Q4 2020 Everi Holdings Inc Earnings Call
Greetings and welcome to the every Holdings, Inc. Fourth quarter 2020 earnings conference call at.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Mr. Bill Pfund Senior Vice President Investor Relations. Please go ahead Sir.
Thank you Hector and welcome everyone.
Let me remind everyone of our safe Harbor disclaimer that covers today's 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.
We're not limited to those contained in our earnings release today and in other SEC filings, which are posted in the investors section of our corporate reps website at every dot com, we do not intend and assume no obligation to update any forward looking statements you are cautioned not to place.
Reliance on forward looking statements, which are made only as of today March 9th 2021.
We will also refer to certain non-GAAP financial measures such as adjusted EBITDA free cash flow total net debt total net debt leverage ratio and net cash position a description of each non-GAAP measure and a reconciliation to the most directly comparable GAAP measure can be found in our earnings release.
And related 8-K as well as in the investors section on our website. This call is being webcast and recorded a link to the webcast and replay of today's call can be found in the investors section of our website joining me on the call today are Mike Rumbles, Our Chief Executive Officer, Randy Taylor.
And Chief operating Officer, Mark led by our Chief Financial Officer, Dean are like our games business leader in Darren Simmons, Our Fintech business leader now, it's my pleasure to turn the call over to Mike.
Thank you Bill and good afternoon, everyone and thank you for joining us today.
I'd like to begin by sharing a few highlights and observations.
Our fourth quarter results were in line with the preliminary numbers that we announced in January these.
These results demonstrate continued quarterly sequential progress in our recovery from the pandemic related challenges that began to impact the industry early in 2020, and which continue even today.
Our improvement occurred despite an increase in jurisdictional restrictions in both November and December which resulted in increased casino closures and reduced casino activity.
Our revenue and adjusted EBITDA improved sequentially from the third quarter, and we generated positive net income and our free cash flow improved significantly year over year.
Now our impressive for fourth quarter performance reflects several of the strengths of our company the.
The balance of our business between games and our Fintech segments, both of which have a large base of recurring revenue streams.
Our focus investment and execution in developing innovative products that are increasingly in demand because they help our customers grow revenues build stronger relationships with their guests and at the same time attain greater operating efficiencies.
Also our track record of consistent operating execution and then of course, most importantly, the every team whose dedication and collaboration have made it all happen.
Now common to both our Fintech and games businesses is a large component of high margin revenues that are recurring in nature.
The recurring revenue portions of both businesses operations have proven to be incredibly resilient as the gaming industry recovers.
In the games business, our priority is on developing original creative and engaging content.
The result of this is a growing portfolio of games that are popular with players and generating strong performance for casino operators.
This success is clearly evidenced in the continued sequential growth of our gaming operations installed base.
Most significantly the increase in our installed premium games.
Our installed base of premium games has increased every quarter for the past 10 consecutive quarters, including each quarter in 2020. Despite the challenge challenges that have been posed by the pandemic.
At year end, our installed footprint of premium games was up 1318 units or 26 per cent compared to our then record installed base, which we had at the end of 2019.
This growth came despite the impact of the pandemic, which caused reductions for many of the other suppliers in our space.
Premium games now make up more than 41% of our total installed base and have been a driver of our daily win per unit performance.
Given the consistent growth achieved in our installed base our daily win per unit are growing ship share of unit sales during the last several years.
And our pipeline of new products I am confident that we have the right elements in place to continue to propel the ongoing organic growth of our games business.
Said another way our goal is to become one of the largest premier suppliers of games for casino operators in North America, and we are well on our way.
Our I gaming digital business is also showing significant growth with revenues up 60% year over year, and we are just beginning to ramp it up.
From the time, we launched our remote game server for <unk> service with one customer in April 2019, we are now directly providing slot content to 30 customer sites in three U S jurisdictions.
And this includes Michigan with which just launched in January of this year.
As Michigan opened we were a launch partner to six of the nine online casinos that went live on day one.
On average we represented about 25% of the content at launch and we have a number of top performing games in the market.
As an example.
We were a key content provider for the bet MGM casino launch.
Our double Ruby game has been one of their most popular titles. Since then and we expect to continue to integrate additional innovative content into their offering on a regular basis.
As another example on the Rush Street gaming site, we have the number two top performing game based on average daily wagering since the start.
And we have a total of five games among their top 25 best performing games.
The interest in gaming, which is gaining strength as a source of new taxable revenue across multiple U S and Canadian jurisdictions, when joined with our proven and growing library of game content gives us tremendous confidence that our digital business will be an increasing contributor to revenues and earnings.
<unk> in 2021 as well as the years ahead.
And then the Fintech business, our strategic focus remains the development and extension of our comprehensive integrated digital neighborhood.
During the fourth quarter two of our large casino customers went live with cashless mobile wallets.
<unk> by our digital cash club wallet solution.
White label to carry each casinos own branding the cash club wallet is fully customizable to meet the different needs of our customers.
With our flexible system operators can choose the level of experience that they want to offer to their patrons and the speed at which they move forward.
