Q4 2019 Earnings Call
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Good day and welcome to the a DS fourth quarter 2019 earnings conference call all participants will be in a listen-only mode. So do you need assistance, please signal conference specialist pressing the star key followed by zero after today's presentation. There will be an opportunity to ask questions to ask a question. You may press star than one on your telephone keypad to withdraw your question, please press * then two. Please know the event is being recorded. I would now like to turn the conference over to Julia boguslavsky, please go ahead ma'am.
Thank you and good afternoon everyone. Welcome to fourth quarter and full-year 2019 earnings conference call with me today are David Lopez president and CEO and CFO. We posted a slide presentation reviewing our key operational and financial highlights for the fourth-quarter and full-year 2019, which can be found on our investor relations website investors. Play. Now, we will quickly cover the Safe Harbor today's call is to provide you with information regarding our fourth-quarter and full-year 2019 perfect. In addition to our financial Outlook. This conference call includes forward-looking statements any statement that reversed expectations projections or other characterizations of future events in a financial projections or future market conditions is a forward-looking statement based on assumptions today.
actual results
Paternity really from those expressed in these forward-looking statements and we make no obligation to update our disclosures for more information about factors that may cause actual results to differ materially from forward-looking statements. Please refer to the earnings release that we issued today as well as risks described in our form 10-K filed today particularly in a section of these documents a child risk factors are commentary today will also include non-gaap Financial measures. We believe that the use of these non-gaap Financial measures provides an additional tool for investors to use and evaluate an ongoing operating results and Trends. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with gaap.
Reconciliations between gaap and non-gaap metrics for a reported results can be found in our earnings release issued today. Please refer to our filings with the SEC. For more information would like to turn the call over to David Lopez.
Thank you.
And thank you. Everyone for joining a GS is queue for an 2019 year ending earnings call.
For those using the slide deck, please turn to slide three where I'll start by providing a brief overview of our fiscal year 2019 operational highlights followed by segment performance for the quarter.
After Financial overview from chemo, I'll close the call by sharing our growth drivers and business outlook for 2020.
Slide for shows that Q4 revenue of 77.8 million was up 8% year-over-year. Net income of 1.4 million increased year-over-year from a net loss of 10.3 million months prior. Which chemo will touch on later.
Adjusted ebitda grew to approximately 37.3 million up 18% over last year the gains in revenue and adjusted ebitda were led by egm sales revenue and greater recurring Revenue primarily due to the inclusion of Integrity units as well as growth and table products Revenue.
For the full-year 2019 total revenue grew 7% year-over-year to three hundred four point seven million of which approximately 69% was recurring adjusted off of approximately 146.1 million grew 7% year-over-year.
You will see a list of several business highlights for the fiscal 2019 which include
we surpassed 9,000 placements of the Orion portrait cabinet with more than 4,000 placements made in 2019.
Our slot division achieved an average domestic ship sure 5.5% We sold 4870 gyms, which was up 11% from 2018.
Egm domestic market share grew to 3% from 2.5% at year end 2018 within a market that has approximately 1 million machines.
We ended the year with nearly 2,200 placements of rake and bacon our highest-performing game on Orion portrait. We sold approximately 570 units into five Canadian provinces, I'm still trying up right into the market and the second half of 2019 ending the year with more than 630 placements.
annual
domestic RPD excluding, Oklahoma increase 4% from 2018
Table products Revenue grew 33% year-over-year to more than ten million and twenty nineteen ninety four percent of which was recurring.
Two for table products even surpassed 1 million for the second consecutive quarter.
Mexico reported record Revenue up 14% in 2019 and lastly for the third year in a row. We were awarded the best and brightest places to work for in the nation recognized in our commitment to maintaining a best-in-class corporate culture.
Despite the domestic easy. I'm highlights 2019 was negatively impacted by results in our gaming Ops business in Oklahoma, as we saw decreases in Revenue that had an impact on our overall performance package. I'll cover some of our recent efforts in Oklahoma as well as our plans for 2020 later in this presentation with that. I'll now provide an update on our segment performance for the quarter ending with r e Jam segment on Slide Five Revenue growth was driven by 1283. Solely GM's up 11% year-over-year with Orion up up right accounting for 24% of the mixes in the quarter. We sold units at 77 properties across 26 States in addition to sales in Canada and Mexico. We have been growing our footprint in Washington selling approximately 15 units in Q4 and believe it will be a growth market for us in 2020.
We had solved.
Sales growth in California, Nevada, Arkansas and Florida achieving approximately 5% domestic shipping share. Thank you for
GM sales revenue also included the sales approximately 300 lower RPD class 3 units from the Integrity install base that said we did not count these units in our soul number kpi off of 1283 units.
