Interactive business, which grew revenue and EBITDA by 53% and 60%, respectively, in the fourth quarter. In a moment, Brooks will discuss the nature of the tremendous resilience we have built into this business, together with the steps we're taking to ensure that at the same time, we continue to drive growth. These kinds of growth rates were mildly interesting a few years ago when we were growing off a base of a couple of million dollars, but on a base upwards of $50 million at present, it's a whole other story, obviously.

In our last conference call, we talked about targeting to get our company-wide EBITDA margin into the mid-40s. Our margin for the full year 2025 was 37%. But in the fourth quarter, it reached 42%, a record for any single quarter in our company's history.

As noted on the slide, we're comfortable with 2026 EBITDA guidance of $112 million to $118 million, with the midpoint of $115 million, representing low double-digit growth over 2025 if we exclude the divested holiday parks EBITDA. This would put our full year company-wide margin squarely into the mid-40s. And as I'll touch on at the end of the program, we're comfortable that this momentum for the company as a whole will continue through into 2027.

While the Interactive business follows its growth trajectory, our equipment businesses are continuing to move in an asset-light direction. And these together are positively impacting free cash flow. As noted in the slide, we expect to be deleveraging through 2026, targeting to be at 2.5x to 3x net leverage by year-end. This will lead in turn to a step down in our interest rate and perhaps other financing options as well.

And on that note, I'll turn things over to Brooks.

Okay. Thanks, Lorne. So, moving to Slide 4, we're gratified to see the results in the fourth quarter justify the key premise that we've been discussing over the course of the year is that the combination of the mix of our business becoming more and more digital and particularly with the strong growth in our Interactive segment and also the disposal of the lower-margin holiday parks business, both the combination of that would drive our EBITDA margins over 40% and our fourth quarter results strongly validate that thesis.

Moving to Slide 5. So this slide visually depicts the progress we've made in our mix and its impact on our EBITDA margins, but it goes beyond that. We've made a conscious decision to focus on CapEx-light business. Combining this with our significantly reduced headcount discussed last quarter will prove to materially improve the cash flow of the business on a going-forward basis. We expect these trends to continue throughout 2026, and we're targeting EBITDA margins in the mid-40s with significant improvement in cash flow.

Moving to Slide 6. It's important as well to note that our focus is not solely on improving the EBITDA margins and cash flow, but also in growing each of the segments of the business. More than 80% of our revenue is recurring. So along with growth, we need to continue to renew contracts with our key customers, and we are very proud of the long-term relationships we've had with customers like bet365 and Entain and the faith they put in us to continue to innovate our products and enhance player engagement.

I've discussed on previous calls the importance I place on getting access to the North American market for our Virtuals business and having the product fully integrated in the sportsbook section of the site rather than in the casino section. I'm excited to announce the successful launch with BetMGM as our first Tier 1 customer to have launched with three sports, including our NFL license game now live in New Jersey and hopefully going live in additional states in the near term. We've had success with BetMGM in Ontario and have worked with their team on this development. And I believe this will be the start of utilizing some of the key licenses we have with the NFL, the NBA and the NHL and getting broader distribution in the North American market. We're in discussions with several other sports betting operators, but BetMGM has the market for themselves for now. Getting this launched in time for the World Cup is ideal, and we believe this will provide a good proof point for other operators.

Moving on to Slide 7. So we've now had 10 quarters in a row of more than 40% EBITDA growth in our Interactive segment, and that shows no sign of slowing down. We just had the single highest day and the single highest weekend of GGR in this segment over the last weekend in February. I'm also happy to announce just based on this morning's results that we had the best week we've ever had last week. We're laser-focused on keeping this performance going and are expanding our brands, our unique game mechanics and adding studio capacity that will come online in the second half of the year and increase the output of titles to support this high-growth segment.

Alongside this organic growth, we have several opportunities to expand our footprint geographically, and we still believe that it's a matter of when and not if that additional states will legalize iGaming in their states as we've seen with Maine and progress in other larger states like we're seeing in Virginia. Although it's difficult to forecast when this will happen and which states will add this capability, we do believe that it's an underappreciated potential step change for Inspired. The upside is not limited to Interactive either as we are excited to see the growth potential for our North American gaming machine sales with recent changes in Illinois to expand into Chicago. We're now indexing at our highest levels since we went into the market and have strong relationships with key customers like J&J and Accel. We're confident that we'll grow our footprint over the next 12 to 18 months in Illinois substantially and believe that the Illinois model can be replicated in other states. Distributed gaming is in our DNA. It's where content is the key differentiator, and that's what we do best.

Moving on to Slide 8. We prepared Slide 8 just to show that our iGaming performance isn't driven by just recent momentum or one-hit wonders. This graph shows how our games produced even earlier than 2022 continue to generate a consistent base of revenue year-over-year. Each year's new games simply build on top of that foundation. So we're not starting from zero every year. We continue to grow and sustain that growth by building on brands and game families that resonate with players as well as unique game mechanics. The key is to continue to innovate and add capacity on top of that foundation.

Now moving on to Slide 9. Our proprietary game titles and mechanics create multiple important advantages. Firstly, they build strong brand recognition and loyalty with players. Players know and trust brands like Wolf it Up!, which allows us to do multiple iterations and extensions faster and more cost efficiently. We're using this to expand our hybrid dealer portfolio as well and are looking forward to the release of our Wolf it Up! roulette game to build on the momentum we're seeing in Hybrid Dealer, where turnover is up 51% quarter-over-quarter and 39% increase in customers live. We just went live yesterday with the Flutter brands like Paddy Power and Betfair in the U.K., and we'll be adding both DraftKings and Betfred in the next quarter. These proprietary brands strengthen our relationships with our operator customers. When they know our game families and mechanics will consistently perform well, they place the games in the most desirable positions on their sites and keep them there longer. This benefits everyone in the ecosystem and creates opportunities for us to do creative commercial arrangements with key operators for exclusivity and promotions, a true win-win for all.