Each of our first two customers began with a soft launch and then chose initial features and timing to both align with their comfort levels and a fit with their marketing plans for their guests.
Our cash club wallet enables our customers to deliver integrated digital patron experiences alongside the existing solutions and the casinos.
By leveraging operators investments in infrastructure with the addition of our casino banking as a service capability and our other advanced financial technology, Our digital wallet can act as the central hub for payments across the entire breadth of our casino operators enterprise.
From the gaming floor to food and beverage to retail and the hotel and resort amenities.
Importantly, the same wallet can be used at each and every one of the operators casinos.
Multiple casinos multiple jurisdictions one wallet.
Now for our operators with online offerings, such as gaming and sports wagering. It can also provide funding to bridge the patrons online experience with their land based experience.
Our cash club wallet solution complements our cash access services. It is fully integrated with all of our loyalty regulatory compliance and financial services offerings and is the next step in providing convenience for players together with a significant cost efficiency for operators.
In addition to cost savings the data and intelligence on patron spending that is gathered through our wallet provides operators with the opportunity to extend their relationship and connection time with their patrons.
Our digital wallet fits seamlessly into casinos existing back of house processes and controls.
It also meets the needs of the relevant banking and other financial regulators at the state and federal level as well as the extensive needs of the various gaming regulators in the United States.
We believe we are truly at the forefront of the convergence of payments and loyalty in the digital casino World.
With the stringent compliance requirements that we meet and our history of player funding capabilities, we offer the industry a truly differentiated high value solution.
Given the early stage of deployment, we are not yet at a point, where it's appropriate to share specific data. However, the initial response from the casinos patrons has been highly positive and our expectation remains that cashless transactions will increase the total number of transactions performed.
<unk> patrons, providing yet another growth driver for every in the years ahead.
As our cash solution goes live at additional casinos in the coming months and as the user base expands we expect to share further insights about these trends with you.
Now, let me turn the call over to Randy.
Thank you, Mike and Hello to everyone on the call. This afternoon.
We continue to show positive inflection from the severe challenges caused by the pandemic throughout most of 2020 and we expect to achieve further operating improvements in the year ahead.
Even as we benefit from the ongoing industry recovery, we are maintaining our focus on organic growth by leveraging the strengths and strategies that generated our growth and cash flows and the pre pandemic pandemic months, and we expect to drive better product adoption rates and higher returns on our investments.
As Mike noted in our games business gaming operations continues to demonstrate solid performance, primarily due to the success of our product development and operating execution, which has resulted in continued growth in our installed base and an impressive daily win per unit, particularly from our premium units.
Revenue from gaming operations was essentially flat with the record revenue generated in the fourth quarter of 2019, despite the impact of closed casinos inactive units and lower casino activity.
We believe our performance driven by our installed base and daily win per unit has outpaced the vast majority of our peer sets performance, which is the same trend we were seeing before the pandemic.
Another Avenue of consistent growth has been the installed footprint of wide area Progressive our Wap units since the initial launch in early 2017, our class II and tribal class III installed base of Wap units has grown every quarter for 16 consecutive quarters.
At the end of 2020, the install base totaled 1048, Wap units up 13% from 924 units at the end of 2019.
Currently we have a field trial of commercial class III Wap units underway in Nevada, and New Jersey.
We expect to go live with class II Wap units for commercial operators in both states in the second quarter, adding a new channel to continue our growth.
Our focus on developing original creative and engaging content and differentiated cabinets is also a key factor behind the nice rebound in our equipment sales queue for unit sales were up on a quarterly sequential basis driven by the strong in casino performance of the Empire Flex our newest cabinet that.
The flex cabinet has been ranked the number one top performing cabinet in the popular portrait category and the Eilers Fantini Cabinet performance report for the last seven consecutive months.
Our unit sales increased 62% over the third quarter. Despite the fact that most operators remain in a capital conservation mode due to the ongoing uncertainty related to the pandemic. Our average sales price was up slightly year over year, but generally in line with our most recent quarters. This.
This reflects a favorable mix of our new for sale Empire Flex cabinets in the overall mix of units sold.
Based on the reported Q4 results of several competitors. We believe we are continuing to grow our for sale ship share.
We expect this growth to continue in 2021 due in part to the expanding library of game themes for the flex for the Empire Flex cabinet, which is garnering positive feedback from our customers and their players together with the ongoing success of our high denomination three reel mechanical products that continue to capture the majority.
<unk> that is 18 of the top 25, including the top 10 high denomination performing game themes as ranked in the Eilers Fantini game performance report.
Similar to our gaming operations' growth, we believe our for sale ship share gains over the last several years has also outpaced the overwhelming majority of our peer set.
And the Fintech segment cash access revenue declined modestly in the fourth quarter from the third quarter.
Our broad customer base, our revenue in Q4 reflected the impact of the additional casino closures and the overall reduction in casino activity, particularly in November and December when there was an increase in restrictions and casino closures.
With casinos reopening and activity rebounding I'm pleased to note that our same store cash access transactional activity has been improving since the end of 2020, notwithstanding the impact from the severe weather that disrupted much of the country in February.