As we have talked about on our last 2 earnings calls. We have been working to better manage our footprint in Oklahoma after evaluating our Capital strategy and analyzing the current operating environment in Oklahoma We Believe The Prudent thing to do is to sell some of our underperforming units to generate cash that can be invested in other higher-performing markets, or we can choose to allocate some of those dollars to improve Revenue per day off in Oklahoma.
Moving to RPD year-over-year domestic yields of $24.90 were down 5% outside of Oklahoma are domestic RPD grew 7% year-over-year to $35.63 driven by strong performance from our Orion Family of cabinets.
Flight eleven breaks out, Oklahoma RPD specifically and separates Integrity performance from our Legacy base.
Although Q4 Oklahoma RPD was down year-over-year. We are experiencing less degradation than we saw in Q2 and Q3 of 2019 Q4 Oklahoma RPD. I mean relatively flat for Q3 signifying stabilization as a result of some of our targeted countermeasures.
Those efforts have included game title changes cabinet swaps on floor relocations and selling of underperforming units.
Slide eight shows our recent market share gains as we make strides towards our 5% market share our goal our annual ship share contributions from Florida, California, Nevada represent the greatest growth markets in 2019.
Turning to our International footprint Mexico ended the year up 23% and total revenue with equipment sales revenue driving most of the growth.
Mexico
Continues to serve as a good secondary market for products like our icon cabinet as well as Orion portrait, which outperforms the floor much like it does in the US.
Moving onto our table segments on slide 13 in 2019. We do installs across every category and our table business progressives premium games utility products and side vents. We ended the year with tables contributing more than ten million in Revenue our performance in the segment continues to build momentum with fourth-quarter Revenue up 29% year-over-year to 2.8 million our footprint grew 19% year-over-year to an install base of 3766 units.
The success of our table progressives drove most of the year-over-year growth and more than 100 placements this quarter notable installs include Gila River Wild Horse Pass in Arizona Woodbine in Ontario and Tachi Palace in California in the name a few.
goes with
I'm saying that we are very pleased with the performance of our Progressive products yet. We were even more excited about the pipeline as we look forward to the full year twenty-twenty impact.
Zacks made its debut in Pennsylvania. Thank you for traveling at two properties and is now installed and roughly 15 markets across the u.s. And Canada. Although we are pleased with performance thus far off. Our customers are excited and awaiting the launch of the pack shuffler later this year, which will help expand our shuffler offerings and address more of the market.
And the interactive segments on slide 14, we reported 1.3 million in Revenue in the quarter up 2% year-over-year Q4. Saw the launch of a GS content on Golden Nugget our second operation in New Jersey in addition to Caliente and and in Mexico and 888casino and Buzz bingo in Europe.
Most recently we went live with three new operators in New Jersey Mohegan Sun Golden Nugget and Resorts giving us a total of four operators in the state.
with that
I'll turn the call over to Kimo for a more detailed discussion of our financial results. Thank you, David and good afternoon everyone before I begin. I'd like to point you to slide 19 which provides a Consolidated operational summary is David touchdown earlier. Net income attributable to play g s think of one point four million increased year-over-year from a net loss of eight point three million primarily due to improved operating income in the current quarter offset by non-cash stock-based compensation expense that increased by 1.9 million.
No, the prior-year included a pre-tax Goodwill impairment of 4.8 million related to our interactive segments.
Total adjusted ebitda and adjusted ebitda margin in Q4 with 37.3% and 48% respectively and were both up year-over-year adjusted ebitda. Margin of roughly four hundred basis points year-over-year primarily due to Greater contribution from r e g m and tables businesses in addition to reduce operating expenses in our interactive segments.
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I'm segment fourth-quarter egm equipment sales increased 13% year-over-year to 26.1 million due to an increase in sold units as well as the sale of underperforming units in Oklahoma, which David mentioned earlier and as a reminder, this sale is not included in our sold units and e g m a s p metric
or domestic e g m a s p decreased 5% year-over-year to $17,800 due to a larger sale to a single customer in the quarter normalize for this sale price was $18,250.
And our domestic egm gaming operations business are installed base grew by over 2000 unit year-over-year driven by the addition of units from the Integrity acquisition.
Normalize for these units are domestic installed base decreased by approximately four hundred units, which includes the end of lease buyout of 280 vlts in the first half of 2009 Chef David previously mentioned. We are in the process of conducting a strategic review of our installed base to determine the best decisions for the business moving forward.
We look at our domestic.
Install base in two ways are Oklahoma footprint and are not Oklahoma footprint.
