Q3 2021 Everi Holdings Inc Earnings Call
Greetings welcome to every holdings third quarter 2021 earnings conference call.
At this time all participants are in a listen only mode. The question and answer session will follow the formal presentation.
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Please note this conference is being recorded.
At this time I'll turn the conference over to Bill Pfund, Vice President Investor Relations you may begin.
Thank you operator.
We welcome everyone to our call today, let me begin by reminding you of our safe Harbor disclaimer that coverage todays call and webcast are call contains forward looking statements that involve risks and uncertainties, which could cause actual results to differ materially from those discussed on this call.
These risks and uncertainties include but are 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 website at every dot com we.
We do not intend and assume no obligation to update any forward looking statements, which are made only as of today November three 2021.
You are also cautioned not to place undue reliance on forward looking statements.
Our call will also refer to certain non-GAAP financial measures such as adjusted EBITDA free cash flow and net cash position.
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 of our website.
This call is being webcast and recorded a link to the webcast and a replay a replay of today's call can be found in the investors section of our website.
On our call today are Mike Rumbles, Chairman and Chief Executive Officer, Randy Taylor, President and Chief Operating Officer, Mark Lab by Chief Financial Officer, Kate Low end higher Fisher General Counsel, Dinah Erlick games business leader and Darren Simmons, our Fintech business later.
Now I will turn the call over to Mike Rumbles.
Thank you Bill and good morning, everyone. Thank you for joining US let me begin by sharing a few highlights from the third quarter.
Our key financial results and our operating metrics were all up dramatically compared to 2020.
And we increased substantially over the pre pandemic 2019 third quarter period.
We achieved these impressive results through the successful execution of our growth strategies, which are focused on high return investments in both new games and new technologies.
On a consolidated basis, the best evidence of our progress is our free cash flow growth.
We generated a record $56 million of free cash flow in the third quarter with strong contributions coming from each of our business segments.
This outstanding performance is clear proof of the strength and complementary nature of our games and Fintech products.
It is further supported by the strongly favorable feedback we received from our customers at this year's G to a trade show.
At G. Two week cashless was the hottest topic.
Well many would be competitors had been quick to release cashless related press releases, we have been focused on winning new customers and deploying our industry leading solution.
Our cashless solution the cash club wallet is now in 15 casinos across four jurisdictions in the United States and is presently in the process of going live at two additional properties, including another jurisdiction by the end of the year.
Our cashless technology places us squarely at the leading edge of an exciting new long term growth opportunity in the casino industry.
There's a simple reason why our wallet solution is outperforming the competition.
Our competitive advantage draws its strength from our many decades of experience and expertise in funding patron initiated transactions across the gaming industry.
We also benefit from our considerable prior investment in developing an integrated portfolio of efficiency, creating products for casinos.
Our cash club wallet leverages, the existing infrastructure of our digital neighborhood of products, resulting in an easy to use convenient experience for casino guests, but also enables significant cost efficiencies in the back of house operations of the casino.
Now G. Chewy, we also showcased several new patron loyalty and rig tech related products.
These new applications expand our existing portfolio of integrated products, while creating additional new cost saving opportunities for casino operators.
Turning now to our games business.
We currently have more depth in our product selection than ever before.
And that breadth and diversity of products was also on display at G to read.
Across the spectrum of mechanical and video games from standard units to wide area progressive and our non wide area progressive premium units.
Our booth featured an array of new products.
The games, we presented have all been either recently approved and introduced to the market or are expected to be available no later than the first half of 2022.
Yeah.
Our newest cabinet.
Player Classic signature was very well received by customers.
This cabinet incorporates updated technology and yet retain that classic player appeal that has driven our tremendous success in mechanical reel products for over 10 years.
Importantly in addition to the introduction of this broad selection of new games that <unk>, we have a significant quantity of yet to be released newly developed content.
In fact, our new product pipeline is more robust than ever before and we have many more exciting games and cabinets to bring to market in 2022 and beyond.
Each cabinet that we commercialize is supported by a strong pipeline of original content that will be available for distribution in both class II and in class III markets.
