Q1 2020 Everi Holdings Inc Earnings Call
Hi, Carolyn hopefully every holdings Inc. first quarter 2020 earnings conference call at this time, where someone todays audience tend to be underway. Shortly I. Appreciate your patience and please remain on the line.
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Please standby.
Hello, everyone thinks we're standing by welcome to the every holdings Inc. first quarter 220 earnings conference call. During todays presentation, all parties will be in listen only mode.
Prepared remarks open for question and answer session.
Discussion is being recorded today and now I'd like to turn the conference over to Bill Pfund, Vice President Investor Relations. Please go ahead Sir.
Thank you James and welcome everyone.
Let me begin by reminding everyone of the Safe Harbor disclaimer that covers todays call and webcast. Our call will contain forward looking statements and assumptions, which involve risks and uncertainties that could cause actual results to differ materially from those discussed during our call. These risks and uncertainties.
Include but are not limited to those contained in our earnings release today and other FCC filings, which are posted in the investor section of our corporate web site at every dot com.
Not intend and assumes no obligation to update any forward looking statements you are cautioned not to place undue reliance on forward looking statements, which are made only as of today June 2nd 2020.
In addition, we will refer to certain non-GAAP financial measure measures such as adjusted EBITDA free cash flow total net debt and total net debt leverage ratio a description of each non-GAAP measure and a reconciliation to the most directly comparable GAAP measures can be found in our earnings release.
And related 8-K, as well as within the Investor section on our website. This call is being webcast and recorded a link to the webcast and a replay of today's call can be found in the investor section of our web site.
Joining me on the call today, our Mike Rumbles, our Chief Executive Officer, Randy Taylor, President and Chief Operating Officer, Mark Lab by Executive Vice President and Chief Financial Officer, Dean Erlick, our games business leader.
Aaron Sevens, our Fintech business leader at Harpercollins General Counsel.
We are on this call from separate locations. So if there is a technical glitch I apologize in advance now it's my pleasure to turn the call over to Randy Taylor will also act as our moderator for today's call.
Thank you Bill good afternoon, everyone and thank you for joining.
Before discussing our first quarter results like extend our sympathies to those individuals in the gaming industry.
As well those in communities around the globe, who have been well continue to be impacted by the cobot 19 pandemic.
In just three months since our last earnings call Mark second.
Viruses tragically turned the world upside down.
However, the first green shoots of revival are being seen in the gaming industry as well as in communities across the country.
Reduce call. We recognize you are probably less focused on our Q1 results. So we are going to change our normal cost structure a lot more.
Mark will not do a normal quarterly results comparison, instead I will cover some of the more relevant highlights in my prepared remarks.
First quarter results reflect the impact of our customer shutting down across the country ended March to better understand our trends in operating performance and the overall health of our business. We believe it is relevant to highlight certain portions of the company's operating performance during the first two months, but the core.
Overall, we had very strong performance in the first part of the quarter like a Ferrari with the throttle wide open an open stretch of wrote the first two most of the first quarter consolidated revenue was up more than 20% year over year.
In gaming operations, a year over year revenue increase of over 30% in the first two months helped drive an increase for the fourth quarter period.
Results reflect the continued growth in our installed base and strong baby win per unit in the first two months.
Mutates right key element in driving the growth as they comprise 38% of our total installed base at March 31st 2020, compared to 22% at the same time last year.
Higher yielding gains contributed to the 20% year over year increase in daily win per unit in the first two months in our largest gaming market, Oklahoma not only was our installed base up on a quarterly sequential basis, but daily win per unit actually increased more than 50%. The first two months of 2020.
That's compared to prior year.
We believe the strong performance of our games prior to our customers casinos closing are going to be highly correlated so relative performance. We expect as these casinos begin threelp.
Given our diversification across the games and Fintech businesses, we are not overly dependent on the sale slot machines in terms of overall unit sales in 2019 was a good year for the industry and forever as our percentage of total ship share increased yet only 17% of our 2019 consolidated revenue.
Came from gaming equipment sales, even as we expect our customers will be in a capital conservation, though for the near term. We believe we are well positioned to gain our fair share a slot purchase budgets.
Beginning of 2020, we launched our new curbs single screen Flex cabinet that combines an attractive cabinet with proven game features and play mechanics.
This performance has been very encouraging, but that's selling 147 units in the first quarter.
The most recent items and cried Jack gave me performance reports the flex quickly climbed to be the top performing cabinet, the very large and competitive portrait size category, surpassing several other well known offerings. In this category. These are early results and reflect our initial units sold is the market the combined with the feedback weve.
And from our customers, we're very encouraged as we look to the back half of this year and beyond.
One grew up having grown our ship share in each of the last three years, we are optimistic that with the early performance of the flood cap the flex cabinet and it's exciting differentiated content will perform well in the future on a relative basis as casinos continue to we open and recover.
And our Fintech segment business was also very strong prior to the casino closures for the first two months total cash access transactions increased 17% year over year why the total amount of dollars process rose 19%.
In addition to the same store sales growth we were experiencing these increases also reflects incremental revenue from new casino openings and competitive takeaways.
Revenues from information services and others increased for the full quarter as we benefited from 5.2 million of revenue from software sales and the recurring software license support for player loyalty and marketing products.
As compared to point 5 million in the prior year. Following our initial entry into the player loyalty business in March of 2019.
We continue to believe the player loyalty business is a great business and we expect it will be a meaningful contributor to our performance in both the near and longer term.