And not Oklahoma We Believe opportunities exist Sardar our market share in the class 3 Premium space which David will touch upon in his closing comments.
In Oklahoma, we believe that opportunities to improve our business come via a variety of measures first. Let's talk about the composition of our installed base wage with approximately 10200 units in Oklahoma some of which are older generation machines as well as some third-party units. We will continue to optimize units that we believe will generate the best returner using new game titles on existing cabinets as well as new hardware such as the new Orion rise Orion curve and starwhal to help Drive gains in our place and improve overall yield.
As we consider the current operating environment in Oklahoma, we have begun to strategically sell or prune some underperforming parts of our footprint this year in locations where we do not believe the capital outlay would generate the best returns for us. This could impact the Oklahoma installed Base by about five hundred to a thousand units in 2020 by executing on these initiatives wage believe. We will exit 20 20 with a more optimal footprint greater stabilization in the base and better cash returns moving forward.
domestic ezm Revenue
Or RPD decrease by 5% to $24.90 compared to $26.41 In the prior-year period when normalized for the impact of until we estimate that domestic RPD was $26.20 down approximately 1% Year-over-year. The decline is due to organic growth of our footprint in Oklahoma by approximately eight hundred units throughout the year.
Units place in Oklahoma generate lower yields than our domestic average RPD. And therefore these placements have the effect of pulling down our overall domestic RPD while still increasing both revenues and adjusted ebitda.
Our International RPD for the quarter decreased by $0.42 or 5% as our International installs were in new markets and properties of Mexico, which have lower yields than our average National RPD.
Adjusted ebitda grew 14% to 36.6 million and adjusted ebitda margin increased nearly three hundred basis points to approximately 50% compared to the prior-year. These increases were primarily due to growth in gaming operations and equipment sales revenue and to a lesser extent reduced operating expenses.
now turning to
Table products for order adjusted ebitda grew by more than 700,000 driven largely by 600 new recurring placements and relatively flat operating expense compared to the prior-year. The quarter of benefited from additional sales revenue versus last year driven by the sale of table signage and to a lesser extent sales of the decks. Ask, Exemplar.
Too far adjusted ebitda margin was 36% as compared to 12% in the prior year. Driven by improve operating performance as well as a reduction in royalty expense as wage voted Progressive units on lease from a competitor to our own Stacks Progressive.
We Believe tables margin will continue to improve in 2020 as we further scale the business and grow our install base
Bluemont our interactive segment Revenue grew 2% year-over-year to one point three million, although revenue from our social business is declined by approximately $400,000 over a year. We had grown are real money gaming revenues by roughly the same amount the revenue decline in our social business lines with our strategy of decreasing user acquisition marketing spend and focusing our efforts on Real Money gaming, where were you believe there is a lot greater long-term earnings potential for us adjusted ebitda increased by $500,000 in the quarter driven by real money gaming growth in several European markets and New Jersey as well as decrease operating costs in the segment.
Into operating expenses adjusted sg&a expense of 13.1 million decreased slightly in Q4 down 3% year-over-year with increases in headcount wage offset by decrease operating costs in our interactive segments as well as decreases in professional fees.
Adjusted R&D expense for Q4 was 7.2 million compared to seven point nine million in the prior year. The decrease primarily due to the timing of development and professional fees be over year.
R&D as a percentage of Revenue was approximately 9% in the current year compared to 11% in the prior year.
Moving on to our capital structure update on slide fifteen total net which is the principal amount of total debt less cash and cash equivalents was 520.6 million - 468.1 million at December 31st, 2018. Our total net leverage ratio, which is the total net debt / adjusted ebitda increased from 3.4 times at December 31st, 2018 the 3.6 times at December 31st, 2019 the increase in net debt as well as our leverage ratio was primarily driven by the acquisition of Integrity, which closed in February of 2019.
in the fourth quarter
paid down approximately 1.5 million in debt
Capital expenditures were down four point six million or 21% year-over-year to approximately 17.4 million in Q4.
The prior periods are considerably higher growth capex due to over $800 recurring units installed in the quarter.
Girl Scout packs in the fourth quarter of 2019 was approximately 8.8 million and intangible capex was 5.8 million which included placement fee payment of 1.5 million and greater software costs associated with the upcoming launch of our three new EDM products, including our new premium only lease products Orion rise and star wall.
Maintenance capex was two point six million and corporate capex was 200,000.
For 2020 the right way to think about annual cap is approximately 67 to $71 million which compares to 71.1 million in 2019.
Our capex in 2020 will be impacted as we enter the premium lease category and continue to improve our Oklahoma Footprints through strategic optimization. We are focused on effectively managing this Investments to achieve the best returns.
