Q4 2021 Everi Holdings Inc Earnings Call
[music].
But.
[music].
Hello, everybody and thank you for standing by welcome to <unk> Holdings, 2021 fourth quarter earnings conference call.
Today's presentation, all parties will be in a listen only mode.
Following their prepared remarks, we will open the call for question and answer session. As a reminder, this call is being recorded now let me turn the call over to Bill Pfund Senior Vice President of Investor Relations.
Thank you Sir you may begin.
Thank you operator.
Let me begin by reminding everyone that our safe Harbor disclaimer 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.
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 website at every dot com.
We do not intend and assume no obligation to update any forward looking statements, which are made only as of today March one 2022.
We're also cautioned not to place undue reliance on forward looking statements.
Our call well reference certain non-GAAP financial measures such as adjusted EBITDA free cash flow and net cash position of.
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 of our website.
This call is being webcast and recorded a link to the webcast and a replay of today's call can be found in the 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 Labay, Chief Financial Officer, Kate lowering her Fisher General Counsel, Dinah Erlick games business leader in Darren Simmons our Fintech.
Business leader now.
Now I will turn the call over to Mike.
Well, Thank you Bill and good morning, everyone and thank you for joining us.
Before we begin today I would like to acknowledge that this will be my last time addressing you as every CEO .
I would also like to express my gratitude for all of your support these past six years.
I will continue working for our shareholders as the executive chairman of our board, but will not be participating in these quarterly calls in the future.
I'd also like to take this opportunity to publicly welcome Randy Taylor to his new role, leading our company as its Chief Executive Officer, beginning April 1st.
I have the utmost confidence in Randy to lead our company and every team of outstanding executives.
I look forward to watching all of them take us into an even brighter future.
Now, let me share a few of every as highlights for the fourth quarter and 2021 year end.
Fourth quarter financial results and key operating metrics were up dramatically compared to 2020 and also increased significantly over the then record pre pandemic 2019 fourth quarter.
The continued strength of our recurring revenue streams and record game sales drove our fourth quarter revenues to a record level.
This strong quarterly performance capped an unprecedented year that began with substantial pandemic impacts and which had continued challenges throughout the year.
Now despite these challenges the every team delivered full year record results for revenues.
Operating and net income and most significantly adjusted EBITDA and free cash flow.
These impressive results were driven by the strength of our outstanding global workforce and the leadership team that guidance.
Together, we have built a global organization that has never been stronger.
This team continues to focus on the consistent execution of our growth strategies.
Strategies that places a priority on high return investments in both new products and new geographies for both our games and Fintech business units.
It was the concerted execution of these strategies drove a record 2021 results and will continue to deliver steady year over year growth as we begin 2022.
Yeah.
In our games business the investments that we've made to build world class game Development Studios.
To engineer and expanding differentiated portfolio of player appealing cabinets and a state of the art remote gaming server platform for our digital gaming operation had been the key drivers supporting our growth.
These investments are also what is driving share gains both in the growth of our gaming operations and our ship share of gaming machines sold two operators and it's also driving our rapidly growing gaming revenues.
The improvement in our ship share of games sold led to a record level of game shipments in the fourth quarter and for the full year.
Our installed base of high performing gaming machines in gaming operations also reached a record level of nearly 17000 units at year end.
Importantly, the fourth quarter represented the 14th consecutive quarter of increased placements of premium games.
Our investment for the future continues with the recent announcement of our agreement to acquire certain assets and employees of Atlas gaming in Melbourne, Australia, as well as with our recent decision to enter the niche, but growing historical horse racing gaming machine market.
Atlas will provide a foundation for our longer term entry into Australia by bringing a core group of game developers and engineers, who will form the core of the beginning of our new Australian studio operations.
This will help accelerate our entry into what is after the U S. The second largest slot market in the world.
This also provides an opportunity for every to develop and bring additional new game content to the United States market.
And we also recently announced that we are in the early stages of entering the historical horse racing machine market and we expect to place each HR machines before year end.
In our Fintech business, our investments have been focused on leveraging our strength and cash access to build a digital neighborhood or what I think of as a digital neural network for casinos.
With the foundation of this network in place, we continue to layer in new products and enhanced features.
Each of which further benefits the casino, operator, and strengthens our customer relationships.
As an existing leader of financial access loyalty and Reg Tech solutions, our focus on expanding into new geographic jurisdictions inner.
Innovating and acquiring new products and developing new features that improve our patrons experience while at the same time, providing greater cost efficiency for casino operators is paramount.
Internally. This includes the development of products such as our jackpot Express tablet it streamlines the administrative process that accompanies the payout of major jackpots.
