Inspired Entertainment Inc (INSE) 2022 Q2 法說會逐字稿

Good morning, everyone, and welcome to the Inspired Entertainment Second Quarter 2020 Conference Call. (Operator Instructions) Please note, today's event is being recorded. I'll begin today's conference call by referring you to the company's safe harbor statement that appears in the second quarter 2022 earnings press release, which is also available in the Investors section of the company's website at www.inseinc.com.

This safe harbor statement also applies to today's conference call as the company's management will be making certain statements that will be considered forward-looking under securities laws and rules of the SEC. These statements are based on management's current expectations or beliefs and are subject to risks, uncertainties, and changes in circumstances. In addition, please note that the company will discuss both GAAP and non-GAAP financial measures. A reconciliation is included in the earnings press release.

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

Thank you, operator. Good morning, everyone, and thank you for joining us for our second-quarter conference call. With me on the call today are Brooks Pierce, Dan Silvers, and Stewart Baker, who certainly picked the right quarter to come back to full strength, or maybe it's caused an effect, but either way, it's a very good thing. Brooks and Stewart each have fairly extensive prepared remarks, so I won't go into too much detail beyond the excellent financial performance, which I think speaks for itself. The highlights of the quarter for me, are these, on the capital structure side of things, we have to date repurchased just under 3 quarters million shares at an average price of $9.73 using just over 1/4 of our announced $25 million repurchase program, and we were upgraded by Moody's to B2 for the positive outlook. We launched Virtual Sports with our second US lottery customer, the DC Lottery, and the KPI since startup have been very impressive. As we have mentioned previously, we're seeing great interest in Virtual Sports by North American lottery jurisdictions.

We launched iGaming operations in Ontario and Pennsylvania during the quarter, and the early indications point towards accelerating interactive revenue in coming quarters, reinforced by significant product enhancements, which we will be rolling out in the next couple of months. We launched our first iLottery title with Loto-Quebec, and the performance has been extremely strong, placing among the top-performing games in the market, and we have a number of new games coming close to completion and ready for introduction. Our retail gaming and leisure businesses are now running comfortably ahead of pre-COVID levels even as our digital businesses continue to grow its growth trajectory.

As importantly, we executed new contracts with 3 very important gaming and leisure customers, William Hill, Greene King, and Mitchells & Butlers, something of vector significance in the event we were to head into a recession. Indeed, it seems that the possibility of recession is on everyone's mind these days, so let me digress a little and talk about this. The subject of recession sensitivity is something I've been studying for many years.

When I was still in my 20s, I was literally traumatized living through the nightmare of the 73, 74, 75 recession anecdotally inflation and the prime interest rate at that time were both each over 12%. The Dow dropped by 50%, and the decline in GDP seemed to go on forever, but as it turns out, I was fortunate to (inaudible) lessons that I've been careful to apply in managing businesses ever since, further reinforced by a few too many recessions in the meantime.

Should we find ourselves in a recession, my experience over the last 45 or 50 years would suggest that the most vulnerable companies are those that are highly leveraged with variable interest rates and short maturities, those whose operating margins are thin so that minor pricing or volume pressure can quickly (inaudible) the profit, particularly if overhead is relatively fixed, those that compete with their own customers in-house supply because when the market declines, they are the first to be cut off, those whose revenues come primarily from one-shot sales rather than recurring multiyear contracts because they're the most vulnerable to competitive pressure, and lastly, and in particular, in the gaming space, those that are heavily dependent on destination gaming as opposed to regional or ideally even local.

Looked at against the template, I think we're in very strong shape to deal with any economic downturn. Our net leverage is comfortably under 3, our interest rates are fixed, and our maturities are very comfortable. Our operating margins are very strong across all our businesses, and despite our growth objectives, we're very careful about overhead. We do not compete with any of our customers, and virtually all of our revenue comes from recurring contracts and our contract portfolio is in excellent shape as referenced a moment ago. Finally, 100% of our EBITDA is derived from local markets, much of it from online, the ultimate locals market for the 2020s, so while, of course, we're not thrilled with the prospect of a recession, I think we're as prepared as we can be. Indeed, we think that in the event that a recession we may in a longer-term sense, actually be able to turn this to our advantage. With that, I'll hand it over to Brooks.

