Q4 2021 PlayAGS Inc Earnings Call
Okay.
[music].
Good afternoon. Thank you for attending today's play a G. N Q4, 'twenty one earnings call. My name is Bethany and I will be your moderator for today's call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers I E. If you would like to ask.
Good question. Please press star one on your telephone keypad I would now like to pass the conference over to our host Brad Boyer SVP of corporate operations and Investor Relations. Please go ahead. Thank you operator, and good afternoon, everyone. Welcome to the play Ags incorporated fourth quarter and full year 2021 earnings conference call.
With me today are David Lopez, CEO , and chemo Aki on a CFO a slide presentation, reviewing our key operational and financial highlights for the fourth quarter and full year ended December 31, 2021 can be found on our Investor Relations website investors that play a G. S. Dot com on today's call. We will provide an overview of our Q4.
And full year 2021 financial performance and offer perspective on our current financial outlook for the business. This conference call will include the use of forward looking statements any statement that refers to expectations projections or other characterizations of future events, including financial projections or future market conditions is a forward looking statement based on assumptions today actual.
<unk> results may differ materially from those expressed in these forward looking statements and we make no obligation to update our disclosures for more information about factors that may cause actual results to differ from material forward looking statements. Please refer to earnings release that we issued today as well as risks described in our annual report on Form 10-K , particularly in the section of these documents titled risk factors.
Our commentary today will also include non-GAAP financial measures. We believe the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends in our business. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP reconciliations between GAAP.
And non-GAAP metrics for our reported results can be found in our earnings release issued today. Please refer to our filings with the SEC for more information with that I would like to turn the call over to our CEO David Lopez.
Thanks, Brad and good afternoon, everyone.
Before addressing our fourth quarter financial performance I would like to extend our collective thoughts and prayers of the entire Ags team for our contractors and the Ukraine.
We continue to closely monitor the situation and are doing everything feasible to ensure the health and safety of our contractors and their families.
Turning to our results if 2020 was a year of resiliency within our business 2021 was a year of transition.
Supported by the foundational changes put into place over the preceding 18 months and then accommodative macroeconomic backdrop, we were able to establish operating momentum within all three business verticals.
And that continued into the fourth quarter.
Aided by a commitment to fortifying our R&D franchise enhancing our go to market strategy.
<unk> of our customer account penetration and a general recovery in the North American replacement market demand, we were able to achieve sequential growth in our domestic E. G. M unit sales volume in all four quarters of 2021.
The year culminated with the sale of 815 units in the fourth quarter, an increase of over 20% sequentially and nearly three times the volume sold in the fourth quarter of 2020.
The momentum was equally as apparent within our domestic gaming operations business led by our strategic push to further penetrate the industry's higher yielding premium games segment.
It was not that long ago, Q4, 2019 to be exact that our premium offering consisted of one product our novelty big Red Jumbo cabinet.
Since that time, our R&D product management and sales teams have collaborated to deliver eight consecutive quarters of growth within our game our premium game footprint.
With placements more than doubling year over year.
Premium E channels accounted for approximately 10% of our domestic installed base at year end.
Looking beyond the Gms, our table products segment remains a record setting machine.
With fourth quarter, adjusted EBITDA, reaching approximately $2 million.
Our commitment to investing in product and technology to drive customer profitability and efficiency continues to resonate with our operator partners driving six consecutive quarters of growth in table products revenue and adjusted EBITDA.
Finally, our interactive segment delivered over $2 million of revenue for the fourth consecutive quarter and continues to do so in an EBITDA positive fashion.
Yes.
Our traditional slot content continues to resonate in the online real money gaming channel as we take steps to further broaden our geographic and BDC operator partner reach.
With our vastly improved 2021 results behind us our attention has shifted to ensure we are best positioned to achieve even greater success in 2022.
To that end I would characterize 2022 is a year of acceleration for Ags, one in which we look to further leverage the continuous improvement in our people products and processes to strengthen our financial performance.
With that said I would like to highlight four initiatives that I believe will allow the business momentum established in 2021 to continue throughout 2022.
In terms of further strengthening shareholder value.
It's important to note all four of the initiatives I'm going to discuss our direct byproduct of our commitment to recruit cultivate and retain some of the best R&D talent and the gaming industry.
Turning to our first initiative, we continue to look for opportunities to further optimize our domestic AGM install base with a keen eye on our over 11000 unit class II footprint.