We have further enhanced this product through the addition of integrated features and technology that we gained with the acquisition of the assets of meter imaging capture last autumn.
It also includes our exciting robust cashless wallet that enables casino operators to offer their patrons easy to use funding features across multiple properties in multiple jurisdictions and across the entirety of their casino resort operations both on.
Premises as well as online.
Our focus also includes our continued search for tuck in acquisitions that we can integrate and scale up for future organic growth.
We've already established a successful track record for this through our prior acquisitions, including the two loyalty businesses that provided our entry into the casino loyalty solutions category.
Our loyalty products continue to provide revenue growth for our Fintech business.
Most recently our agreement to acquire E. Cash holdings provides for geographic expansion of our fintech offerings into the Australian gaming market.
Additionally, we will be adding eat cash products to our offerings in North America.
One example is that certain of their kiosks had been developed to meet the demands of smaller facilities and are currently being used in the Australia in pubs and clubs gaming sector.
These kiosks will also perfectly meet the needs of the distributed gaming sector in the United States.
This acquisition will provide both new products to our fintech portfolio and create new growth opportunities in the U S and Australia.
Given the strength of our balance sheet and our expectations for continued free cash flow growth. We will stay on course with this dual growth focus continuing to prioritize internal product development and the evaluation of attractive bolt on or tuck in acquisitions.
This focus emphasizes products technologies and talent that complement our core businesses.
This also allows us to focus on newer products and technologies that may not be getting appropriate attention today.
Our strategy also includes geographic opportunities, where we're not currently operating or where we're not as heavily penetrated as we would like.
Enabling this capital allocation strategy to drive our longer term expansion is the phenomenal growth of our free cash flow.
Despite spending 31 million on Capex in the fourth quarter, which was a key driver behind our high return gaming operations growth.
And investing another $31 million in placement fees, we were able to generate nearly $20 million in free cash flow in the quarter.
For the full year, our 159 million of free cash flow was equal to the combined total of the previous five years.
Now, let me turn the call over to Randy to provide you more insight into our operational successes.
Thank you, Mike and welcome everyone.
Before sharing some of the meaningful operating achievements of the quarter.
Like to take a moment and thank Mike for his very substantial contributions during his tenure as CEO .
While the growth in free cash flow is one of the Mueller dramatic accomplishments is just one of many positive changes that have occurred under Mike's leadership.
To list them, all would be worthy of a special documentary, but I would like to call out just a couple.
Mike has been the driving force behind the establishment of our vision and our successful growth strategies that were always underpinned with a focus on the needs of our customers and the new products that can provide greater efficiencies and value.
The strength of our organization, it's great talent and diversity today, not just at the leadership level, but across the wide breadth of our company is a key tenet of our culture, which we expect will provide long term benefits.
As is our successful investments in the infrastructure of our business, which were led by Mike.
Thank you Mike for your leadership and Mentorship I'm very pleased that I personally and almost every will continue to benefit from your vast experience and insights as you transition to executive chairman.
Moving onto our results a key driver of our growth in the fourth quarter was the continued success of our core recurring revenue operations. These are high margin operations that have been demonstrating consistent growth.
On a consolidated basis, our recurring revenue streams accounted for approximately 73% of fourth quarter revenue and 76% of full year 2021 revenue.
In the quarter, our recurring revenues grew 42% over the fourth quarter of 2020, and 30% over the 2019 fourth quarter.
We believe the consistent long term strength, we have demonstrated in recurring revenues across our games and Fintech segments is a significant differentiator of our investment thesis that is worthy of a higher valuation than what is currently being ascribed.
Turning to a review of our segment performance games revenues were up 62% over a year ago and up 37% over the then record fourth quarter of 2019.
The strong revenue growth led to a 47% increase in adjusted EBITDA for the games segment.
The revenue growth was driven by a quarterly record level of game machine sales along with continued steady growth in gaming operations we.
We believe our quarterly ship share of games sold reached a new high and while we won't know the precise level until all of our competitors have reported their results. We believe it will be approximately 11% to 12%.
That increase is driven by the continued high performance and breadth of our industry, leading mechanical reel games, along with the ongoing success of our flex video cabinet and it's expanding array of games.
Within gaming operations, we added 482 units to our total installed base during the fourth quarter.
Our total installed base reached 16903 units.
Combined with the completed installation of our units at the three Delaware casinos. In addition to a new travel casino opening where we garnered more than 200 units. We expect another nice quarterly sequential increase in the installed base in Q1 this year.
Our daily win per unit increased 27% over the fourth quarter of 2020.
The growth and performance of our premium units in the quarter more than offset the incremental placement of standard units as a result of upgrading a significant number of units in our class II installed base to premium units.