In addition, this vigorous development effort also helps US support the continued growth of our I gaming products set.
So as a result of all of our operating progress the successful refinancing of our debt a few months ago and our substantial free cash flow every has never been in better financial shape and.
Of course that brings up the question what will we do with our free cash flow.
Our focus is first and foremost on internal organic growth opportunities.
We will continue to invest in internal product development initiatives in both our games and Fintech businesses.
These initiatives are aimed at driving further growth and market share gains through product enhancements as well as extensions and expansions of our product portfolio.
We will continue to leverage our distribution channel and our digital neighborhood layering in new products that drive growth and strengthen the ongoing relationship between every and our customers.
We're also going to continue to emphasize high return capital investments that expand our gaming operations installed base.
This includes growing our placements of these high value recurring revenue units and securing those placements for extended periods of time.
New additions to our installed base provide a very attractive and quick return on capital when done properly as we have demonstrated for many years.
And we will also continue to support operations that are in a very early phase of rapid growth such as I gaming and as you can imagine cashless and digital Fintech products.
Beyond internal opportunities. We will also look externally as we continue to evaluate bolt on or tuck in acquisitions.
Generally we're focused on products technologies or talent that complement our core businesses.
Following the path of our successful track record, we look for newer products and technologies in the casino universe that may not be getting appropriate attention.
These include opportunities that we believe we are uniquely positioned to profitably scale, and which will drive rapid revenue growth with minimal risk.
We are also always looking for new geographies.
That we're not currently in or where we may not be as heavily penetrated as we would like.
Now finally, if we do not find worthwhile external growth opportunities or organic opportunities. We will of course assess the opportunity to invest in ourselves.
If the appropriate decision is to reap purchase every shares and we will adopt a program to return capital to our shareholders.
Now, let me turn the call over to Randy to provide a bit more insight into our operational successes.
Thank you, Mike and Hello, everyone.
We hope Youre doing well.
Key driver of our continuing growth is our core high value recurring revenue operations, which accounted for 78% of the third quarter revenue and 77% of year to date revenue.
These are high margin operations that demonstrate consistent growth.
In the third quarter, our recurring revenues grew 42% over the third quarter of 2020 and 31% over the 2019 third quarter.
Within our game segment. It is gaming operations that provide strong recurring performance total gaming operations revenue increased 52% year over year and is up 48% over the 2019 third quarter. Our total installed base continued to grow as we added 170 units on a quarterly.
Sequential basis at.
At quarter end, our total install base was up 8% over a year ago. Despite the 238 units that were converted from lease to sale in the quarter as we highlighted on our second quarter call.
The growth of premium units is a significant driver of our performance. This was the 13th consecutive quarter of sequential growth in our premium unit installed base misled daily win per unit, increasing 26% over the then record level and the pre pandemic 2019 third quarter.
<unk> of new premium games, such as cash NATO on flex fusion monster verse on D. C X and gold standard in cash machine jackpots on our Skyline revolve cabinet were key drivers of the incremental net growth.
Continued strong performance of our older units was another key element in both the growth growth of the base and daily win per unit.
A further contributor to our strong gaming operations growth was the 90% year over year increase in digital gaming revenue.
And subsequent to quarter end, our online content went live in both Ontario and Connecticut.
Medicaid, we supported both Mohegan Sun and Foxwoods with content as their I gaming sites launched.
Alongside our success in gaming operations product sales revenue more than doubled from the 2023rd quarter and was up 24% over the 2019 third quarter the.
The increase was driven largely by replacement sales.
Leading the variable quarterly impact from unit sales for new casino openings and expansions units shipments for replacements have increased sequentially in each quarter and 2021.
And we believe that trend will continue in the fourth quarter and beyond as we are now targeting a 15% quarterly ship share.
Turning to our Fintech business.
Record total segment revenues increased 32% year over year and are up 11% over the 2019 third quarter.
Our financial access services revenues increased 8% over the 2019 third quarter, driven primarily by higher same store transactional activity.
It's led to a 13% increase in total transactions completed.
Incremental revenue from new customers added during the last two years also contributed to higher revenue growth.