What are your end?
2019 free cash flow remained relatively flat at 16.9 million with 8.1 million generated in the fourth quarter for 2020. We believe that our new product introductions as well as our strategy to improve cash returns in Oklahoma and further Market penetration outside of Oklahoma will enable us to grow free cash flow.
And laugh as covered in more detail in our risk factors in today's 10K. We are closely monitoring the situation with the Alabama Coushatta tribe of Texas where we currently have them installed at their naskila property recently. The tribes appeal was denied as to whether the Indian gaming regulatory act or the Texas restoration act prevailed with regards to operating a GM's at this property. Just denial effectively upheld the Texas restoration act what this means is that there is risk regarding the long-term gaming operations of the naskila property wage, which in turn means there's risk of removal of our GM's which are currently on participation.
That's it. As of today. There's no mandate to remove e g m
Property nor is there a ruling to shut down gaming operations. Although there are several potential outcomes that could delay anything from happening particularly for the balance of the Year. There are still risk of removal at some point in the future when exactly we don't know but we want to make investors aware as the full-year impact is approximately nine to ten million in adjusted ebitda off again, we feel it's prudent to make investors aware of the situation as our 2020 guidance does not contemplate the removal of egms from naskila with that. I will turn the call back over to David Moss in remarks.
Thanks, Kimo flight 16 illustrates several initiatives that we expect to drive 20 20 Financial results. The first is our entry into the premium lease space with the launch of our birth of a GM products. The Orion rising star wall. We will now be able to gain access to the domestic class three and class to premium market for the islands report the class read premium Market size roughly 70,000 units and although some operators maybe optimizing their premium footprint others are maintaining their current footprint and of course demand for high-performing premium content remains strong. We accelerated the rollout of the star wall due to customer Demand with our first unit installed in Oklahoma. Just last week a first-of-its-kind Star Wars showcases six packs of Orion portraits against a video backdrop with hundreds of LED tiles to create cinematic Motion Graphics complimentary to the game theme. We launched starwhal with two brand extension number.
Are successful Jade Wednesday locks and golden wings Deluxe which both feature a massive bonus wheel to enhance player engagement.
Brian rise units have been installed in a couple of markets as well with orders ramping as we near the second quarter. We are confident that the combination of this vibrant high-rise cabinet along with the content coming from Marvel Studios will afford US an opportunity to compete in the premium class read space as well as give us a boost in our class to Lease Only jurisdictions.
The second initiatives is the launch of the new Orion curve as well as numerous new game families on the Orion portrait these launches play to our strengths of making great single screen hardware and content additionally portrait cabinets are the fastest-growing egm category on the casino floor, which gives us confidence on the new offerings in this category.
We've been working to fast-track the launch of Orion curve with our first placement set for the end of this month.
Our first two titles Royal Phoenix and sacred Dragon, which we unveiled at g2e look to lead our launch with more games coming during the balance of the Year. Similarly-named even taken our foot off the gas with Orion portrait and believe that some of the new content will help Drive greater placements throughout the year. We have begun our rollout of two new cash on ROM games and early feedback has the titles performing well versus house and Zone averages.
the 3rd
Should have centers on the continued momentum in our table business enhanced by the opportunity to secure site licenses as well as the rollout of the of the packs shuffler and the first quarter Thursday. We have secured a couple of exciting site licenses, which we will discuss in Greater detail in our next call a site license entails an operator committing to a long-term Arrangement, which box is a GS a fixed monthly license fee for a comprehensive Suite of products such as premium games and side vents. We started the year strong with more products and options for our customers than ever before including NHL Brands which are now available on bonus Spin and our signage.
the first one
Later on this year will also launch the pack shuffler for the specialty table games, which will give us yet another growth lever in the table segment setting us up for a strong Twenty-One the final initiative focuses on generating the best Returns on our cast by investing in new product categories as well as focusing our efforts to improve Revenue per day in Oklahoma. We believe the best uses of our cash are twofold first launching new premium products into the class three and class two premium Lease Only Market, which represents ample white space for us and second selectively optimize our cash returns in markets like Oklahoma and Mexico to drive gains and r p d and improve overall yields and Thursday.
if you
Turn to slide 17, we believe we're in position in 2020 to produce between 148 and $153 in adjusted ebitda as a note our adjusted EPS guidance does not contemplate any impact from the covin 19 virus to reach these targets. We expect to increase egm unit sales slightly increased our overall selling price driving additional growth in our table segment and generate your over year improvements in our p d and the second half of the year.
Because of the timing of the new product releases we expect 20/20 to be slightly back half waited similar to 2019.