Equipment sales revenues from our Fintech and loyalty products increased 33% from the third quarter. The increase was primarily driven by higher unit sales of our self service promotional kiosk, which were up 39% on a quarterly sequential basis and led to a 9% year over year increase in revenue from loyalty kiosk.
Well, we continue to see solid demand for our financial kiosk. Some operators are opting for longer delivery dates or preferring to delay deliveries even as they place their orders. However, given the average age of units. The casinos, we believe the opportunity for placement for further replacements and growth our financial kiosks will improve.
As macro conditions improve and operators ease or concerns about capital and investing.
Regarding our loyalty kiosks, our loyalty product team has done a refresh of our self service enrollment kiosk hardware to improve its design footprint efficiency and player engagement with its new 32 inch J shape monitor.
The new kiosk start shipping this month.
With our promo kiosks now called the prelude our team undertook a complete redesign of the hardware in conjunction with upgrading the software to include new capabilities. The prelude you just utilizes a 32 inch monetary and can be either standalone or hung on a wall.
With the new trilogy loyalty software our loyalty platform has taken a giant step forward to significantly expand its capabilities, which dramatically enhances the value to casino operators and convenience for their players. Our trilogy platform is designed to unify the patron experience across all touch points within the casino.
Trilogy goes beyond traditional player loyalty marketing and enrollment programs by utilizing our enhanced solution for promotions drawings targeted alerts card sign ups and reprints gift card programs resort information and Geo fencing.
The loyalty trilogy promo product line went live at two large casinos in Q4.
Trilogy has additional multiple integration points that are currently in cross functional development between our games digital payments and compliance teams.
As we look to 'twenty 'twenty, one our loyalty team is very busy and we believe we have a full pipeline of additional new products that will launch throughout the upcoming year.
This provides significant opportunity for us to continue to expand our product portfolio increase our customer base and grow our recurring revenues.
Information services and other revenue was up 7% on a year over year basis, and up 5% sequentially from the third quarter. This growth reflects an ongoing operator interest in our player loyalty software and subscription products and the value they provide operators as well as the value of our regulatory compliance products with the <unk>.
Significant portion of this revenue related to service and maintenance contract each new customer expands our substantial recurring revenue base.
Our regulatory compliance solutions also continue to show positive momentum as our footprint continues to grow with new jackpot express installations in new jurisdictions.
The award winning Jackpot Express solution enables casino attendance to securely and efficiently process and pay jackpots using a mobile device jackpot express mobile or in every jackpot exchange kiosk.
At the end of 2020, we launched the Jackpot Express professional addition upgrade with a major operator and have several more in the pipeline.
<unk> Express professional edition allows the operators to take advantage of new features and unlock several key integrations with an average digital neighborhood, such as cash club wallet and trilogy products.
We expect to start our jackpot Express field trials in Nevada. This year with several key partners as well as launch the product into several other new jurisdictions now I'd like to turn the call over to Mark to share his perspective on our performance and current trends.
<unk>.
Thanks Randy.
To begin I would note debt in the fourth quarter, we recorded $2 million of charges that were added back in determining our reported adjusted EBITDA as we believe these charges are nonrecurring in nature.
One point for millions of the charges related to the game segment and.
And <unk> 6 million related to the Fintech segment.
These costs were primarily associated with the consolidation and exiting of certain office and warehouse facilities no longer needed as more of our work force continues to work remotely and these reductions support our ongoing cost savings initiatives.
As part of this consolidation, we also dispose of certain old and excess inventory items that we did not want to move to our new warehouse facility.
From an overall financial perspective, I believe the most impressive result in the fourth quarter was our year over year increase in free cash flow, which has more than tripled versus the year ago period, an essentially an equivalent level of adjusted EBITDA.
This improvement reflects lower year over year cash interest and a reduction in our capital expenditures.
A key portion of our capital expenditures as for investment in our gaming operations installed base, our quarterly sequential basis, our fourth quarter net installed base increased by 489 units. So we did not cut our capital expenditures in a way that inhibits our ongoing growth.
As you review your models and look towards 'twenty 'twenty, one cash flow I would remind you that there are several notable cash expenditure items that are expected in the first half of 2021 that are not part of our free cash flow computation, but they will impact our cash balances.
These include.
The final payment of our 2019 asset acquisition from atrial, including the expected contingent consideration earned which results in a total of up to $20 million and this will be paid in the first half of 2021.
Also included is in the first quarter is the funding of approximately $5 million for the remaining litigation settlement that was included in the charges, we reported in the fourth quarter of 2019.
And $5 million for the final purchase price payment related to the 2019 M. G. T asset acquisition that is expected to be paid in the second quarter of 2021.
In February we took advantage of lower interest rate environment and reduced the LIBOR floor on our $735 5 million senior secured term loan.
We reduced the floor by 25 basis points, which saved us approximately $1.8 million in cash interest on an annualized basis at the current market rates.
Those cash savings will provide an ongoing boost to the free cash flow, we expect to generate from our operating results.
Regarding cash taxes with more than $450 million of accumulated net operating loss carryforwards.
We do not expect paying meaningful cash taxes for the next several years.