Partially offset by a few customer sites that are still closed or operating with limitations.
Well as a reduced demand from an almost nonexistent international player in the U S where.
We're hopeful that international travel to U S gaming markets will improve once travel restrictions lift.
Our software and other revenue, which includes loyalty software sales and subscriptions.
Our Reg Tech software for regulatory compliance are unique gaming industry credit Bureau, and equipment maintenance services grew 42% over the 2019 third quarter.
The strong demand for our loyalty products has been a key contributor to this growth.
As we have increased the number of customer properties by more than 40% since the end of 2019 and instituted a recurring revenue subscription service life.
Like financial access services or software services have a large recurring revenue component.
Recurring revenue portion represented 77% of software and other revenues in the third quarter this year and last.
Revenues from hardware sales, although below pre pandemic 2019 third quarter levels grew 45% year over year.
We have expanded our portfolio of hardware offerings, and we expect ongoing growth in the future.
Now I'd like to turn the call over to Mark to share his perspective on our financial position.
Free cash flow.
Outlook Mark.
Thanks Randy.
I'd like to start by expanding on our message of consistent execution and ongoing growth.
Our focus on execution has enabled us to consistently strengthen our operating performance. These past several years. This has led to a dramatic rise in our free cash flow.
For the first nine months of this year, which includes a record third quarter total our total free cash flow is more than the total of the last five years combined.
We largely deployed this free cash flow to significantly delever, our balance sheet and with the high proportion of high margin recurring revenue, we generate we have never been in a more solid financial position.
As a result of our enhanced free cash flow profile there.
The very significant portion of our recurring revenue streams.
And our expectation for continued adjusted EBITDA growth, we are very comfortable with maintaining our long term total net leverage target at two and a half to three times adjusted EBITDA, which is the levels. We're at today.
We believe this target leverage level provides the flexibility for us to pursue the high return accretive growth opportunities that Mike discussed, whether they are organic or externally generated.
Looking to the fourth quarter and our expected free cash flow. We have recently taken several opportunities to secure large portions of our installed base and provide for future growth of the high value recurring revenue of our gaming operations business.
First we entered into a new agreement, which replaces and extends our former agreement with the major travel customer.
Disagree and it locks in our current installed footprint of more than 4500 units for a six year term for an incremental investment of $28 $9 million.
This amount was paid in the fourth quarter.
Second last week, we announced a five year deal with the Delaware lottery to place nearly 500 units at casinos throughout the state.
We expect to begin installations later this quarter and we expect to install more than half of the planned units by year end.
The remainder of these units are expected to be installed in the first quarter of 2022.
Finally, we expect to complete the installation of several hundred leased gaming machines at a new travel casino in Oklahoma that we previously discussed last quarter.
As a reminder, this will include a placement fee of approximately $3 million and will secure our unit placements for a period of almost seven years.
Collectively these deals secure long term placements of existing and new high value recurring revenue for five or more years.
With the cost of these new units.
The placement fees to the tribal customers.
And our ongoing normal expected quarterly growth in our installed base, we expect the sequential increase in capital expenditures and placement fees in the fourth quarter.
As a reminder, our free cash flow in the fourth quarter will benefit from a change in the timing of the semi annual interest payments on our unsecured notes that were issued on July 15th.
The semi annual interest payments for the new notes will occur in January and July as compared to the previous payments that were made in June and December thus, our comparable former December interest payments will now be made in January.
As a result of these items, including the impact of the expected $32 million in placement fees. We believe we still will exceed the strong free cash flow generated in last year's fourth quarter.
Let me now turn to the other elements of our raised guidance from this morning.
For the full year, we now expect net income to be in a range of $98 million to $100 million and adjusted EBITDA to be in a range of $342 million to $346 million.
Let me share some of the variables that shape our view.
As we continue to execute on our ongoing growth strategy and we had the incremental units expected from the expansions in Delaware and Oklahoma.
We believe the total installed base at year end could approach or even exceed 17000 units.
I would note that while most of the units targeted for both the new Delaware and Oklahoma properties will be standard units. There will also be a component of premium units at both locations.