Although all three new slot products will be launched by Q2. It will be very early in the release cycle. And therefore we will be in good position to build momentum as we enter Q3.
We're launching new titles for all three new products in addition to our existing Orion Family of cabinets during each quarter this year which sets us up to exit 2020 at a stronger growth rate.
to help with model
This year we believe that adjusted ebitda margins will be similar to 2019 in the forty-seven to Forty-Eight percent range.
Chemo mentioned our year-end leverage ratio of 3.6 times notwithstanding any potential m&a we believe that we can maintain this ratio and use our free cash flow to potentially bring it down slightly by year-end to approximately 3.3 times.
overall, we believe that 2020 will be a meaningful product release here where we should be in position to build momentum every quarter generating stability while also functioning as a turning point to return to more meaningful growth and twenty Twenty-One and Beyond
Finally before we moved to Q&A. I want to thank our shareholders our customers in our a GS team for your support with that. We thank you for listening and we'll move to Q&A portion of the call.
We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press * then two at this time will pause momentarily to assemble our roster.
And our first question will come from Brad Boyer of stifel, please go ahead. Yeah. Thanks for taking the questions guys. You covered quite a bit of ground there. So I appreciate all the thoughts insights. First question for me. David is just around sort of the rollout of not only new hardware, which I think we all can kind of understand but we're still on the on the game theme side wage, you know, I think a big hang-up for a lot of investors right now is that, you know, even if we look at the slide deck here, I mean, we're still talking about some game themes that have been out in the market for quite a while. Just curious George can provide any additional color on any sort of new games that are out there in the market maybe how they're performing and sort of how the the Cadence of new game theme rollouts is going to look this year.
Thanks Brad. Yeah, so I think it's both hardware and software and I know and games if you will are games that have been released here in the last it's just found recently as we said as we wanted to uh, you know, roll these games out to to help enhance our RPD in Oklahoma and some other jurisdictions. They've just recently been released off without like giving specific numbers I'd say strong as good way to put it on on the games that we've released along with the hardware. We've actually just put the Star Wars the service and as we said in our prepared remarks and of course rise also is in service now all those between the new games and the two new cabinets and of course curve is coming. We don't have anything on it just yet. Everything is really early but it's showing good indications of being one of our better games as far as uh, the games that are coming out and as far as the hardware, it's all perfect.
Well in the numbers look great.
Um, we talked about that a little bit, you know in the remarks again back half waited as far as when it all comes but um Star Wars out already Rises already rolling out and I think we're talking about, you know, really getting into curve here in Q2, you'll start to see more volume towards the end of the quarter. But of course into Q3 is when it's not going to hit stride. So we're confident we like we like what we're seeing early on we felt good about these games at g2e. We felt good about the games as we were demoing to our customers and I think the phone numbers are starting to prove that out.
Okay, very helpful. And then second you guys did provide a lot of color around Oklahoma. One thing I noticed just in the slides looks like to date you've touched, you know, about 1,500 units. I know it's kind of a moving Target but there's a little bit higher than than you know, kind of what we had, you know talked about previously kind of twelve hundred. I guess just curious where we stand there in the you know, as far as you know, realigning games putting Capital into sort of optimizing Oklahoma. I mean is it is is it your expectations are going to continue to see, you know, a significant number of units be on the 1500 level touched as we move into twenty-twenty or do you think we're kind of in the language Indians of sort of that, you know revitalization of of the base process in Oklahoma.
I think
Got I think good question. I think as you said it's a moving Target as far as we're concerned. We look at those changes as both being game conversions and can get that swapped. Um, we're trying to be as judicious as we can with cabinet spots because that's where the capital sets. Um, as far as game think conversions. We've actually had very good results with those Wheels those numbers weekly and monthly the Returns on that obviously are very good. The the cost is de minimis and the Returns on that on the cost is really just labor getting out there and and we can make that money back very quickly, but we can see a demonstrable return on on those changes. Those will continue as far as how we're going to go out and touch base, you know got about $10,000 roughly 10,000 units out there or so an Oklahoma. So we've touched 15% of it. I think there's still plenty more to get too. But those touches will include simple game conversions dead.
Cadence
then as we want
I keep some of our powder dry here. We know Star Wars on the way and again early results on Star Wars specifically are very strong. Rise is doing very well. We want to keep our powder dry off rise and of course for curve, so there's more work to be done there. But of course as we always we've been saying for a couple of quarters now the cavalry's coming in 2020 and now we can see them on the horizon and that's sort of coming up on as we're very very pleased with results there and will be again judicious with the capital. It's it's a it's a balance between getting optimizing that bass and sort of you know what the spend should be in order to go out and get that.