Placement of newer premium games, such as cash NATO on flex fusion.
One with gold standard and cash machine jackpots on our skyline revolve mechanical reel cabinets were key drivers of the growth.
Our improved performance in the games business was further evidenced at the recent Eilers and Krajicek Gaming Awards ceremony held last week.
He received nine category nominations.
Awarded top honors in three categories, including two awards for our mechanical reel games and an award for most improved supplier organic core category.
For our digital gaming business rack record fourth quarter revenues of $4 1 million increased on both a sequential and year over year basis, which led to an annualized run rate of over 16 million as we ended 2021.
Revenues of our digital business for the full year 2021 of $13 9 million increased 123% over the full year 2020.
And we expect strong double digit growth in 2022.
Turning to our Fintech business quarterly record total segment revenues increased 37% year over year and were up 10% over the 2019 fourth quarter. These strong revenues benefited adjusted EBITDA, resulting in growth of 41% over the prior year and 18% over the 2019 period.
Yeah.
Within the Fintech segment financial access services revenues increased 17% over the fourth quarter of 2019, driven primarily by a 6% increase in total transactional activity.
Of note. The average transaction size has increased 18% over the fourth quarter of 2019, which led to the value of total funded delivered two casino floors rising 25%.
Software and other revenue rose, 17% over the fourth quarter of 2020.
Driving that strong revenue performance was year over year growth in loyalty software sales and subscriptions.
Reg Tech software for regulatory compliance and equipment maintenance services.
Key contributor behind the growth of our software services revenues is the growth in our customer base. For example, we have increased the number of customer properties utilizing our loyalty products and services by more than 40% since the end of 2019, including the introduction of a recurring revenue subscription service.
Yes.
Like financial access services or software services has a large recurring revenue component, which amounted to 76% of this line item for the fourth quarter.
Revenue from hardware sales, although remaining below pre pandemic 2019 levels rose, 8% over the fourth quarter of 2020.
Now I'd like to turn the call over Mark to share his perspective on our outlook for 2022 Mark.
Thanks Randy.
In addition to discussing our 2022 outlook and the guidance we provided in our earnings release.
I will also highlight the strength of our balance sheet at year end.
But before I dive into that I would first like that my best wishes to Mike as he prepares to take on his new responsibilities as our executive chairman.
Under his leadership, we've truly made great strides in improving our business operations and building shareholder value and I'm glad he will remain engaged with the business in his new role.
With that let me start with the strength of our balance sheet for many quarters I focused on our progress towards deleveraging.
And because of our strong growth and consistent operating execution I'm pleased that I don't have to speak on that topic today, except to say that at year end. Our total net leverage was only two six times.
Moving onto the outlook for the full year of 2022.
We expect net income to be in a range of $125 million to $132 million driven by an 8% to 13% increase in operating income.
As a result of the reversal of certain deferred tax asset valuation allowances in the fourth quarter of 2021, which created a benefit of $63 5 million or 62 cents per diluted share.
We expect our income statement in 2022 to begin to record a provision for income taxes.
For modeling purposes. If you include federal state and some foreign taxes and account for some of our normal operating deductions, we expect that provision to be approximately 23% of pre tax earnings.
Because we have reversed the significant portion of our tax valuation reserves in 2020 one.
This projected increase in our effective tax rate is expected to cause a shift from income tax benefit to income tax expense.
This could impact net income between 89, and 91 million as compared to 2021 or the equivalent of 87 to 89 cents per diluted share.
The important element to highlight is that this change should not have any meaningful impact on our actual cash taxes paid as we still have approximately $361 million of gross net loss carry forwards on our books.
We believe that adjusted EBITDA will grow between six and 8% in 2022 and be within a range of $368 million to $376 million.
When viewed over the last several years, including the ups and downs of the pandemic. This steady growth in 2022 is expected to generate a four year compounded annual growth of approximately 13% from the pre pandemic period of 2018.
Now, let me share some of the variables that shape these views.
We expect to generate full year growth in the sale of game machines, driven by a combination of our improved ship share.
The launch of our newly released mechanical cabinet the player classic signature.
And increases in capital spending by our casino customers.
We believe our robust pipeline of new games and additional categories will also contribute to ongoing growth in the installed base of our gaming operations business.
While also keeping our daily win per unit in the $40 range for the full year.
We do expect some variability in the quarterly rate throughout the year, which reflects the impact on casino traffic due to pandemic related effects as well as other normal seasonal influences.
As we previously mentioned because of the steady return we receive on all installed units. We will continue to prioritize growing to be a total installed base and not just the premium units as a result, the percentage of premium units to total units may vary in any given quarter and thus also further.