Looking into 2022, our pipeline of new class II core content looks as strong as ever.
Additionally, it is important to remind everyone that our premium strategy also extends to the class II market with those games delivering superior RPT performance.
With a renewed focus and a strong pipeline of games, we have the ability to further unlock the full potential of our class II footprint.
As a reminder.
Every dollar of lift in our opinion performance across our class II installed base produces over $4 million of incremental annualized high margin recurring revenue, creating an attractive return profile for our class II investments.
For our second initiative, we will focus on an equally compelling opportunity to build on our early success in the premium segment.
Supported by the strong initial performance of our Reagan Bacon deluxe family of games, operator interest in our Orion curve premium offering continues to build.
Fortunately curve premium supports a variety of different configurations, providing added versatility as our operators look to install the product on their four floors.
Ultimately, we believe the strong performance of our initial launch titles, a deep library of new game themes and the introduction of new gameplay mechanics provides us with the firepower needed to become a more prominent provider of games in the premium segment.
Shifting to our third initiative, which is E. G M unit sales.
While we have made great progress broadening our customer account penetration over the last 12 months, we see considerable opportunity in front of us, particularly with several larger multi site corporate operators.
Aided by our track record of strong core performing games, we are encouraged by the opportunities we see in front of us with several prominent corporate customers.
In addition, supported by the schedule of introduction of new game content, featuring a broader variety of fat levels game graphics and game play mechanics, we have further refined our product roadmap to arm, our sales force with the tools needed to target additional segments of the casino floor.
Finally.
We continue to leverage our exceptional game performance to deepen our penetration of the historical horse racing market or HHR.
Of ancient Char and both new and existing states has led to more prolific growth opportunities within this segment.
Combined we believe these key initiatives lay a solid foundation for sustainable long term AGM unit sales growth both in 2022 and beyond.
For our fourth initiative.
I'm, especially excited about the prospects of our cable product business in 2022.
While further customer adoption of our industry, leading progressive products and Arsenal site licenses drove much of the growth we are able to achieve in 2021 I believe we are in the early innings of realizing the potential of these two offerings.
Additionally, our recent acquisition of the Lucky Lucky Blackjack side that builds on our track record of acquiring proven table product content and leveraging our technology sales team and service network to broaden our market penetration.
Finally in the spirit of saving the best for last.
I am pleased to announce our packs as specialty car game Shuffler recently received gli approval with our first revenue generating units now live in the field.
With the launch of launch packs I believe we further demonstrated our commitment to investing in products and technology to make our operator partners more efficient productive and solidifying our position as a vendor of choice within the table products segment.
Before closing I would like to turn my attention a somewhat less interesting, but equally important initiatives.
Our company wide commitment to maximizing free cash flow.
The initial pay off from this commitment was apparent in our 2021 financial performance as we exceeded the level of free cash flow generated in 2019, despite only achieving approximately 85% of 2019 adjusted EBITDA.
At the end of the day I believe the consistent and predictable attributes inherent to our core recurring revenue businesses, our recently lower borrowing cost and our refined capital deployment processes have created a business with a resilient and durable free cash flow generation potential.
An attribute that appears to be grossly overlooked in the context of our current share price.
Additionally, as free cash flow continues to accumulate I believe we'll have an opportunity to continue the organic delevering of our balance sheet, creating the potential to further engineered value for our loyal equity stakeholders.
In closing I would like to thank our employees for their continued dedication and focus during a challenging a complex 2021.
Greatly excited about our company's prospects for 'twenty, two and beyond another poor to updating all of you on our progress on upcoming calls.
With that I'll turn the call over to chemo.
Thank you David and good afternoon, everyone.
I'd like to start off today's call by highlighting several key takeaways from our fourth quarter results and sharing some perspective on how we see each of our business segments shaping up for 2022.
I'll also address a few items related to our balance sheet, including the outcome of our recent debt refinancing.
Important to note my forward looking commentary assumes no material change in prevailing global macroeconomic conditions, nor does it anticipate any meaningful disruption to the current casino operating environment related to COVID-19.
Turning first to our domestic ECM business.
Fourth quarter domestic Egfr PD exceeded $30 for the third consecutive quarter.
Our strong domestic RPG performance more than offset the impact of units removed over the past 24 months as part of our strategic pruning initiative in turn pushing fourth quarter domestic EGF gaming operations revenue approximately 4% ahead of Q4 2019 levels.