Even during the period when casinos were closed we were selling and installing player loyalty equipment at some customers facilities as they prepare to reopen with our self service Karthik, Wes kiosks and marketing support.
We also signed to cash access agreements with both new and existing customers as casino operators continue to appreciate the real value that our fin tech product and service solutions can bring as they reopen their facilities.
As a cope with 19 pandemic began to impact the gaming industry. We took rapid action to focus on what we could control, including one making sure. We clip we quickly to precautionary safety measures to protect our employees aggressively reduced our cash burn rate.
And three taking steps to increase our liquidity cushion to withstand a potentially prolong period of minimal industry activity.
As hard as the decision was to make we furloughed, 80% of our workforce, while continuing to cover their healthcare plans and associated costs.
We also created and funded an employee support and relief plan to provide access to additional emergency funds to our furloughed team members to date, we have disbursed relief payments to more than 700 employees.
Most of our our remaining employees have been working remotely.
Additionally, led by Mike and the board of directors, who reduced their salaries to zero and the executive team with reduced their salaries by approximately 70%, we implemented companywide temporary pay reductions and eliminated non essential travel and other expenses.
It became apparent that all casinos would eventually close for some period of time, we also deferred all non essential capex.
He's austerity moves allowed us to reduced payroll to approximately 2 million per month, and together with overhead cost for rent utilities and other required operating expenses, you'll get a cash burn rate per operating costs of approximately 5 million per month.
In addition average cash interest runs another five to 6 million per month, which includes our semiannual bond payments as well as the interest on our secured borrowings.
We improved our liquidity position by drawing down our 35 million revolving credit line in April we burn borrowed an incremental 125 million term loan.
Current with completing this new borrowing we also amended our credit facility to eliminate the financial maintenance covenants measures through the first quarter of 2021 and reset the go forward leverage targets.
The end of May our net cash position was approximately 125 million.
I would emphasize that this is just an estimate of our operating cash position.
Thirdly, the way through the quarter and not UN audited number.
In total we believe as a result of our decisive and rapid actions. We are in a solid position to be able to fully support our customers as they reopen their facilities, while maintaining maximum flexibility to whether any short term sluggishness in recovery.
As keno as casinos, we opened across the country and assuming there is no major second wave of other pandemic, we expect the second quarter will be the low watermark for revenue and cash flow.
Based on the reopening schedules, we have seen we believe we will be on pace to achieve positive adjusted EBITDA in the third quarter.
More importantly, as recovery continues we should be poised to generate positive free cash flow in the fourth quarter.
Now I'd like to turn the call over to Mike. So he can share his perspective on the industry.
And how every is positioned to regain momentum we had prior to the pandemic Mike.
Well, thanks, Randy and good afternoon, everyone.
You know I've I've been on the gaming industry now for more than 40 years.
During that time I've held a number of different positions and had a wide range of business responsibilities, but while having seen might share of tragic and recessionary conditions I can honestly say to you that I have never experienced anything close to the impact from this pandemic.
Based with this extraordinary challenge it is critical that we here at every embraced this time as an opportunity to be a catalyst for change.
Alongside our casino customers, we're reviewing everything that we do with a critical on port planning and adjusting both our strategies and processes to deliver our products and services with excellence under this new normal.
As Randy mentioned, we acted swiftly to protect our employees and our company, making sure that we were in the best possible position to support our customers when and as the industry begins to recover.
We realized early on that to be able to support our customers and their patrons. We first have to make sure that our employees are safe.
Even as we took significant actions to reduce costs and capital spending. We also further the progress that we were making in our innovation and development projects that align with the new normal.
We anticipated that there would be a demand for new solutions that are contact was cashless and that supports social distancing.
As an example, our teams continued to work on major portions of our digital neighborhood.
As a result today, we're in active discussions with several customers about our digital neighborhood product offerings, including a core digital mobile wallet that features cashless and contact was benefits.
Additionally, our existing Quikticket product allows players to insert their debit card into one of our integrated kiosks and receive a ticket that can be directly inserted into their favorite slot machine, enabling them to bypass any handling with cash.
Similar to our player loyalty solutions, we're seeing increased interest from operators for quick ticket as they cashless self service option for their casino floors.
Now these two solutions as well as additional functionality that we've added to our self service kiosks, including player loyalty programs help our customers to address the expected desire of many players to limit face to face interactions.
We have existing products that can provide real time solutions for today's environment by eliminating the need for players to stand in line at a casino Cage, we're engaged with players club employees to sign up for an operators loyalty programs.
Of course, a key element of a truly successful and sustainable solution is that it supports consumer choice.
We give the casino patron and opportunity to have a digital experience, but also continued to provide ticket and cash solutions for players and still prefer those options.
Enabling patron choice wherever whenever and however than walk leads to success in our industry.
Whether its cash or cash lifts video slots were spending real slots the patron always welcomes having a choice in how and what they do on a casino floor.
Definitely is an excellent position to help our customers deliver the best possible a ramp choices for their guests.
And at the same time these products enable cost effective integration across both our consumer facing products and our employee facing back of house products.
Now, let me share some additional color regarding our early performance as our customers restart their operations.
Today based on the American Gaming Association reports and our own estimates.
Proximately, 32% of us casinos that reopened.
Importantly, as doors reopen players were eager to enter and enjoy the entertainment options on their casinos floor.
Now while it is still very early.
They say that again, it's very early our initial reports indicate that we are generating average daily win on most of our operating slot product that is exceeding pre co good levels.
