Inspired Entertainment - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 revenue fell 27% sequentially to $60.4M but declined just 3% year over year; Adjusted EBITDA was $18.4M (30% margin), down from $30.9M in Q4 but up 19% year over year as Interactive strength offset Virtual Sports and seasonal Leisure headwinds.
• Management highlighted several transitory drags: Brazil regulatory/tax disruption early in the quarter, Easter holiday timing shifting out of Q1 in the UK Leisure business, some product sales slipping to Q2, and ~$1M EBITDA headwind from lease revenue reclassification; underlying performance was described as solid with Interactive margins expanding to ~64%.
• Balance sheet clarity improved with a signed commitment letter for £287.8M in new private credit (incl. £270M 5-year term loan at SONIA + 600 bps), expected to close in early June; management modeled ~$30M interest expense for 2026 and aims to reduce annual CapEx to ~$25M via capital-light strategies and potential Holiday Parks divestiture.
• Key near-term catalysts: Hybrid Dealer expansion (new roulette variants and broader operator rollouts), stabilization and localized content in Brazil for Virtual Sports, and completed William Hill Vantage deployment supporting Gaming segment EBITDA; management expects Virtual Sports to return to year-over-year growth by Q3/2H 2025.

What Went Well and What Went Wrong

• What Went Well

  • Interactive momentum: revenue +49% y/y with Adjusted EBITDA +75%; margin expanded ~1,000 bps to ~64%, driven by UK and North America; U.S. Interactive grew ~90% y/y vs ~20% market growth on stronger content and account management; management noted “virtually every week since the close of the quarter has recorded a new high”.
  • Hybrid Dealer scaling: Roulette variants live in the UK (bet365, Gamesys) with further rollouts planned (e.g., Loto-Québec in May, bet365 Brazil, BetMGM NJ); “it’s a very busy time … we’ll start sharing metrics later in the year as it settles in”.
  • Gaming efficiency and deployments: Completed rollout of 5,000 Vantage cabinets with William Hill, driving high single-digit y/y growth; Greece terminal rollouts to benefit 2025; Illinois portrait cabinet performance and subscriptions trending strongly.

• What Went Wrong

  • Virtual Sports pressure: revenue -30% y/y with Adjusted EBITDA -39%, primarily from Brazil’s regulatory/tax transition early in the quarter; stabilization emerged later, but quarter-level comps were weak.
  • Leisure seasonality and timing: Leisure performed “as expected in a seasonally slow quarter,” with y/y performance affected by timing of key UK public holidays (Easter moved to Q2).
  • One-offs and accounting headwind: ~$1M EBITDA impact from lease revenue reclassification; certain product sales slipped from Q1 to Q2, depressing sequential results.

Transcript

Operator (participant)

Good morning, everyone, and welcome to the Inspired Entertainment first quarter 2025 conference call. Please note today's event is being recorded. Please refer to the company's Safe Harbor Statement that appears in the first quarter 2025 earnings press release, which is also available in the Investor 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 risk, 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 Weil, the company's Executive Chairman. Mr.

Weil, please go ahead.

Lorne Weil (Executive Chairman)

Thank you, Operator. Good morning, everyone, and thank you for joining our first quarter call. With me here, as usual, are Brooks Pierce, James Richardson, and Eric Carrera. First quarter adjusted EBITDA of about $18.5 million was nicely ahead of last year, growing at close to 20% despite some unexpected negatives. As Brooks will discuss in a few minutes, the leisure business was hurt by the slippage of the U.K. Easter holiday from the first to the second quarter, which is a very important period for the business. Some one-time product sales similarly slipped from the first into the second quarter, and there were disturbances in Brazil as new regulations, including new taxes, came into effect. Finally, we lost about $1 million of EBITDA due to the reclassification of lease revenue, as we discussed recently at our year-end call.