Our improved domestic gaming operations performance reflects further progress with our premium game strategy improve core content execution and delivery and stable macroeconomic trends.
Looking ahead to 2022, we believe the steady steadily improving complexion of our domestic ECM installed base supported by continued growth in our premium game mix, our expanded game content catalog, particularly within our class II core segment and our ongoing strategic pruning efforts.
Should allow us to sustain domestic AGM RPT nicely above 2019 levels.
Taking a closer look at domestic AGM installed base, we expect the total number of installed units to remain relatively consistent with year end 2021 levels.
However, the timing and magnitude of additional strategic pruning could lead to modest sequential net unit declines in any given quarter as we progress throughout 2022.
That said, we continue to anchor our domestic game ops strategy around maximizing capital efficiency and free cash flow generation and therefore encourage investors to focus their attention on RPT and total gaming operations revenue when evaluating our future performance.
Turning to fourth quarter AGM unit sales, a growing catalog of new high performing core game content enhance execution of new content delivery broadening of our customer account penetration and further recovery and industry wide replacement unit demand paced and over 35.
<unk> sequential increase in our ECM replacement units.
Fourth quarter domestic average selling price or ASP eclipse 19.
As our premium priced Orion curve cabinet accounted for over 55% of units sold in the quarter.
Additionally to help mitigate inflationary pressures, resulting from global supply chain disruption, we successfully implemented a price integrity program in the quarter, which further supported our strong ASP performance.
As we look out over 2022, we expect our growing portfolio of new core game content.
Further penetration of the expanding HHR market.
An increase in the number of new casino openings and expansion projects and continued recovery in market wide replacement unit demand to drive a meaningful increase in AGM sales units over the 2380 units sold in 2021.
Supported by the current trends, we are seeing in the market and projections put forth an industry research publications. We continue to believe broader north American replacement demand remains on pace to fully recover to 2019 levels by 2023.
Lastly.
We believe the growing mix of premium priced Orion curve unit sales and continued implementation of our price integrity program should allow us to sustain our recent strong domestic ASP performance throughout 2022.
Shifting to our international ETF segment, we continue to be encouraged by the consistent recovery, we are witnessing within our Mexico business to that in the fourth quarter marked the sixth consecutive quarter in which we were able to improve our international Egfr PD performance on a quarterly sequential basis.
We estimate approximately 70% of our international recurring revenue units were active and playable at the end of the fourth quarter with our PD on active units relatively in line with Q4 2019 levels.
Importantly, our international team continues to tightly manage expenses to help offset the impact of the more gradual revenue recovery, we are experiencing in turn allowing the business to positively contribute to company reported adjusted EBITDA.
Looking ahead, we believe our international AGM RPT should recover throughout 2022 with full retract meant to pre COVID-19 levels likely occurring sometime in 2023.
Shifting focus outside of Mexico, given the ongoing COVID-19 related challenges facing the market. We recently made the strategic decision to wind down our modest Philippines operation.
Although I expect it to be immaterial to our reported revenue and adjusted EBITDA metrics, the Philippines exit will reduce our international <unk> installed base by approximately 400 units beginning Q1 2022 <unk>.
Excluding the Philippines removals, we expect our international AGM installed base to remain relatively stable throughout 2022.
Moving outside of Etfs, our table products team delivered record segment level revenue and adjusted EBITDA in the fourth quarter.
The growing appeal of our bonus spin extreme progressive paced, our strong quarterly performance, allowing customer adoption of our industry, leading progressive technology to further brought it.
Additionally, we continue to find success with our Ags Arsenal site license program with our 16 signed deals generating over $2 million in annualized recurring revenue.
A strong mix of high margin recurring revenues and our teams efficient execution allowed us to deliver exceptional fourth quarter segment adjusted EBITDA margin of over 60%.
Turning to 2022 as David mentioned, we expect the current momentum building behind our table products business to accelerate supported by further adoption of our industry, leading progressive technology additional ags arseno customer wins, including our first site license in southern Nevada.
The full scale commercial launch of our <unk> S shuffler and the integration of Lucky Lucky All told we believe our growing product portfolio and high quality team positioned us to deliver continued growth in table products revenue and adjusted EBITDA as we progress throughout 2022.
Trends within our interactive business remain consistent through the fourth quarter with segment with the segment delivering its eighth consecutive quarter of positive adjusted EBITDA.