Additionally, the number and value of cash access transactions that we are processing are also initially exceeding pre cope with levels in newly reopen jurisdictions.
Hi, This is great news.
We believe that as more casinos open.
This news will become tempered cash access transactions will trend closer to prior year levels.
Going forward, we will continue to invest in innovation and development.
In addition to the heightened interest that we're seeing per hour forward thinking Fintech solutions that I already mentioned our game studios still have a pipeline of exciting new game content, but we expect to launch in the coming months.
These new games will augment our already strong performing games that are in the market today.
Now as Randy you noted, we borrowed an incremental 125 million to provide an extra cushion for our liquidity. So the company could endure even the most negative of scenarios.
Now, while those outcomes look less and less likely is more and more casinos reopened and stay open across the country. We appreciate having that liquidity.
We view this incremental borrowing as a temporary bump in the road to the success that we have consistently demonstrated in reducing our total leverage.
His prior success gives me great confidence that we will regain our momentum.
Generate a steady stream of strong free cash flow and once again begin to reduce our net leverage in the near future.
Now with that I'd like to turn the call back to the operator for your questions.
Thank you if you like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function has turned off till they slow treat your equipment again press star one to ask a question.
Well take our first question, Dave from Brad Boyer with Stifel.
Yes, thanks for all the detail there guys very helpful.
First question for me is just around breakeven levels I know a lot of your peers have sort of provided.
This level detail on its pretty helpful. For US also appreciate you guys have sort of dramatically different gross margin profiles across your businesses. So it might be a little bit harder to tease out.
Can you give us a sense of what level of say prior period.
Revenue you guys need to achieve to get back to to breakeven EBITDA as you sort of bring the operation back online here.
We think our CFO should probably address that mark.
Hi, Thanks, Mike.
Yes.
I think you hit on the ahead with our margin profile and how our revenue streams are a little different are obviously, our cash access and gaming operations revenues.
Very high margin business and again with the growth we experienced in 2019 that I'm not sure that the revenue number is as good a metric to look at so let me try to go about a little different way and focus you on kind of where our spend is and how we kind of use spend coming here.
Looking at our cash interest on our debt that's kind of easy park with current rates were expecting about $65 million, an annualized cash interest costs and with.
Business, returning the ATM vault cash interest would probably another three to 5 million on top of that so our total cash interest probably in the $70 million range.
For on an annualized basis now as you kind of get into expenses. It gets a little bit more challenging as Randy kind of highlighted in his prepared comments, what you'll see as we've been ramping up our employees to help support our customers reopening so you're seeing more and more.
The employee base coming back to work in more of the costs were encouraged to support our customers is that goes so I really kind of focus more on on Q3. In Q3, we said, we're going to be EBITDA positive and this kind of assumes that most casinos will open at the start of the of the a third quarter and our estimation and.
Well no longer have any employees remaining on furlough at that point with that as a backdrop and excluding some of the direct costs. If you will relate to any equipment sales. We have the rest of our expense profile, we kind of think probably falls in the $35 million to $40 million range.
For for the third quarter and as we move into Q4 this is where we.
Expect us to start getting more into the free cash flow positive at that point and still remain EBITDA positive.
This would assume that all the rest of the casinos have reopened in some fashion and that gaming revenues from the casinos that had been opening are ramping up a little more so again our play base is full at that point I think we kinda fall in a similar range probably the higher end of that range with probably a couple of million dollars on top of that so hopefully that kind.
Of frames it out for you but.
Yeah that's helpful.
Second question just around cashless.
Theres lot of yes provided a lot of good color on the call.
Just curious if you could sort of talk about the appetite amongst regulators today.
I appreciate that it's still early but with regard to sort of fully embracing cashless technology and any thoughts you can provide there.
Yes.
Yes, Brad this is Mike.
Yeah, we're seeing receptiveness from commercial gaming regulators we've had.
I think receptiveness, all along from tribal gaming regulators.
And and as we go forward I think the regulatory systems in virtually every jurisdiction or trying to be is helpful as possible.
To allow the patrons to consumers to feel safe and if that includes contact list or cashless solutions. They are willing to take those into their laboratories and give them a quick review for us before allowing them out on the floor song I am very heartened by the regulatory environment, we're seeing today.
Okay, and then lastly, I don't know 15 is on the line wants to answer this or Mike or or Randy, but no I think we all appreciate the fact that the landscape is going to change a little bit on the other side of this whether it's some capacity limitations in the near term impaired operator balance sheets capital budgets would have you, but but.
You know strategically how do you guys or how are you guys positioning the slot business year to sort of win in this new sort of normal that that we're going to be facing here over the next you know who knows how long, but certainly here in the near term and that's all for me. Thanks.
Thanks, Brad will have been isn't the lying and so I'll I'll turn it over to him since you directed there and dean can enter Buck.
Okay. Thanks, Brad for the question.
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I believe it's about product and the bottom line businesses, we continue to.
Not only have a tremendous amount of success from the product that we have launched.
A couple of new hardware Formfactors before the Pandemics in place, we think we're very well Corey.
To continue on grew this work not only what we've been approved but also what's in the pipeline and to continue on in 2021 and Thats been the major preparation make sure that.
Hi.
Our customers come out of their respective situations in raw very different.
No it's amazing that.
No summer.
Going to try to operator close of business as usual limiting players combination burst.