Our primary use of our growing free cash flow will be to bolster our liquidity during this pandemic and to ultimately reduce our leverage.
While the pandemic has slowed our momentum towards lower leverage it did not change our goal of achieving a lower net leverage ratio.
Now, let me share some perspectives on our near term outlook.
The financial markets now appear to believe a macro and gaming industry recover recovery is no longer an if but rather of when event.
While that would represent a significant improvement in the overall outlook. We believe there is still some near term uncertainty created by the pandemic and other macro related factors that need to be considered as part of these views.
Not the least of which is the desire by our customers to remain and capital conservation mode.
At least until patron restrictions or further loosened vaccination rates increase and the public becomes more comfortable gathering and large public settings.
As we look to the first quarter many of our customers are still impacted by restrictions that caused lower activity levels, while others still have their casinos close given this current gaming environment and the current levels of activity. We have seen since year end, we are guardedly optimistic that our first quarter revenue and adjusted EBITDA will.
We will be comparable to or slightly ahead of our fourth quarter performance and we expect to again generate positive net income.
We anticipate that our free cash flow will improve sequentially in the first quarter and May also exceed the prior record for first quarter free cash flow generated in 2019.
While we are not forecasting a significant ramp in current quarterly performance without a corresponding improvement in the overall gaming industry and the macro environment. We believe a gradual industry recovery is likely as more of the population becomes vaccinated and some of the typical demographics that make up a larger portion of our customers best player.
<unk> returned to their favorite casinos.
Barring any further macro setbacks that would position in the industry and every to enjoy a better second half of the year as compared to the first half of 2020 one.
With that I'll now turn the call back to the operator for questions.
Thank you at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It.
May be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Your first question comes from the line of David Bain with B Riley. Please proceed with your question.
Great.
Thank you very nice quarter again.
So just to start I actually went to the hard rock in Florida and sign up for the digital wallet. It was fast completely intuitive and I love thinking this can be one of the largest structural changes on the floor since Tito but my question is how do we make the standard to the end user over time. So there was great signage that was placed on the floor.
But I'm just curious as to what some of the broad based strategies are that you can share as to how your casinos will promote if they hadn't player promote that linkage in order to ramp proliferation.
Sure. Thanks.
Thanks.
And good to hear from you David.
Hi.
One of the one of the clearest methods.
The casino operators can use.
To increase adoption is to provide incentives and and we know that the operators have been considering and discussing a variety of incentive types, but certainly one of the ways that you can incentivize is through the loyalty system, which is also connected.
Through every so that they can for.
Judge the spend activity and the cash access activity of the customer and then actually make them an offer through the loyalty program, whether it be for additional free play or.
Some sort of a comp.
It is probably the easiest.
Most frictionless way of getting to the patron that has the wallet on their phone and making an offer to them to either bring them back or to keep them.
In the casino space longer.
As we as we expand the wallet into.
Casinos that also have online.
Either sports wagering or I gaming.
You can also see the operator using that as an enticement to further expand adoption of the wallet by.
Offering.
The various kinds of offers that you already see in the sports wagering space and to some degree in the gaming space. So I would anticipate those being probably amongst the first.
But it's really up to the creativity of the operators to come up with as many as they need.
Great. Thank you, Okay and then.
Mark I appreciate it and I understand the comments on the near term and sort of the gradual improvement remark in the industry, but I mean, you also cited sort of day.
The return of the key demographic and we've all been hearing the encouraging operator commentary.
You're speaking with your sales team.
Just trying to understand using a benchmark maybe like 2019.
Could we get back to normalcy before the end of the year is there anything that you can opine on there or should we just think about that deeper into 'twenty. Two just kind of any big picture it would be helpful.
I think Randy hit on it in his commentary how we've seen some improvement I think we would all agree that our fourth quarter was a little bit challenging in terms of the I'll call them. The transactional kind of volumes that were being performed by patrons as casinos more casinos closed.
As a result of the pandemic and.
For the restrictions were implemented I think what we've seen since the start of the new year as things have gotten better since Q for a little bit, but it's still a little bit choppy you know the weather has come into play in February there was a happening a little bit, but that's not an excuse just a fact, there but I think what we're seeing if you look back as 2019 as a benchmark.
Net debt, we could start approaching those 2019 levels and possibly doing better you know, where we really benefit as the growth in our installed base and our premium units and I think that positions us very nicely to perform very well on a like for like basis compared to the 2019 kind of levels and we have a lot of new products that are very in demand on the fintech side on things like <unk>.
Our loyalty products and even some of our compliance products that seem to be generating some buzz in our pipeline as well. So so we do think that you could start approaching those 2019 levels, but we really think capital is going to be the biggest challenge for us in terms of new equipment sales games in some of our kiosk products as customers wait for that those patrons really be back can be search.
Before they start a are there start to be willing to commit to capital they have available to them.
Got it okay, great. Thank you guys.
Thanks, David.
Your next question comes from the line of Jeff substantial with Stifel. Please proceed with your question.
Hey, great. Thanks afternoon, everyone.
So to start on.
Hey, I just want to start on cashless gaming, we've seen several strategic partnerships struck.