In summary, then, we were actually very pleased with the underlying progress in the first quarter. Following the close of the quarter, we have successfully negotiated the refinancing of our existing publicly syndicated bonds due in June 2026, with a five-year sterling-denominated floating-rate financing with Barclays and HG Vora. We expect to sign definitive agreements and to have the new financing in place next month. As previously discussed, we hope to complete the sale of our holiday park business in the relative near-term, and we intend to use the proceeds towards deleveraging. Finally, as compared to our existing bonds, the new financing will allow much greater flexibility going forward. All in all, then, we're very pleased to have successfully negotiated this financing in a less-than-ideal environment with two lenders with whom we have had a great relationship for many years.

Let me stay on this issue of deleveraging for a moment. Once we finalize the sale of our holiday park business, we will have divested the part of our business with the highest relative capital intensity. As we explained in the past, our recurring retail betting shop revenue in the U.K. and Europe is, at this point, predominantly capital-light, and in North America, our retail business is a combination of equipment sales and recurring content revenue similarly involving essentially no CapEx. Our one remaining capital-intensive retail segment is the U.K. pub business, and here again, we have begun to implement a plan to mirror our other retail businesses where we will sell the equipment, generating recurring and predictable content and server platform fees, and minimize CapEx.

As with the case with our betting shop business, there will be some loss of pub revenue in the transition phase since there will no longer be a return of capital component in pricing, but this will be ultimately outweighed by the free cash flow and deleveraging benefit. Our goal with all these initiatives is to get our annual CapEx to around $25 million, almost all of it content-related for both our retail businesses and, more importantly, our rapidly growing and very profitable digital businesses. Let me then turn to a discussion of our digital businesses. Our interactive business continues on its incredible growth trajectory, with revenue and EBITDA in the first quarter growing 49% and 79% respectively over Q1 2024, and margins expanding from 54% in 2024 to 64% in 2025, demonstrating the incredible scalability of this business.

Virtually every week since the close of the quarter has recorded a new high. Our business in the United States in the first quarter grew by 90% against underlying market growth of about 20%, affecting the quality and quantity of our content and the intensity of our account management. Bear in mind that we have only begun to see the potential for hybrid dealer. It is pretty clear at this point that looking ahead, the individual states in the United States are being forced to be far less dependent on the federal government in terms of healthcare, education, housing, and so forth, and there will be a predictable requirement for new sources of state revenue. This is inescapable. I had mentioned previously that in states like Michigan, New Jersey, Pennsylvania, and most recently Delaware, iGaming, where our interactive business participates, overwhelms sports betting in terms of revenue and profitability.

Looking back over the arc of the 50-year history of the relationship between gaming and state finances, we can see pretty clearly how this is going to play out, and we're ideally positioned to benefit. Our virtual sports business continues to show a remarkable level of profitability, although obviously accompanied by difficult dynamics. While the year-over-year quarterly decline in virtual sports EBITDA unfortunately masks the overall strength and acceleration in the rest of the business, the sequential performance is telling a somewhat different story. The data from the last several weeks is indicating that the business has essentially stabilized, and as Brooks will discuss in far greater detail, driven by a number of important initiatives, we expect the business to return to year-over-year growth by the third quarter or certainly the second half of this year.

Together with the strength in our interactive and retail businesses, this would allow for an acceleration in aggregate company performance. With that, I'm pleased to hand things over to Brooks.

Brooks Pierce (President and CEO)

Okay. Thank you, Lorne. I'll go through each business segment in some detail. My remarks will be a little longer than usual as we have a number of items to cover to give a comprehensive perspective on what we're seeing in the business and the markets we serve. Again, just reiterating what Lorne said, let's start with the interactive segment that continues to produce incredibly strong results, and that momentum is carrying over into the second quarter, with Q1 revenue increasing 49%, and as Lorne mentioned, adjusted EBITDA increasing 75% over the same period, continuing the trend of substantial growth and increased operating leverage. Although this growth is broad-based geographically, where we've seen the biggest growth year-over-year is in North America, where we've now added Delaware through our partnership with Rush Street, and the partnership is off to an outstanding start.