Contributed to changes in quarterly reported daily win per unit.
For Fintech, we expect the trend of positive financial access transaction activity to continue.
As well as continue the rollout of our digital wallet, including the addition of new customers.
We expect continued strong demand for our software and other products and services driven by the steady stream of new and enhanced products, we plan to introduce <unk>.
In addition, we expect to benefit from year over year growth in Fintech equipment sales driven by ongoing demand for loyalty kiosks and replacements of our fully integrated financial access kiosks.
While supply chain constraints had been a focus of the entire industry for some time now we largely mitigated much of that challenge throughout 2021 to the great effort of our supply chain and manufacturing teams in both Fintech and games.
At present, we continue to believe supply chain disruptions will be temporary and anticipate they will begin to abate in the second half of 2022.
Excluding the impact of noncash comp expense from total operating expenses, we expect the percentage of operating expenses to total revenues to be comparable to the current levels of between 25 and 26%.
However, we expect slightly higher payroll expense, which reflects our support of ongoing growth activities as well as the current tight labor market.
Our R&D expense should continue to be in the range of six five to seven 5% of total revenues, which is comparable to the run rate of the fourth quarter.
However, given our increased focus on internal new product development and our outlook for higher revenue, we expect to see R&D expense trend toward the higher end of the range as the year progresses.
In regard to our capital expenditures, we expect to spend between 120 and 132 million during 2022.
I should note that despite the very significant increase in the installed base in gaming operations. Since 2019. This level of capital spending is only expected to be up about six to 18 million over 2019.
At this time, we expect no additional placement fees to be paid in 2022.
In total we expect to continue to generate strong and increasing free cash flow, which we anticipate will amount to between 185 and 200 million in 2020 two.
And on that positive note I will now conclude our prepared remarks and turn the call over to the operator for questions.
Thank you as he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question. Kim You May Press Star two if he would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up the handset before pressing the star he is.
Our first question is from George Sutton with Craig Hallum Capital Group. Please proceed.
Thank you Mike I remember when you joined a mere six years ago, and I would say somewhat reluctantly out of of a previous retirement.
And you had a fairly levered business with a pretty minimal product outlook and I look at what Youre, leaving to Randy and team today and it's quite impressive quite frankly from my perspective, so congratulations.
Thanks sure.
Kind of give you a sense of our call. If you will on the stock has been that you are in a very interesting position of strength that frankly, you haven't been in prior and that's really because of the improvement in the balance sheet and an overall fundamentals so.
When we look at some of the things you did this quarter like M&A and group hires and in last quarter with a long term lease signings could you give us a sense. If we look out and maybe this is a better question for Randy over the next couple of years, what other things might we see as benefits of this position of strength.
Thanks, Joe.
Look I think it's going to be consistent with what we've talked about in the past which is looking for.
Two pieces investments internally on on new products in and.
Other technologies that will again help the patron experience and our customers and then you know.
Products in geographies outside of what we've done you know today, so again looking for tuck ins primarily.
Like we just announced in.
In December and that can be both in North America and in outside of it so.
I don't think we're gonna change our game plan and we've been very successful in the small tuck ins that we've acquired obviously, we're gonna have a you know you have even more cash flow to work with so we're going to probably expand what we're looking at them going forward, but it's going to be consistent for now with what we've done in past.
Gotcha, rather than a follow up I'm going to give a gambling tip since most of US on this call are gamblers in one way shape or form but as you enter this new era for yourself. Mike you. Just earned 88 cents in earnings you had 88 eight.
<unk> million dollars in EBITDA, and you guided to up to 8% EBITDA growth in 2022, I assume there will be a roulette table nearby but just a recommendation.
Yeah.
I appreciate that George Thank you.
Thanks, guys.
Our next question is from David Katz with Jefferies. Please proceed.
Hi morning, everyone.
And congrats Mike I don't know if you recall, but I think it was about 2015.
Called and said I really only have one question or your interim or you're taking the job because that's all I need to know.
I'm not going to repeat your answer and the public call maybe I'll tell you what why was offline, but I'm glad to say that it's been a great rock.
Thanks.
What what I wanted to ask about is there's really two things I mean, you've spoken about the cash flows getting to a certain place and.
Yeah the capex.
It is not it's.
It's not an intimidating number but it starts to set kind of a trend line what does that really look like.
You know as we start to roll out into and I know, you're not guiding 23, and I Havent published 24, but maybe we can speak in qualitative terms about what happens to that and in conjunction with that what do we need to see before you know we might start to think about our recurring capital rich.
Turn program of some kind or would you just want to run it all the way down to <unk>.
Net cash.
