Q1 2020 Earnings Call
[music].
Good day every one and welcome to the E.S. Q1, 2020 earnings conference call and webcast.
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At this time I'd like to turn a conference call over to Julio <unk> Investorrelations Bam. Please go ahead.
Thank you and good afternoon, everyone. Welcome to H.P.S. is first quarter 2020 earnings conference call with me today, or David Lopez, C.E.O. and key Milwaukee on a C.F., though we posted a slide presentation reviewing our key operation on financial highlights for the first quarter 2020, which.
Can be found in our Investorrelations website investors that play a G.S. dot com.
Today's call is to provide you with information regarding our Q1 2020 performance in addition to our financial outlook.
This conference call includes forward looking statements.
Any statement that refers to expectations projections or other characterizations of future events, including financial projections are future market conditions is up forward looking statements based on assumptions today actual results me different materially from those expressed at least forward looking statements and we make no obligation to update or.
Disclosures.
For more information about factors that may cause actual results to defer materially from forward looking statements. Please refer to the earnings release that we issue today as well as risks described in our annual report on form 10, K., particularly in the section of these documents titled risk factors.
Or commentary today will also include non gap financial measures. We believe that the use of these non gap financial measures provides an additional tool for investors to use net belly reading 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 gap.
Reconciliations between gap and Noncat metrics for reported results can be found in our earnings release issue today. Please refer to our filings with the S.C.C. for more information with that I'd like to turn the call over to our C.E.O. David Lopez.
Thanks, Julia and good afternoon, everyone. We hope everyone staying healthy during this unprecedented in time.
Given the circumstances, we will discuss first quarter result, shortly but I want to start by updating your honor response to the Cobra 19 pandemic.
And the measures H.U.S. has and is taking to navigate the crisis.
I'd like to start by saying that our top priority leadership team as always is the health and safety ever employs across the <unk>.
I'm very proud of our age yet team for demonstrating the flexibility resilience and positivity, that's consistent with our core values. During this difficult time.
We extend sympathy in support to all those suffering health and economic hardship due to the global pandemic.
Trying to the business starting on slide too we began March on a positive no. What is covert 19, starting to shut down nearly all of our customers properties midway through the month, our business quickly deteriorated, resulting in Q1 revenue being down 26% your your.
As casinos gas is suspended operations, we practically began to manage cash outlays to preserve liquidity implementing a number of initiatives to react to and overcome escalating crisis.
Those measures detailed on why three included.
Taking immediate action to protect the health and safety of our employees by implementing travel restrictions and work from home policies and all of our offices.
We established a senior management led crisis Committee and began actively adjusting operating expenses to preserve cash.
By holding deal with calls the committee had a real time platform to stay current with market trends in government mandates as it relates to casino closures and openings on a state by state based.
We took a hard book at all operating expenses and have acted we reduce all non essential discretionary spending, including but not limited to marketing trade chosen events sponsorships and consult.
We froze all promotions merit increases in hiring activities as well as our four one k. mass program.
We inaccurate or freeze on all growth capital expenditures and optimization up.
The most difficult decisions, we had to make centered around or people. Unfortunately in addition to a reduction and and workforce of approximately 10%. We had a furlough. Many team members as we managed through our most trying months.
We look forward to getting our team back to 100% when the time is right.
We implemented the company wide salary reductions with executives an outside direction directors, taking the deepest costs.
On March 19, we borrowed the full amount of $30 under our revolving credit facility.
And just last week, we announce that we close and incremental term loan of $95 million and receive financial covenant relief through 2020 by amending our existing credit agreement.
As a result of these actions were able to reduce our estimated cash outflows approximately 80% of $4 million per month.
Does not include debt service costs of approximately $3.8 million from.
Approximately 60% of the monthly cash cow flow is attributed the payroll and related cash costs, while the remaining 40% is related to operating expenses and other costs.
Prior to cope with 19, we were seeing some positive indicators in our H.M. recurring revenue business.
As chemo, we'll touch on later, we saw continued stabilization in Oklahoma with our P.D. is showing lots of a decline year over year.
The first quarter Mark the official launch of both the Orion Rising star wall and although we only had a couple of months of data on limited install base. Both initial performance and the pipeline were very encouraging.
The preliminary numbers for both cabinets were above house average Woodstar wall exceeding two times house average, indicating a very strong star.