Okay, and then lastly just on the table segment, I mean the performance this year was was pretty Sensational on me basically took a business that was doing know even now it's doing for them and you know dramatically grew your revenues, I guess just as we look ahead to 2020 and perhaps even you know, a little bit beyond I guess, you know any color you could provide as to how we should be thinking about, you know going in that segment from here. I mean, obviously you've done a great job with with the side bets and progressives and you know packs is potentially, you know, kind of going to hit the market maybe later this year wage. Um, but just you know, I think it'd be helpful for everyone on the call. If you could sort of maybe frame, you know, the growth opportunity and tables from here and that's it for me. Thanks.
Thanks, Brad. So.
I'll begin with just talking a little bit about the products and chemo can maybe add a little bit of framework for growth without us being terribly specific there. Um packs obviously Thursday is going to be huge for us. It's something that really turns us from a company that says has a shuffler to a shuffle of division. So that's very helpful. Our customers are happy with what they see with a first-round with the Dex but really more than anything after they saw a pack at g2e they're very excited because they want to see that competition in the marketplace and they see the quality and the type of unit that we've designed from the ground up. So we have high hopes for that. It comes in the second half to a very late 2020s. It gives us nice momentum moving into age twenty Twenty-One and of course our site license strategy has gone very well for us. Um, you know, we've made some strategic hires in the division and the table game division that have gone very well.
Press we've got quite a bit of momentum on site licenses. The progressives are really hitting stride. You know, we've talked
About we got some of this NHL licensing that we're missing in their so table games very promising. Uh, we're excited about it. Yes, we grew this from sort of 0 many many years ago. And now we're dead. We turn it into a real business and I'll sort of turn it over to Kimo if he wants to put any framework around the road. I think you covered both of it. But I mean, you know growth rate wise, right? This is a start-up business. So, of course the growth rate of sound really high but you know, you can look for low single-digit million Eva top right contribution from this business incrementally each year. And I think what's exciting about this business right is the margin continue to get better each year. I think if you look at the Investments that that's needed in this business, it's different than the the slot business, right? I think it's a lower investment and we get really good returns. So margins will continue to improve I think it'll catch up with slots by the time we exit 20 20, and you know, hopefully we can we can punch beyond that.
Perfect. Thanks guys.
Thanks, and our next question will come from Chad Beynon with Macquarie, please go ahead good afternoon. It's Jordan been Ron for Chad. Can you talk about life from the last two egm Acquisitions? And if you see any more opportunities in this space heading in the 2020?
Yeah, sure. So and our last couple of Acquisitions, you know, they were talking they probably I'd say they are we thought they were right they were talking they gave us an opportunity to sort of work within a base that we already exists some new accounts for us bring in some Eva. Give us an opportunity to optimize with our units over time and then just give us flexibility down the road as you can see here even within the quarter as to what we did with some of our base beyond that tuck-ins really across the board whether it be egms table interactive or other is something that we continue to look at they're easier to assimilate, you know, integrate with the company. So we feel good about tuck-ins. It's what we've been doing. I think since 2014 and 15, so we're very comfortable with it. As far as other GM tuck-ins. They're always out there. We're always evaluating them. We don't jump out and do anything unless yep.
It's our criteria long-term.
As as far as growth and what it contribute to the company, so that's sort of what we've learned and also opportunities are always there.
Okay, and then I think you got a little bit of contribution from integrity and you'll get a little and twenty twenty. I was wondering what your organic wage 2020 ebitda 3x that might be.
Most of the growth rate would be organic, you know, as we close on Integrity in call at Mid early February of nineteen. So predominantly the the the rates that we put out are mostly organic.
Okay, okay. I'm going to pass it out. Thanks, and thanks.
And our next question will come from David Katz with Jeffries, please go ahead.
Mister Cuts your line is open for questions.
And our next question will come from Barry Jonas with SunTrust Robinson Humphrey, please go ahead.
Hey guys, so look for starters. I think you can argue gaming stock now or trading on coronavirus fears. So I just wanted to explicitly ask you if you're seeing any impact an operator purchasing behave were in Play Levels and your participation business.
Yeah, good question, and and thanks very not nothing yet. And we agree with your coronavirus trading fears at the moment. There's nothing material that we've seen. I haven't seen any changes in buying behaviors just yet. We haven't seen anything come across an RPD on our participation units. Obviously, we'll be monitoring all that along with a groan of Iris very closely. But nothing material to this point and even if we reach out and you know anticipate may be the next question is Supply Chain management again, we watch all our parts were very closely. There are that come from all over the world and there's nothing material there as well, but we watch it very closely obviously.