Moving on to Slide 10. As noted in the past, a few slides and on Slide 10, this is really all about building a scalable and sustainable Interactive business. Typically, adding more games comes at the expense of revenue per title. But as the portfolio grows, performance over per game often declines, but that's not the case with our Interactive portfolio. We've been able to expand the number of games while also increasing revenue per title. That's why we've been able to deliver the kind of growth that you've seen in the segment, improving overall digital mix for Inspired and ultimately higher EBITDA margin. And of course, that's why we're adding another high-quality studio to our network.

Moving on to Slide 10. So whether it's interactive, whether it's Virtuals or gaming machines, we've consistently stated that content drives everything we do at Inspired. Our recent success in the rollout of the Vantage cabinet to the William Hill estate and our improvement and leading position in Greece which we've maintained for years now, is a testament to not only the content but also leveraging our industrial design to build high-performing cabinets at a fraction of the cost that you would see for a Class III casino floor in North America. And we're proving that we can replicate our success in the U.K. and Greece further in North America with our performance in Illinois as well as our continuing share gain in key PLC markets in Canada.

And moving to Slide 12. Finally, Slide 12 gives some of the latest data on the size and scale of iGaming compared to sports betting GGR. In states where they go head-to-head with sports betting, iGaming is more than 3x the size of sports betting. Extrapolating that to other states is a big upside opportunity for us that we don't include in our forecast, but believe that it is inevitable and would be transformative for Inspired as the flow-through margins and cash contribution would be very significant.

So, with that, I'll hand it back over to Lorne.

Thanks, Brooks. That was a terrific deep dive. Before I move into a discussion of guidance, let's take a minute to recap where we ended 2025 on Slide 13. Our EBITDA was $111 million, a little ahead of consensus in both revenue and EBITDA, 11% up over 2024 with an EBITDA margin of 37% of revenue. Our digital business accounted for 51% of EBITDA and leverage was 3.3.

Turning now to Slide 14. We see 2026 and 2027 evolving as shown. As mentioned earlier, we're projecting 2026 EBITDA at the midpoint to be low double digits ahead of 2025, excluding the divested holiday parks EBITDA. And from midpoint to midpoint, this growth rate should continue comfortably through 2027. At the same time, we're projecting that our digital business will grow from 51% of EBITDA to more than 60% EBITDA margins will expand to 45% plus and the leverage to be 2.5x approaching 2x.

Finally, with reference to Slide 15, I'd like to announce at this time a change in the way we will be reporting going forward, which we think simplifies our story and much more accurately reflects the operating characteristics of the businesses. As we have explained before, our leisure segment until very recently comprised two very different businesses, a server-based machine business focused on pubs, motorway service, bingo halls, et cetera, whose business model is very similar in nature to what we've been calling gaming. And the recently divested holiday parks business that was predominantly an amusement machine business with a very different business model. Now that we have divested holiday parks, we'll be combining gaming and the remaining leisure businesses into one reporting entity to be called Retail Solutions. We think this will reflect our current management structure and make the company more easily understood as well as generate some interesting operating synergies.

Now looking at Slide 16. Finally, let's touch on our investment thesis, which is very simple and which is being pretty well validated at this time. The swing in the business mix to higher growth, higher margin, less capital intensity is having the intended result. Revenue is overwhelmingly recurring in nature and growing. EBITDA margins in the 40s and moving higher, capital expenditure showing meaningful decline despite growing revenue and EBITDA and steady declines in leverage and interest expense.

And at this point, operator, we're happy to turn the program over to Q&A.

[Operator Instructions] Your first question comes from the line of Chad Beynon of Macquarie.

Thanks for all the additional commentary in the deck and the guidance, guys. Just wanted to start with U.K. I know last quarter, you talked about how well you navigated the triennial review a couple of years ago. It doesn't appear that any of your partners have really made any changes ahead of the upcoming tax change. But just wondering how that's factored into your guidance, maybe your discussions with them and if you expect any mitigation either by you guys or your partners when that's rolled out?

Chad, yes, I think we are seeing that. I mean if you go down the laundry list of customers in the U.K., many of them are going to adjust their to reflect the increase in taxes. And I think they're also going to adjust their bonusing structures and how they bonus players because of that.

I think, frankly, with the conversations we've had with them and the target that we've said in terms of what we think the impact of taxes, we feel better about that now than we did even before just because now the operators are certainly going forward and implementing their plans.

So we'll know here in a few weeks once it goes in April. And I suspect there'll be some impact in the beginning like there always is, but we expect to be able to mitigate that. And we're comfortable with the impact as we've talked about in the last quarter.

Great. And then in terms of the capital allocation strategy across the entire digital sector globally, we've just seen some valuations come down, I think, mainly because of the threat of prediction markets, and it might give you guys an interesting opportunity to either repurchase stock or execute on that bolt-on acquisition that we had talked about in the past on conference calls. I wanted to get your update on that, Lorne and Brooks, how you kind of see the market at these valuations.

Sure. I mean it's -- Chad, it's is actually a complicated and multifaceted question. Let me comment for a second first on the root of your question, which is about the prediction market. I mean we know right now, the overwhelming majority of prediction market handle is on sports. I think for Kalshi, it's gets upwards of 90%. There's a lot of talk about people betting on the fall of the regime in Iran and when some famous Hollywood actors is going to get pregnant. But the fact is it's almost entirely about sports. And what you're seeing in terms of valuations is whether it makes sense or not, it's pretty much focused on people whose business is primarily in the sports business.

So we're not only completely insulated from that, but there's actually an interesting case to be made that it will accelerate the growth in iGaming and in iGaming states because of the impact on state revenues of the swing in the sports betting handle from the sports betting operators to the prediction markets. We'll have to see how that plays out. But it would be an interesting irony that we would actually benefit from the prediction markets.