Segment level results continue to benefit from the strong performance of Ags content within the online channel and further broadening of our real money gaming or RMG, operator partner relationships.
Looking ahead, we believe the strategic refocusing of our real money gaming business on distributing Acs content into the North American market could lead to temporary moderation in the level of sequential revenue growth, we are able to achieve over the next couple of quarters.
That said as we look to the back half of the year, we expect growth to accelerate as we release additional ags game content into the RMG channel complete scheduled third party, operator integrations and enter additional regulated North American jurisdictions.
Despite our tempered near term revenue growth outlook, we expect our interactive business to continue to positively contribute to our full year adjusted EBITDA performance.
Before discussing the progress we've made on the balance sheet and leverage front I would like to offer some perspective on how we see adjusted EBITDA margins shaping up for the year.
Any business, we continue to navigate and where possible mitigate inflationary cost pressures introduced by labor shortages and supply chain disruption.
Additionally, as an organization, we remain deeply committed to investing in our future success, primarily through the addition of quality R&D talent.
These two items combined with the ongoing revenue recovery, we are experiencing in our AGM equipment sales and international gaming operations business are likely to place downward pressure on our adjusted EBITDA margin as compared to pre COVID-19 levels, we believe our cost discipline and mitigation initiatives should allow us to deliver full.
Year 2022, adjusted EBITDA margin that lands in reasonably close proximity to the low end of our historically targeted 45% to 47% range.
Looking ahead, we believe operating leverage realized through the further recovery in AGM equipment sales continued improvement in our domestic Egfr PD performance and greater contribution from the higher margin table products segment presents the greatest potential to drive incremental margin expansion within our business.
Turning to the balance sheet, we ended the year with net leverage of four two times and $125 million of total available liquidity.
On February 15, 2022, we successfully completed the refinancing of our total debt outstanding which allow us to simultaneously lower our borrowing costs extend key debt maturities reduce our total principal amount of debt outstanding and expand our revolver capacity.
Adjusted to reflect the impact of the refinancing transaction net debt would have been approximately $538 million.
Looking ahead supported by the operational momentum, we continue to see within the business.
Proximate 10 million of annualized cash interest savings, we expect to realize as a result of the refinancing transaction.
And our organizational commitment to maximizing free cash flow.
We remain confident in our ability to deliver upon our year end 2022, net leverage target of less than four times.
While achieving our 22022 target is a key first step I would encourage investors to think of the target as a stop along the journey and not the final destination.
To that Ed as we look out over the next several years, we remain deeply committed to restoring and subsequently improving upon the financial flexibility we had prior to the onset of Covid when our balance sheet was net levered in the mid threes.
Operator. This concludes our prepared remarks, we would now like to open the lineup for questions.
Certainly if you would like to ask a question. Please press star followed by one on your telephone keypad.
Any reason you would like to remove a question. Please press star followed by Tim again to ask a question. Please press star one.
Monday to you speakers.
Speakers, please remember to pick up your handset before asking your question. We will pause here briefly ask questions are registered.
Yeah.
The first question is from the line of David Katz with Jefferies. Please go ahead.
Okay.
Afternoon, everyone. Thanks for.
Taking my question can we just talk about the instead.
Installed base in particular, I know you gave us.
You have some guidance in the deck in some of your commentary, but can we just expand upon some of the puts and takes that would.
Lead you to do better or in.
In line with what you have is it a function of getting product through the channels.
How would you kind of classify the demand outlook that you're factoring in.
To your commentary.
So.
You're referring to you're referring to the lease installed base just to be clear right.
Correct.
Okay. So so from our perspective, there's probably a few things that.
That we focus on and we've talked a lot about them before and first we'll just start with a goal to be capital efficient right.
We've really talked about how that's driven some of our cash flow made us a more efficient company across the board.
And I think that as we said COVID-19 really put us in a great situation to sit down and focus on this more precisely so capital efficiencies sort of number one goal and then from there you know you say hey, what are the businesses. We're in we're in obviously class II recurring Theres some class III and then of course.
<unk> premium right and so we have our required returns that we want to get on those investments and it goes back to sort of that capital efficient.
Focus and obviously the rest is the R&D right I mean, it's the quality of the games that are going out the door and as we said in some of our prepared remarks.
It's a huge focus for us to not only.