Well before I, let mark to answer your question first thing. Thank you for that and I will call you later and and.
My real response David.
But I would say you know if it was up to me and it may be part of why I'm wearing them.
I'm being retired as if it was up to me I would take us down to no debt whatsoever, but.
That doesn't seem to be the consensus smart moves so rather than let me be be the bad Guy here, Let me turn it over to somebody with more sensibility and let mark answer that.
Thanks, Mike.
David I think you know, we as it relates to our leverage and where we stand clearly we are the math benefits from the strong EBITDA results. We're generating we continue to expect to grow.
Our EBITDA.
We have no designs on.
Trying to get too far below our stated leverage goals, two and a half to three times total leverage are just naturally that will occur, though as we continue to grow our earnings will keep dropping dropping so that's a good thing for US you know, we intend as Randy and Mike both mentioned in their comments that we intend to invest in this business both organically in terms of growth.
The products ourselves and looking for those continuing to find those right acquisitions to grow the business and we think there's a good pipeline out there for us to stay within that kind of profile and continue to grow the business more importantly in terms of earnings to shareholders. So we're excited about those opportunities and I think that keeps anything on that front.
You know in terms of Capex, you mentioned that I'll come back to that wanted to say 'twenty.
'twenty 'twenty and 2021 with respect to the Covid pandemic, we have been a little more challenged in terms of us being aggressive and refreshing installed base and keeping the portfolio correct. So there's a little bit of deferrals on our side as well that where we're going to try to make up they can sure. We're maximizing the return from the installed base as well another investment.
Making our business, but but I think our guidance for 'twenty, two really is kind of where we kind of think the norm should be it mobile clearly manage that as we move forward.
I think I covered all your topics there, but it's not.
No that'll work just fine thanks Mark.
Our next question is from David Bain with B Riley. Please proceed.
Great, Thank you and and along with everyone.
Congrats to Mike and Randy and really the whole team on just the positioning going forward and <unk> in the past been phenomenal.
Okay. So my first question or I guess, it would be on digital fintech.
It seems like the sales process with some of the you know the larger operators or operators in general, it's almost collaborative unless I'm mistaken, which is which is great.
I was wondering if you could offer any sort of insight into timing of agreements. You know is it is it does feel like mid year that will begin to see traction from that perspective, it could it be that you're already in the field with a customer or two I'm not.
Not yet sort of out there and yeah.
Is that a process where you go in you.
<unk> worked with them and then the agreements are actually revealed later.
David Thanks for the question.
First let me just say that the one the one piece of that.
You weren't encompassing and your question is regulatory.
And in many jurisdictions regulatory is the long lead item and so as it as I turn it over to Darren just keep that in mind as you look at.
What we're doing but I think you'll.
You will ultimately agree that where we are in more jurisdictions and more casinos and cover more slot machines than anybody in this space, but Darren why don't you speak to that sure. Thanks, Mike Yeah. So as we've stated previously David we're in four jurisdictions 16 casinos are we've got a.
<unk> got a number in the pipeline in terms of Rollouts.
And as Mike said, the biggest gating factor generally is the regulatory side. Since this is new for most jurisdictions if not all jurisdictions.
And as we've stated before summer.
Sometimes what they have in in in their regulations are speaks somewhat to two you know moving towards cashless and in digital payments and and sometimes it's a it's a little ambiguous. So that work is ongoing and I would say you know we've had a really tremendous success in being able to.
Communicate our position with our with our customers cooperatively with the regulator and the feedback is really good in terms of you know what we're what we're bringing to market and how we're addressing the things that are important to them from a from an audit regulatory and responsible gaming standpoint, so to your point about you know partnership with customers.
Yeah. That's what this is I mean this is a very collaborative effort, they're being very methodical.
And and how they are approaching this and Ah and we've got a number of new customers in the pipeline and yes. We've got you know call. It agreement signed that that wouldn't be announced and we expected those to announce those in in the coming months.
As you know the customers are very measured in their rollouts. So again feel really good about where we're at in terms of our progress of course, we'd all like it to move quicker, but you know we are somewhat at the are at the mercy of the regulatory side in terms of rolling it out.
No. That's really helpful. And then my second one would be on games and I guess, it's a broader question. When we look at you know the potential slot buying this year and it seems almost dramatic but it's also getting back to normalcy in some ways in terms of percentage of replacement.
You know when we speak to the operators it feels like they're more focused on slot, Florida versus other amenities than in the past I'm not sure you're seeing the same but the real question is I mean are we seeing a potential longer term industry shift and focus that could translate to a replacement percentage levels above where they were in say <unk>.