Our game designers have increased their focus on U.S.-style games, which has really paid off with leading titles like Wolf at Up and Big Piggy Bank that use a unique game mechanic that's resonated with players. We recently completed a tour of some of the key U.S. operators, and they affirm that our games are continuing to grow with them and that they are some of their key titles. Additionally, we're excited to be adding some key markets later this year in North America and abroad with our games going live in West Virginia as well as in South Africa. Now, let's go over to hybrid dealer. Hybrid dealer, which comes from a combination of the game design and virtual design teams, is a product category we've talked about a lot and is now scaling rapidly. This product has three derivatives at the moment.

The branded wheel games, single-zero roulette, and four-ball extra bet roulette. We have many more derivatives in development that we're excited to get out to the market. Our branded wheel games are live with both BetMGM and Caesars in New Jersey, and in Michigan with BetMGM and with Caesars going live in Michigan and Ontario, likely in the second quarter this year. We will also deliver this product to the Pennsylvania market once we receive the requisite regulatory approvals. BetMGM Bonus City has now been live for over 14 months and has enjoyed sustained performance and even has seen substantial increases in total value played over the last two months. We are obviously gratified to see that this product has sustained power and continues to be enjoyed by players more than a year after its launch.

We now also have both single-zero roulette live in the U.K. with Bet365 and with GameSys, and integrated with Relax, which has it deployed with a number of operators. We expect to go live with Lotto Quebec in May and expect that that will be a key launch for us. We'll also be rolling this out with a number of operators in Brazil here in the second quarter and later in the year, starting with Bet365 in Brazil. Moving on to the latest derivative game, the four-ball extra bet game, now live with GameSys and Relax, and the early results are encouraging. We'll be rolling this out to Bet365 and BetMGM in New Jersey later this quarter, as well as to a number, excuse me, of additional integrators in multiple markets.

Needless to say, it's a very busy time with this product category, and we'll start sharing metrics later in the year as it settles in. I can say safely that the combination of continued growth in the core iGaming segment, along with the accelerating rollout of hybrid dealer, has us feeling very good about the segment of the company. Going over to the virtuals business, we're encouraged by the stabilization we've seen in the business after a clearly challenging start to January due to the move to a fully taxed and regulated market in Brazil that's been discussed broadly across the industry. We were no different, and we were impacted as well, but have seen a steadying in that market from our two biggest customers in the last few months.

We also have a number of key initiatives happening over the next several quarters that we believe will put virtuals back on a growth trajectory. We're focused on launching our licensed content, such as the NFL, NBA, and NHL, that cater to a North American audience with key operators in North America, and we aim to be able to go live with BetMGM during the second half of the year. In Brazil, although it's early days, we launched a Brazil-specific soccer game in Portuguese and with local stadium views. The early performance numbers are encouraging, with one operator showing stakes growth of over 25%, and we'll be deploying this version to our largest Brazil customers over the next several months. In Greece, OPAP's adding a fourth virtual sports channel to its retail state that should drive incremental play.

We've also just gone live in Turkey through our partnership with SEASEL, partner Flutter, to add our virtuals products in 2,000 retail shops with monitors, and in addition, another 3,000 shops where customers will be able to bet using a QR code. Finally, we're excited to launch our V Lottery game with the Virginia Lottery here in the second quarter, which will be our first online lottery deployment in North America through a partnership with Aristocrat Interactive and with a very successful iLottery operator in the Virginia Lottery. We're very active in the lottery space in both North America and around the world, and expect this to be a very good channel for the virtual sports product.

Moving on to the gaming segment, the business continues to perform well through a combination of new cabinets with a key customer, as well as cost savings initiatives being realized despite some macroeconomic challenges in the retail sector in the U.K. We successfully delivered and installed the 5,000 Vantage terminals to the William Hill estate on time and on budget, and we're seeing high-single-digit growth from this customer year-over-year. In Greece, we also expect to see the benefit of the rollout of our newest terminals in the market throughout this year and have a roadmap of strong local-based content that'll be delivered.