Recruit but also retain the best talent in the industry put out the best games and really produce a very high percentage of our games as what we would say is hit rates. So that the puts and takes are as always David Theres sort of performance right and then our appetite for growth versus cash.
<unk> efficiency, and I think thats, where we need to make great decisions right.
So I don't know if that's helpful or if that just.
That's broad enough free and covers it.
Yeah, I mean look I think one of the one.
One of the things I would like to measure is.
How would you sort of classify your outlook, particularly in the AGM business both parts of it.
Versus the last quarterly call or we actually made some update intra quarter would you say, it's progressive really better or the same little worse, how would we.
How should we take that.
So youre talking I know youre, saying for outlook here and what we know about sort of the start of 2022.
It's pretty much as expected you know theres no real surprises, obviously, we can't speak specifically, but I'll give you a little bit of flavor and say hey, it's probably similar to what youre hearing from a lot of the operators, which is other than a little a little blip on the screen with all micron.
I think things have been very consistent in Q1, I would say as expected our demand.
The core game sales side has been strong and as we said our premium products.
We need to perform well in particular Reagan Bacon deluxe and our curve premium I think.
You know they they have really proven or that game in the curve premium product has proven to be an excellent.
In addition to our lineup there in the portfolio. So I would say as expected and again a lot of things in line with what the operators have been saying as far as the quarter goes.
Yeah perfect. Thank you very much.
Thank you Mr Katz.
Our next question comes from the line of Carlo <unk>.
Kelly with Deutsche Bank. Please go ahead.
Hey, guys. Good afternoon. Thank you for taking my question.
Maybe try and just frame how you look at you guys made a couple references to the historical racing machines in.
And.
Obviously as you look out to 2022 things continue to evolve, but as you look at that market across maybe the two to five year window.
You can see as the opportunity from a market size just in terms of total units and the ability to kind of make a dent there and how you guys kind of stack up within the context of that.
So I think we will start a little bit with within the context right. It's probably the easier question to answer at this point color.
So our games perform very well and in all of the HHR jurisdictions, where we are present right. So I think that our if you want to call. It ship share or floor share is going to be very healthy and it's actually much stronger than it is and our our well say commercial markets or a non H H.
<unk> markets right as far as sizing the industry, it's a little tricky because I.
I don't want to say every day, but as time progresses. We can continue to see these historical horseracing markets open up so the sizing of the industry, depending on who you ask.
It can really vary.
There's actually some locations abroad that now we're talking about HHR is being a product line that are or.
Our legislation for products that will pass so trying to size that right now is very difficult, but I would say that it's a healthy market and we will get something very good and are sharing again above what you would see for our normal ship share in the commercial markets.
That's something that yeah Carlo the only thing I would add is that the nice attribute of HHR is we look ahead into 'twenty. Two is that not only are you seeing continued growth in existing markets.
Virginia, and Kentucky, and Wyoming and existing buildings, but you have new buildings coming online within those markets, coupled with new markets themselves coming online notably.
Notably New Hampshire beyond that Theres definitely some legislation that's getting kicked around.
And in various jurisdictions, some that have regulated casino gaming some that have no forms of regulated gaming. So I think the intermediate term outlook around HHR as a category is a fairly interesting one and as David said I think we're well positioned there given the strength of our game performance.
Eight.
Great. Thanks, David Thanks, Brad and then just one more.
Chemo, you talked a little bit about the outlook for margins kind of that 45 to 47 historical range is how youre thinking about 2022 within that as you guys kind of look at SG&A I think the number was about 64 million for this year with a <unk>.
Subdued spend in the first quarter, sorry, 2021, I was referring to somewhat subdued spending in the first quarter relative to kind of <unk> through <unk> period.
How should we think about kind of the 2022 I would assume that number is a little bit higher in 2022, but the magnitude of kind of that change for the year.
Yes, I mean, if you look at specifically SG&A, yes, definitely say it will be slightly up from 2021, and I think you pointed out an important thing right in Q1, it was pretty light, but if you look at the Q4 exit probably a pretty good way to think of it as you move through each one of 2002.
Two and then we'll have some uptick in the back half of the year I think the margin comment more importantly, probably centered around we continually talk about our commitment to R&D right. So I think youre going to see our R&D investment to continue to ramp as we move through 2022 at a rate thats higher than our <unk>.