17, 18 for the longer term or is this just more of a catch up back to normalcy in your view I just wanted to get your big picture take on the buying environment.
Yeah, I'm going to I'm going to turn it over to dean to get into that.
I'll tell you, though that replacement.
Replacement cycles as you know David.
It had been all over the map depending on when you know, which five year period of time, you look at them as an industry. We always said it was that we were on a five year replacement cycle, but that was usually imposed by technological advances like Tito.
And not necessarily by machines wearing out these machines, just don't wear out more importantly, the customers' interests might wear out and that's what really drives replacement cycles. The Dean why don't why don't you speak to that question I mean, we're seeing similar to 2019 levels you know depending on the property that's a little more tired in terms of product a little bit more.
<unk>.
Otherwise the paper price throughout the last couple of years, maybe a little bit less but mikes spot on.
Lee in the five year cycle, there's a technological driver.
And I don't have that so it's more of a standard refresh things I would call it.
Okay, well very good thanks again guys.
Thanks, David.
Yeah.
Our next question is from Jeff Dangelo with Stifel. Please proceed.
Great. Thanks, Good morning, everyone I'll Echo My first comments didn't say congratulations to you both Mike and Randy it's been really great getting to work with but you guys. These past several years and definitely wish the bulk would be the best in your respective new roles here.
Great. Thanks wanted to get.
I wanted to start on on Australia for a second if we could just given the recent M&A activity.
Just curious how should we think about the timing for you to really begin building momentum in that market more so on the gaming side and what kind of further investment if any do you think it's gonna be require to get where you want to be ultimately.
Yeah, Jeff Let me first.
First I don't I don't want a short trip Darrin at all because he's hitting the ground with a company that is up and running and is is throwing out EBITDA today and has done a great job in that market and.
And that's got a nice I think it's got a nice blend of products that we can take there that they have developed that we can bring over here.
So so let me just say that that's the start of our Australian.
Operations that are actually going to be included in our P&L, but deanna do you want to speak to the game side sure.
I would say the expectation would be by the end of 2023 to be able to leverage a what I would call a more larger studio presence down there that would do a couple of things not only enable us to get into a new market, but also be able to leverage content.
Coming into North America as well.
But that's going to take a little bit of time to not only build out that implement protocols into our current platform that we use.
Yeah, Yeah yeah.
Just following on Dean's comment I think you'll probably see Australian style games coming out of that studio being.
Being spread in the U S. Before you see us actually selling games in Australia.
Okay perfect. That's Super helpful. And then for my follow up I did want to spend a minute on supply chain disruptions and potentially just clear some noise out there right now you did call out that it seems like there's some some white coming at the end of the tunnel, but I was more curious you know as it stands today, how was the impact in playing out.
Are you seeing it really more in gross margins is it more with lead times and then just to be clear and clear up any potential noise here any implications from everything going on in Russia, and Ukraine from a sourcing perspective.
Well, let me let me take the last one first and and no we don't see anything.
Coming from from that issue in the Ukraine with Russia, we're not sourcing anything from there that that would cause us any issues, but I don't believe we're sourcing anything at all.
Supply chain as you know covers both of our businesses I think I think Dean is has been dealing with these issues more perhaps than Darrin is but let me ask both of them to speak to you right.
Go for it.
Yeah again, I think you know both sides both been taken games I think we did a really solid job in terms of even going back to 2020 . One in terms of anticipating that that you know these things are starting to happen.
I think we're looking for it to somewhat continued through the first half of 'twenty, two and then again probably abate in the second half nothing material that we expect will impact us nothing has impacted us. So far you know it may be pushing some things out you know from one month to the next month, but there's nothing material in terms.
A supply chain, that's impacting us at this point.
And the only thing I would add is that there's obviously challenges that we've been very resilient and working through it also our increases in terms of what our demand forecasting and then we've exceeded those so it's not so much supply chain, but if you like.
Let's say two or one and a half times your supply plan in terms of especially getting long lead time items with or without the international supply chain side, you've got a adapt and collaborate towards that so.
It's.
I wouldn't call. It had one it's a great problem happy because we've Oh I would say I'll kick the coverage in terms of how much products, we need to bring in house, So oh even.
<unk> been won't be even more resilience with respect to the challenges are.
So you.
Now, we just continue to work through it and get product out to the field.
Helpful and encouraging as always thank you all and once again, congrats Mike and Randy.
Thanks Chip.
As a reminder, this time one on your telephone keypad, if he would like to ask a question. Our next question comes from Chad Beynon with Macquarie. Please proceed hi.
Hi, Good morning, Thanks for taking my question and my Granddad, Congrats on everything from myself as well.
Regarding the guidance a lot of components in there that you laid out and it's very early in the year and you know or.