<unk> earnings call I'm, just curious if this has changed your thoughts overall, I'm kind of competitive positioning and market share.
This approach something you would consider or do you think going out it yourself per event.
Most value upside longer term just curious to get your updated thoughts there.
Sure I'll give you my view and certainly can let.
Darrin weigh in.
With his thoughts after.
The announcements by various competitors.
And especially the system operators.
Really hasnt changed our view of things I mean, we are our product isn't as an omni channel product.
Agnostic as to whatever system is on the floor. We were multi jurisdictional. We can we can go multi platform for online.
So we're also multi system and we are the only wallet to my knowledge that can be used.
With the same wallet in multiple jurisdictions with the same casino operators casinos.
But we also.
We're also offering them the.
The ability to open that wallet up to purchases in retail and hotel and food and beverage and entertainment.
As well as online retail for that matter if the if the casino operator has an online store.
With all of those all of those additional benefits.
And opportunities coming from our our wallet.
Not really as concerned about various other companies that are trying to enter the space for the first time.
Great. That's that's helpful. Thanks, switching gears and moving over to equipment sales for the gaming segment.
Recent industry survey quoted plant managers is expecting to allocate about 10% of a for 12 months chip share Deere machines on average and I know in the past you've kind of called out a similar.
I'll call it run rate long term target and I guess my question is this do you think the pandemic has accelerated the path to for that call. It 10% on a go forward basis and kind of by that what I mean, as you know historically speaking shocks of demand like like the one we are seeing now can sometimes be catalyst for folks to reconsider their they're kind of.
Purchasing habits, EPS or biases or whatever you want to call them.
Is that something you're seeing now or do you think there's potential to see as we as we start to see capital budgets normalize.
Yeah that certainly can be part of it Jeff and.
In my view, it's really a testament to the tremendous job that the games development studios have done.
And I don't want to get too big ahead, because he's going to have to change from his 10% to another percentage.
Pretty soon if we actually hit that Mark.
But at the end of the day, it's the it's the performance of the games that has been driving the sales.
As well as the in all honesty, the beauty of the new cabinets.
And their ability to fit very soon.
Seamlessly into a floor configuration.
And those the combination of those I think has really driven the greater ship share on the sales side.
But but the 10% was was Dean's long term goal, we have to see it actually occur before we force them to raise it up again.
Great. Thanks, that's it that's really helpful and congrats on another strong quarter.
Okay.
Your next question comes from the line of Barry Jonas with Truth Securities. Please proceed with your question.
Hey, guys.
Wanted to ask about margins or specifically the margin expansion that you've been seeing now maybe by segment how much of this do you think is sustainable on a go forward basis.
Barry I'll take the take this one I guess Oh look I think.
I think the our mix right now is very beneficial to us in terms of how we've come out of this recovery again, we said on previous calls some of our <unk>.
<unk> strength was our ability to get some of our recurring revenue streams back in action very quickly. So so those are generally are higher margin products, whether it's gaming operations revenue, whether it's a cash access services and and and where we've seen the challenges and the revenue has been on the equipment sales side and again because of the inventory component in there.
Usually the lower margin products. So so I think you'll see in the near term, especially that we'll continue to have higher margins, but I think as you move forward what we've been doing very effectively is is.
Managing our cost structure trying to trim out some of the unnecessary costs or managing our costs better things like reducing our office spaces, which is going to help on the expense side of things, but we're also expanding those recurring revenue streams that have the higher margins. So youre going to attack. It two ways and I think if you kind of want to think of it in terms of comparability to 2009.
As David Bain kind of mentioned on the first question I think you'll see that longer term as we normalize you'll probably have slightly higher margins for us going forward as we continue to see more of that recurring revenue streams are being a larger portion of our total revenue.
Great and.
Yeah, Mike after what you've experienced you and the industry experienced in 2020 do you have any updated thinking about the benefits or I guess lack thereof to house gaming in Fintech in the same company.
Actually I do I mean, well I've got several several observations. The first is the next time I see a black Swan I'm, probably going to shoot at.
But beyond that.
No.
And I said in my prepared remarks, I mean, the amazing resilience of both.
Segments of our of our company, both games and Fintech and the amount of recurring revenue that that was so resilient and came back as quickly if not quicker than the.
Equipment sales revenues.
For me really pushes.
Meat and into the into the camp even further of these two businesses.
Finding a tremendous home and a great synergy being together.
Under one umbrella.
I'm constantly asked.
Because I'm bullish on keeping keeping both businesses.
In one company I'm, often asked about well what would you split them up.
I've always said for the right dollars of course, but I don't see any reason, there's no strategic need to do that I think they are highly complementary and this has really proven it.
Understood alright, thanks, so much guys.
Thanks Barry.
Your next question comes from the line of Mark Palmer with <unk>. Please proceed with your question.
Yes, thanks gentlemen.
Another question on the cash club wallet I know that you are not at the point at which you are ready to share metrics with regard to the wallet, but conceptually.
How should we think about the take rate on the wallet.
Relative to other digital wallets that are out there for them.
Various other market participants.