In terms of the second part of the question, which is the impact on valuation, yes, for sure. I mean, at our current valuations, even though as I said a number of times before, for a variety of reasons, strategically, we're probably more focused on deleveraging than we are on share repurchase. But at a certain point in valuations, it's too ridiculous to not do everything we can to take advantage of that opportunity. And since we have a pretty good buyback plan in place, and we have significant headroom in our credit agreements to buy back stock. I think it's safe to say that we'll be putting stock valuation in proper perspective in our asset allocation, at least for the present time, Chad.

Your next question comes from the line of Jordan Bender of Citizens.

If I compare your targets that you gave a couple of months ago to what you have in the deck today, the '27 targets, even adjusting for the U.K. taxes appears to be better than what you had put out previously. You guys have -- you kind of went through the prepared remarks and talked to the digital business and the positive momentum you're seeing there. Can you just kind of help us unpack what you're seeing, if I'm reading this correctly, that your expectations are maybe lifted from what you were seeing before?

Yes. I mean I think -- I guess to answer your question is, and I'm not sure exactly what the reference is to '27. I know Lorne just mentioned it in the remarks. But not seeing anything that would tell us that the momentum is not going to continue. As I mentioned in my remarks, because I just happened to get the numbers this morning, the last week we had was the best week we've ever had. So we're seeing the momentum continue in the -- certainly in the Interactive business. And we have a number of drivers in the Virtual Sports business staying in the digital space that we think are just about to come upon us. Obviously, the North American launch. Certainly, we've got some opportunities in Brazil that we are pretty excited about. The World Conference coming up here in the next couple of months. So we don't see anything on the horizon that tells us anything other than this momentum is going to continue.

Okay. Yes. And that was in reference to your EBITDA targets in '27, but that answered that.

And then just on the follow-up in the press release, you kind of talked about your iGaming market share in the U.S. improving quarter-on-quarter and the results that led to. Can you just kind of talk to what you're seeing there from a customer perspective and I guess, also a spend perspective from those customers?

Yes. I mean I think we're having -- it's kind of an interesting dynamic going on with, let's call it, the big three customers, DraftKings, FanDuel and BetMGM. We talked a little bit about the game mechanics and some titles that we have using this thing that we call cash bank. So it's kind of morphed into each one of the big three have kind of taken under their wings an individual brand. DraftKings is really strong with Wolf it Up!. FanDuel is really strong with this new Kong game.

And so what's happening is the big three are continuing to grow for us from a share perspective, and we're getting better placement, et cetera, et cetera. But we're also doing extremely well with companies like Rush Street and Fanatics and so on and so forth. So it really is -- it's kind of across the whole board, but I'd say probably the biggest driver in terms of the share gain is our game with the top three operators.

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

I want to stay on the U.K., you mentioned kind of from a tax increase on the digital side and strategy is changing. Curious if you've heard anything from a retail standpoint, if any of your key customers are planning to shift promotions, marketing, et cetera, back to the retail side, just given the balance between online and retail?

Yes. I mean I think they look at it holistically as we've talked about before, kind of a whole ecosystem. But I think it's pretty clear that from a margin standpoint that they would be benefiting with some of this business moving to retail from online. But certainly, the sense that we get from the operator customers is that they're trying to mitigate the online tax thing as much as possible. But obviously, the more business that flows through the retail channel is certainly better for them from a margin perspective. It's interesting.

One of the things we've talked about is the -- some of the shop closures with William Hill. And one of the questions people ask, well, what do you do with those machines that are going to be coming out of the shops? And Ryan, as you know, we've talked a lot about the shop closures are generally on the long end of the tail. So they're the least performing shops. But ironically, a number of these shops are being secured by other independent operators that are also customers of ours. So we've had the ability to be able to take the machines that would be coming out of the William Hill shops and either somebody else, another operator will buy the shop themselves or they're expanding on their own, and we'll move the machines into that part of the business.

So, I think, obviously, nobody likes to hear anything about shop closures. But I think ironically, at the end of the day, we might actually be better served with the reconfiguration across the portfolio of LBO companies in the U.K. with some of the lower-performing shops going to other operators.

Then Virtual Sports. Last quarter, you expected growth year-over-year from a revenue standpoint in Q4 that didn't happen. I'm just curious what changed versus your expectations, but you did see very nice margin expansion. So I guess, is that sustainable? What happened on the top line? What happened on EBITDA? And should we expect kind of that higher level of EBITDA margin to be sustainable going forward? And then maybe last point on Virtual Sports, just the Bet Builder product. I know it's very, very early, I know you have launched it, but curious if you can quantify any kind of uplift what you've seen there and then how you plan to if you do accelerate that pipeline ahead of the World Cup?

Yes. I mean we're certainly racing to answer your second question first. We're racing to get everybody. We announced the contract extensions with Bet365 and Entain, both of which are very big customers of ours, and we've got long-term extensions with them. So we've secured our future, I think, in the Virtual Sports business. on a going-forward basis. And the Bet Builder product has shown modest growth in OPAP, and I don't think there should be an expectation that this is going to be anything more than a high single-digit increase.

And to be perfectly honest, in the first quarter, we've seen a little bit of softening in the Brazil market in Virtual Sports, which we think is probably a little bit of the seasonality and a little bit of a lag pre-World Cup. Virtual Sports, we've got a lot of things going on in that space that we hope will be able to drive the top line revenue. But I think we are comfortable with the margin expansion that you saw in the fourth quarter. But obviously, a big part of that is can we get the revenue going in the way that we'd like to see it go.

So kind of a little bit of a mixed bag so far that we've seen in the first part of the first quarter, but we'll obviously be reporting on that here coming up in the not-too-distant future.

Your next question comes from the line of Barry Jonas of Truist Securities.

I wanted to start with the Iran conflict. I think a lot of investors are wondering how we should be thinking about any potential impact to your business, specifically maybe talk about any historical sensitivity to higher oil and gas prices.

Well, over the course of the few years that we've been in this business and the many, many years that we've been in this industry and other companies, we've had a number of crazy gyrations in the energy market. And I don't think, at least in my personal experience, Barry, I've seen much of an impact of that on our business. I mean I suppose if the price of oil were to go up high enough, long enough that it impacted players' disposable incomes that might show itself up in our business. But I don't I haven't seen much evidence of that in the past. And at least right now, it's not something that we're focused on.