In Illinois, it's early in the trial period, but we are seeing strong performance from our portrait-style Valiant cabinet, and our game subscriptions were taken up by almost all customers in the market, leading to the strongest game performance since we went live there several years ago. Our leisure business performed as expected with the one notable point that Lorne mentioned, being that the U.K. holiday was in the first quarter last year and was in the second quarter this year, which caused a disconnect in the performance numbers. Now that we've had that holiday period, we've seen strong results at the holiday parks over that holiday weekend. With that, I'll hand it back over to Lorne for any closing remarks.

Lorne Weil (Executive Chairman)

Thanks, Brooks. That was a great summary of actually an incredible range of activities going on in the company right now, but I don't have any further comments to make. Operator, if you could please turn the program over to Q&A.

Operator (participant)

All right. At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Our first question comes from the line of Barry Jonas from Truist Securities. Please go ahead.

Barry Jonas (Managing Director)

Hey, guys. The main question we're getting now is just on the tariffs in the U.S. Can you maybe just talk about the ramifications on the business both on the cost side and also if you're seeing any changes in operator or player behaviors? Thank you.

Brooks Pierce (President and CEO)

Yeah. Tariff is not a big issue for us because really the only impact could potentially be in sales in Illinois, which is not a huge part of our business. Ironically, being kind of U.K.-based, we have an opportunity to sell to the Canadian markets that we think actually the tariff issue could actually potentially help us. Frankly, the tariff issue is not a big issue for us as we're seeing it right now.

Lorne Weil (Executive Chairman)

There was also a Barry, there was a thing in the press this morning. I did not have a chance to read it carefully, but something about announcing that President Trump did some kind of trade deal with the U.K. If that is actually the case, then we absolutely do not have any issue with tariffs, obviously.

Barry Jonas (Managing Director)

Okay. And just, I mean, one of your customers reported last night on the interactive side and said not really seeing much. Just confirming across your U.S. interactive base, it's the same thing. No expected ramifications.

Brooks Pierce (President and CEO)

No, not at all. [Not in the U.S.]

Barry Jonas (Managing Director)

From a consumer perspective.

Brooks Pierce (President and CEO)

No. I mean, I think as I said in my remarks, obviously the first quarter was great and the trends continue. Now that we're kind of almost halfway through the second quarter, we're not seeing any slowing down at all in the interactive numbers.

Barry Jonas (Managing Director)

Got it. Appreciate the commentary about the holiday park business now and then reworking the pub business. Does that sort of set you on the path to hit that 40% EBITDA margin target you've talked about in the past and maybe just a sense of timing to achieve that goal, broadly speaking?

Lorne Weil (Executive Chairman)

Yeah. I think once it's done, it more than sets us on the path. It pretty much guarantees that we're going to have EBITDA margins comfortably over 40%. We're cautiously optimistic that we will conclude that, certainly this year and hopefully within the next few months.

Barry Jonas (Managing Director)

Got it. All right. Thank you so much, guys.

Brooks Pierce (President and CEO)

Thanks, Barry.

Operator (participant)

Our next question comes from the line of Ryan Sigdahl from Craig-Hallum Capital Group. Please go ahead.

Ryan Sigdahl (Senior Research Analyst)

Hey, good morning, guys. I want to go to virtual sports. If I look at comments from March 17 when you reported Q4, so quarter almost over, it said, "Indeed, we've passed the inflection point. We've seen stabilization in virtual sports in the first quarter thus far," etc., etc. I guess what happened? Because the numbers stepped down in a pretty big way, sequentially even bigger year-over-year. I get the reasons, and we've heard the same thing from Brazil, the transition period, Flutter said it last night, etc. Just the friction with customers. I guess what happened from the last time you guys spoke at the tail end of the quarter to, I guess, the results in the quarter?

Brooks Pierce (President and CEO)

Yeah. I mean, I think, a couple of things. In terms of the stabilization, now obviously here we are in the early part of May, so we have another five weeks of, actually since March 17, really probably seven or eight weeks of data that we look at very closely and we plot, and we do see a stabilization. Now, on a week-to-week basis, we do see continued volatility. We feel, again, probably more comfortable. We were seeing those trends when we talked about it in March, but now that we're in the early part of May, we just have more time to be able to see that it really has stabilized. I will say in terms of the volatility, over the course of the 13 or 14 weeks, it stabilizes. Each week, there's ups and downs.