With these early performance numbers, we feel confident about our products long term potential to help penetrate the premium lease space and improve domestic RPD, particularly in Oklahoma.
Our table segment continued strong run in the first quarter, while the interactive division achieve positive you bizarre.
We believe the online business is approaching the scale what needs to continue to be profitable <unk> moving forward in that revenues will continue to ramp as we expand both <unk> content offerings and our digital footprint.
Before I turn the call over the chemo I would give a brief update as to what we're hearing from our customers and what we believe the new operating environment may look like.
As number of states what their stay at home orders expire casinos are reopening or actively planning to reopen soon.
Our sales team is closely monitoring this we have information, indicating that casinos and at least eight states are scheduling to reopen sometime in mid Matt.
Oh, they're U.S., Canada, and Mexico openings will likely occur between the end of May and early to mid July.
As casinos reopened they're implementing numerous safety and cleaning protocols to reduce the risk of Coburn 19 infection and their staff and guess.
They're exploring various measures for adequate social distancing between players such as Reconfiguring slot machine banks spacing out tables, and reducing the number of players at each table.
Although there will be passed up demand from serious gamblers, we do not expect that casinos will reach pre cogan occupancy levels for awhile.
Therefore, we do not anticipate significant new machine <unk> investments from customers as they focus on adjusting their operations. So the post cobin operator environment.
With the likelihood of fewer new game purchases, we will lean on the recurring revenue portion of our business, which is approximately 70% of our total revenues. Nonetheless, seeing casinos reopen is a welcome and positive side.
We know it won't be easy, but we're confident our ability to <unk> navigate this crisis and and adapt to the new operating environment working hard alongside the casino operators to regain our prior moment.
As chemo touch on Mmm were adjusting our costs structure and operating model to the new realities of the casino gaming market post crisis in order to set our organizational for long term stability and success.
In summary.
Quarterly performance prior to disruption indicated positive trends from our new slot products and are emerging table business as well as the interactive business, both social and real money game.
Which leads us to believe that when casinos reopening people return to work.
H.P.S. will be well positioned to perform in the space.
Thanks, again to all age yes employs for their dedication and hard work during these difficult times.
While navigating the financial challenges the crisis, we remain steadfast in protecting our people in our culture and doing this we will create a unique opportunity to attract new talent and continue to make top performing products for our customers.
Ultimately, we will get through this time by closely partnering with our team members and our customers exiting the crisis with the goal to be stronger as a result of the remarkable commitment and cooperation from everyone.
Would that came over walk you through the financials.
Thank you David Good afternoon, everyone with our revenues significantly impacted as David just mention.
Clearly focused on controlling costs and preserving cash.
Want to commend our team for rallying together quickly to reshape our costs trajectory in the near term.
The current environment cause for rapidly evolving financial forecast and actions and our team has risen to the occasion every single day.
I will cover three areas in my commentary today.
One providing an update on cash and capital structure, given the measures that we've taken as David outline earlier.
Presenting our first quarter results and three sharing our strategy for the next several months as we managed through this crisis.
As a result of the cost cutting initiatives. David mentioned earlier, we decreased are estimated monthly cash outflow prior to the pandemic by nearly 80% to approximately 4 million as of today.
Including the recent 95 billion incremental term loans, our current monthly debt service costs are approximately 3.8 million.
Slide for shows that in the quarter, we drew the 430 million under our revolving credit facility as a precautionary measure to increase our cash position and facilitate financial flexibility.
It's brought our total principle amount of debt in the first quarter to 562.4 million, which is also comprised a first lane term loans 530.6 million.
As a reminder, our first lean term loan will mature on February 15th 2024, and the revolving credit facility will mature on June 6th 2022.
Total net debt, which is the principal amount of total the less cash in cash equivalents was approximately 518.9 million compared to 520.6 million at December 31st 2019 in the first quarter or net debt decreased by 1.7 million.
Our total net the leverage ratio, which is total net that divided by adjusted EBITDA for the trailing 12 month period increased from 3.6 times at December 31st 2019, the 3.9 times at March 31st 2020.
Just last week, we announced that we closed on an incremental term loan of 95 million, which also included an amendment to our existing credit agreement.
Incremental term loan has an interest rate of lie more plus 1300 basis points with 100 basis point lie bore floor and we'll also mature on February 15th 2024.
The amendment provides for the suspension of the testing of our net firstly leverage financial Covenant through December 31st 2020, and also includes the revised calculation of you, but when determining financial covenant compliance for the first three quarters of 2021.