There is sort of some issue, I suppose, in some businesses of supply chain disruption to -- associated with this, let's call it, situation since the President is not calling it a war. And but our supply chains are in terrific shape right now. We had this thing with the memory chip shortage, but we have fixed that. So I think right now, I'm cautiously optimistic that we're pretty well insulated from this. But it's a crazy volatile world and anything is possible.

Great. And then just, Lorne, you teased it in the opening remarks, so I'll bite. Can you maybe talk more about the STRATA lottery platform? I think you've been working on this for a while, right, since the Sportech acquisition. So I would love to get your thoughts on the market opportunity and maybe potential time lines given how lengthy RFP processes are usually.

So, yes, so we've spent probably 2.5 years developing this. We developed it completely from scratch with a complete clean sheet of paper. And we've done this. I think the first lottery system I personally was involved in developing was back in the '70s when I was working with a company who put in the very first digital lottery system in the world. And then we did it again very, very successfully at Scientific Games, and now we've just done it yet again. It seems like a life sense.

So -- but we assembled probably the best team of developers in the lottery industry. The system is completely cloud-based. It was designed to be integrated retail and online. And it's running flawlessly in a very, very commercially successful lottery in North America with about 2,500 retailers. This system can be scaled to -- could go to 25 million retailers if we ever had to. So we've -- we've had very, very significant reaction to it in the market.

I think probably our focus in terms of the market opportunity for it is going to be outside the United States, at least for the first few years. These are customers and markets, again, going back to our Scientific Games days that we're very familiar with. And the architecture of the system and the functionality of the system is, let's say, is geared to those kinds of markets.

So I wouldn't right now want to try to predict when we'll begin to see -- I mean, we're getting significant revenues, a few million dollars a year from the system right now in the Dominican Republic. But as we begin to expand that throughout the Caribbean and Latin America and probably Europe, certainly, over the course of the next couple of years, we should start to see significant revenue. And again, that's something that's not factored at all into the guidance that we gave earlier.

Yes. And Barry, just to add maybe one more point. I think that's -- as Lorne said, our focus over the next couple of years is primarily outside the U.S., and that's generally a sales market as opposed to recurring revenue market. So we certainly have had a number of people that are interested when they've seen the results of what we've done in the D.R. So we're going to start building a pipeline, hopefully, of opportunities that we'll be able to talk about coming up. But it's not like bidding for a big U.S. state. That's a completely different kind of business.

And our last question comes from the line of Josh Nichols of B. Riley Securities.

Great to see a very strong quarter yet again for the Interactive business. I was just curious, when you look at the north of 50% growth that you're seeing here, what's your expectations in terms of sustainability when you kind of look at the pipeline for '26, '27 to maintain that type of pace of growth? I know the U.K. tax increase may have some impact on margin, but I'm just curious like where you think the trajectory for that type of growth rate is likely to level out over the next 12 months or so?

Yes. That one is hard to say. I think if you had asked me several years ago, if we would have more -- 10 quarters in a row of more than 40% EBITDA growth in this segment, would we have predicted that? I'd say no. Every time I look at the numbers, I keep wondering if we're going to start hitting a wall, and that doesn't seem to be the case, certainly through as of this morning.

I think in the U.K., in particular, and you've probably seen it, I know Entain in their results talked about this a lot. is I think the stronger both operators and suppliers are going to tend to thrive in this environment. So I would -- we're more than 10% share in the U.K., and I fully expect even with the tax situation that we'll be increasing our share because there's going to be some providers that just don't have enough scale to be able to make it.

So all I can say is we're not seeing any indications of slowing yet. But certainly, mathematically, it's not possible to sustain this forever. But we're seeing nothing that would lead us to believe that it's going to slow down anytime soon, both in North America and in the U.K. And don't forget, we're also adding -- we've talked about this. We're adding additional geographies -- we're going into South Africa, and we'll go into another couple of geographies. So our hope is that if there's any softening in the two biggest markets that we can fill that gap with new geographies to just continue to keep this going.

Just one other point on that, Josh. You mentioned the impact of the tax on margins. But just to be clear, the way the tax works, it actually -- it shouldn't have any effect on our margins because our revenue is a percent of our customers' GGR. So, certainly, the increase in the tax would have the effect of reducing our customers' GGR. But our margin on the revenue that we get from that customer shouldn't have any impact at all. Obviously, it will impact the revenue, but not the margin.

Yes. Thanks for clarifying on that front. I think just one more follow-up. I mean, a pretty big shift you go into a very asset-light model here. The headcount is already down pretty significantly, and we're expecting to see CapEx step down as well, too. I know it looks like there was some outsized CapEx, right, in 4Q. But is everything now on a more normalized asset-light digital focused basis going forward as we start with 1Q of '26? Or is there a little bit more work to be done to get to some of those targets that you kind of laid out for '26 and '27?

No, I think the targets are solid. The composition is going to be slightly different because one of the things that we're doing from a CapEx perspective, we've talked a lot about this morning about the Dominican Republic Lottery. So we replaced the system. And now we're in the process over the next couple of years of replacing the terminals down there because this is a long-term contract. So I think the total amount of CapEx is going to be as we've laid out for everyone. I think the composition will be slightly differently because there'll be some investment over the next two years in lottery terminals. And then going out to year three and four, we would hope to have a step down even further other than potential expansion opportunities.

So I think the model, Eric or Aimee can jump in if they feel or if they have anything else. But I think what we've laid out for you guys from a CapEx perspective, we feel very good about.

Yes. The only thing I'll add to that, this is Eric, Josh, is when you look at our reporting, the CapEx will include sort of all our gross CapEx that -- in our presentation on Slide 14, we have a cash CapEx number, which we footnoted. It excludes any purchases of PP&E that are customer funded, effectively where we receive the cash upfront. So if you look at it through that perspective, 2025 was about $44 million as opposed to -- I think the number is like upwards of $55 million, $56 million just from our financial statements. So I just want to make sure you understood that caveat, and we can chat later offline, if not.