The biggest issue we talked about was in the beginning of the quarter was the combination of, obviously, the changes in signing up customers and everything else in Brazil and obviously the tax rate.

Lorne Weil (Executive Chairman)

Yeah. Ryan, just to make it clear, when we talked in March in the year-end conference call, at that point, we had had January, February, March, most of March results. Although we knew that the first quarter itself was going to be down sequentially from the fourth quarter, although at a diminishing rate, we saw pretty clearly in March that once we had that step down from the fourth quarter, that that had stopped, that we had definitely leveled out in January, February, March, and we still saw that in April and so far in May. I think we are as comfortable as we can be that we have seen the bottom of the virtual sports volume, and we should be heading upward from here.

Ryan Sigdahl (Senior Research Analyst)

Great. Glad to hear the debt refinance. Anything you can share from a term standpoint, how the rate may or may not compare to the existing?

Lorne Weil (Executive Chairman)

Yeah. Let me start answering that, Ryan, by saying that in that refi, we had a bunch of objectives to push the maturity out, obviously, for five years, very importantly to minimize the call protection so that we have maximum flexibility, for example, to either refinance or to make a major M&A transaction going forward. We wanted a floating rate to take advantage of the downward sloping forward, in your sterling curve. Ideally, we also wanted a starting rate that was inside where our current bonds were trading in a pretty tough market. I think we accomplished all these given, obviously, that there are trade-offs among them. We could have agreed to a fixed rate and had other better terms, but I think the idea was to get the best possible package of stuff.

With the rate reduction that coincidentally and fortuitously was announced this morning by the Bank of England, our going in rate of 6 points over so-called Sonia is a little over 10%. Given the slope of the curve and the currently projected rate projections, we feel that we'll comfortably be at about 9.5% by the end of this year. Beyond that, we have two steps down in the spread as we deleverage, beginning with the anticipated sale of our holiday park business later this year. In terms of an interest expense number, let's say, Ryan, for modeling purposes, I think $30 million in interest for 2026 is a very safe number. We could see reductions from there as either the Sonia rate drops more or more likely we get the benefits from deleveraging.

This is a little higher than where we are now, but from a cash point of view, given a very significant reduction in CapEx, as I noted previously, we should be well ahead in terms of free cash flow. Hopefully, that answers your question.

Ryan Sigdahl (Senior Research Analyst)

That was very, very helpful. Thank you, Lorne. Flexibility, yeah, is very important in this market and with everything you have going on. Looking forward to hearing the holiday park sale. That's it for us. Thanks. Good luck, guys.

Lorne Weil (Executive Chairman)

Thanks, Ryan.

Operator (participant)

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

Jordan Bender (Senior Equity Research Analyst)

Good morning, everyone. I maybe want to follow up on the prior conversation. You mentioned several times the intention to deleverage in past quarters. You've been comfortable with the balance sheet. Is that new way of thinking really just a function of the terms of the new debt? They just become more favorable as leverage continues to fall. Is that kind of what you're getting at, Lorne?

Lorne Weil (Executive Chairman)

Yeah, certainly with a new debt deal where we benefit from deleveraging, it gives us plenty of incentive to deleverage. In a way, it was all to the reverse that in negotiating the deal, because we were pretty confident that we were going to be deleveraging, we were willing to enter into a deal where we would get to where we feel we want to be once we deleverage. I think the deleveraging has always been sort of implicit as our fastest growing and most profitable and least capital-intensive business is the digital business, and the slower growing business is the retail business. The sale of holiday parks and the, let's say, remodeling of our pub business just accelerates that.

Jordan Bender (Senior Equity Research Analyst)

Great. Moving back to Brazil, it was fairly well telegraphed that market had a slow start, and it's good to see you're seeing stabilization there. Curious on the adoption rate of the new wave of players to the virtual sports market. We've all seen the estimates for the size and potential of Brazil, but is there any kind of aspirational number in terms of revenue that you could look to drive from that market? Thank you.