All of these measures how to maximize liquidity as well as provide financial stability in the near term or.
Profarma cash balance was 127 million as of March 31st.
And is approximately 129 million as of today.
No turning to our first quarter result, which you can see on slide five I will not be detailing all of the impacts we have experience from covert 19, but it is clear that there were impacts throughout our entire global operation and we expect a continuing impact on our business going forward, particularly in Q. too as we expect many casinos to.
Remained closed during the period.
Total Q1 revenue 54.3 million was down 26% year over year, driven largely by declines any G.M. revenue as a result of business disruption from cold at 19.
Recurring revenue 42.7 million decreased 19% you're over a year despite increases in our tables and interactive segments do to casino closures impacting our G.M. install base.
Net loss attributable to play G.S., <unk> increase 14.3 million year over year due to decrease revenues and was slightly offset by decreases in S.G.N.A. and costs of equipment sales.
Oh, it's adjusted EBITDA declined 32% to approximately 24.5 million again as a result of business disruption from the global pandemic.
Finally.
Total adjusted <unk> margin decreased to 45 per cent in the first quarter.
Pair to 50 per cent in the prior year period due to several factors most notably the decreased E.G.M. contribution from Pacino closures.
Now certainly to our segments and beginning with our G.M. segment revenues of 50.4 million were down 28% and the first quarter due to casino closures, which impacted both E.G.M. sold units and R.P.D.
464, so E.G.M. units were down 55% euro per year, that's our typical sales cadence, which usually sees greater sales volume occur in the third month of the quarter and March was seriously impacted by casino closures due to cope with 19.
So do units went into markets, such as Rhode Island, New York, Canada in Michigan to name a few.
Domestic average selling price or S.P. decrease 6% to approximately 17600 due to product mixed in the quarter.
The quarter also included the sale of 395 previous the least lower yielding units to a distributor as we mentioned we would pursue on our last quarter call.
These units are not included in the report it's sold unit number for Q1, nor in R.A.S.P. metric.
Like seven shows our total U.G.M. installed base of 26089 units decreased 5% year over year due largely to the sale of roughly 700 underperforming units in Oklahoma over the past two quarters as well as the end of least by out of 150, B.L.T.'s and Q2 of too.
Thousand 19.
Domestic E.G.M.R.P.D. for the first quarter was down 20% to $21, an eight cents driven largely by casino closures.
For the two months and that February 29th 2020, domestic R.P.D. was roughly $25, an eight cents compared to $25.66 for the two months ended in the prior year period.
David mentioned when normalized for the March impact and excluding integrity, Oklahoma R.P.D. was $18 in 98 cents, which was 7% lower year over year shown on slide 11.
The 7% decrease represents a lower degradation from Q. for which was down 9% year over year as a result of some of our toddler targeted countermeasures.
International RPD decreased by 21% year over year due largely to casino closures in March.
Now moving toward tables segment on slide 12.
In the first quarter revenues of approximately 2.5 million or up 15% year over year. Despite casino closures negatively impacting revenue in March.
Adjusted and you put grew 88% year over year to approximately 900000, driven by momentum from all product categories in the segment.
Well as progressive conversions from a competitors platform to our own stocks progressive platform and the first half of 2019.
In our interactive segment on Slide 13, David mentioned that we achieve positive people in the segment in the first quarter.
Total revenue was up 20% to roughly 1.5 million driven by increased revenues in our real money gaming business.
The recent log of our content in New Jersey, as well as increased momentum in Europe contributed to the year over year growth.
A real money gaming business benefited from the addition of new operators in New Jersey, such a Caesar's mohican and resorts as well as signing on new suppliers and new launches an A.G.S. game content.
Lesser extent play levels were positively impacted as a result of the coven 19 crisis.
Finally put a quarter capital expenditures decreased by 8.4 million to 10.6 million and the first quarter compared to 19 million and the prior period as we saw a reduction of E.G.M. units placed on these due to casino closures from covert 19.
Oh cover a cap x. strategy moving forward in more detail my closing remarks.
Now moving on to slide 14, which outlines our strategy for managing through the Coven 19 crisis.
As we saw in the first quarter.
The financial impacts of Coven 19 are very material and will continue to weigh on our performance throughout the year.
As a result on March 20, yet we announce that we were withdrawing guidance for 2020.