I think that's good right around $46 million number.

That concludes our Q&A session. I'll now turn the conference back over to Mr. Weil, Executive Chairman, for closing remarks.

Thanks, operator, and I don't really have much more to add to what we said already. As I said in my remarks earlier, I think the fourth quarter was a very important milestone in terms of the transformation or the evolution that we're going through. We feel pretty good that it will continue in that direction into the first quarter of 2026 and through 2026. So thank you for your support, and we'll look forward to speaking to you again in a few months. Thanks.

This concludes today's conference call. You may now disconnect.

Good morning, and welcome to the Inspired Entertainment Third Quarter 2025 Conference Call. [Operator Instructions] Please note that today's event is being recorded.

Before we begin, please refer to the company's forward-looking statements that appear in the third quarter 2025 earnings press release and in accompanying slide presentation, both of which are available in the Investors section of the company's website at www.inseinc.com. These also apply to today's conference call.

Management will be making forward-looking statements within the meaning of United States securities laws. These statements are based on management's current expectations and beliefs and are subject to various risks, uncertainties and other factors that may cause actual results to differ materially from those exposed or implied in such statements. For a discussion of these risks and uncertainties, please refer to the company's filings with the Securities and Exchange Commission. The company assumes no obligation to update or review any forward-looking statements, except as required by law.

During today's call, the company will discuss both GAAP and non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures can be found in today's earnings release and slide presentation, which are both available on the website.

As a reminder, the slide presentation will be advanced by the operator to accompany management's remarks. A PDF version of the slides will be available following the call in the Investors section of the company's website.

With that, I would now like to turn the call over to Lorne Weil, the company's Executive Chairman. Mr. Weil, please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining our third quarter conference call. As we reported earlier this morning, third quarter and trailing 12-month adjusted EBITDA were $32.3 million and $110 million, respectively, both well ahead of consensus and last year, and a result that we're pleased with.

In a departure from [ press ] protocols, we have prepared a brief slide deck today summarized here on Slide 4, which will be presented by President and CEO, Brooks Pierce, and myself. There are a lot of moving parts right now, the sale of holiday parks, the restructuring of pubs, the continued phenomenal growth of interactive as examples that paint a very exciting picture, and we feel that this kind of comprehensive discussion will help us put everything in proper perspective. Then at the conclusion, we will discuss earnings, balance sheet and cash flow projections for '26 and '27.

To begin, I'll hand it over to Brooks, who will discuss in some detail, current results and operations.

Okay. Thanks, Lorne. Before I dive into the business update, I want to briefly address the upcoming U.K. budget announcement on November 26 and the discussion around potential tax changes in the gaming industry. There's been a lot of coverage and discussion on all sides of the issue and its impact on the industry, but frankly, this isn't new. We've managed through -- we managed through the 2019 triennial, which cut maximum stakes in betting shops from effectively GBP 50 to GBP 2, a major change that we successfully navigated through product innovation and operational discipline. Today, performance in that business is well above pre-triennial levels.

Potential shop closures have been in the headlines as well, and our experience tells us that this is also manageable. Typically, lower-performing shops are most at risk, and much of that play finds its way to nearby shops, effectively lowering our servicing costs.

The potential increase in remote gaming duty would be another facet we have experienced dealing with. We've managed similar changes in other markets, and our performance in the Interactive segment speaks to our ability to adapt effectively. Once the U.K. budget is announced, we'll share more specifics. But in the meantime, we're planning proactively and are confident in our ability to manage changes effectively, just as we have in the past. And we have a number of levers and opportunities at our disposal to navigate our way through this.

Okay. Moving to the next slide. We're pleased with the performance of the business in the third quarter, and are carrying that momentum into the fourth quarter. We're confident we'll exceed Q4 2024 performance and current guidance, assuming current FX rates don't change materially.

The Interactive and Gaming segments were particularly strong, with Interactive achieving more than 40% year-over-year adjusted EBITDA growth for the ninth consecutive quarter. October is now complete, and is the single largest revenue month for this segment in our history, and last week was the biggest week we've ever had. This was all highlighted by the success of some of our seasonal games, but frankly, we're seeing strong performance throughout the portfolio and market share gains across our key geographies in both the U.K. and North America. We're also pleased to see a second consecutive quarter of stabilization in the Virtual Sports segment, and are confident that it will grow year-over-year in the fourth quarter.

The close of the sale of the holiday parks business on November 7 is a milestone in our shift to higher adjusted EBITDA margins, lower CapEx and close to 40% lower head count going forward. Taking the proceeds from the holiday park sale to improve our net leverage puts us in a stronger financial position as we move through the fourth quarter and into 2026. In addition, we announced today that our Board has reauthorized a $25 million share buyback plan as part of our plans going forward.

The next slide demonstrates the success of our strategy in making North America a bigger part of our business, in large part due to the growth we're seeing in this market from our Interactive business, but we're also gaining momentum in our North American VLT business that I'll cover in more detail later in the presentation. The success of the Vantage cabinet in the William Hill estate is coming through in our results and was highlighted recently by evoke in their trading update. We're also starting to see the impact on performance of the refreshed terminals in the Greek estate.

Although the year-over-year performance in the Virtual segment continues to be impacted by the taxation that started in January in Brazil, our comps in the fourth quarter and 2026 will be easier, and we've also introduced a number of initiatives and increased our customer counts in Brazil and Turkey, and we're starting to see some of that improvement come through the numbers.

As you can see on Slide 8, we've been generating solid year-over-year adjusted EBITDA growth every quarter, and the trailing 12 months adjusted EBITDA is now at $110 million. It is certainly a positive, but the most important aspect of this slide is the impact we expect to see going forward with the sale of the holiday parks business and the move in our pubs business to a machine and content-led strategy.

