Brooks Pierce: Lessing the lower margin, more capital intensive, and less strategic holiday parks business, along with the restructuring of our pubs estate to be less capital and labor intensive, has had the exact impact we were 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 to support this strategy. So I'll turn it back over to Len.
Lorne Neal: 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 three times. 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 semi-annual cash interest payment to make. But over the course of a 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 pay down 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.
Operator: To remind everyone, in order to ask questions, press star then the number one on your telephone keypad. Your first question is coming from the line of Barry Jonas of Truist Securities. Please go ahead.
Barry Jonas: Hey, guys. Thank you for all the really 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 wanted to see if you had any updated thoughts there you could share.
Brooks Pierce: No, I think we're probably aligned with pretty much everyone else. And that'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.
Barry Jonas: Okay. And then, you know, I think the ramp of Interact has been fairly impressive over the past few years. But, you know, 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
Brooks Pierce: target for uh for virtuals but curious if you have any updated thoughts about the longer term uh opportunity here thank you yeah I think it's an interesting question I think um I would say that we're probably a little frustrated at the growth that we would have expected um from virtual sports just to to put it in a little bit of context um at least as it relates to North America You know, 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. Look, 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. um you know that might have been aggressive to think that it was going to be a mid-teens percentage as a part of 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 uh that i think is very important barry too um which is that the opportunity for virtual sports is
Lorne Neal: 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.
Barry Jonas: Awesome. All right. Thank you very much. Sure. Thanks, Barry.
Operator: Your next question is coming from the line of Ryan Siegel from Craig Helium Capital. Please go ahead.
Will: Hey, good morning. This is Will on for Ryan. Thanks for taking our questions. 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 uk i gaming taxes virtuals or is it something else entirely thanks um i think it's i guess how i would characterize it is just a slight tweak we're seeing the the margins continue to uh to increase
Brooks Pierce: Um, and obviously you've done the math on the revenue, but I think that's it's just a guide. Um. But we certainly feel very confident and that's why we've, you know, up to the EBITDA margin targets. Um, but I don't see this as a big fundamental shift at it by any stretch of the imagination.
Will: That's fair. And then just a quick follow-up. Wanted to ask sort of on the interactive expansion. You ended up launching in South Africa, Fanatics in West Virginia. Curious what the future expansion opportunities look like and how much more you think you have to run. Thanks, guys.
Brooks Pierce: Yeah, 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, you know, more states that will come on board. And frankly, if that were the case, you know, 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. Thanks, Brooks. My pleasure.
Operator: Your next question is coming from the line of Chad Bannon of Macquarie. Please go ahead.
Chad Bannon: Good morning. Thanks for taking my question. Brooks and Lauren, I want to stick on interactive, just given 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, you know, 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? Thanks.
Brooks Pierce: Yeah, no, thanks, Chad. That's a great question. And I think the reality is, yeah, I think the single biggest thing from the interactive side that we've been talking about for a while, and I think, you know, 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 gonna 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, yeah, 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 you know i think is going to be important for us as we go forward so you know adding capacity adding kind of different types and styles of games to you know broaden our portfolio and getting more games out faster through utilizing ai is clearly a a big strategy of ours
Chad Bannon: Okay, great. Thanks. 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 US? 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. Thanks.
Brooks Pierce: Yeah. 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'll start in the fourth quarter and then we'll 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, you know, we've developed in concert with gaming arts, a game that will go on their class three cabinet. So we think that should be a proof point for us that our content will work, you know, in class three. And then obviously that opens up a number of opportunities across class three and class two. And then, and specifically on the distributed question that you had, we kind of have to take it on a market by market basis. Um, so, you know, each one has its own nuances. Um, you know, 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, you know, the North American market for distributed gaming, but frankly, distributed gaming on a worldwide basis. Thanks Brooks. Appreciate it. No problem, Chad.
Lorne Neal: At this time, there are no further questions. Operator?
Operator: At this time, I would like to remind everyone, in order to ask questions, press star, then the number one on your telephone keypad. Your next question is coming from the line of B, Riley Securities. Please go ahead.
Matthew: Hi, this is Matthew on for Josh Nichols, uh, from B Riley, I guess, just on the virtual sports side, I was wondering how should we think about the play tech deal alongside the world cup? Is it, is it timing going to allow you guys to have content live on plate sex network ahead of the tournament or maybe during it? Or is that more of like a second half and 2027 revenue driver?
Brooks Pierce: Yeah, I'd say it's more of a second half. You know, we look, we think this is a great opportunity for us to, you know, 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.
Matthew: Got it. Thanks. And then also, I guess, in terms of like that MGM sports book tab integration in New Jersey, I mean, I'm pretty sure it's been live for a couple 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 operators signing with you guys?
Brooks Pierce: Yeah, I mean, I think it's probably a mixed bag. I think the results from that MGM 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 four to six weeks that we've been out with them. So, you know, it doesn't happen overnight, but we certainly feel very bullish and we're having some conversations you know, some of the other big sports betting operators, I think, that are looking to broaden their portfolio. And to just add on to Lauren's comment, you know, we do think both on an online basis and importantly in a retail basis that, you know, 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, you know, over the next kind of six 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.
Matthew: Thanks for that. Last question for me, just on the interactive side. Mainly on the hybrid dealer pipeline, Joseph Baeta, Supt of Schools, If I remember correctly, I think jack king's and best friend were expected soon to be signed i'm wondering like where that stands and how the rest of the funnels shaping up.
Brooks Pierce: Joseph Baeta, Supt of Schools, yeah you're right about both of those. Joseph Baeta, Supt of Schools, I would have expected that we would have them live at this point. Joseph Baeta, Supt of Schools, 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 is 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.
Matthew: Great. Thanks. That was all for me. Thanks for taking my questions. You're welcome. Thanks.
Operator: 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 Neal for closing remarks. Please go ahead.
Lorne Neal: 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 UK 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 UK. 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 three months. Thank you.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