Brooks Pierce (President and CEO)

Yeah. I mean, one of the things I mentioned is the performance that we had seen from this kind of localized content. I mean, obviously, it's a very soccer/football crazy market, and that's where the majority, at least in virtual sports, is played out. We saw it with one of our smaller customers, this huge uplift. We actually just went live yesterday with one of our two big customers in Brazil with that product, and we saw a very nice day yesterday, obviously, very early days. The thing that we need to do in Brazil, quite frankly, is we need to get we have the two biggest customers, Bet365 and Betano, which we think represent about 40% of the market. You add Entain in with Sporting Bet, and we kind of have half the market, but we need to get the other half of the market live with virtual sports.

That's going to take some time in terms of getting contracts negotiated, getting integrations done. We're working through channel partners down there, such as Altenor and Camby. The market's just going to take a little bit longer than probably we would hope to develop, but we are very bullish based on what we see from our existing customers that Brazil is going to be a very, very strong market for virtual sports.

Jordan Bender (Senior Equity Research Analyst)

Great. Thank you very much.

Brooks Pierce (President and CEO)

No problem.

Operator (participant)

Your next question comes from the line of Chad Beynon from Macquarie. Please go ahead.

Chad Beynon (Head of U.S. Research)

Morning. Thanks for taking my question. Wanted to ask about just trends that you're seeing outside of the U.S. or North America. I think we all have a pretty good handle in terms of the consumer here, but as we look across the pond, kind of what you're seeing from a recurring basis, whether it's in the U.K., Greece, or Italy, Brooks, I know you talked about some of the new product that's out there. Maybe it's a little harder to really kind of focus in on that. Any additional color just in terms of if you're seeing the consumer in those areas holding up through this period? Thank you.

Brooks Pierce (President and CEO)

Yeah. Yeah, sure. Yeah. And I know some of the operators in the U.K. have already reported Entain, which is not a retail customer of ours, but they reported they were, I think, down 4% on a retail basis. The good news for us is we're seeing William Hill get the uplift that we were expecting from Vantage terminals. If you're taking a year-over-year comparison, our two other big customers, BetFred and Paddy Power, have softened a bit. The overall market for us is up, but it's driven by the increase that we're seeing from William Hill. As I mentioned in my remarks, I think the U.K. retail high street market is a bit challenged.

Good news is on the iGaming side is we're continuing to see growth out of the U.K. and continuing to see us take a bigger share of the U.K. pot kind of almost on a quarter-by-quarter basis. In Greece, it's relatively flat, but as we've talked about in the past, we're just rolling out some of our new terminals, so we would expect that to give us a lift over the course of the year. Greece, as a market itself, is relatively flat. I'd say the same thing for Italy. U.K. is the only one that we're seeing a little bit of softness with customers that have had the Vantage terminals for over a year, but thankfully, William Hill's kind of hitting on all cylinders for us. The market itself in total is up for us.

Chad Beynon (Head of U.S. Research)

Great. Thank you. Lorne, last quarter, I believe it was, you made a comment just in terms of where you expected digital to be at the end of the year as a percentage of, I believe it was a percentage of EBITDA. Sounds like things are progressing pretty well and all the initiatives continue to look good as we kind of get through the year. Has anything changed just in terms of how you view the contribution of EBITDA for the year?

Lorne Weil (Executive Chairman)

No. I mean, I think the interactive is really so far outperforming where we might have expected it to be at this point. As I mentioned in my remarks, the growth in North America or the United States of 90% year-over-year without the benefit of any new states is kind of pretty remarkable. I think for all the reasons that Brooks said, we're starting to feel, and the data is supporting it, pretty good about where virtuals is headed. I think the combination of ultimately divesting the holiday park business and the tremendous performance we're seeing from digital, I would imagine that by the end of the year, we'll be at least at the level that we talked about last time, if not higher.