Both the Interactive and Virtual segments are operating at higher than 60% EBITDA margins after corporate allocations, and we expect the operating leverage of both of these segments to strengthen further as revenue increases. Combination of margin expansion, the sale of the holiday parks business and the change in the pubs business model will significantly reduce our capital intensity and have a very positive impact on cash flow.

The next couple of slides highlight not only the strong performance of the Interactive segment, but frankly, the significant opportunity we see ahead as additional iGaming states potentially come online, the potential we believe could be transformational for our business. Our content is resonating broadly across all the key geographies, and we're positioning the business to scale across even more. Looking ahead to next year, we plan to increase game deliveries through added capacity and a new interactive studio. The most common feedback we get from customers is they want more of our great content, and we're excited to deliver on that challenge.

As we've talked about in the past, we're very bullish on the opportunity for an increase in the number of iGaming states. It's clear that iGaming is a much larger opportunity than online sports betting, as you can see in the GGR from just 3 of the existing iGaming states. The delivery of additional states is very seamless, and frankly, should produce significant operating leverage as the only real cost to add states is in bandwidth. We don't have a crystal ball, of course, but we're confident that states will see the opportunity and feel it's a matter of when not if.

Now moving over to Hybrid Dealer. We've been talking about Hybrid Dealer for some time, and we felt validated to have won the award at G2E for innovative product of the year. More importantly, we're starting to see the network effect of rolling this product out across our customer base. We have a very good mix of both Tier 1 and Tier 2 customers and have seen success with both.

Our William Hill-branded roulette game in the U.K. is producing amazing results, which we view as a proof point for other operators. The next phase of development will emphasize and highlight our proprietary player-favorite content, such as our Wolf It Up! and Piggy Bank family of games. We see this as the natural evolution of our product strategy, supported by an increasing pace of game delivery to meet the strong market demand. While Hybrid Dealer is not expected to be as large as the broader interactive market, we believe it will be a valuable complement to our portfolio, enhance our offering, add diversity to our content and contribute meaningfully in 2026 and beyond.

Moving over to Gaming. Our Gaming business continues to perform well across our 3 key markets of the U.K., Greece and North America. In the U.K., we're gaining share in the betting shop business with the addition of 2 key customers. In Greece, our new cabinets are strengthening our leading position. And with nearly half of our machines still to be upgraded, we see continued opportunity for growth. In North America, performance in Illinois and key Canadian provinces is at its highest level since we introduced these products into mature markets, which frankly, is never easy. Notably, 98% of our Illinois customers ordered our game pack subscriptions this year, validating our philosophy that server-based gaming is a powerful tool for operators to keep their players engaged, and we see applicability for that in many more markets around the world.

And now I'll pass it over to Lorne.

Thanks, Brooks. A lot of interesting concepts and data to digest.

I'll begin with Slide 14, giving a snapshot of where we are at the end of the third quarter. I apologize if some of this material was repetitious for those who have been following us for a while, but will help level set for anyone new to the story. So we're starting with trailing 12-month revenue, adjusted EBITDA and EBITDA margin of $310 million, $110 million and 35%, respectively. The digital retail mix is just under 50-50 and net leverage ratio of 3.2x. As we move through the rest of the material, I'll try to explain why we're confident in projecting significant expansion in margins, reductions in leverage and strong free cash flow.

Slide 15 summarizes the underlying dynamics that have been underway for some time. Earlier, Brooks talked about the high margin relatively low CapEx and scalability of our digital business. It's the swing of the mix of our business in that direction that's a primary driver of financial performance. In parallel, the divestiture of the holiday park business provides an immediate boost to margins. And the operational reengineering going on throughout the company allows us to make up for the divested holiday parks EBITDA. In a moment, I'll quantify with some specificity on the exact impact of each of these 3 elements.

Slide 16 summarizes the 3 things that, of course, everybody wants: revenue growth, expanding margins and growing free cash flow. Although generally, in my experience, you only get to pick 2. And as the slide implies, in our case, the 3 are highly interdependent. Our revenue growth is driven by the compounding of market share gains within growing markets, with content development and greater allocation of resources to marketing, having recently been the principal underlying drivers. Revenue growth, revenue mix and scalability together drive expanding margins, and the latter combined with declining CapEx drives free cash flow, if only it were that easy in execution.

Slide 17 decomposes our projection of a 1,000 basis point increase in adjusted EBITDA margin between now and 2027, with the increase being almost equally split between the increased digital mix, the sale of holiday parks and the operational reengineering that we have undergoing. Regarding the latter, we expect most of the benefits to begin to take effect in the first quarter of 2026.

Which finally brings us to Slide 18, where we bring this all together. To summarize, we're projecting the digital mix after corporate allocation to reach 60% by 2027; headcount to decline by nearly 40%; adjusted EBITDA margin to grow by 10 percentage points, from 35% to 45%; free cash flow conversion to reach 30% of EBITDA; and net leverage to decline to 2.

A few minutes ago, Brooks discussed the expectation of increased U.K. gaming taxes in the November U.K. budget. It's for this reason that for now, we've expressed absolute adjusted EBITDA guidance in terms of high single-digit growth, which will then translate to more specific guidance once the tax proposal is known. As Brooks mentioned earlier, we've been through this drill before, and we're confident we can do much to mitigate any impact. And I should mention that certain important upsides, new iGaming states, for example, would be significant additional mitigating factors as they [ do not ] factor at all into our analysis. Finally, this entire discussion is focused on organic growth and does not reflect any expectation of M&A impact, which we continue to look at very carefully.

And with that, we can open to Q&A. Operator, we can have Q&A now, please.

[Operator Instructions] And your first question comes from the line of Ryan Sigdahl of Craig-Hallum.

Appreciate kind of the targets and laying out the path over the next several years what this company looks like. Still kind of digesting that in real time, but very back of the envelope math, maybe staring at Slide 18 here. If we assume EBITDA grows at a high single-digit CAGR, EBITDA margin expands by 10 points over the next 2 to 3 years. I guess that implies revenue is kind of flattish, maybe even down? I guess, walk through what's going on there, and maybe part of that is the starting point of holiday parks included or not?