Time at this time, there are too many potential recovery scenarios and many uncertainties that prevent us from being able to confidently revise expectations.
As we look at the balance of 2020, we have modified our strategy and reassess their priorities to adapt to the new operating environment.
Currently safety is our number one objective we are intensely focused on getting or people back to work safely and figuring out how to help our customers rebuild and recover as quickly and safely as possible.
Or second objective is to focus intensely on managing our cash to protect in the hands A.G.S. is financial position.
We have thoughtfully reevaluated, our capital investment strategy for the remainder of the year.
Only pursuing capital projects to allow for the best returns ones casinos become operational again, such a selective placements of our latest premium least E.G.M.'s on table offerings.
As we stayed at last quarter, we will continue to focus on improving cash returns in Oklahoma carefully evaluating opportunities to strategically cell or prune some underperforming portions of our footprint, where it makes the most sense.
We will also manage expenses with precision as casinos begin to reopen and ramp up operations.
A third objective is to protect it strategically Ram R.M.D. as we see good indicators for industry recovery. So that we can to support the current installed base with new game content as well as continued development on games for Orion portrait as well as our latest Orion rise star wall and curved.
Platforms.
As casinos restore operations and the industry starts to recover we will continue to advance our long term growth initiatives such as capitalizing on the bass white space opportunity in North America by growing our footprint.
Or entry into the premium lease space.
Continued improvements in Oklahoma.
And building upon the momentum in our tables and interactive businesses.
No one can accurately predict the magnitude or duration of this crisis, but we are focused on getting to the other side and building a stronger future for employees customers and shareholders.
By leveraging our strong customer relationships and product portfolio and our balance sheet. We are competent in our ability to navigate through this crisis affecting the global gaming industry.
With our strong culture underpinning our recovery efforts, we are focused on not simply managing through the crisis, but taking actions that will allow us to successfully emerge from the current crisis.
With that I will know move the <unk> to the <unk> portion of the call.
[noise], ladies and gentlemen at this time will begin the question and answer session.
Ask a question you May press Star and then one using a touch tone telephone. So it's all your questions you may <unk> too.
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Once again that it star and then why to ask a question.
Our first question today comes from Brad Boyer from Stiefel. Please go ahead with your question.
Yeah. Thanks for taking the questions guys and for all the the information and provided today. The first question is just around the margin trajectory from here I mean, <unk> you clearly articulated the the monthly.
Expense burn rate at this point my question is as some of these properties and market start coming back online how should we think about that 80% reduction in operating expense coming back into the model I think another white guys are approaching this question is like what percentage of your 2019 Runrate revenue.
Do you need to achieve.
To to get to sort of a break even level of either though.
Right, so bright I'll start off and and and I can begin to answer that and chemo wall will.
Finish up so.
As we as we've been talking about for awhile and and we've been busy over the last a month or so as you saw with the capital raise.
You know one of the things that we know and it's gonna ran back up much differently than it shut down and shut down abruptly and over the course of about a week.
You know the ramp up skin to take a number of weeks and months.
Even when a casino are all casinos are open 100% that doesn't mean that as 100% <unk> 19 revenues will be in place. So our job is to match expenses as each jurisdiction opens up obviously, we have priorities priorities would start one service tax.
Operation type people and bring back those expenses one at a time cautiously and as we said it'll be a day by day exercise no different than it was when the casinos. We're shutting down so we want to make sure that are burn rate does it waiver too much as we're wrapping back.
Meaning we shouldn't increase too much there at all we want to keep it the same where we want to reduce the burden rate. So that's sort of our objective when we think about how to ramp expenses and how master revenues that are coming in from our because you know apartments.
And then I think the other part of the question one you're asking what what percentage of our revenue we'd have to get you to get to a break even on me bit down there I mean, I guess, it's funny you know we talked monthly right. We used the once upon a time always talk to everyone quarterly, but you know I'll bring it though.
By the month since that's the burn rate that we'd published I guess, if you think like <unk> break even I would say, we probably have to be you know near US six call. It six to 8 million dollar revenue Mark you know based on the burden rate that we that we published.
Based on the type of overhead our cost that we need to bring back into business as we scale. So I think that's about the right monthly number to talk about right.
If that's helpful.
Yeah. That's that's extremely helpful. Thanks, Chemo and then my second question just around Oklahoma. You know you guys kind of gave US a heads up on this that you know they're going to be some more units coming out of the market. There in the first quarter that we have to back to back quarter's over 300, and it's coming out there I guess kinda with everything that's.