Conservative is usually a good approach to take this early in the year given everything that's going on but wanted to focus on just your comment around I guess, the $40 level for your gaming operations yields.
You know it seems like that that's been improving as premium represents a bigger piece of that you know on an annualized basis. I think we should you know we should certainly be above 40 wondering if you could comment on maybe what any impact was in January we've heard from some of your partners that there was a little bit of weakness to.
Kind of start the year, just given all micron.
And just anything else you can kind of comment on around that $40 level or what you've seen so far to start the quarter. Thanks.
Sure sure Chad. Thank you and I think Mark should should give you some read on this yes.
I'll go to the latter part first.
You did mention that you know some of the operators have been mentioning a little bit softer January with respect to AUM at Crown. We we do have what we'd say we've seen that are flowing through the early January numbers February started off seems to have picked up a little bit. So so we're optimistic about maybe getting this more behind.
But clearly throughout the full year, you should expect to see the ebbs and flows that we've been seeing out of the pandemic that impacts the business as we look towards the actual daily win you know we mentioned on our call last quarter and again, we'll talk to you. This quarter somewhat that we expect to see more base units going out into the installed base that that's going to impact us.
Whether it's that one large property installed that we have in Oklahoma or or the Delaware that we've been rolling out there is a significant number of units and that that added a lot of b shoot it could impact the daily win and Cosby. The daily win number to drop a little bit slightly closer to that $40 range, but again, we expect to see our top line revenue.
Growing in these all these units that we add into the installed base certainly have great return in there they're good units to add to the installed base. So we're not so focused on the individual metrics of daily when it's more of a kind of a gauge of health, but you know we expect to stay at or above $40 for the year and see some seasonal influences and these new installed even if it could impact that.
The barrage.
Okay that makes sense thanks Mark.
And then just a follow up also on the games business, you mentioned that you're getting into the H R. M. A market is any of that included in kind of how you're thinking about 2022, and just any additional color in terms of the timing in terms of being able to deploy these machines.
Chad I can take that it's minimal where I would say toner water into that market.
Working up I wouldn't say a little bit of a much longer term plan that will have more of an impact in 2023.
It won't be in there you'll start to see units and some of these various things they charged jurisdictions, but the curriculum.
Great. Thanks, guys I appreciate it.
Thank you Chad.
Our next question is from John Davis with Raymond James. Please proceed.
Hey, good morning, guys and I'll add my congrats Mike and Randy quite a run here, but first on margin I know you guys and guide to revenue for the full year, but maybe theres, probably some dependents as far as game sales our game ops and but.
Maybe some puts and takes on the margin and how we should think about it a year over year basis versus <unk> versus 'twenty 'twenty. One I think in the past you said you kind of expect some modest compression, but have any other comments there would be helpful.
Yeah, I mean again I would I would have framed the compression comment around the guys are we expect equipment sales to to increase much faster with the last couple of years being depressed by Covid and operator without spending a lot in the way of games or financial equipment and win with they are.
Healthy growth in that it is a game sales piece that obviously has a much lower margin profile than our cash access or are a recurring revenue the gaming ops business. So that picks up that should cause the blended margin percentage to compress a little bit as you said I again, I think as we move into 'twenty 'twenty. Two you should expect to see a little.
Bit of a downward draft, because we expect to see some nice healthy growth in the equipment sales side of the business, but you know, we still probably exceed where we were you know pre pandemic periods in terms of blended just because of the strength of the recurring revenue businesses that we've had and the growth we've experienced there. So so you're probably in the high you know high Forty's if not low.
Fifties and as we progress forward throughout the year.
And Joe it's Randy.
Sorry go ahead, yeah, and I think I can say and including that obviously as you know just the overall inflation employee costs et cetera. So I'm with Mark I think it's more of a mixed and it is not necessarily rising cost.
Okay and then.
Just to clarify on the guide what if any is baked in for inorganic contributions from Atlas cash another relatively small, but there's a couple of million dollars is not in the guide just just any color there would be helpful.
Yeah, I think that's exactly right.
We're still working on getting these acquisitions totally closed so that's still kind of open but I think in terms of U S. Dollars you know you're looking at he cash probably contributing about a million bucks a quarter right now atlas might be without a selling into the Australian market and selling product, it's probably a little bit about.
An EBITDA drag in the near term is it's more of a development shop, then that are for sale shop. So so net net you're probably picking up a couple of million dollars in the U S. Today, and as we expand that business and invest in that business, we think that'll pick up meaningfully in the coming periods and years.
Okay, and just just to be clear mark that call. It whatever it was close to that $2 million is or is not included in the outlook or the economy.