Okay. Thank you, Lorne, and I share your sentiments on the financial performance of the business in the second quarter, and I'll share some of the highlights across the business segments, as I usually do, then hand over to Stewart for a deeper dive into the numbers. As we've been talking about for almost a year now, Q2 2022 is the last of the 4 quarters in which we'll be comparing to quarters that were impacted by COVID restrictions and lockdowns across our business segments. As both Lorne and I have mentioned many times over the last year, we believe that Inspired is a business that will pass $100 million or more in run-rate EBITDA by mid-'22, with an ever-increasing contribution coming from our higher-margin digital businesses, which in turn creates tremendous operating leverage.

Notwithstanding currency headwinds, our thesis was correct with LTM EBITDA approximately £74 million, which translates to more than $100 million in run rate at Q2 2021 exchange rates. This doesn't happen without the focus and effort of our entire team working under some incredibly difficult operating conditions, and we sincerely appreciate their efforts and know they'll continue to be laser-focused going forward as we broaden our product offerings and expand in key markets and add even more geographies.

Here are some of the highlights of the operating segments for the quarter as well as some look into what's in the pipeline from a product and business development perspective, I'll talk about our digital businesses first and then our retail businesses, but as Lorne mentioned in his remarks, each set of these had strong performances in the quarter. In Virtual Sports, our revenue grew 90% compared to prior year in functional currency, with strong performance from both our online and retail segments. This performance was driven in large part by the confluence of a strong product portfolio and the expansion of our online product organically and across new territories.

On the product side, we launched the first women's virtual sports soccer for those of us from the US. They coincided nicely with the England women winning the Euros Jurman for the first piece of hardware for 56 years for England and a strong rallying point for a huge number of our customers and our employees. We look forward to launching our home run (inaudible) later this year and have added Mickey Mantal to our stable of players under the MLBPAA license that we've secured. We have several product enhancements from a player perspective that we'll launch later this year, and we believe will give our operator customers unprecedented in marketing and analytic tools.

We also went live with our second lottery customer with the DC lottery, launching our horseracing game, and we're excited to see that business off to a good start, and the pipeline of US lottery opportunities in Virtual Sports is building every day. Needless to say, we're very bullish on this business segment. In Interactive, our revenue grew 12% over prior year on a constant currency basis with a number of new initiatives and markets just coming on in the quarter. We're very encouraged by what we've seen from our first customer, Rush Street Interactive to go live in Pennsylvania. We expect to go live with several of our biggest customers in Pennsylvania over the third and fourth quarter, including BetMGM, DraftKings, Caesars, Penn, and others.

We're seeing weekly growth in our business in Ontario and still believe strongly in the potential for this market and are happy to report that we are now live with FanDuel in Ontario, our first successful integration with this key customer. As a reminder, FanDuel represents a significant share of market in PA, New Jersey, and Michigan and we are yet to go live with them in these markets but expect to over the course of the next quarter or 2. North America is the fastest-growing part of our iGaming business and is now our second largest market behind the U.K. with what we believe is tremendous potential.

Moving on to the lottery side. We've launched our first iLottery content, as Lorne mentioned, into North American with Loto-Québec, and it's already a top-5 performer in their portfolio, and we'll be launching our second game with them soon and have a road map of additional content for next year. Now that we've proven our game performance, we'll be accelerating our sales and marketing efforts in additional key North American lottery markets, and combined with our virtual sports efforts, we offer compelling content for the entire North American motery market.

Moving on to gaming. We're very happy to announce the agreement with William Hill to continue providing equipment and services to a long-standing key customer of ours. We've launched our Vantage cabinet into the U.K. LBO market, and the early numbers are very strong, and we'll be working with key customers across both our LBO business as well as our pubs and AGC markets to get this product out in 2023. Our LBO customers continue to exceed their pre-COVID performance even with the macroeconomic challenges facing the U.K. economy and goes to what we believe is the resilience of the market and our offerings. Our Flex cabinet, which is our (inaudible) offering is doing extremely well, and our backlog for orders for this segment of the business is significant. We have 3 new game titles going out in Illinois yet this quarter, where we have high hopes for, and several other gaming opportunities in the North American market that we'll be reporting on as they develop.

Moving over to leisure. We're very happy to announce the extension of our agreement with Greene King for another 3 years and importantly, an increase in our footprint with this very large customer. We also announced a 3-year extension agreement with another large customer, Mitchells & Butlers. We believe that our products in this segment are best-in-class and are the highest performing products in the pub segment, and we have several key initiatives from both a content and platform perspective that we believe will further enhance our offering in this business.