Others that are going to turn off she went on and so for the end of the day the key focus from our standpoint to make sure that.
We can provide the best product to them and that it makes sense from their standpoint, when they're ready to invest.
But the greatest.
So on the best product that we have available.
To me, it's a product still going to be an important component.
Good.
The current trajectory that we have recorded.
Very well coming out of this.
Okay.
Brad This is Randy outside this tack a couple of things.
Things is that.
As in my opening remarks, I mean, we now have 38% of our footprint being a premium product and Thats really what had had been strong at the end of 19 and strong into 20, and again talked about sales being look.
Not a big portion of our of our revenue. So I just think we're very well positioned going forward as we come out of this because I think.
Are we they.
Well stay on the floor as maybe the best performing products and I think we've shown that those premium products that the gains team under under Dean have produced are doing really well so.
Again, I don't know, where everything will shake out, but I think we're well positioned.
Perfect. Thanks to the color guys best of luck getting things back up on the ground here.
Thanks, Thanks, guys.
Yes.
Thank you Mr. Bob.
Next we'll hear from David Katz with Jefferies.
Hi, good afternoon, everyone.
Hey, David I wanted to.
Hi, I wanted to focus on the Fintech segment.
Because I will admit.
As since this this event is in equalizer for all of us that I had not contemplated.
What this business looks like what does the puts and takes in a period of time that at least for the second quarter or so is mostly shutdown.
Can you just talk me through the different.
This is out of it and their ability to earn and cost.
For the first couple of months for the quarter anyway that are effectively shut down.
And you know I think that would.
I think that would be really helpful. Just started out please.
Hey, Dave This is Randy I'm.
Make sure I'm addressing your question I think from the Fintech business the great east of that business is that.
Immediately as casino start to open up.
We start earning revenue.
Well on transacting business now during the shutdown.
We don't we have the major cost is payroll and we talked about what we did from a from a furlough standpoint that as.
The casinos come back on board, we will bring people onboard, but it's a business that.
Yes on day one.
As transaction start to take place, we're going to generate revenue that we knew we add on the loyalty product that we have that as I said in his remarks of that we've had interest in that even when the casinos are shut down so I want to make sure I'm addressing your your question appropriately.
Right.
The question is.
It's probably simpler than you think.
Only from the perspective.
Our just understanding and the ability to earn any any revenue at all.
And obviously the costs are self evident.
During the periods of time, we've got that things are shutdown and in other words does does its revenue become entirely zero zero for everyday that shutdown I suppose is what I'm asking.
Okay, well I would say.
You would think that would be yes, although we have and obviously, it's relatively yes. Other than we were still transacting some business in some in some locations I'll give you. Some examples there may have been.
A a gas station that was connected to.
Hey.
Casino that still.
Had business that very small David so once worse were the casinos are shut down there is no catch access sport chek transactions.
Let's say, we have still looked at selling kiosks, because again, the casinos want to reopen and so they were buying kiosk as well as loyalty, but from a cash access standpoint, you're exactly right within close down.
Revenue goes to basically zero correct.
Hey, Ryan Derrick.
Yes, sorry go ahead, you got it.
Yes, I think I think ratty, just add to that I mean, I think we were still supporting.
Our maintenance and software support agreements, which were billings that customers were still paying because obviously they all expected continued to continue business and reopen so they want that support when they reopen so we did have some revenues there.
Okay.
Okay.
I appreciate that and that on the gaming side.
I wanted to ask what kind of an order backlog.
For sale or placements did you have on the day before we found out that things were going to start shutting down.
Have you had any conversations about.
What portions of that backlog could be revisited or resurrected now that we've had some visibility into things opening is out.
Sure well again, maybe I'll, just I'll I'll turn it over to Dean because he is probably closer to what the backlog was going into the the ended the quarter. As you know that marches does last 15 days at March are important to us.
And had a big impact I'll turn it over to gain and.
Looking there.
Hey, David So.
Okay, Great news on it is that we didnt.
The backlog without going into.
Exact numbers.
Was pretty robust before August started happening and the good news that rather than a lot of cancellations or a lot of returns and basically what happened there it's been a post on them.
Yes.
People as our customers turn the lights back on.
Seeing the levels.
The.
The case on how quick that the backlog is a quarter applied so.
Surprisingly it Hasnt been you would think they'd be the other direction, where have you had kind of cancellations returns of the operating unit product so for sure.
Truly has not been Mckay.
To a point to me personally has been pretty surprising. So we're very encouraged from outside than what it shows how I answer that question before that.
Products have been.
Perform an extraordinary well and there was a great demand to get it on at the time that that the customers comfortable.
Towards bringing it onto their property so they want and still it's a matter of when not area.
I know it Didnt answer your direct what's the backlog number size, it but I'm not comfortable.
Given those direct.
Number of losses, while small Randy wants to do at that time here, but not going to me so [laughter].
Yes, I think he answered it to their way, which is that we had a strong backlog still.
David and it shut down immediately and I think we're still very.
Optimistic about.
Quarters that we had out there and whether will ultimately fulfill those.
Okay and then also appreciate and we'd also Sina we've seen a large increase in our in our premium units going into March and we have yet to see a full quarter of those units performance.
We are anticipating that as well as we come out of this.
Yep I see that installed base. Thank you very much.
Thanks, David.
Next we'll hear from Barry Jonas with Suntrust.
Hey, guys.