G&A increase and then the other comment related to margin would be we talked about the strength of the AGM sales business and that business really picking up in 2022 compared to 21 of that mix change rifle will affect margins somewhat so I think the commentary earlier was more will be within the range that <unk>.
We historically talked about but probably a little on the lower side of that range, so closer to the call it 45% area.
Okay, and just to confirm so so coming out of <unk> I think that you got.
As reade $18 $9 million that would imply you know in SG&A for the year at the mid Seventy's is that what you're saying.
If we just kind of run rate number.
The exit rate.
Probably a little bit higher than that probably the best I was looking at a adjusted and have taken out stock comp and whatnot as hub, how I normally look at it, but it's probably a little bit higher than that Carlo.
Full year of 'twenty two.
Alright, Thank you Sir Thanks, Scott.
Thanks Carlo.
Thank you Mr centrally.
Our next question comes from the line of David Bain with B Riley. Please go ahead.
Great. Thank you nice results and I like what you are continuing to build.
My first question I guess it would be a follow up to David's question earlier, just hoping to get a little bit more specific given the market volatility of a real time snapshot if you will.
And I know, we're hearing similar things from from casino operators, but if you could provide your experience are you hearing any sort of shift in casino customer buying just given the macro or geopolitical volatility and similarly are we seeing any end customer traffic or spend change given oil volatility or.
Or anything else that we're kind of watching.
On TV every day, that's potentially less impactful to the domestic regional gaming right now.
Yeah, I mean, I can comment as much as possible here in Q1 again that little omicron that happened.
Happened and I think it is.
It was a blip in the radar and we got right back the business David It appears the gamblers don't watch the news right. They don't seem to be too concerned with the geopolitical thing right now because theres a number of jurisdictions around the country I won't name them, specifically, but theres a number of them domestically that continue to put up very strong numbers.
<unk>.
Think that regionally things vary, but I think that things have been in line and again the operators have been I think Rob.
Rather positive on the quarter, we have not we you asked the specific question about have we seen any shift in maybe demand on the capex side.
The capital side spending for slot machines, and we haven't seen any shift other than what had been happening which was a positive shift where they were starting to get back to business again so.
So from an end player point of view and performance there has been positive indicators again since the omicron little blip.
And as far as operator spending I think it's in line with expectations and like I said some of the.
Smaller.
<unk>.
Around the domestic market regionally are doing extremely well still so I think everything is in line and as expected there.
Okay, Great and then my next would be on the premium games I know, 10% of your ops mixes now premium which is a great move.
What's the optimum mix here, what are we shooting for and it seems like there's two opportunities in my view, maybe I'm off but.
It would be the mix of the existing.
Footprint two to replace and get incremental win and then the other would be your only 2% of the total 70000 premium units out there, which probably that would carry a higher ROI to attack, but they're probably each accretive and you want to optimize that mix. So what is the optimal mix and what's kind of the.
<unk> when you look at your footprint relative to new opportunities.
Well I don't know if there is a number that we post up for optimal but.
As you know, it's almost like it's homeruns right more of about right. So bottom line is we know that we have.
A competitor out there that's of like size to us and they are in that low <unk> low to mid Forty's range as far as the mix goes as far as our.
That's sort of a guiding light if you will as far as where these businesses can go.
As far as the strategy goes I think it goes back to our capital optimization and we just have to measure whether you say, it's an install into the existing premium space or its taking premium units and putting it into our existing footprint right. The ags footprint be a class III or class.
<unk> II and whatever returns.
Or are a the vast and be more stable. So it's not always what can I make in the next eight to 12 months, but which one of those installs will be a good marathon runner for us and not just be sort of a short term thing. So we really do balance that out as far as attacking.
The actual premiums base versus really optimizing the heck out of our class II and class III footprint out there that's already on lease right now.
Okay, Great. That's helpful. Thank you.
Good deal Thanks, David.
Thank you Mr Bank.
Our next question comes from the line of Jeff Van <unk> with Stifel. Please go ahead.
Hey, good afternoon, everyone and thanks for taking our questions.
Hi, I wanted to start on the supply chain framework if possible.
An update on disruptions here would be helpful. How things trended generally since the last time, we spoke.
Q3, and does it feel like pressures are improving generally sequentially.
So I think our our supply chain situation has been stable.
I'll, let chemo or Brad jump in here, if necessary, but I think it's been stable and a lot of that has to do with our team.
Our folks have been in front of this thing.