Going on in the market today, how should we think about your Oklahoma install base from here in any sort of you know selective.
You know pruning that you guys may undertake from this point.
Thanks, So as as we've talked about like you said, we're looking to become more efficient in Oklahoma, right and what you're seeing there and the install base and you'll continue to see a little bit of it throughout the remainder of the year. We're meeting with this crisis. It might you know drag into 2021, a little bit is to pair.
Pair of ASCII install base in Oklahoma, So essentially have a smaller install bayes and long term once we've been down that they will improve the quality of what's there with much many of our new units that we're releasing as you know we have the curves arrives in the star wall that are all new products that we're we're coming out on the last couple months.
And going forward. So once we do that pare down the base get the quality improved will be more efficient operationally and also you know on our P.D. basis, and we actually we we can be more profitable in the state of Oklahoma, If we manage that correctly.
Okay. That's helpful. And then my last question. It's just a a bigger picture question and you know I think we're all kind of pretty close to the the daily news flow and and and sort of the you know predicament that a number of the operators are in today from from a cash burn balance sheet perspective.
That's it I think it would be helpful. In this call. David if you can just provide some perspective on sort of you know you're strategic vision for the company on the other side of cold, but clearly there's going to be you know some distress balance sheets for the operators and limited capital spending the interim you know how are you positioning A.G.S. today.
Day, you know to make sure and ensure that you guys succeed on the other side of Kobe.
Yeah, our our plan rather intend to just be a lot smarter than we've ever been before with our cash in capital strategy, we have to be more efficient.
No different than chemo and I talked about sort of in in the remarks, we're going to be efficient in the way we wind this business backup.
It's going to be a day by paying drill and on the other side I don't know about.
Big picture strategy change, but when you get down into it a little bit more whereas if we know where the operators are we know where the challenges will be we know how they'll be strap a bit for cat backs for quite a while for new machine cat back we need to keep that in mind. So we're going to focus on our recurring revenue businesses that slot table.
On line of course, and we want to be very efficient in there so focusing on content more than anything else. We do a lot of things we have some great hardware out there and we embracing products that come out, but if we focus and continue to invest in our content strategy. That's truly <unk> drives every.
Segment, and and our company be online a brick and mortar slots or breaking word tables. So that's really what we're going to be focused on and and how we plan on attacking it.
That's all for many thanks guys.
Thanks <unk>. Thank you.
Our next question 'cause from fairy Jonas from Suntrust's Robinson Humphrey. Please you have with your question.
Hey, guys. Good good afternoon gave it out you know I I think at a high level, maybe any thoughts you have on what the longer term in pack to the overall gaming supplier industry could be <unk>.
Three emerged from this crisis.
Oh, Barry that's a big question, you know I I I I'll <unk> I'll, probably paraphrase a a writer from the nineties. It said, our crystal ball isn't so crystal clear anymore right.
It's things have changed you know and and I think that we certainly hope we say when we get back to pre Columbian 19 level and we get back a free Coke and 19 everything I think there's some things are going to change I think you might see a little bit of consolidation in sort of the micro gaming type companies, that's not a name of accompanied.
By the way interesting just to be specific like.
Very small gaming suppliers, I think well, we'll begin to roll up and be part of the larger gaming suppliers I wouldn't be surprised to see a little bit of consolidation here or there I think that everyone. As I was saying in in my response to brass question is going to be a little bit more cat capital conscious fashion conscious.
How do we prepare ourselves if this drags out a little longer than than we expect but when it's all Donna.
And we settle in and forgetting about you know coming up with a cure or a vaccine or any of the above I think the gaming still going to be there. We've had some nice indicators early on with some openings in Washington, Idaho in Oklahoma, The spirit of gamblers, not going to change very we know that much I think the way that we.
Manage our businesses.
We just have to be better and I and I and I think that that's our goal as an industry be operators or suppliers when come out on the other side of this knowing what we just went through our jobs just to be better at everything we do and a big part of that obviously movie our Capitol cash got back strategies and how are we looking all that.
Really helpful and our next guest just as a follow up to you or maybe just talked to segment.
We'll start seeing new form factors emerge as a result of this.
Yeah. So we've we've gotten those questions by a few times. So the the industry was word was there was a few things are happening number one machines were getting bigger to begin with for quite some time. They were they they haven't really exceed it for the math floor.