Yeah, well the one thing I guess, the first thing I would say and I'll turn it over to Darin and let him let him speak to.
The uptake and the adoption rate.
We're live in two casinos and and we're tracking that.
Not aware of anyone that's anyone else that has a solution thats alive.
Into and with two casino operators I should say one of those operators has it in multiple casinos.
The same wallet and nobody has that out there so.
With respect to others, I don't know that I see them.
Having any kind of a real uptake at this point.
There are quite a bit behind us, but darryn do you have objectives that you wanted to share.
Yeah, well look I think.
Again still early days still what I would consider very soft launches with our with our customers.
And again, it's really just all about their own planning in terms of how they translate this into their enterprise, but the early.
Early data is very encouraging you know if you sort of think about David <unk> comments early you know look it's a simplified user experience.
It's got great Tilley for the operators because.
There theres a lot of efficiencies that come along with with with this digital transformation. So.
I expect based on our early information that we have on the data that.
That that are I think the adoption will be it will be strong and this will certainly move the needle for us because you know again it provides just in another.
Alternative for for patients in terms of how they're enjoying their entertainment experience and how they the operators can connect with that patron from there theyre differentiated platforms, whether that's via the brick and mortar whether that'd be their retail whether there'd be other online sports our I gaming.
Thanks very much.
Your next question comes from the line of Chad Beynon with Macquarie Group. Please proceed with your question.
Good afternoon. Thanks for taking my question guys and congrats on the results yet.
As we think about your your game Ops unit division and in the opportunity whether it be premium or just the entire base I know in.
At prior Investor days and on for more conference calls when things were a little bit more predictable you had provided some goals and I think you exceeded those goals in 2019 and 2020 in terms of units.
Can you just help us think about the white space that remains for you guys or the cabinet white space that could further drive this in 2021 and 2022.
And maybe if I can go as far as asking.
Should we expect growth in 2021, and the gaming ops units division given where it currently stands thanks.
Yeah, absolutely well.
I can give you my point of view and then I'll turn it over to Dean but.
I expect to see growth. This year I don't know that we can maintain the kind of growth that we've had.
For the last 10 consecutive quarters at the same rate, but I certainly expect growth I also expect some churn.
In the underlying installed base and that we may see some casinos go from class III to class III.
And take some of our games out of the installed base, but.
You hit on a key which is we now have another metric that.
<unk> is responsible for that he has put out previously that he is now going to have to change. So dean do you want to speak to those issues.
I don't know, if I would call them issues, but I'd call out.
Thanks for all opportunities.
Okay.
The bottom line is that we got five different product categories that we continue to develop into between.
Our Empire D C acts or Empire Arena, our renegade installed base, we just launched flex fusion.
And then skyline revolve is really it's our mechanical wheel product high denomination that we're starting to get some.
Significant traction on debt has plenty of opportunity so I think.
For the building blocks are there but.
As you've heard as a repetitive tone.
It depends on what happens out with within our industry and our customers and but our plan is to have a product offering that will continue to allow us to grow and to do our best to take as much advantage of that as possible.
Great. Thanks, Dave appreciate it.
And then regarding the digital Hum on the game side, the formerly interactive division small, but important and draft kings talked about a much larger gaming market in North America that probably is positive for the outlook for digital for you guys and for your competitors.
You elaborated on some of the successes so far but just wanted to ask if you could go a little further and just kind of talk about what the game plan is there more titles. It sounds like you have a few things that are working really well you know it.
It should be a much more fragmented space and obviously from a digital perspective, there's less barriers to entry, but just wondering if you could kind of frame out the opportunity there.
Sure.
I'm going to turn it over to Randy to really speak to that but I would note that I mean, we have each each of the games that are produced in digital are made for digital and they're made for our for the ability of our rgs too.
Send them to other sites. So they are there.
They are using a lot of our.
Existing <unk>.
<unk> features and game play types in the field.
<unk>.
But they haven't I mean, we haven't really dipped into the depth of our catalog yet too to bring along the sheer number of games that we could but Randy do you want to speak to where you see digital going.
Sure.
I would say.
As Mike put in his opening remarks, we launched with.
Six of the sites in Michigan.
When we started in 17, we didn't launch in in Pennsylvania, and New Jersey to that extent. So we believe there's still.
Room, two to launch with other operator, I gaming I gaming locations with our games. So we've got more operating as we can launch with we believe our rgs makes it very easy for us to provide our games. We think theres opportunity are also up in Canada and as each as any.
<unk> opens up we think we're in a very good spot to launch with.
Whatever sites one of launch I think we're starting to be known as a very good partner and launching <unk> and I think the success. We had in Michigan just lays that out debt. We can we can meet the needs of whoever wants to launch however quickly they want and as Mike said, we've got some we've got a lot.
Content and that's what they're looking for and we've done special content for some of the operators as well. So we're in agreement with you that we think this is a an area that we'll continue to grow for us.
And we think we're well positioned there.
Thanks, Andy appreciate it best of luck.
Thanks, Ken.
Yeah.
Your next question comes from the line of George Sutton with Craig Hallum. Please proceed with your question.