Yes. I think the -- well, the principal reason for that is obviously the holiday parks business going away. So that's the single biggest driver of the revenue that you kind of modeled out. But I wouldn't say we obviously are confident that the rest of the business segments are going to continue to grow at varying degrees. Obviously, the Interactive business continues to race ahead, but the Gaming business and the Virtuals business, both we expect to grow.

Helpful. Yes, I think it's just a comparison of kind of the starting baseline there. Virtual Sports, I think I heard expect year-over-year growth in Q4. I guess, what gives you that confidence in the acceleration because it was up [ 1 ] decimal point sequentially, and so it appears like it's stabilizing. But what gives you the confidence to see a reaccelerating growth, at least sequentially, which will get you back to year-over-year growth by Q4?

Yes. A couple of different things. We've made some adjustments with our biggest customer that we're starting to see the benefits coming through already. We've added additional customers in Brazil. I think we added 6 in the quarter, which you wouldn't have seen full impact up, and we'll get that in the fourth quarter. And we've also seen some nice growth out of some of the business that we're doing in Turkey, and we're adding another stream of content in the Turkish market.

So a combination of kind of all of those things gives us confidence that we're going to grow. I think the fourth quarter number EBITDA is [ 7.2 ] from last year. So it's not an insignificant amount we need to grow, but that's what our target is.

If I may, a quick follow-up just on that, any commentary or added detail on what those adjustments with your largest customer were? And then I'll hop back in the queue.

Thanks. No, I think we'll probably keep that to our -- between us and our customer, if you don't mind.

Your next question comes from the line of Barry Jonas of Truist Securities.

Lorne, can you expand a little on your M&A commentary in the prepared remarks? Just curious what the pipeline looks like and the types of companies deals you'd be most interested in?

Sure. Well, I think to begin -- from a financial point of view, we're only interested in deals where they're going to -- there are significant touch points with the company and our operations now so that we can anticipate meaningful immediate synergies and a deal that makes significant financial sense. We're not going to do anything that's highly in a diversification mode or pay crazy prices that we can't mitigate by having a lot of operational synergies. So that's sort of -- that's the overarching concern.

In terms of kinds of companies, we're interested -- we would be interested either in what people nowadays call tuck-in acquisitions that strengthens one of our existing businesses. The most likely would be an interactive studio or an interactive business that had products that we don't have or was addressing markets that we don't address that we could easily fold in. Same thing would be possible in our equipment business. I think it's unlikely that we would do something very big in an M&A sense right now because the business is running beautifully. There's plenty of opportunity to, as I said, to do tuck-in acquisitions, and that's kind of what we're doing, Barry.

Got it. And then I noticed there was a release about your premium iGaming entrance into West Virginia recently. Just curious if you could talk more about that? And then any other notable jurisdictions you'll be soon to enter, hopefully?

Yes. So we've started with DraftKings and Rush Street, I think, are the 2 first customers in West Virginia. For a while, we're kind of waiting to see how some of these markets develop. Delaware as well, which was originally pretty small, but Rush Street's made that into a pretty amazing market. And same thing in West Virginia. So a number of our operator customers were pressing us to get the content in all their markets. So clearly, so West Virginia is rolling out, we'll start seeing the impact of that here in the fourth quarter. I think the rest is what we talked a little bit about is new states. I think the only state we're not in now is Rhode Island, which is kind of a unique environment. So certainly, if any states were to be added, that's a huge bonus for us.

In terms of the international markets, I think we have almost 500 customers now. And we're pretty much in every market you can think about. I would say that probably the biggest market that we're not participating in a meaningful way that we hope to is probably South Africa. But Brazil is growing and some of the other Latin American markets are growing. So we kind of have no lack of geographical opportunities for us.

Great. Congrats on the quarter and appreciate the new targets.

Your next question comes from the line of Jordan Bender, Citizens.

Maybe just follow up on the M&A comments. First, you mentioned you're going to open a new interactive studio. Are you buying this or is this an organic initiative? And then maybe more broadly, kind of related to the M&A part of this, have you seen multiples for studios come down at all? I know those have been quite elevated in years past. It seems like that's kind of a natural fit for the trajectory of your business at this point?

Sure. Maybe I'll answer the first part and a little bit of the second part, and then Lorne can expand. So the studio is going to be -- we're building it ourselves. We've hired the guy who run the studio. He's got a noncompete. So he'll get started after the first of the year, and we'll build it out. And it will be a lot of the content that we are kind of known for, but we also will give him some runway to try some newer types of content that maybe will help broaden our portfolio.

In terms of M&A, we've looked at lots and lots and lots of studios. And probably the single biggest issue for us is there's lots of markets where some of these studios get revenue that we won't go into, and that's probably the single biggest gating factor as to why we haven't done an acquisition in that space before, but we continue to look at it. And as the content pipeline gets bigger and bigger, there's more and more of these companies that are popping up. So we're constantly looking at that.

And maybe, Lorne?

Yes. No, I don't have anything to add to that. I think that's right.

Perfect. And just following up, on the share buyback, it's been a couple of years since you've bought back stock. Can you just maybe remind us of your philosophy, is this going to be kind of a programmatic buyback opportunistic? Just anything to help us there.

Yes. I mean I think -- well, just to address the point about not having done a buyback for the last couple of years, that largely was occasioned by the accounting issue that we, fortunately now has completely behind us. But while it was going on, we weren't able to buy back stock. So now we're in a situation where that's all behind us. We're generating plenty of cash. We -- our cash position itself is strong. And so we're obviously in a position to do it. And we think right now, our stock is at a level where, regardless of what anybody's philosophy is about the subject of share buybacks in the context of capital allocation, it's -- our view is it's obviously very attractive.