<unk> exceeded the normal <unk>, what we were beginning to see slot machines growing size.
Maybe that's a trend then we'll see going forward, but again, that's new machine Catholics purchases I think that'd be something we see two to three years down the road.
But I don't think that form factors will change so much but keep in mind, even just using a carousel versus a slot Bang changes social distancing interesting thing you know from your neighbor, that's playing on slot machine in general.
That also it's something that we you know be seen casino say, but you know what it does take a little bit away from the essence of the game is you're playing on a bank of five or six machines and you see all the when you're not going to see as much of that so I don't think it's gonna be every machine on the floor, but you can see configuration changes more likely than this.
Form factor changes going forward.
Mm.
[noise] greed and just last one for me you know that this could be too soon but maybe any initial discussions with operators or maybe going off the lessons about eight or nine <unk> is or should have a mix of operators, who are just completely pulling back their budgets versus those who made fetuses an opportunity to gain.
Market share by keeping their floors fresh just just curious about the dynamic there in your from your perspective.
I think that you know as we look at it we leave there will be some operators that will jump out with with some capital span, but overall I think the industry is probably going to be conservative in the early going here.
Maybe there'll be the one off operator for jurisdiction that wants to be aggressive and and we applaud that obviously, because we believe in the industry and I think that's a sign that they're saying they went to but I I don't think we'll see any dramatic difference and now people handle things and the tribal world.
<unk>, we're likely to see activity earlier on in <unk>, then, perhaps the corporate world, but I I think that's rather consistent and what we've seen through all the crises that we'd bands or whether you go back to to 911 or you go back to the you know 2008 through 10 prices it's been.
In a very similar pattern that we've seen.
Great. Thanks, so much and hope everyone staying safe.
Yeah, you to do an experiment.
Our next question costs aren't David Cats for Jeffries. Please go ahead with your question.
Hi afternoon number one good to hear everyone's voices.
I I wanted to ask because as you know go through.
You know this current period.
You know are there to the tributaries other business or you know specific business lines that you know you may consider.
You know growing or shrinking you know to perhaps you know focus as a potential strategy a bit more or is there some geographic.
You know focus that may occur.
You know as you as you go through it.
So and so probably a little early for us to know precisely what we would do you know we obviously right now we're going to lean on their recurring revenue business. You know again <unk> new machine purchases will be affected by no doubt going forward. So.
Lean on our least businesses very heavily hey.
Will follow the money if you well riding the jurisdictions that are doing the back.
Yeah, our places that most that we're certainly file focus our efforts and I think that once we begin to see when needs casinos are open the performance of each region and casino that'll help guide S., David in the future as to what our focus should be.
You know right now I think there's from what I know somewhere between four to eight casinos that are truly open and running right. Now if you look at those you know very few casinos no demand seems unlimited, we know that not long term scenario, but with very few casinos open and Idaho, Washington in Oklahoma.
So far so good right well once they all get open we'll wait and see how are P.D.'s log what revenue levels look like what business looks like and and and we'll use that to guide or <unk>.
Right.
I I know there as soon as a similar version of a prior question about new form factors et cetera.
But.
Any technology that you know can you know advantage coming out of the <unk>.
You know make may make games.
No more usable I'm that occurred set of circumstances that you know probably you know endure for an extended period.
Yeah. So <unk> obviously, we've since this whole thing is happening we've explored a number of different things having to settle on anything in particular, I think that long long term there will be technology improvements and maybe some solutions did things.
Like what we've just experienced that that might have allowed casinos to stay open a little bit longer in some cases I go back to you know I go back to when I was traveling the Hong Kong and my account and you know you'd you'd landry you'd get off the burying you'd walk on her the thermal grid.
Pretty much and no matter, where you were going for a while ago and I understand that was assigned to the times I think it bazaars at the time, but I think technology, you've heard it from when Nishan and others.
Used to keep patrons safe and just as we've explored a few things I think benders in the space and and folks outside the space.
Will be introducing some technology to say keep us safe or to just let us all be a lot smarter about how are operating and doing things are going forward should this never happen again.
Got it and if I can ask one last detail and you know I I'm expecting more of a qualitative answer because it's kind of out in the future.
As we think about cap x. rolling it'll be on this year and you know beyond some new normal on the other side that may roll into 2021.
Are there any qualitative thoughts you can share about sort of where you might want to shut things are sort of what what kind of outputs you're looking for.