We expect our Q4 daily win per unit to exceed the daily win per unit, we reported in the fourth quarter of 2019 and 2020.
And we also expect this total to be above $40 for the third consecutive quarter.
Our operating expenses are expected to increase in the fourth quarter, primarily reflecting the costs associated with <unk>, which was not held last year.
Additionally, we expect to see a modest rise in R&D expense, reflecting our increased focus on internal new product development.
Along with a slightly higher payroll, which reflects our growth in the current tight labor market.
Although not factored into our guidance as noted in the press release. This morning, and as a result of our strong operating performance of the business. There exists a high probability that we may reverse some portion of the company's deferred tax asset valuation allowances during the fourth quarter.
To the extent this materializes.
Significant non cash income tax benefit maybe realized.
This would likely result in a substantial quarterly and full year income tax benefit and increase the reported net income for the company in the quarter well above the guidance levels.
While this may have a substantial impact on our reported tax benefit and net income for book purposes. It will not affect our tax past cash taxes paid or free cash flow.
Regarding unit sales as Randy mentioned, we expect to see an increase in total units sold.
Similar to recent quarters. We believe we are continuing to achieve gains in ship share for our unit sales.
And on that positive note I'll now turn the call over to the operator for questions.
Thank you at this time well be conducting a question and answer session.
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One moment, please while we poll for questions.
Yeah.
Thank you. Our first question is coming from the line of David Bain with B Riley. Please proceed with your questions.
Great. Congratulations once again on a really good execution and outlook.
I guess my first question would be on Fintech.
Do you have any updated thoughts on on digital Fintech adoption.
To the end casino customer in terms of.
Penetration of current rewards members to usage ramp for those patrons that are digitally connected at this point.
Thanks, Dave Let me, let me ask Don to speak to that and I'm not sure that we were in a position yet though.
So I can I can lead with the disappointment, but were not really capturing all of that information.
To a degree that we can start sharing it at this point in time, but.
We expect to have kpis on that soon but Darren is there any color you want to add to that yeah look I think.
You know our customers are obviously targeting their existing players club.
You know, it's somewhat low hanging fruit right to go after them and incentivize them I would say again as I indicated previously we're very happy with call it the growth trajectory.
We keep seeing volumes grow week over week.
The number of patrons using it across our enterprise grows week over week, and and again I think as we penetrate more properties.
The the Kpis will be will be clear as we get into early 2022, but I would say very encouraging.
I think our customer base is very happy with the trajectory and and now it's just a matter of you know coming up with those creative ways to continue the incentive.
I think you know again tied in with our loyalty will obviously be important.
From a long term standpoint too to.
Have that growth continue.
Okay, Great and then on the on the games side, you know subsequent to G. TUI now the fiscal year end for certain types do you have any more color as to your view for 'twenty two industry replacement levels relative to any other year you you'd want to look to and also any reason to believe commercial.
Casinos would differ greatly from a directional standpoint from from the tribes and what their sort of indicating.
Hey, David So this is game.
Thank you for all for all of our key takeaways that we've been hearing from customers I think there's going to be slightly better next year than what we're currently seeing a on both fronts, but as you know it's not really much more additional color I can give them that.
Yeah.
Okay, all right fair enough. Thanks, so much.
Yeah. Thanks, David.
Our next question is coming from the line of Barry Jonas with choice Securities. Please proceed with your question.
Oh, great. Thanks, guys, great to hear the 15% games target I'm just wondering if you could give any more color on how you see that composition playing out.
Maybe slicing it mechanical versus video.
New openings versus replacement or are there any other ways.
Hey, Barry this is Dan again.
You know what.
The way I see it as a 15% is a cause a further out target.
We're around the 10% Mark right now it took us a few years to get there.
You know my opinion with our product portfolio I think it's a quicker timeframe to get to the next target that we set and it's gonna be of both you know we have a great performing mechanical product on our existing player classic cabinet, but we have a new one coming out that's going to hit the market yet.
End of Q1, beginning of Q2 next year.
In addition to a great product portfolio of flex product on a video for sale cabinet.