Brooks Pierce (President and CEO)

Yeah. I think just to add to that, I think in the next quarter, we'll look to give some hard data on hybrid dealer since it's really in its scaling-up phase. Now that we've seen it with big operators like Caesars, BetMGM, Bet365, GameSys, and a bunch of what we would classify as tier two operators under this Relax integration, we're starting to see a pretty broad-based support for this on a pretty much everyday basis. That side of the business is growing. Now it's really about how can we get that out to as many customers as possible. It's definitely not a demand issue. It's a supply issue that we've got to get this out to as many customers as we can. That's only going to add to the percentage of the business of the EBITDA contribution that will be digital.

Chad Beynon (Head of U.S. Research)

Thank you both.

Brooks Pierce (President and CEO)

You're welcome.

Operator (participant)

Your final question comes from the line of Josh Nichols from B. Riley Securities. Please go ahead.

Josh Nichols (Senior Equity Research Analyst)

Yeah. Thanks for taking my question. Very nice step-up during the quarter in cash. I just want to talk a little bit about how should we be thinking about free cash flow generation going forward, just given the dynamics you have with increasing high-margin digital revenue, as well as CapEx light model that you've been implementing in this new debt facility?

Brooks Pierce (President and CEO)

Yeah. I mean, I think without getting into any specific number, because we tend to try not to get involved in guidance per se, but certainly all the components that would go into defining what our free cash flow are moving positively. EBITDA is obviously going up. The portion of EBITDA that has relatively little CapEx is also going up. As I mentioned before, we've got a little bit of increase in interest expense, but that will be far more than offset by a decline in CapEx, which we think, as I said earlier, is going to probably settle at around $25 million a year, which is way below where it is now. I think our free cash flow conversion is going to steadily increase, maybe in the sort of 30% of EBITDA range.

There are going to be years when it's going to be up or down, depending upon how working capital plays itself out. It always seems to be a pain at the end of the year, but I think we're feeling very positive about free cash flow in light of the deleveraging, in light of the reduction in CapEx, and obviously the growth in the high-margin, high-cash convergent digital part of our business.

Josh Nichols (Senior Equity Research Analyst)

Thanks. And then just last follow-up for me. There is a lot of irons in the fire, so to speak, particularly, I think, for the second half that provides some very interesting opportunities. If you were to pick what you are probably most excited about, I am guessing, hybrid dealer, if you could just talk about, is the expectation there that as this ramps, do you think that the growth rate that that business is seeing is sustainable or could even possibly accelerate? Presumably, it is not a very big % of revenue today, but that should be increasing given the opportunities that you have talked about over the last couple of quarters.

Brooks Pierce (President and CEO)

Yeah. I mean, I think you answered the question very well. That is exactly how we feel, is that hybrid dealer, look, I mean, we're super excited about how just the core iGaming business is growing and we're taking share and the performance has been phenomenal. It's early days with hybrid dealer, but it's clear. The example I looked at or that I mentioned was the BetMGM Bonus wheel that's been out now for 14 months. It's not like iGaming where they have a kind of a short-lived trajectory and then they fade out. This is a game that's been out for 14 months and the numbers now are higher than they were when they started. We feel confident about that. Now we're starting to get a good mix of the bigger operators and the smaller operators.

We've got some big ones that are coming on board. FanDuel will come on board by the end of the year. Yeah, I mean, that's the part that we're certainly the most excited about from a growth standpoint, starting from a pretty small start. Yeah, by the end of the year, I think we'll certainly be able to guide to how big we think that business can be for us.

Josh Nichols (Senior Equity Research Analyst)

Appreciate it. Thank you.

Brooks Pierce (President and CEO)

You're welcome.

Operator (participant)

I will now turn the call back over to Mr. Weil for closing remarks.

Lorne Weil (Executive Chairman)

Thank you, Operator. Thank you, everyone, for joining us on our call. We know that Penn has their call starting at 9:00 A.M. For those of you who are still on our call, we will now release you to jump on the Penn call. Thank you for your support, and we look forward to talking to you in a few months. Thanks.

Operator (participant)

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