I wanted to start on Fintech with all the discussions around cashless gaming you know what do you think surrealistic mix of cashless first cash on casino floors at some point in the future and I guess the second part to that is could you see the since Youre fintech business, maybe moving to more support remote gaming.
You know virtual outside of say traditional land base casinos focus is now thanks.
Okay, very good to see or hear from yet.
Let Darren start that question.
So on your first question on sort of what you would anticipate mix of cash versus cashless I still think it's early days with what I would say is kind of the digital transformation of customers operations.
What I would say as our approach has been.
Police released products that help them achieve cash was quicker and we've talked about quick ticket and and that's a real simple low left cost effective way to help our casinos go cashless now if you want to talk about a digital experience I think that more longer term.
That does require some some some some investment now we pivoted a little bit with our strategy around our mobile wallet to provide something that is simple easy for operators to to have.
As a part of their offering to their to their patrons allows customers to to download the app.
You know.
Complete their profiles link it with their pirates hard and add their accounts to it and basically before all of these transactions and do it do it mobily and and through our through our kiosks access a ticket and be cashless. So so low kind of low tech, but but helping achieve that there are some longer term sort of.
Transformational journeys that operators are going to with larger integrations with some of the systems in the wagering accounts, which were part of and what we've been working on with to Mike's points and travel customers.
But I think it's early days that the what that will be.
I've got some data around sort of what are what are quick ticket transactions are but I think it's still early on in the process.
Other industries are more mature within the retail world and you've seen a growth in that over the past few months because of a kind of this this new world order we have.
But I think it's I think it's early to tell and.
I think what we'll see in them in the coming months.
Your your second question around.
When based versus.
Yes online.
Yeah, I mean, I would say that you could probably expect there to be an increase in one online, but I would say you're not going to be able to replace that that.
Land based experience that patrons love.
With all the amenities that properties offer so I think you'll see a mix.
And in terms of that as those offerings increase in the different states and with different operators.
Sorry, Darrin I think when I was saying in the second question was more could we see every sort of change in strategy to somewhat address some of those I casino and.
Offerings from from a fintech cut back to us.
Sure, Yes, sorry, yeah, absolutely, we do have the ability to be able to provide that from an online and pure mobile digital experience standpoint, so absolutely we would we see growth with that yet.
Great and then.
Maybe one for Mike in the past you've talked about the games and Shintech business not necessarily having a need to be together the events over the past few monks change your perspective on this at all.
Oh.
That's a great question Barry Thanks.
I don't I don't know the it has changed my opinion with respect to whether they have to be together I can I can tell you that Ed and this is something I've said for a long time now they are highly complementary of one another and continued to be.
And I think if anything this pandemic.
This is proving the need for casinos to be able to deal with.
Their vendors in in a multitude of different places on their casino floor and in our case, it's initially at our kiosks and our gains but ultimately.
It's a matter of smartphones enabled by our fin tech business being able to address our machines directly on the floor.
And that's a coalescing that that's going to occur over the next year to two years.
Great. Thank you so much guys.
Thanks Barry.
We're not hear from John Davis with Raymond James.
Hi, Thanks, Good afternoon, guys appreciate the commentary off on the.
Kind of the trends of the casinos have opened versus pre cove. It but wondering if we can maybe dig in a little bit there I think a couple of properties have been open for a couple of weeks now maybe just talk a little bit about.
What that opening weekend or opening week looked like and kind of where we are today have you seen start to trail off yet and maybe as a percentage of what pre covert volumes or what was that opening weekend and kind of where are we today just how that trended over the first couple of weeks realize it's still early.
Yeah, John look I think Mike said, it where he said again. This is early in this is early but right now we're seeing in.
The casinos that have opened that are either a fintech.
For a a games.
They have are these gains were seeing that.
Revenues are equal to or in some guy times.
Better than they were pre coated now I think we think theres a supply issue. There we think theres, some pent up demand there but.
EBIT in.
Give an example, one of our larger customers.
We're seeing that even though they may have the gains there spaced out for that may have a portion of our gains.
Turn to off just because of their of their social distancing still where we're at the same type of revenue the where we were having with all the units on that floor on the cash access side. It's similar even though they may have restrictions on how many people they're letting in the door.
We're seeing what we look at John is cash the floor.
Hey, there and continues to run reports and show right now the cash the floor is consistent with either the same period prior year try to match at the same peers could you can get some differences with holidays or pre cove. It now I think we still.
I want to caution that we just don't know how long that last and I guess I think long term, we think it's going to come down just because there'll be more.
There will be more supply, but it's very encouraging right now because I guess, it's better than the alternative we are talking about so so far.
Very encouraged that both how our games are performing and how.
Our our cash access.
Fintech product from the standpoint of just volume of transactions.
Okay, but you haven't seen like an opening weekend, where shoot up a lot and immediately falls off its than I know, it's early but it's been fairly consistent fairly solid John I mean, yeah, it's been fairly steady jumped to your point, though I mean.
Obviously memorial day was a strong weekend.
Theres no doubt about it but but it would be strong in normal times.
Back to that people were able to produce the kind of gaming revenue that they did.
Only 50% of the positions I think speaks well to.
To that demand curve continuing.
Generally we compare to a yes, they say in some cases, we would either compared to prior year Memorial day weekend or just a seven day period that was exclusive of a of the holidays. So.
Try to light it up as best we can and again taking out more of the weekend.
Past that we're still seeing.
That are are.
Volumes and our our daily win per unit is slightly above what was.
Okay, and then on on the gaming side.