It is yeah look we certainly anticipate closing that here in relatively short order. So in our numbers you've got a couple of dollars in there you got a couple of million probably of of opportunity in there and again to the extent, we're able to get it closed sooner than and accelerate the growth. There. That's how you get kind of to the top end of the range and that's kind of.
The puts and takes in there.
Okay and then last question for me Capex I think this year is just a touch higher obviously very good free cash flow generation of it's got a million dollars at the top end so anything to call out specifically on the Capex side.
Or any kind of supply chain issues and it was kind of a good run rate to use going forward.
Commentary there would be helpful.
I'll take that one too for you John look we ended the year with Capex just under 105 million are you know certainly we were judicious in our spend early in the year and throughout the year and as we progress through the year, our you know with supply chain pressure.
Pressures I'll call them, we certainly prioritized equipment sales are but if there was choices to be made there I think as I mentioned, a little earlier one of the earlier questions, both 2020 , one where I'll call them relatively light years in terms of cap spend for the business, even though we were growing the business. So there is a little bit of a deferred spend.
We have outstanding that's why when you look at where we are guiding for next year for Capex of 120 to 132, you know you'll see a little bit of lift in there as we work to keep the maximum return from our installed base moving forward.
John I would say like you know that the investments we're gonna make internally from an R&D standpoint, they're going to have a little bit more capitalize there as well.
Alex's.
There are some expenses that there'll be some cap there as well and the things that are down and continues to do on the Fintech side. So I think you add those together, it's why we're expecting a little bit higher than maybe what your you were expecting.
Okay, all right I appreciate the color as always thanks again guys.
Thanks, Judy Thanks, John we have time for one final question and that will be Barry Jonas with true Securities. Please proceed.
Hey, guys, Patrick you've got filling in for Barry. Thanks for taking my question also I wanted to start by saying Congrats to Mike I also congrats for Randy We're wishing you the best in your new roles I'm, just a couple of high level questions on costs, if I may 1st being to what extent are larger operators, taking a wait and see approach and what do you think needs to happen to get them on board.
Thank you.
Say that again, Patrick forget that they are great operators.
Operated.
Once again I think it's gonna be towards the 2019 levels from other operators that are laughing refresh before more significantly in a while that it'll be a little bit more aggressive, but I think the best way to frame. It up is that it returns.
Reasonably at least for this period of time presuming that nothing else happens in the upcoming quarters to similar levels in 2019, and I sit back and look at how can you know.
I don't know if there's anything you can point to specifically when they'll they'll open up but I think they're taking a wait and see look as well. So I you know it may come a little bit later in the year, but it could be still be close to what the 18 19 wasn't a refreshed standpoint, but it will be hard to see how it kind of come out of the gate because they want to see how their business.
Forms and.
Have you said January was a little slow so that may may affect that and if you were referring to the cashless side too well, let darren kind of weigh in on the the cashless side and and and how that progression might happen and what we think the uptake will be there. Yeah. I mean, you know I think it's obvious that there is a capital investment needed to to move.
Forward with the castle strategy. So again I think like you know the game side, there, they're being prudent with our investments and our.
It's a you know just to see how the year trends, but you.
You know I would say from the Fintech side, a lot of the operators are planning for their digital strategies, which is which is including a cashless and so I think you're just going to see a continued growth in that part of the business for us.
Oh, that's great Yeah, I'll I'll call are always appreciate it and then for a follow up.
<unk> talked about the potential for expanding cashless into non gaming at some point just curious to see if any updates there.
Anything else you can say to you now.
I'll frame the opportunity.
Sure Let me, let me jump on that only because darrin in the weeds of it I mean, we continue to look at.
On the on the Casino resort side, we look at all portions of the operation and obviously, if we can use cashless throughout a casino floor that means we can use cashless in virtually any business that is similar to those so food and beverage Hotel entertainment.
Even online retail or online gaming.
And so we absolutely that's available to us.
The question for US really for me, an operational size, where do you focus first and right now we're focused on getting the casino's up and getting them a cashless opportunities throughout their casino premise, but as we look at that we also look at what are the opportunities in other verticals beyond just casino resorts.
I think that so much congrats again and good luck.
Yep exactly.
Thank you. This does conclude our question and answer session I would like to turn the conference back over to Mr. Taylor for closing remarks.
Thank you for joining us today, we appreciate your interest in every and I would assure everyone that our focus remains clearly on achieving sustainable growth and building long term shareholder value. We look forward to providing you with an update on our next quarterly call. Thank you.
Thanks, everyone.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
[music].
Okay.
[music].
Yes.
Yeah.
Hum.
Hum.
Hum.
Yeah.
[music].