In the motorway service side of the business as well as our holiday parks business, they both have been positively impacted by the staycation phenomenon going on in the U.K. with more and more folks opting for a vacation time in the U.K. as opposed to overseas. Let me just say in summary, it feels like we're clicking on all cylinders, yet we believe that we have key product and market developments that are in their very early stages, which gives us plenty of opportunity to build this business out even further. With that, I'll hand it over to Stewart for some further commentary on the numbers.

Thanks, Brooks, and good morning all. Lorne, I won't comment on your calls and effect pondering. As you may remember, I said in the last quarterly earnings call that there was great momentum in a number of parts of the business and the company has never been in better shape. 3 months on, I'm pleased to report that this absolutely continues to be the case, and whilst I believe the results we are discussing today are testament to that and speak for themselves, I do want to add just a little bit of context. I would call this quarter a clean 3 months with no lockdowns or large one-off gains or losses.

However, I do think it's worth reminding ourselves where we were in the comparative quarter of 2021. This was a time when most of Europe started the second quarter in lockdown and was mainly opened by the end, with most restrictions falling away at different times within the quarter. It was also a quarter that had an average great British pound to US dollar rate of 1.40 versus 1.26 in the current year.

For this reason, we're referring to the functional currency in the release and on today's call, more than we'd ideally like to, but by looking at the results in British pounds, we believe it's easier to understand the underlying trends of the business as it represents the true change in business volumes. This is also likely to be true in 3 months' time given where rates currently are versus a year ago.

Overall, compared to the same quarter a year ago, revenue grew 72% to just over $71 million, but in functional currency increased 91%. All areas of the business grew on this basis with functional currency growth rates of 75% for gaming, 157% for leisure as they benefited from having operations fully open for the entire period versus the comparative. Unlike what it seems has been the trend for some other iGaming businesses, our interactive business grew double-digit at 12% from a functional currency basis despite tough year-over-year comparatives of lockdown periods and also increasing player protection measures coming in within the U.K. It's worth noting here that the FX impact is seen in the stockist, we reported growth being flat year-on-year despite the functional currency growth.

Lastly, as with last quarter, the standout segment was once again Virtual Sports, with revenue up 90% on a functional currency basis and whilst you would expect retail growth to be significant given the prior year restrictions, and it was at 62%, the biggest driver was online Virtual Sports, which nearly doubled. Comparing revenue on a sequential basis to the first quarter of this year, whilst we would expect an improvement Q1 to Q2 in leisure due to the seasonality of the holiday park business, we saw double-digit functional currency growth across all segments. Gaming at 13%, Virtual Sports at 28%, interactive at 18%, and leisure at 41%, demonstrating the momentum across the business.

Turning attention to adjusted EBITDA. We saw growth of 262% on a functional currency basis to 227% in reported numbers compared to the prior year quarter, with both Gaming and Virtual Sports of triple digits in functional currency. Leisure turned from a small loss in the prior year to a positive EBITDA of $7.7 million this year. Interactive was flat year-on-year as it faced tough expense comparatives due to salary reductions and other COVID cost-saving measures across the business, but once we get to a more like-for-like comparatives as we did in June of this year, EBITDA growth in the segment was double-digit, a trend we expect to see in July as well once these numbers are finalized.

On a sequential basis compared to the first quarter of this year, adjusted EBITDA was up 38% on a functional currency basis, demonstrating the operating leverage of the business as margins grew from 33.2% to 36.6%. We've now had 4 quarters of relatively minor or no covid restrictions, and it's worth reiterating what Brooks said and pointing out that the last 12 months adjusted EBITDA is approximately £74 million. And had exchange rates stayed at the rate of Q2 of last year, this would amen to US dollar equivalent of well over $100 million.

Returning to the quarterly numbers and looking further down the income statement, there were no unusual gains or losses in the quarter, unlike the prior year. This meant we had net income of $7.5 million for the quarter, which equates to $0.28 earnings per share compared to $1.94 loss in the prior year and up from $0.06 in the first quarter. Turning attention to cash flow, we started the quarter with $40.8 million and ended up with $31.8 million, with 2 key items impacting this. Firstly, and I apologize for sounding like a broken record, FX had a big impact with the pound to dollar rates reducing significantly from 1.32 to 1.21 between the 2 balance sheet dates, and secondly, we repurchased $5.1 million of stock in the quarter.