Can I say, it's going to be 50, 50, I'm not absolutely sure on that obviously, it's going to depend on customer purchasing behavior Scott.
What I'm targeting is and equal placement of both but.
But we know the pie is bigger on the video side of it can be high denomination mechanical piece. So we're heavily.
I'd say.
Do you think additional new themes.
Even much more so in flex and.
And we would even be growing in a high denomination mechanical if you were to sum up.
Oh cabinet support versus newer cabinet to product.
Got it great and then just as a follow up question can you give any color on how supply chain issues are impacting every or just the industry at.
At large.
Randy.
[noise] various Randy you know.
To date, we've really not been impacted in any material way from supply chain. It's there are I think our team is doing a great job.
You know I would say.
Finding additional.
General parts supplies, but really not had a had a material slowdown to some extent you know some of the stuff you hear in the media on on chips for you know automobiles are not the same thing that we used in our in our product, but it's you know, it's a challenge, but I would say to date.
We're not you know, we're not having anything material, but you know we are having a challenge out there and we're continuing to work through it and I am really pleased at how well our team has been able to you know to manage this.
And I guess just on the flip side are you hearing any competitors, having issues, which may be cruise presents opportunities for you given your situation.
I don't think I'm going to talk about their competitors, but I would say left I would I would say, we we know that that were we're doing a good job on our side, but.
But I I'm not going to speak to how the competitors are handling it at this point.
So he's very honestly, if we stay if we stay focused on herself and just handle what's in front of us to do the best that we can do I'll, let the others worry about themselves and just know if we can keep our lead times are right, where we need them to be then we will be very successful.
Perfect I appreciate all the color thanks, guys.
Thanks Barry.
Our next question is from the line of George Sutton with Craig Hallum. Please proceed with your questions.
Thank you our first Randy I did not know you had 15% in your vocabulary. So I was excited to hear that.
[laughter] that was Dean's just so you know.
Sure. So you know that would be his vocabulary not mine, but.
That's right, but I'm I'm all for it now that we got it out there.
I'll read back through the prepared comments.
So I wanted to make sure I understood your investment goals and you know what do you mentioned product. She mentioned technology you mentioned talent can you just.
Go through those areas and talk about what what are you looking for for these investment returns just so we have some perspective.
Sure.
And you know part of it I think is captured well in our most recent acquisition.
Metered imaging talented people and a great product that just was was having a hard time scaling and as many products do its a its a large industry. Its a its coast to coast. It's a border to border, It's Canada and the U S is a very broad market and if you're a small operator with a new product.
Trying to introduce into the market and you get traction.
You know, it's it's difficult and we can provide significant scale to those kinds of products. In addition people that that are.
Are coming up with great ideas that are extremely talented but perhaps don't have the wherewithal themselves to bring a product even to fruition.
Are the kinds of people that.
We're most interested in talking to.
And then there's you know there's products that are out there that are doing well, but we think would do even better. If they were included as part of our digital neighborhood and I'd refer you to atrium and.
In M. G T is acquisitions that fit well into that category.
So if we're looking externally that's what we're looking for internally, we're looking at a very similar kinds of products that.
But we see coming coming sometimes to market or where sometimes being talked about.
In the marketplace and.
And getting those integrated into our network and into our neighborhood.
And bringing those back out so it really is both internal and external and they have a lot of the same characteristics.
Clearly its easier to to look at one that's already in the market than it is to create one o'clock.
But we look at both of those equally.
Mike I Wonder if you could put a timeframe on this investment concept and I Wonder if we'll oddly look at an announced buyback in the future as a recognition that you weren't able to continue to make investments just want to make sure I fully understood that yeah, Jordan I don't I don't.
I don't envision you I don't think you should expect to see some sort of buyback announcement.
Near term I mean, if we were to put a program in place. It doesn't mean that we would activate it I've got a.
A very good feeling about a variety of targets that we're looking at right now out in the marketplace hard to put a timeline on because you never know what due diligence is going to produce we don't know whether you'll come to a stalemate around pricing or.
Terms.