Specifically on the units the if the casino or to have 50% and do you have good information for casino or shutdown after machines, because the social discussing what does that kind of look like for you I would assume given the performance here, we're seeing that third they would shut down less than kind of the floor averaged around if you have any stats on different property.
Hi, guys or just kind of a ballpark idea of if they do shut down 30% of machines, only 20% of your machines or or shutdown or any kind of commentary there that can speak to your performance.
Yes, that's trying to get there and maybe I didnt come across but look with the limited data that we have we've been at a location, where we had a portion of ours shutdown it wasn't 50%, but let's pick a number 25% or so or 30% or so and still based.
The units that remained we were again on average at equal to that same daily win per unit. So clearly there units that are staying on we're performing better right and again I also think its.
It has a lot to do with the premium units that we have in our our expectation is is that the casino well.
Novelty dark those machines of ours that are in maybe a little bit older but they maybe be clearly keeping up the premium games, which is really helping us. So again, it's very early but that's that's what we've seen.
I think you hit I think you hit the amount ahead, John it's all about performance for the operator, if our machines are performing better they're going to want those to say lit while the dark in somebody else's machines or machines that are producing as well.
Okay, and then why they ought to be John John from Jeffrey like a unit.
Some of our premium units also are configured and pod, which also lend itself to appropriate social business thing. So those by default wall to wall staying on so we're highly encouraging that there's much of our footprint, especially with respect to 50 527 were balk to shark week smoking has got goodwill that if they.
Bancomer pod configuration that can keep a 100% of those on and that's really helpful side as well.
Okay and the last one for me.
I'd be remiss off the touch on cashless gaming not to be the dead horse here, but maybe taking a little bit different angle.
Mike how close are we to being able to implement that technology standpoint in the regulatory standpoint, kinetic regulatory wise I'm less concerned, but just from a technology standpoint, how close are we did any commentary on how the economics to be similar or different to your current cash access business and then finally, who else can actually.
Provide us the service or are you kind of the only game in town at this point on the cash access side of cashless gaming, thanks, guys, well I'm going to yeah, I'm going to turn some of the silver Darren.
I don't think we've we've.
Expressed.
The transaction economics between us and our customers when it comes to quick ticket or or digital neighborhood or.
Our core digital wallet, but.
I'll leave that for dare into to dance around or decide if he wants to give you an answer on it.
But I wasn't John we have quikticket out there today.
And quick ticket today does not require anyone to touch cash.
There is so it is already a cashless product on the floors of casinos.
In North America and during the closure.
We had.
Customers. This had been looking at the product the now wanted.
Because they understand the power being cashless both in the efficiencies of their operations, but also in addressing customers concerns about touching cash and what that may end up with in terms of infections or germs or bacteria or whatever.
But I would say we're we're.
As close as the third quarter two the first deterioration of.
Have a quick ticket is tied to your accounts and I'll, let Darrell and go into that.
You will get more and probably.
Not much behind that will be you'll be talking about the digital wallet aspect of quikticket as well. So the guarantee you want to want to address some of that.
Yeah, I think I think you know.
Mike's point around quick ticket I mean, what what's great is that the customers that have opened the doors that already have.
Current implementations are quick ticket, we've actually seen increased in that transaction types. So more people are selecting that as an option in terms of how they're getting their funds to play. So again, it's a casual transaction simple easy they understand it's it's low tax using technology and using an infrastructure that that they are familiar.
With and feel good about today. So your your question around.
Pure cash list and I think you may be thinking more mobile and thinking more maybe going direct for mobile down to a game I think again, that's a that's a more transformational journey that we've been working on with some other customers.
And again, extending not only to the gaming floor, but also into retail areas and those integrations with.
Systems. Another third parties are a little more involved so.
Well again, we pivoted a little bit of our approach to just to provide us simple mobile digital wallet application that they can consume now that doesn't have any of you sort of regulatory integration concerns.
To sort of facilitate again, having transactions completed where somebody doesn't have to go to cage or or or or reduce that whole I guess, social interaction and support the new protocol that the operators are implementing so we tried just look at look what do we have.
Now that we can we can facilitate this.
Some of those.
Other sort of integrated solutions with other third party and system providers and whatnot and those are a little longer pull that that because they do have regulatory applications, but to mikes point, we operate the regulators are supporting these and try to fast track those but I think those are just a little longer pull intent because they do require a little bit more work and.
And and especially when you want to look purely integrating those wagering accounts systems.
To to actually a funding wallet like we have and they're very complementary on products and.
They are compatible and we're working with these providers to be able to limit implement that with with customers. So I.
I think it's early days, yet, but I would see.
What may have been a kind of a three or five year sort of.
Term may take to Mikes point, we would probably see these in the next couple of quarters start to get rolled out and and I think more in earnest.
In terms of investment.
From operators.
Okay. Thanks, but like the advantage there is the money transfer under license and to my knowledge I don't think in your competitors.
On the cash access size have that ability.
So chastity first to market here or any of your competitors kind of working on this or could offer similar product.
Yes.
Yes.
Sorry that we got back from a customer was I've have all of your solutions today and I guess the beauty of it is what we're offering really.
It is based within the existing infrastructure that we provide them. So all the settlement of funding that we provide today all the reporting and all the K Lycee all the mill and all those responsible gaining support that we provide Paul is levered. In this so is it it's a low lift for the operator to be able to consume this.