I don't think it's going to be programmatic, though. I think it's still going to be opportunistic because we're constantly balancing the goal to bring our leverage ratio down to the level that we talked about in these projections, and I think that's a priority. And we don't know whether and when a meaningful M&A opportunity will come across or will come along and then we need to act on that. So I don't think we want to be programmatic about share buybacks because again, we're balancing all of these factors. But we're certainly going to be more aggressive than we've been in the last couple of years. That's for sure.

And your next question comes from the line of Chad Beynon of Macquarie.

I wanted to revisit, Brooks, your comment about interactive October being the largest in history and obviously looking at the financials for Q3, the $11 million of EBITDA. So maybe first question, are you adding new partners in your biggest market like the United Kingdom? Are you just gaining market share? And then the second part of that, do you think that certain partners are better cushioned against some regulatory changes? I know we'll hear more about that. But yes, I guess, just wanted to ask about Tier 1, 2, 3 partners versus just overall share in that market.

Yes. Thanks, Chad. Yes, I mean it's kind of exactly what you would want. It's pretty broad-based. It's across our 3 biggest markets, North America, U.K. and Greece, but some of the other smaller markets are growing as well. And principally, it's us gaining share. I think we are ranked #4, #5 in the most recent Eilers report in North America. I think we've made a pretty focused shift to having build games that resonate with the North American players, and that's turning out. And so all the big guys, whether it's DraftKings, FanDuel, BetMGM, Rush Street are all doing better and better. But it really goes all the way through Tier 2, Tier 3, lower markets. So it's pretty broad-based across the business.

And like I said, the October numbers were great. You get the advantage of having Halloween. I mentioned that last week was the single biggest week we've ever had. We had the confluence of payday in the U.K., Halloween and the resetting of limits all happen in one week. So that kind of led to pretty phenomenal results. But we obviously, as we go into the fourth quarter, December is historically one of the biggest, if not the biggest months with all the Christmas games. And November is also a very good month. So the fourth quarter is shaping up nicely.

And then on the prediction markets. Obviously, you guys have extremely minimal exposure to, I guess, North American sports betting. We have seen a lot of the publicly traded equities trade off as a result of some competition there. Can you just talk about prediction markets, if that -- if you believe that affects any of your business segments here?

No. We don't -- we certainly aren't seeing anything. Unfortunately, it's because we don't have -- the one that it might potentially impact would be Virtuals in North America. And as I've said on a number of the calls, we're frustrated by the pace at which we're getting Virtual Sports in North America. The content, the NBA content, the NFL content is resonating with markets outside of North America, but we're still struggling to get more and more operators in North America launch. So that's really the only part of the business that I would see impacted. We certainly aren't seeing any impact in the interactive space from prediction markets, taking players away. I think they're fairly -- even though the operators obviously try and cross-sell, I think they're fairly separate and distinct players.

Your next question comes from the line of Josh Nichols of B. Riley Securities.

Great to see the parks business approaching a sale here and the stock buyback. Sorry if it was already addressed, I joined the call a few minutes late. But I wanted to just talk about the Interactive business, phenomenal growth that you've been seeing there overall. I think it's on pace for something like close to like 50% growth this year. Do you expect that, that pace is likely to continue next year? And what are the key kind of drivers that you see that's going to be driving Interactive, whether that's like Brazil or [ expanding ] your partnerships with some players in the U.S. and things that are in the pipeline for that business?

Yes. We sort of addressed it a little bit earlier, but I'm happy to go back through it. Yes, I mean, look, 9 quarters in a row of more than 40% EBITDA growth is -- eventually the math gets a little bit more challenging, but as I mentioned, the October numbers were great. We expect the fourth quarter to continue to build on that momentum.

The biggest issue for us, which, again, I talked about a little bit, is what our customers are saying is, "Your games are great, your game mechanics are great. We just want more of them." And hence, that's why we're investing in the studio to increase the capacity so that we can get more games out to the market, which I think will hopefully help us sustain the growth levels. There's so much content out there now that you really do have to have the combination of the quality and the quantity, but our game design teams have come up with some really interesting mechanics. We mentioned in the presentation about this persistence game that we're doing called Player Link that's driving increased play. So we've got lots of levers that we're pulling, and we hope this streak continues.

And then last question for me, Virtual Sports, obviously, a smaller piece of the business today, but good to see how that business has stabilized over the last couple of quarters. You talked about trying to get up and running with some more operators in the U.S. What needs to be done to really get that business back into growth for 2026? And are there a couple of larger opportunities that you're kind of optimistic about when we look beyond just the fourth quarter but for next year really?

Yes. I mean, so not to put any undue pressure on BetMGM, but they're likely to be the first big operator in North America. So they've gone live with us in Ontario and they're seeing phenomenal results over the last few months. And it's got some regulatory and resource challenges that we're working through with them, but we expect, hopefully, to go live with them yet this quarter. And I'm hoping that, that will be a catalyst for a number of other operators to see that virtual sports resonates and works in every other market around the world we've been in, and we think it will in North America.

So unfortunately for us, we haven't been able to, frankly, because the operators have lots of priorities that they're working on for their iGaming, and their sports business and virtuals just kind of has slid down their priority list a little bit. But I still believe that it will resonate. I still believe we have licensed content with the NFL, NBA, and NHL that will resonate with the North American player base. And once -- like I said, it's doing phenomenally well in Ontario. I think once we get one of the big guys, hopefully BetMGM first, live in North America and they do well, I think that will hopefully be a catalyst for the other big operators to put some resources to this. Because it's not a challenge for us, it's really just a resource issue for the other guys.

And there are no questions. I will now turn the conference back over to Mr. Weil for the closing remarks.

Thank you, operator, and thanks, everyone, for joining the call today. I know -- is it Sportradar, just started 5 minutes ago. So we probably lost a few of our listeners, but just to reiterate where we are, we're feeling very ebullient about the business right now. The rest of this year looks solid, and we're pretty confident that as we move through '26 and '27, we can achieve the kind of performance parameters we talked about in the presentation. So thanks again for your support, and we look forward to talking to you in a few months. Thanks.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.