But we you know we have several things in the pipeline currently we have a lot of targets that are that are available for us to start working as soon as we get through the ones that are on our plate today.
So I would you know I would expect that you'll see as we did with the with the loyalty.
And our Reg Tech acquisitions, you'll see them come in and sort of unusual cadence.
I can't tell you there'll be two or three a year or if it'll be one or two a year, but you should expect a regular cadence on that.
Financial flexibility is a great things congratulate yes. It is.
Yep.
Our next question is from the line of John Davis with Raymond James. Please proceed with your questions.
Hey, Good morning, guys first maybe one for Mark just wanted to touch on on the margin I think guide implies full year EBITDA margins of roughly 53% this year.
If you go back pre pandemic those are running in the high forties, just as we think about you know going going forward is it's 53 as a sustainable level or do you think there are elevated this year. Just I think you said that there would be structurally higher margins on the other side of the pandemic just trying to understand kind of the magnitude and how we should think about it.
Yeah, John I think really what you're looking at is is a little bit of a mix of revenue.
I don't want to be challenged but where we are today, obviously, the really high margin recurring revenue has come back the most quick and Emmett where equipment sales have had been a little bit lagging just as customers have been a little more cautious with their capital budgets. So what that's resulted in is less revenues from the lower margin.
Arjun products, which are still decent margin products, but you don't have those equipment sale margins and that's why you're seeing these above 50% kind of margin levels I think as we move forward and to get them, where we're working on our budgets and plans for 'twenty, two and beyond now I think you'll see a.
Gradual settling down of that number back more close to the historic levels.
And that's really just because we think the mix kind of you know mix will be growing in both the recurring revenue and the equipment sales as we move forward in time. So I think you kind of start reverting back closer to those kind of margin levels as opposed to staying at these 50, 354% kind of levels that where we've been seeing this year.
Okay.
That makes sense and then maybe Mike wanted to talk a little bit about the shift for partnership I think as we've thought about cashless. It was part of the thesis there is the extension beyond the gaming floor and to some of the restaurants and retail.
But also you know shift for has a partnership with MGM on the sports betting side. So just want to understand from your perspective, what the opportunities are there is this more about expansion into the restaurants and retail or is there also kind of a sportswear angle here just any further detail on that partnership would be awesome.
Sure it's.
And I'll turn it to Darren to give you maybe even deeper color on that John but yes, absolutely. We're looking at the retail and being able to address.
Address all of the.
The sales opportunities that exist inside these.
Very large casino operations. So retailers is the principle going forward yeah yeah.
Yeah, clearly getting into the sports wagering side in any of our customers is something that wallet is capable of doing and and maybe something that our customers. Ultimately wanted to do but right now we're focused with ship for on the retail side. Darren do you want to talk to them. Yeah. That's right I mean, I think again.
We've indicated sort of an overall strategy is obviously extending wallet beyond the gaming floor and we've done that with a with a couple of our customers now with another integration with another provider. So they shipped for integration really get this extended into deeper into the non gaming retail side and as Mike mentioned.
No look we're we're obviously looking forward to enabling integration of a wallet to an extend not only beyond.
The brick and mortar and retail, but obviously I gaming and sports. So that's all part of the strategy all part of the roadmap and I expect that that's the that's what's going to play out here as we move forward.
Okay. That's super helpful. That's it for me guys. Thanks.
Thanks, John.
As a reminder, if you'd like to ask a question today. Please press star one on your telephone keypad.
Our next question is coming from the line of Jeff stature with Stifel. Please proceed with your questions.
Hey, good morning, everyone. Thanks for taking my question.
We're gonna start on.
Perfect.
<unk> daily yielding the game off business staying north of $40 per day in Q4, while also acknowledging the potential for the consumer to fade a bit sequentially. If you look out into 2022 and assume for arguments sake that regional G. R starts to approximate 2019 levels rather than the low double digits growth rate that it's been running at for the past couple of quarters here.
The dollars per day, plus or minus still the right way to think about your game ops business, given where the premium mix stands at this point you know even with a normalized consumer just trying to get a sense for what's the next first what's the healthy consumer when contemplating the out periods.