Looking at the quarterly cash flow of net cash provided by operating activities, less net cash used in investing activities, which ignores both of these and shows an outflow of less than $0.5 million despite there being a 6-month interest payment in the quarter as well as some 2021 bonus payments. We expect to be (inaudible) the impact of any share repurchases in the second half of the year. For talking of share repurchases, we've continued this during the third quarter and as mentioned in the release and touched on by Lorne as of yesterday, we've now purchased a total of 734,000 shares at an average price of $9.73 per share, excluding trading commissions under the program. As we now have 12 months normal trading, we can also look at adjusted EBITDA and net leverage to see that on a graded basis, is 2.8x and on a US dollar basis is 2.6x. With that, I'll hand back to Lorne for any closing comments before opening up for Q&A.

Thanks, Stewart. Thanks for a terrific financial overview. No, I don't have any comments to make at this time. So operator, if you would like to open the program up for Q&A, please.

(Operator Instructions) Our first question will come from the line of Barry Jonas with Truist Securities.

You've had a number of contract extensions or new contracts in the U.K. for gaming and leisure. Can you maybe talk about how we should think about potential upside here?

In terms of the upside, really, I would say that it's probably only primarily in Greene King because we're adding to the footprint, I think, about 6% if I remember off the top of my head, so that's the only one that would be meaningful, but I think it's probably important that you understand. I mentioned in the call that we've introduced the Vantage cabinet out in the U.K. So we have a couple of hundred out with ironically, with Paddy Power and Betfred and performance, this is up about 7% off the current base, so we're certainly in the midst of discussing our extensions with those guys, and it certainly helps that we have a product that now they've seen live and tested for a period of time, and it's grown their cash box by a pretty significant amount. Hopefully, that will bode well as we head into negotiations for those contracts.

Got it. Understood. Then I wanted to touch on some of the impact you're seeing in Interactive now from the player protection initiatives. Can you maybe just give more color there? And then also, any updated thoughts on impact from the white paper? I know it's delayed, but given what we do know, just curious if any new thoughts there.

Yes, I think what's happened, and I've seen some of the other companies, the operator side that have announced, have talked about some softening in the U.K. because they're preemptively kind of -- they've seen a draft of what the white paper is and they're preemptively moving and adding some responsible gaming features and in some cases, even lowering stakes. We ironically have seen growth in the U.K., not like it had been in the past, but that actually helps us feel pretty good that we're actually taking share. I think the white paper, as you know, I think they're saying it's going to be posted in early September after they determine who the next Prime Minister is, but that's really only the beginning of the process. There'll be some more consultation, but really, what's happening is a number of the operators are acting proactively. I would assume that the impact is going to be less going forward because people are already starting to react to it.

Great. That's really helpful. If I could sneak in one more. How are you guys thinking about priorities for capital allocation here? And with that, has the recent market turbulence create any potential M&A opportunities for you?

Well, we're looking at a number of M&A activities. It has definitely become a very active time in the industry, as I'm sure you know, Barry, and so we're I wouldn't say we're anxious to use capital for M&A, but we're certainly willing to use capital for M&A if it's something that strategically fits with what we're trying to do and there seem to be a lot of things around right now, presenting themselves as possibilities, but as you know, we're very careful and very disciplined about what we pay for M&A.

We're not going to pay a crazy price for anything and we insist on there being immediate and visible synergies, so we're going to allocate capital to M&A but only if it makes the kind of sense that we're used to doing. As long as we feel our shares are not anywhere near worth what we think they are, then we're going to continue to allocate capital to our share repurchase program, which as I mentioned in my comments, we still have 3/4 of the $25 million that we set aside to do that available and I wouldn't rule out the possibility that if interest rates were to continue to rise and there's a proportionate reduction in the market cap or market value of our debt that we might begin to consider repurchasing debt, but all of these things are slightly lowered down in the priority level of providing all the capital that we need to drive the growth in our existing businesses because the potential as Barry and others are probably getting sick of or talking about it.

But the fact is the potential is phenomenal, and we're not going to do anything that in any way limits or jeopardizes our ability to take full advantage of growth. Again, because of the way our business mix is shifting the returns on investment in our existing business continue to go up. I guess, top of the priority list is drive growth in our existing businesses and then some mix of M&A, share repurchase, and potentially debt repurchase.

Your next question comes from the line of David Bain with B. Riley Securities.