Great.
Really helpful. So next, you know, I I notice guidance didn't mention anything about the Oklahoma compact disputes or or excluding it. Is that factored in at all, and maybe can you help me three many potential impact either to the negative or the positive for h e s as you see it.
Yeah, we've always sort of stuck to the same line here. And that as far as Oklahoma goes we again watched the the situation there with the negotiation very closely. But being that we're primarily a class two company and many of our jurisdictions including Oklahoma. We're confident that if they were to flip the switch and say hey, we've got a we we just have to overtime and they won't do it overnight. But over time we want to convert the class too. We started like that because it ends up leveling the playing field in Oklahoma. We actually are out there is primarily a class to change provider and we're up against class three games. So it's a little bit of a disadvantage if that were to flip to all class two, certainly provides an upside opportunity for us here at a GS. So that's very good question. And obviously we watch it very closely, but we're prepared for whichever way it goes.
Great, and then just you know, last one I think.
I just wanted to talk about the road to 250, you know at this point. What do you think has to happen to achieve that in the time frame you've previously outlined?
Good deal. So as far as road to 250 goes obviously with this year. We can look forward into the next few years. We've got a couple of years left their home. We know we need to be I think if it goes out another couple of years or 3 years here if we look at that that road to 250 those numbers need to be sort of in the low-to-mid team is if our calculations are correct. I'm clearly, you know, we've seen a little bit of head winds here. We've seen our Oklahoma head winds we know where we're at this year but going forward that would be the office and with our new products with interactive, you know, hitting stride at some point and it's a business that we believe we really need to be in and that will hit stride table games beginning to grow for us. That's sort of that growth rate that will need to be in in the next, you know, two or three years to hit that Mark over time.
Great looking forward to you. Isn't that?
Again, if you have a question, please press * then 1 hour. Next question will come from David Katz with Jeffries, please go ahead. Hi afternoon everyone. Sorry I missed my life. I wanted to just go back to the you know, one comment about the about the guidance and I think if I heard correctly, you know chemo indicated, you know cash flow should be up in twenty-twenty and you know, obviously there's a modest amount of growth in ebitda less the capex, which is you know, approximately the same level wage is, you know, incremental cash flow and delivering is that coming from, you know, the sale of units more so than the operations or you know, a little bit of both, you know adds up, how how should we be, you know thinking about that?
Don't think it's not any one specific thing David but it's it's it's a mixture. Right? Like I think if you look at some of the things that happened in in nineteen, you know, we had some incremental placement fees and certain things that hit cat facts that won't reoccur in 2020. You know, we did have some working capital call it drain. If you will at higher levels in nineteen that I don't think will occur again at the same level in 2020. So it's sort of a mixture of a couple of different things but I wouldn't say it's just one specific thing. But again, we feel confident that we will we will grow, you know free cash flow will improve off of 2019.
and you know that was
My second question, you know, we obviously have gone through, you know, some resetting over the past few quarters and you know, I'm not really, you know, as you know, as the reductions happen the confidence grows that it's low enough where you know, how would you describe your degree of confidence Thursday, you know the 2020 numbers are you know are solid and and then you know as we look out beyond that you're you you're obviously rolling games and in the coming quarters will you know get a clear sense of what a more efficient installed base and product line can do is there anything else that gives you confidence that that growth comes back in town 21?
I think you know it's interesting. I think I think you covered sort of almost the answers from the question a little bit there for us and you've done a good job. So thank you. It really does come down to something. We need to be more efficient and certain jurisdictions all name a couple Oklahoma and Mexico, obviously, we want to you know, make that those much more profitable jurisdictions off again, you know, the table game division is really just starting to hit on all cylinders and feels like we've been in that business for a long time, but really it hasn't been very long that that that box has been spinning up. So we're confident there and and I think even in the beginning of the year here, we can see that we're beginning to we start a new plan if you will or offerings for our customers and and they are very interested in signing up for it, um interactive, you know second half of the Year here. We should see more momentum as well. But I think what gives us confidence in the slot business is dead.
nineteen, you know we said, you know, it was a little bit of a reset in nineteen, but when you look at
Twenty, you know and we talked about it internally. We have Game Changer products that are coming online. There's nothing like the star wall out there that incorporates a cabinet is is successful off the Orion portrait and has this, you know display Incorporated with it that we're just beginning to scratch the surface on again first install, very good returns, very excited to see what we we fifteen so far and then the rise and the curved cabinets. We have a high level of confidence and then just setting aside the the hardware is branded as early in the call from the new content that's coming. We're not really firing on all cylinders on on all of the studios that we have across the globe is are now providing product weather be at Reno Austin Atlanta Australia, et cetera. They're all providing products for our product line and we're getting to see those returns with really great games and and great. Um, rpd's and one per day there. So that's what really gives us off.