It's it's more of a chemoclave <unk>.
Yeah, Yeah, I think you know like I think you started off right that is qualitative right because they.
Like David mentioned, then we had it are prepared remarks like we we need to manage the business you know even more prudent and I think when we make investment decisions you know I want to say in the short to medium term to hurdle got higher right I think we're going to need a better quicker returns and more data.
Right to make those decisions, but so the answer your question specific to 2020, I think you're obviously going to see our cutbacks come down pretty dramatic I would say in in.
Better good case scenario, if we see opportunities in the back half of the year or two for you know if casino start to open and there's not a big second wave of Cove, It and we see opportunities you might see a start to spend some growth cutbacks again, but short of that I think you're gonna see our topics come down pretty.
Late to the to the tune up like.
60% down from what original guidance was for the year there probably is on a good taste good case basis.
Mhm.
Yeah. That's a next year I guess right and I have to be anecdotal as it relates to next year, because that's even further out right.
[noise] God. Thank you very much it's helpful.
Yeah I soon.
Yeah.
Are nice question comes from John Decree from Union Gaming. Please go ahead with your question.
Hi, everyone likes her all the details so far all the insights.
Question, maybe David on your views on pricing on the other side of this and again you know that the crystal balls fairly opaque right now, but when we think about flop floors being reconfigured and spacing a slot machines.
Talked about cap x. budgets being down, but but maybe even on the recurring side.
What's your anticipation on your customer or your your competitors I should say being more aggressive on pricing given there's maybe a little bit more a little bit last for space to go around and just get your views on on how you think pricing will pan out on the other side of this.
[noise] good question and thanks, John So I think it'll be in the early going.
I think we might see a a little bit of Ah concessions here and there on pricing I think long term.
Oh, the least business will be you wouldn't want US right I think 80 twenties beneficent, it's been around since both have really been doing any form of participation. You know it's been away and it really you know shines a bright light on the way that we partner with our customers is you know, we get 20% they get 80% roughly.
And it it seems work for very long time, so we anticipate <unk>, obviously, there's some blackie jurisdictions out there where you where you cannot participate.
But that's that I mean getting into you know it's going to be a question I think we're saying is our people are gonna be aggressive to try to grab worse bayes.
Strategies in place, where we're prepared to see what are what our competitors will do we'll wait and see we have some countermeasures and and some ideas of our own.
None of which we really want to talk about specifically on a call well we're ready for what you are discussing and what might happen as far as floor size or the <unk>. The <unk> of the slot machines are being reduce because of spacing.
That's another wait and see it's too early to tell how exactly operators will change their floor or take machines off before that sad over the years I have been an advocate and I said it many times going all the way back to our I.P.O. and even our debt range when we when we acquire Cadillac <unk>.
I don't think this industry would be in too much pain, and 5% to 8% on the she came off the floor.
Cause I think five 8% or even more are extremely old and don't get the level of play that's needed. They're often you know out there are sort of as window dressing in some casinos and I think that's the the spacing would be better sightlines would be better, but the amount of business that we're going to do won't be terribly.
<unk>.
If anything I think you know sending the number of slots out there might might help the companies that are that are out there doing business right now so it's not something.
We're sure is going to happen or or to what degree what should it happen to sort of meant to low single digit number I don't think it would be too painful Laura and I and I think it might actually be a good thing for the industry long term.
That's helpful. David I appreciate your thoughts on that in one other question and I apologize if you address the senior prepared remarks, but that we're kind of all paying attention to.
The the news here domestically as warning if you could give us an update on your international business in Mexico, and and kind of recovery time lines and you expect there and anything that you can kind of give us a little bit of color would be helpful.
Sure I mean, if you if you the better watching the news it's hard to catch what exactly is happening in Mexico, I think sadly they were a little bit behind us on their reaction I.
I don't know that they were very far behind us on the spread of covert 19, but I think that generally the government down there had wrap it a little bit us lower than than we did in the U.S. from Canada, and so what we'll probably see as Reopenings lagging a few weeks to Oman.
Behind the U.S., most likely it really depends on how they manage I would say the next 30 to 45 days, we'll we'll really lead to when those casinos beginning to reopen again, obviously, we have our focus on the ground down there, where we pay attention to that daily and we talk about weekly and as part now.
Are daily if we.
<unk> are wind up meetings as we wind up the business again, we get reports on that on a daily basis.