I was hoping, first, maybe more detail on the William Hill agreement, and obviously, it's very helpful for long-term visibility. After the year extension, it looks like there could be a CapEx move for Vantage cabinets, but that should also increase yield books, as you mentioned, but I assume you're going to upgrade those cabinets over time anyway, but is this something that happens all at once? Then is that 7% on the yield where you swapped out in the existing locations? Is that something that is fair to potentially flow through to William Hill locations?

Yes. Thanks, Dave. Let me try. I don't want to answer some part of the William Hill question because, frankly, that's ongoing dialogue in terms of the capital treatment of that, but the way the deal is structured is we'll have a trial of 400 terminals for them to validate and then we'll move to the next stage of the agreement, so we've secured the service and the platform for an extended period of time, but they frankly just need to have the machines out in their shops to prove them. Thankfully, as I mentioned in my remarks, it's already been out in the market and some of their competitor shops and are growing the cash box at a pretty substantial number, so we hope that, that trial is really kind of a fad of complete. In terms of the yield, yes, I mean, obviously, if putting in new cabinets in our existing customers because we get paid, as you know, a recurring fee, that would certainly help us on a going-forward basis, so we're very enthusiastic about the new cabinet, very happy about the results that we're seeing thus far, and certainly should be a contributor to 2023 growth.

Okay. Awesome. The iLottery opportunities, as you stated in prepared remarks, I mean clearly growing. Are the potential North American deals you're discussing dealing with approved iLottery states influent or different configurations and models that don't require a full approval of iLottery? Are you seeing an increase in those? And maybe just overall, if you can give us a bit of framework as to what may be in store in terms of potential forward iLottery deals for you guys?

Well, it's Lorne. I don't think right now we're devoting much time or focus to states where iLottery is, has not yet been approved because we've got a handful of states that we're not in that we're focused on building upon what we're doing in Quebec to get into, but there's really 2 prongs to the iLottery opportunity, one being iLottery as it has traditionally that the term has traditionally been used, which are basically instant lottery tickets played on the Internet instead of on a piece of paper and I personally see that as ultimately an enormous market for a whole bunch of different reasons, but in parallel, we're seeing, as I mentioned in my prepared remarks, enormous interest in Virtual Sports as a lottery product. So for us, the overarching eye lottery opportunity is a combination of what we call digital instant games and Virtual Sports and so those 2 together, I think they are in the process of making lottery a very, very important business for us.

Your next question comes from the line of Chad Beynon with Macquarie.

I wanted to hone in on the Virtual Sports result, the exceptional growth that you talked about. Can you just maybe outline a little bit more or provide some color in terms of where you're seeing the growth on the online side? Is this just a higher acceptance from your players, more marketing, or placement on the sites? It just seems like it was well above what anyone was expecting and trying to figure out if that type of growth or those types of absolute dollars are sustainable.

Yes. I think it's actually kind of a combination of all of the above, Chad. I think we're seeing organic growth obviously in our existing customers. We've talked on a number of times on the call about this product that we launched virtual plug-and-play, VPP, so we're going into new geographies and adding customers as well and I think it's just so a combination of new products, new geographies and our existing customers pushing our operator customers pushing virtual sports as a product offering online is leading to growth across the whole segment. I think Stewart mentioned in his remarks that retail was growing as well, but certainly, the online is growing faster and we clearly, as Lorne just mentioned, we think the whole runway is ahead of us in the North American market, both on the lottery side but also on the gaming side. So it's a good news story across the board.

Great. Then on the leisure segment, as we think about no or lack of restrictions in terms of the ease of travel within and outside of the U.K. Should this still be a benefit to the properties where you have machines? Or are people starting to explore other markets, maybe leave the country? Just trying to figure out how this seasonally can look as the consumer has all the opportunities of options that they did pre-COVID.

Yes. Chad, I think what we're seeing is it's actually both. I think as I'm sure all of us read about the amount or the rebound in travel on a worldwide basis, so no doubt, there's plenty of folks in the U.K. that are traveling abroad, but there's certainly a hell of a lot of people and the numbers bear that out that are staying in the U.K. in vacationing there and going through not only our holiday parks, but we sometimes don't talk about the motorway services maybe as much as we should, but obviously, people have to drive to get to these holiday parks and when they do, they stop at motorway service outlets that have our gaming machines so we're seeing nice growth in that part of the business as well. Even though people, in general, are traveling probably more than they have, definitely more than they have in the last couple of years, it's benefited our leisure business on both the holiday parks as well as the MSA part.

he other thing to bear in mind, Chad, is that the largest part of our leisure business is actually the pub business and whatever and I think it's unlikely, but whatever, let's say, lessening of the snapback in the travel-driven part is going to be more than made up for by the pub business just because as all of the COVID stuff finally once and for all goes away and people are comfortable going out to pubs and so forth that I think the overall picture is we're pretty sanguine that when we add up all the pluses and minuses, the pluses on the leisure business, particularly because of what we're seeing in the pub business is it's coming out clearly on the plus side.