Thank you, Mike I hate to disagree with you, but I actually hoping to get some very big head and that will mean.
Killing it.
Unfortunately, I'm not I'm not going to tell them that [laughter], frankly, I'd like to see Darrin get a big head as well because youre seeing a lot of cash club wallet wins, but Mike.
Mike you made a very interesting comment and that was it you don't want to give too much information yet because it's early but you're suggesting that you may see more transactions via the wallet versus a traditional and that can obviously have a very good long term economic impact on you can can you give a little more.
Sure.
In terms of what you're seeing along those lines.
Actually let me, let me have Gary and give that for you, but what I'll say George is that.
The more that we see digital transactions.
Those are those are complementary to the existing land based transactions Thats all growth for us and.
And that's really to me why why.
Whatever number you want to assign to it as a percentage of the overall transactions. We think that these transactions are are in addition to the existing land based transactions and that's what excites me so much but Darren do you want to do you want to take that on.
Sure you know I think you just you take a page out of what I would say is kind of a retail payments and digital payments that are out there the adoption and strategy of of going to debt.
For the digital channel.
<unk> has data points that you do see greater volumes greater transactions greater frequency.
And so I would say again, we feel really good about the early indications of where we're at.
I think we've got a frame of reference right now with you know one of the transactions that we support which is quick ticket, which as you know the the.
The debit pin purchase of a of a Tito ticket.
And we see just exactly that I mean, you see greater frequency greater volumes it doesn't cannibalize anything in our view.
I think youre going to see players adopt this type of technology because of again you hear these terms you know friction free but I think it's it's more that the operators are looking.
For.
A digital strategy across their enterprise because it brings value to two there players their patrons and then obviously to their enterprise right. It's just not about a payment method.
But this is a strategy in and I think you're going to see as we continue to ramp up we've got a very strong pipeline of wallet customers. You you will see greater adoption I think as we get.
Get more data in the coming months.
I think we'll be surprised and I think the adoption is going to be stronger than I think what we thought maybe originally.
Great No I think it's very exciting that's all for me, but I did want to mention if mark or Randy get Big heads, we will know that immediately.
Yes, you will [laughter] you will thanks, George Thanks George.
Your next question comes from the line of David Katz with Jefferies. Please proceed with your question.
Hi, This is cassandra asking on behalf of David.
Cassandra.
Hi.
So can you elaborate a little bit on the.
For mobile wallet, you mentioned multiple jurisdiction as a competitive advantage. So what would be the challenge for others to replicate that or it won't be a time lag for people to catch up.
Well it.
Go ahead go ahead, Darren Yeah sure. So again I mean, you know we've built something very purposeful built for.
You know a complex operators that operate multiple casinos in multiple jurisdictions.
And we built a solution that addresses again, all the complexity that comes along with it.
Digital wallet capabilities holding onto monies for their patrons and then be able to move those monies.
Between casino operations and the different jurisdictions so.
A big part of our solution is the integration into our email tools <unk> tools.
And the.
The other components around responsible gaming and obviously now our loyalty products. So.
You know remember there still is a significant you know what I would say traditional payment method.
Usage out there right I mean, Atms and typical sort of traditional cash access is not going away overnight. So we bring that bridge for be able to move.
Those patients had players that use that to the digital the digital channel and.
So we bring all of that together and and provide that solution that is very compelling for the operator, because you need to you know I think at the end of the day the operators recognize.
Having that single source in terms of the brick and mortar and online and how we used together across really all of those mission critical services that we provide from an email and loyalty standpoint makes it very compelling and I don't believe there is a competitor that's kind of brought that together.
Got it. Thank you and also just one more.
So free cash flow improve and leverage.
Net interest and tuck ins and what kind of areas.
Yeah.
Cassandra, we're always always looking at potential tuck in.
Businesses that we think makes sense, we would look we would look on on either side of our business, our ledger, whether it be fintech or games.
But again, we'd be looking to something that is complementary to our existing product offering.
Or something that would be would.
It would have to longer lead time to develop in house and is easier to integrate by just purchasing a smaller company that has already developed the technology.
I see thank you for your cooler Inc.
Yeah.
Your next question comes from the line of John Davis with Raymond James. Please proceed with your question.
Hey, good afternoon guys.
Quickly just wanted to I just wanted to hit on the win per day I'm. Obviously, I think it was down just slightly sequentially, but as expected with with casino closures, but I didn't know if you guys had an idea of what that would look like on machines that were turned on if you had to guess with debt.
Flat sequentially up sequentially, just any color there on on the win per day would be helpful.
Okay.
John I'll take that so I had for you I think are we kind of suggested that do we think an active units, we're probably running around a 36 and a half dollars of daily win per unit in our estimates of where they are again that number is impacted by the same casino closures and the same reduce patronage that happened in Q4.
So so it's down a little bit sequentially, but still are benefiting from the increased number of premium units out in the installed base.
Okay, and then Dara I did want to ask.
On the cash club wallet and maybe ask it a little differently how important is the integration with the loyalty.
Assets that you bought for the.