Thanks, Dave and I appreciate the cholera glad to hear every one of the call doing well.
Thanks. Thanks.
<unk> once again, if you would like to ask a question. Please press star and then one.
Our next question comes started Chad.
<unk> from the quarry. Please you how what's your question.
Hi afternoon, and thanks for taking my question.
Wanted to focus on on some of the cabin, it's the product Rollouts last quarter I believe you accelerated the roll out of of the star wall or at least the the the plan roll out of the star wall given customer demand does it still makes sense to to to stick with the same delivery schedule.
Or you know could you potentially push back some of the product a little further out like what we're seeing with you know the movie theater industry. Some big titles that are just being pushed into next year, because there might be more of a log jam of product from from you and your competitors when things open up next.
Thanks, Yeah. So so I think it's hard to say like than we have some hard and fast strategies will follow I'd love to say that we're going to pick up right, where we left off right and we're gonna get right back to it but we have to wait for those casinos to open again, we have to wait and see what Rodney levels are.
Going into the crisis, we and I think we hadn't 84 to six weeks or so under our belts on the star wall.
I could have been a little bit less.
The well turns on that referred fantastic you know doing so well [laughter] sort of became a daily conversation to sort of that in turn only on what what the numbers would be the next day. So the product is doing fantastic anywhere were levels of business or high enough and and you know and.
An R.V.D.'s are healthy clearly, that's a place where even under a capital efficient strategy. We go in there and put machines and until we see how casinos are doing you know we won't know exactly how to handle that will react [laughter], we'll read in react to what's going on.
In the industry to know how we're we're going to strategize and what's happens, we'll we'll pay for.
Okay. Thanks, David My last question is a theoretical on that I think you probably touched on a little bit here during the call. So in the in the situation. The casino opens up with let's just call it half of their machines.
In in some of yours get left out of of the reopening there do they ask you to take the machine back do they just you know not turn it on and if they don't turn it on chemo just kind of a new on question on that can you still report that in your least install base just trying to understand.
How the how the contracts work on that and then from an accounting standpoint, how that might appear on the financials.
Yeah, we were actually talking about how we would help bream clarity to that I mean, you know the the the install base is our metric. So we can call. It reported how we want to I'll say our goal is to be consistent right. So the install base. If the machine is installed and with a customer we might leave it in our installed base.
Number, but maybe we have another metric as well that would be you know something that like maybe we adjust the performance metrics. So that our P.D. is truly apples to apples for machines that are turned on.
So I think we're going to do our best to Heaven apples to apples number, but you're not going to see a dramatic change in the installed base just because the machine is turned off.
Yeah, and and and otherwise, we'd <unk>, yeah, and otherwise. It's 80 20 is a great mechanism for this right in the period of time that they want to shut down every other machine. It's just very straightforward near machines that are shut down it's 20% of zero right and printing machines that are turned on his 20% of the when per day.
Okay. So I think that the good news as it goes 80 20 jurisdictions, it's very efficient.
You know and in a flat fee jurisdictions, we'll manage that apartment with our customers appropriately.
And I think that it's been a mixed bag so far their strategies, where you go out you leave every machine on and they laugh that the the gaming player.
Make the choice about what they're going to play and social distance as appropriate other folks have turned off on her every other machine in one casino in particular, but that casino actually turned off every other machine. Because then removed every other chair or stool as you might imagine Chad and so folks that one.
In the play a game just stood there and play next to a stranger and the casino decided that they want it.
And for some social distancing enforce the issue. So they turned off every other machine that again speech to the spirit of the of the game gaming player right I want to play that machine. There's no stool, there I don't play anyways that cosine or sine in the worst the issues. Other casinos have said hey, whatever the <unk>.
He is on the floor, we're reducing it by a certain percentage and we're only allowing a percent of the people in the building at any particular time Ah, but that's sad the good news. So far is that the the demand has been there and that that lehmer that governor that they're putting on the business helps keep people safe.
Enforce effectively in some way shape or form social distance.
Thank you very much guys appreciate it.
<unk>.
[laughter].
Ladies and gentlemen at this time I'd like to turn the conference call back over to management for any closing remarks.
Well, we appreciate everybody, calling in and hope everyone stay safe and healthy and we will talk to you. After the <unk> during the next quarterly call appreciate it.
Yeah.
Ladies and gentlemen that doesn't include today's conference call with you. Thank you for joining you may now disconnect. Your lies.
Yeah.
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