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

Just wanted to dive into the Vantage cabinet a little bit more. First, do you think that this new cabinet is primarily intended to defend the territory that you have with some of these long-standing partners, William Hill, et cetera? Or do you think there's opportunity to actually take share from your competitors? Then secondly, you mentioned a 7% increase in performance in cash box. What features are really resonating driving that outperformance?

Yes. Well, as you know, so the Vantage cabinet is not purely going to be in the betting shop business. It's going to go across our portfolio. We'll see it and you'll see it in the pubs business. You'll see it in the AGC business going forward so it really is a combination of, frankly, we needed a new cabinet, and it coincided with the expiration of a couple of our biggest contracts, but we're certainly feeling very good about the performance and expect that to go across when we install this beyond the betting shop business into the pubs and AGCs as well. In terms of what's driving it, as you know, Ryan, gain performance is always trying to identify what makes a game better or cabinet better is a bit part and a bit science.

So we think from a design standpoint is more attractive. But certainly, the feedback we're getting from players is the way that we've -- and I don't want to talk too much about it with our competitors possibly listening in. but our menu design has been from what the feedback that we're getting has made the player experience significantly better. So it's really a software issue more than kind of a hardware thing, but I'd probably just rather leave it at that.

Good. Then one more just on iLottery. So good first title with Quebec. Do you only have one title live with Quebec today or just one top-performing title? And then secondly, can you talk through the product release pipeline of more content going in there?

Sure. Yes, it's only one game right now. The next game is going to be either this quarter or early next quarter. And then we're on the road map for 2 more games next year with LQ. And as I said in my remarks, kind of it's always one of these things that people understood the raise on Detra for us to get into the iLottery content business, but you ultimately have to prove it out in the marketplace. So now that we have a customer is kind of large and prestigious as Loto-Quebec as a proof point, we're really ramping up the marketing, as Lorne talked about, to the existing iLottery customers, but you combine that with what we're talking to them about in virtual sports, so we have just the lottery segment itself, we have really interesting story to tell to them and now we've got performance behind both virtuals and iLottery content to kind of back it up. Obviously, it's a big focus for us in the business going forward, certainly in '23.

Our next question will come from the line of Edward Engel with ROTH Capital.

On yesterday's press release, you called out you expect the Valor machine sales in Illinois to increase in the 3Q over the 2Q, and then also just the inventory that you're reporting on the balance sheet, it's still a bit elevated versus prior years. Have supply chain issues been delaying machine deliveries, not just Illinois, but in other regions as well?

No. I think in Illinois, we have inventory that we need to sell through and part of that is game performance, as I talked about in terms of releasing 3 new titles, so that's kind of just inventory that we'll work through. In terms of -- and Stewart maybe can comment on the financial accounting for it, but we've built up inventory across the business because of the concern about supply chain issues, and we're quite comfortable that we'll work this inventory down through the rest of the year, but that goes certainly beyond Illinois. I don't know, Stewart, if you want to comment any more on that.

I mean the main points, as you say, Brooks, we expect it to be back to normal levels, either by year-end or just after year-end. And no, I don't think it's had too much significant impact to that, but well, yes, certainly see that inventory get used to have been on the whole in Q3 and Q4.

Perfect. So I guess, would that imply that second-half sales are up versus the forecast?

Yes, in terms of product sales, yes, I think that's a fair assumption.

This concludes our question-and-answer session. I would like to turn the conference back over to Lorne Weil for any closing remarks.

Thank you, operator. Again, thanks, everyone, for joining the call today. I hope you share our enthusiasm for where we are right now. Again, as I said in my -- or we mentioned in the press release, I have never in the time that we've been involved with this business been more positive about the outlook. I think everything we've been working on the last few years, notwithstanding the COVID interruption seems to be working fine and we look forward to speaking to you in another 3 months. Thanks.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.