With with their own staff, because they are using all the existing tools that they haven't support their business and then from the patron standpoint, again, you're kind of leveraging sort of an existing relationship they have with with with us being a service provider and so I think our ability to to get adoption on both sides because again, the operator needs to adopt it with their teams.
And the Patriot need to adopt it so we're in a really really good place to be able to to be in a position to deliver this.
Okay. Thanks for all the color guys.
Thanks.
Chad Beynon with Macquarie has our next question.
Afternoon. Thanks for taking my question gets here you guys are well.
Mark on your financial model response, which was helpful. I know you in Randy both noted Q.
Q3, Q positive free cash flow. So I wanted to ask about I guess, the missing piece that that nobody is addressed your I guess near term and a medium term and that's that's capex.
You know you've noted you've eliminated non essential capex, but firstly on the third quarter should we assume that you know that positive free cash flow assumes I guess below average normal capex and then.
Bringing it back to a bigger picture as things recover following your debt raise with a focus on de leveraging.
I know you've spent over 100 million in Capex. The past couple of years and that's what you guided back in March does that still makes sense or you know is that something that obviously youre address after casinos reopen thanks.
Yeah, Hey.
Let me first correctly I said I think we were what we tried to convey and hopefully you heard. This was Q3 will be EBITDA positive Q4 will be EBITDA and cash flow positive free cash flow positive I suspect Q3, just with the ramp up and where we are we probably are not going to be.
Free cash flow positive at this point with the numbers I framed out 35 to 40 million of total expenses and that again, that's really the cost of revenue on the gaming upside that's my Opex and Thats My.
R&D expense just so we're very clear on what I was accumulating altogether in terms of spending of how that works I think we end up being.
Not kept free cash flow positive at that point now to your core of your question, which is capex.
The great thing is we control the spend that we have a lot of optionality and how the spend goes so depending on how our customers return and their needs. We can certainly.
Pump up the capex to support that but but I think you're kind of right on net.
Q1, we spent $22 million as we filled the pipeline of.
Demand for some of our premium units had some really nice growth in the premium units and we still have units a unit demand for the premium unit growth coming out of it. So we'll make some smart choices and where we deploy that capital to it and manage the capex numbers kind of relative to our casino customers operations at that point.
So to answer your question, even more specifically you know I don't think it's a 114, daughter and 20 million, but it's still early to see right now where we shake out I think looking at Q1 as a guide 22 million I think.
You'll probably be though.
Third.
At least reduced of where we where if not more just depending on how the flow of customer equipment. It really goes on there.
Okay perfect. Thank you and yeah, thanks for clarifying that.
My second question is a hypothetical I guess for operator first cfos, who are purchasing your slots in your Fintech products. So I think we're all expecting you know the second quarter to be.
Extremely nominal for everybody, but as there is a budget for these.
Cfos and slot managers.
In the back half a year.
I know you've talked about keeping.
Actually selling some some kiosks in the Fintech business, which certainly drive a lot of efficiencies and hopefully higher revenues for your.
Partners do you think that when a capex budgets come back into like the kiosk purchases could actually move up in the stock order or do you think Dolby focused on just replenishing their their slots and thats could actually get pushed back into.
2021.
Yeah. This Randy.
For a one other item out there I think the interesting thing on the kiosk and I think what we're really focusing in Austin player loyalty that usually kind of falls in the marketing budget and so it kind of at least at our in our experience has been there's been some extra dollars there I actually think and we'll see.
Right here is that.
Casinos will want to make sure. They can they can get customers in and as much contact list as you as they can which means that they would look to buy our enrollment kiosk, which allows them to get their card without going to players club boost.
Then be able to get whatever promotions are going on so.
If if what happened during the shutdown as any indication. It again, we were selling and installing our player.
Loyalty in kiosk during the shutdown.
And so yeah, we feel pretty comfortable that that should continue at what level hard to say.
And even our even our standard I'll say our are fully integrated kiosk again.
If I casino wants to.
Reduce the amount of they want to have quikticket and they want to have.
Parity modules and other things that can be more efficient.
They're still interested in buying the fully integrated kiosk because.
As we talked before this whole.
Pandemic, we knew we felt and still believe we were in somewhat of a refreshed.
Michael with those kiosk. So some of them are just getting old out there now will they buy as many don't know they buy them this year or maybe push into next year I don't know, but but we do think that there's still some capex that they're going to have to spend.
Just as my guess is there going to want.
Extended more extended payment terms prac try to try to make it over a longer period of time than it is they want to not do it at all.
[noise] makes sense. Thanks, Randy I appreciate it guys best of luck.
Thanks, Chad.
Our last question will come from Ricardo can show up with Deutsche Bank.
Hey, guys. Thanks for taking the question I think one for me in terms of your installed base I mean, there's always that some of the operators that you get into trouble they might be reducing some of the placements could you. Please remind us of how much of your installed base. It's currently protected under the placement fees.
And how do you guys are thinking about you know they installed base now versus the end of the year do you guys ambition need to train the I think there will be largely stable.
Any any color would be helpful.
Sure. This is Randy and Mark or Dean can correct that I think our are still our placement fee covers 4200 plus machines. So somewhere in that neighborhood. So it's still I think about.
Not quite a third if I'm doing the math right there and then.
You know, where we'll end up at the end of the year.
Look I will.
Hard to say right. It it's I think our product continues to.
To impress our customers and we had a very good pipeline and a very good demand for our premium units. So.
If you're asking me my expectation is that we somehow squeeze something out of there, but hopefully we'll at least.