Confidence. It's really the team. It's that we put together and and now what they're producing. Okay, I I'd say you said it better. Thank you very much.
Thanks, David. Thanks. Again. If you have a question, please press * then 1 hour. Next question will come from John degree of Union, please go ahead.
Good afternoon, everyone. Thanks for taking all the questions just one from me on the interactive segments. I realized today. It's a small piece of your business but a couple of other public companies may have been out there talking about the size of that opportunity specifically real money wagering on the heels of more sports betting legislation going throughout the country. So David, I was wondering if she mentioned your prepared remarks or response to another question how important that business is to be in. I was wondering if you could give us kind of your outlook on that industry and how it evolved in the and if you're optimistic could see some more momentum behind digital gaming which could be a pretty big business and it's obviously a segment that you're focusing on.
So thanks John, you know, this is a division that we talked about obviously a lot internally. We talked a lot of with our shareholders and with analysts, you know, it's it's it's sort of a difficult to want to be in at times because you have to dip your toe in the water. You have to learn you've got to lose a little bit of money along the way to be in it, but it is without a doubt wage Vision that we must have we must be in this business that crossover between brick-and-mortar and the interactive space is something that it's an area that the operators are all very interested in may be real money social or otherwise, so we're happy to be there and we're confident that it's going to grow right now. We really just talked about a few jurisdictions as being uh, impact felan our business office. But as time goes on over the next two to three years. It's something that we know we'll go sort of like we settle march across the country state-by-state and have a more tangible.
impact much like it has a new jersey and Pennsylvania and that
I'll be meaningful for up to us from a revenue and an Eva. Point of view. So we're excited. We're happy to be there. We're happy that operators are buying big in big time. And we seen that actually with one of the bigger operators, you know, Regional operators has made a considerable investment recently. So we think everybody's on the same on the same boat here and head in the right direction.
David perhaps a question for some of your customers but you're you're fairly plugged in as well. Do you see any I guess your view on momentum any states that you guys have focused on our jurisdictions that you think could be closer than not that where we could see some real opportunities pop up over the next 12 or 24 months or is it just still a little vague at this point? I think no I I'd say it's it's still a little vague as far as you're not talking about new jurisdictions or anything. You just talk about existing jurisdictions that are new to us.
New jurisdictions for you or just in general approved? Yeah legislative front it would make the pie bigger for real money wagering. There's oh you're speaking. How may still on I want to make sure because I lost you. I was going brick-and-mortar really quick. I I apologize. So no, yes staying on interactive. Yeah, I think that they you know, there's probably a pretty orderly march across the u.s. They're I don't want to be the guy with the crystal ball here trying to predict which one's going to come next. Obviously. We'd love to see a lot happen and try back and some others and have it be much more meaningful. Um, but ultimately, uh, we think that just about every state that has brick-and-mortar gambling at some point. We'll have online and interactive because it's going to be a very important part of the strategy for the brick-and-mortar casinos to sort of stay in touch and stay dialed into their customers and give them the wage.
journey to enjoy what they
Do in in the facility obviously from the comfort of your own home or Moberly. So no bold predictions there, but we're confident that uh, as as the AGA is set in many other organizations that it's going to happen. It's going to happen slowly Shirley but fairly orderly.
Fair enough. I appreciate the thoughts David. Thank you. Thanks, John.
Our next question will come from David Bain of Roth Capital, please go ahead.
Mr. Bean, your line is open for questions. I'm sorry. Can you hear me? Sorry about that David issues today. So yeah, just a quick question. I believe you mentioned, that you sold a few units in in the fourth quarter. Did you say the number of units?
Yes, we we gave the number of units in the prepared remarks. It's around for three hundred over three hundred David. Yep, a little over 3 and that's is that something we can expect going forward and and is that you know, I guess is that in guidance at this point?
In the prepared remarks, we talked a little bit about you know, our strategy around Oklahoma and really analyzing our footprint, you know, so what we tried to do there with frame-up that look we are open 2 a.m. To selling certain portions of you know, our footprint on a on a call at specific analysis basis. And so you'll see some of that in probably the first half of the year off. Okay, and it'll be in relatively small amounts. It sounds like
yeah comprable.
Okay. All right. Perfect. It for me. Thank you. Thanks, Dan.
This concludes our question-and-answer session as well as our conference call for today. Thank you for attending today's presentation. You may now disconnect.