Casino operator is that seen as a competitive advantage. The fact that you have this this loyalty offering that you can then embed with with the cash or cash club wallet, how differentiated is that relative to some of the peer offerings that are out there or is that something at this point debt.
The two tribes.
Aren't necessarily focused on just curious kind of what the integration with loyalty looks like and cash club.
Sure well I mean strategically we made the loyalty acquisitions, you know precisely because of the integrations with what we view as the digital neighborhood and you know again the the loyalty platform provides an entry point from an enrollment into the players card players.
Players club, which you know again operators in terms of launching a digital wallet the.
The expectation and the desires that they sign up for in the player's clubs. So we're providing this platform for players to be able to sign up and enroll in a players club so having that integration.
Net offering to be able to not only sign up from from player Club standpoint, but then also the wallet just makes that transition to digital and that offering that much more compelling and then you start to layer in as.
Mike kind of mentioned incentives through the promotional platform, so whether that be it could be incentivized through dollars free play whatever that connection and the promotions that you can have around that are very compelling. If you look at kind of what exists out there and I would say out in the wild the non gaming world.
Kind of.
Promotions and loyalty and whatnot are kind a critical part of all of those offerings and the reality is as you know our promotional platform is more than just promotions right. I mean, if you think of gaming and promotions you think of them as an operator I'm going to give away you know.
Toaster oven or something it's our platform is now an engagement platform. We've just gone so so far above and beyond just promotions and it's about engagement and this is what the operators are looking for is tying together how you engage with players in the digital channel and what we're doing from a mobile framework, which both the wallet and.
And our loyalty platform share.
He is very very compelling.
Okay. That's helpful. And then that's probably Randy or Mark just taking a step back for a second I want to talk a little bit about balance sheet and capital structure in general.
And you knock off a huge piece of work, but it feels like we're getting over the hump here in the vaccine and seem to be rolling out and so hopefully we get back to some sort of normalcy in the back half of this year, but maybe just remind us kind of I think your your make whole on the bonds stepped out of it in December So how do you think about long term.
Capital structure from a leverage perspective free cash flow influx here, but I'm just curious on thoughts as we get to the back half of this year and into next year how are you.
The balance sheet transform transform it over that time.
Yeah, you know I think right now as you pointed out where we are in the pandemic cycle, we're still maintaining our liquidity and the cash we.
Borrowed it related to the incremental term loan is effectively still sitting on our balance sheet as we sit here today.
And we continue to generate incremental free cash flow each quarter so as.
As we continue throughout 2021, I think we have a lot of opportunities to look at the capital structure and look at our.
You know eliminating some of the higher price debt that is on the balance sheet.
Incremental term loan you've gotta make hold through 2022, and then one per cent for a 1% premium on that for six months thereafter, and as you mentioned on the notes we do have a step down from December.
In the premium that we have to pay to redeem those notes a little bit early so I think we do have a lot of flexibility and opportunities as we progress throughout the year and and just see how.
We can reshuffle that and improve that and reduce our overall cash interest costs as we move into 2022.
Okay, Alright, thanks, guys.
Thanks, John Thanks, Sean.
Your next question comes from the line of David Hargreaves with Stifel. Please proceed with your question.
Great quarter, mostly answered, but in the past you've been willing to offer some regional commentary on cash access trends sort of directionally, what the business is looking like from a high level.
I assume the references earlier in the call to whether we're probably regional I'm just wondering with the Vegas restrictions easing if youre seeing any kind of commensurate uptick in cash ex us volumes anything you could talk about regionally. If you give us some sense of how things are going I. Appreciate it. Thank you.
Yeah, David I'll take that one for you on look I think I tried to convey as we've entered 2021, we have seen a little bit of improvement Santini puts out a national revenue report weak accumulates all of the commercial operators and and what they saw in terms of our reported in terms of gaming revenue trends.
And what you saw us in Q for every month was sequentially worse than the prior month with December being the worst and it was down probably 25% were.
October and November were probably more along the lines of mid teens. What we've seen is as we've entered into January things got a little bit better for us.
And that the December I think more people you know this is probably more people at home as opposed to out gaming just in light of the pandemic and I think we've seen a little bit of resurgence coming on in in January.
February we're not closed yet, but certainly that's kind of trend has seemed to continue a little bit in February but there was a you know weather impacts that you saw.
Whether it's a right through Oklahoma, Texas region, the big Snow in winter work.
Storm warnings that happened there, but you know we haven't given any kind of numbers or on our same store data I would just tell you. It is better than what we saw in Q4, and we're guardedly optimistic that they continue.
To improve.
Okay. Thank you very much.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Mr. Randy Taylor for closing remarks.
Thank you operator.
In closing as we look to the year ahead, we expect to achieve further recovery in our revenues and to demonstrate our ability to grow adjusted EBITDA and free cash flow.
Focus should provide attractive financial characteristics that build long term shareholder value and lead to higher relative valuations with the actions we've taken the gaming industry's ongoing recovery and the strength of our games and Fintech segments. We believe we are well positioned to enhance the long term value of the company we look for.
For two providing you an update on our next quarterly call. Thank you.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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Yeah.
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Okay.
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