Yeah, you're you're touching on there on the right levers let me let me have Jim give you some color on that.
We're very comfortable with the $40 and they're ignored.
Just looking at the trajectory and a C Moore.
The mix of product between our premium within our our entire installed base.
I would say I'm very comfortable of $40 per day.
Okay, Great that's really out.
Okay perfect. That's really helpful. Thanks, Ian yes, switching gears over to the equipment sales.
In the past this number does tend to see some positive seasonality on shipments given commercial operators can historically tried to use up their budget ahead of the fiscal year and from time to time. You know are you expecting you know potential for a similar trend. This year. Obviously most of the commercial guys are pretty flush with cash.
But the slot floor would be one area look at that.
That bucket, but just curious for your thoughts there and what did you say this is factored in guidance are largely incremental.
No Wonder why don't you go ahead and discuss at March that you follow that carefully yeah. You know I I do look at the talk the sales guys quite regularly talk about their views on what they're seeing on the equipment side and where we are again as I mentioned to.
John on the.
Tom answered the question. He asked to you know equipment has been challenged throughout the year, we've been seeing sequential growth in our game sales. So for replacement kind of sale. So we've been seeing a slight pick up as we progress throughout the year or the year seems to have gotten better and better for the operators and certainly what we're seeing right now as we enter Q4 part of our.
The increase in our guidance is as is our comfort that we can expect that those trends to continue into the fourth quarter, though we haven't seen much in the way of a change in the.
Financial access volumes as we've entered through October and it started in November and and we see some increased demand on the game sales side of things. So we think theres an opportunity clearly for customers. If they have that last Q4 capital and then they are ending their fiscal year to see a little bit of upside in terms of where unit sales.
But you know right now we believe we continue the trend of seeing growth sequentially.
Q3, and Q4 that we've been experiencing.
Okay perfect. That's all from me all very helpful. I appreciate all the color everyone.
Sure. Thanks, Joe.
Our next question comes from the line of Chad Beynon with Macquarie. Please proceed with your questions.
Hi, Good morning, Thanks for taking my question wanted to start with the the 4600 unit travel operator renewal or agreement that you announced should.
Should we expect within those units that there will be opportunities to upgrade and kind of you'll manage some of the machines that you currently have out on the floor or you know should we expect that that little was done and then as an add on to that question given your library of new games and cabinets could there actually be more.
<unk> in markets like Oklahoma, given your balance sheet, given your games to do incremental deals. Thanks.
Yeah go ahead.
I think Chad, it's a little bit of yes, and yes. So we always are yield manage with the best product possible within all of our not just only our large installed base, but all our customers.
And that one we have in the leg.
Ladies are focused on making sure that we but I would say you are optimized with our entire product portfolio within that particular account and then to answer. Your other question you know, obviously, new games and cabinets give a.
Greater opportunities you know depending on the performance at these relief and we have a very high level of confidence that our that our success rate continues to move up.
And we see those trends and we don't think anything would revert to the other direction at all so I'm very confident that that will help us attain you know.
Larger ships here percentages that we've been talking about.
Great. Thanks, and then separately on the digital front.
The argument real money gaming side, another quarter with with revenues over three and a half million you know we haven't seen much on the legislation front, but you mentioned you know opportunities that you're just getting into in Ontario, and in Connecticut that should help build this sequentially can you talk about you know anything in terms of.
Games that are working or you expected a market share just kind of how how to think about you know this business until new legislation is approved domestically. Thanks.
So Chad the way I would look at it as you.
Well really in our early stages are definitely with respect our porting content from our existing library games that we know are successful you've seen some data points from.
Or at least in this stuff with cash machine and the likes of some of the other products that we've released in a digital universe, but the fact of the breadth of content that we have that we haven't reported over there yeah equals.
Opportunities. In addition to new jurisdictions that are brought up in life that we haven't been in there yet and there's and there's one other thing you should look to and that is the b a custom games that we provide to them to many of our customers you know they tend to be amongst their highest grossing games in there.