Be flat or hopefully slightly up.
This is Mike I mean, one of the things that we've witnessed in previous Pandemics is well excuse me previous recessions and previous.
Hard times for casinos since this is our first and hopefully last pandemic.
Is that.
Cnos that can make more money for themselves.
By bringing a participation unit on their floor and they are making with the machine that they are replacing our inclined to look for participation units that perform extremely well.
And so that gives me.
Great Hope that we will see operators look at our premium products and how well they perform and consider putting them on their floors in place. So perhaps even casino owned gains that are not producing that kind of revenue for.
And Ricardo this is Marty just to clarify randy's one.
We actually had a little bit of growth in in Oklahoma.
Related to one of the placement fees are about covered at about 4400 plus units under placement fees in Oklahoma.
Perfect. Thank you.
Well one other one last one last thing your color is that if you take a look at removals that are coming out from the field.
In comparison to our backlog.
Are we still have placements for everything there would be coming out and then some so if you look at this is a marathon you talked about good not on the block.
We're very well positioned on the block.
If you go start coming up so.
We feel very good about.
I have an opportunity to not only pulled would account for permit.
Obviously product performance predicated would you feel great about.
Even potentially taking share from somebody else.
Great. That's that's great color I appreciate it.
And your carving operations how much of your portfolio is currently open booking.
Pavement and payment side and in the participation side and just to kind of like an idea. The cadence you guys expect to be north of like 80% online by the end of the months or a 100% or any cadence on the opening for your particular businesses would be helpful.
So I give you some again, it's very early but I would say.
Right now on the Fintech side as Mike talked about there's about 32% of the casinos open and look we have a on the fintech side, we have a fairly good.
Market their market share there so we are.
Right now about 30% of our customers are up and operate now that may just be because of where they are there. They maybe more tribal which we've got a good footprint in so.
That that gives you an idea that we've got we've got a lot of the customers and fintech side. They are up in operating.
And on the on the customer on our customer side again. This is on the on the game side.
It's a little different because it's a smaller set of customers, but we're in a smaller set at the scene else. So we're at again about 32%.
As our customers that are open we add the customers that are open with about 32% of.
Our games in those in those customer enough I'm, saying that right, but but basically 200 plus.
200, plus locations, where we're at.
Of the 600, some they see kind of plus locations that we have gains and so again, we're in that kind of 30% range in both.
I'd say fintech and games does that help.
Yeah, Thats very helpful. If I can squeeze one last one you guys I believe happen every minute earn out payment related to one of your acquisitions for.
Next year any possibility that bad gets delayed or you could work out.
And some way too to delay that or do you guys feel like.
22 anyone is going to be strong Oh, we will not have any issues, making died on unit that earn out payment. Even if there is the gaming is a little bit week, just as you guys we recover.
Ricardo it's mark here I'll I'll take.
The the question and Randy can.
Feed some color in on this one as well.
As you pointed out related to the acquisition of assets from Atrenta in March of 19, we do have an earn out in the final portion of purchase price payment.
Left that would be due in March of 2020.
One and that would be.
We expect B $20 million worth of of payments again, that's all reflective of the volume of business. The earn out is anyways the volume of business that.
The loyalty business performs and does in that business has been performing very well. So we would expect that we will over the full amount under those payments.
When do in March and we would expect to pay those amounts in March we expect that the volume of business has returned sufficient level enough clearly to keep us on a free cash flow positive by fourth quarter and as you move into late Q1, we stepped position should only improve.
Great. Thank you so much I really appreciate all the color.
Thank you.
And we do have a question from George Sutton with Craig Hallum.
Thank you I got dropped off and I want to make sure I don't assets. It's already been asked so I will ask Randy the following question.
Given that in February you were driving a Ferrari with the throttle wide open on an open road I'm curious what car you're driving now and I'm curious if you could be specific to the month sort of a quarter. When do you plan to pick the Ferrari backed up from the lender.
But.
Yeah, let me.
On a plane bill for that you realize act as.
Well I'd love to know how you came up with Ferrari I'm not sure. If there are sponsoring the call.
No no no I, just I do drive a faster car, but I would say, it's not a Ferrari so don't don't go there.
I don't know how to answer your question what car do I have right now as you know it's just it's early so.
We're just being.
We want to see the casinos opening want to see how much activity. They have before we decide what car we're going to put on the road and how fast are going to be going but look I think what we're trying to say that we were performing very well in those first two months and we expect to be performing well ask of seamless come open how.
Much what their level of activity Thats still to be determined we just feel like we're very well positioned George.
And our products on the game side, we're performing very well and the Fintech side, you know transactions were up.
And loyalty product is up so we just feel like we were in a great position and we should be at a good position when the casinos are backed up and operating at whatever that normal level will be what card is opt to think about it.
Sounds like you're driving a cheap on a.
On a rugged road right now, but but it is going to get better and we look forward to that thanks guys.
Thanks, Thanks for George it.
Thank you for your questions. If there are no further questions at the time I'd like to turn things back to Mr. Taylor for closing remarks.
We'd like to thank everyone for joining us today on the call with the Green shoots recovery now beginning to happen in the gaming industry, we expect that our balance between games and Fintech segments Places us in a unique position to whether this pandemic and come out the other side, a more efficient and stronger company. We look forward to providing you further updates and.
Our next quarterly call. Thank you thanks, everyone.
That does conclude today's conference. Thank you for your participation you may now disconnect.
Yes.
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