Our I gaming space, and it's something that that our developers in the gaming side do extremely well. So that's something that I think you should also keep in Ireland for future growth in that area.
Thanks, guys congrats on the quarter I appreciate it.
Yeah.
Our next question comes from the line of David Katz with Jefferies. Please proceed with your question.
Hi, good morning, everyone.
Just expressing.
My appreciation for the fact that we're having a discussion about stock buybacks.
It is quite an accomplishment.
For sure.
I wanted to just really talk about digital gaming and I know you just touched on it a bit but you know thinking about it.
As they say.
And as that grows based on their ability to develop content and the land based direction.
That can be pushed out digitally or rework digitally or potentially in the other direction also and with respect to tuck ins.
Is that an area, where we could see you look through it you got salt show.
Hypothetically to things like live.
Our content offerings or.
Any opportunity to really grow that.
And your thought right. Let me, let me have Oh Dean address the first part of that and then and then I'll talk to the second part of that.
David So on the content side of importing in both directions I mean.
Obviously, if there's something that's developed in the digital side that seems to resonate then we're going to pull it over into the land based side let's.
Let's say at this point in time, no. If it's really going to be driven from the other direction just because of the breadth of content that we have that they have and utilized yet so you know the porting.
Ashford is less significant so there's no reason not to take games that have a pretty.
Pretty timeless that have been out in the traditional market for years and years and not put those out first but there will be times, where we take our innovative play mechanic.
And if we're able to implement it.
More efficiently on the digital side to see how that resonates with players and then bring it over to art to the land based direction, we will but.
That's a further down the line conversation.
And then with respect to to tuck ins.
David.
We're looking at potential acquisitions across all of our business segments.
So you know the bricks and mortar games Fintech digital products in Fintech.
As well as I gaming and so as we look at the landscape out. There. There are there are a lot of available companies and technologies, including and I gaming that we would look at to see if they provide additional value to every shareholder as and if they do and it's something we think we can.
Can tuck in and and will contribute to our growth then we will absolutely look at those.
And David its Randy I would add one other.
One other item, which as you know that's that's part of it I think it was to another question earlier about you know where are we investing dollars. We believe there is internal investment that can be made there as Mike talked about you know a unique games for our operators they.
They have been very successful for us so we're going to continue to invest internally in talent.
As Dean talked about so we can put more of our land base. So that we can expand our portfolio.
To be provided so we think it's an area that we'll.
We will do both of them, but some of it will be internal investment as well.
I guess, that's where I was headed with a follow up to Dan's answer than yours.
If I were to look at.
Utilization rate or penetration rate of what you use on the land on your wallet based into digital.
Is it are you a quarter of the way through the pile halfway through the pile how would you characterize that part of it.
We're not even at 10% in my opinion, Yeah, where we're at at the surface level still.
Mhm.
It's a very long.
Lake of content that we havent really penetrated.
Perfect.
Maybe just one one last one with respect to tuck ins just to you know.
Play the Devil's advocate side of it with respect to digital tuck ins.
We're certainly seeing a lot of valuation and sensitivities out there.
If you could just share thoughts about how you think about it.
Valuations out there for digital assets these days.
Yeah, and and you make a good point David I mean, there are there are some valuations that we think are way too high for us to be interested in trying to even meet their current you know their current valuation that's being given to them.
On the other hand, there are others that really are flying under the radar.
And while they may have as many small operators do they may have and inflated view of of their value we look at it.
We really do an analysis of what would it mean to have either the product set or or the group of executives or a combination of products and executives.
Market share brought in under under every umbrella and what that would mean to to the overall company, including the acquired company.
And so when we do that analysis, you know not everybody is out there with.
Valuations on on negative EBITA.
There are others that are out there that are that are doing okay, and we think could do much better if they found a home with us.
Understood, Thanks, and well done.
Thank you.
At this time, we've reached the end of the question and answer session I'll turn the call back to management for closing remarks.
Oh, Thank you for joining us today, we appreciate your interest in every and I would assure everyone that our focus remains clearly an achievable sustainable growth and building long term shareholder value.
We look forward to our update at at fourth quarter. Thank you.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.