From the very beginning they worked their tails off to make sure that we don't get in a bind theres been a couple of situations, where although our unit sales are spiking UC or changes in sequential quarters and year over year, we've been able to provide product at times. When we know that others are struggling so I don't want.
To say that we're doing better on supply chain than others, but I know that we're doing okay, and we're doing well and it's stable and thats largely due to the fact that we have a very experienced crew that gets out there and gets the job done every day, Brad do you have anything or chemo, you have anything to add to that.
No I mean, I think you said a good a good thing I mean, we.
<unk> been actively planning and preparing for the supply chain disruption.
I think the team has done a great job there.
Our lead times.
Fairly consistent with where they've been historically, which.
<unk> has been somewhat of an advantage for us in the market.
So you know.
I don't think anyone could say that.
The supply chain disruption situation as you know.
Approaching quote unquote normal, but it does feel stable.
Continue to manage it.
Very closely monitored day to day basis and.
And I'm, just really proud of what our teams have been able to achieve there in light of the challenges that.
The global economy presented there.
Great. That's helpful. Thank you both and then for my follow up on the class two yield optimization plan for 2022 can you just provide a bit more context here whats the RTD threshold trigger optimization and what kind of uplift do you underwrite and then I'm, assuming it's fairly limited, but just a rough sense of the cost to get in and upgrade to cat.
But it would be helpful as well.
Yes, so that's I mean, there's no prescribed amount there.
We tried to do is just overall, we try to get something in the 12 month payback range when we deploy capital on an optimization.
That can vary a little bit, but generally speaking we want to see those kind of returns we have.
A huge footprint and there is a lot to get out there and get after so that's the approach that we take as far as saying a specific RFP D. That's not it's not easy to sort of lock that down and say hey. This is what we're looking for because that definitely varies a bit by geography and it.
Just goes you take the uplift and what Youre going to achieve and then you look at your capital requirements or your returns on capital requirements and Thats, how we sort of approach. It. So the RPC lift is really more the factor and it's the cost of the unit and on top of that at times, we're using refurbished.
Units that arent brand new that are going out the door, Brian Yeah, Jeff I would just add to that some of this this class II optimization initiative is not necessarily.
Our capital heavy endeavor.
We have a lot of new class II content.
Scheduled to rollout here in the first half of the year.
Which allow us to go out and sort of re energize.
Some of what I would call the president Jen.
Class II cabinet installed base that's in the field.
So I think Theres, a real nice Senate opportunity, there again kind of drawing it back to that free cash flow focus where.
The flow through on that incremental RPT lifted we were able to achieve off of our content swap is quite high.
And so I think we feel we feel pretty good about the opportunity that we have there.
And theres, some theres some longer duration.
Opportunities that we're looking to.
<unk> around.
Some gameplay mechanics, and progressive technologies that we have within the class II space.
Again, we will have a mix of a.
There will be a capital part of that but there will also be a part where we can go out and upgrade and touch machines.
That incurring incremental capex. So I think we feel really good about the opportunity that we have there I think importantly, those games.
It's a fairly resilient sticky segment of the market.
Yes, I think we feel good from a duration perspective.
About the opportunity that we have within class II.
Great very helpful as always thanks to all.
Yes.
Thanks.
Yes.
Thank you Mr. Santiago.
The next question comes from the line of Barry Jonas with choice. Please go ahead.
Great. Thank you David why not give EBITDA guidance here, what would you like to see before going that route.
I am actually I'll, let chemo sort of hit that will not be probably has a pretty well extended answering I mean, I think Colorado.
<unk> sorry.
It's a philosophical question right and I think for us what we feel like as we've been able to we feel successful in the sense of we view the color that we have.
How we feel about the market and where the business is headed right, but I think if you look at what we did last year, we gave sort of similar guidance for the year as we sort of gave content I'll say it.
And we feel like that we just feel like that's the best way I think.
The guys as we move forward with the business.
Okay.
Got it got it and just to be clear you mentioned you had some Ukraine contractor exposure is there any potential financial impact there or has that been largely mitigated.
Yeah, So it's a.
A situation that we closely monitor very Oh, we do have some contractors over there that support our interactive operation.
As it stands today, we don't expect it to be material to the financial performance of the business.
We don't have any fixed assets on the ground in the Ukraine, It's all kind of.
Tech based support type program. So we continue to closely monitor it.
<unk>.
Do we are doing what we can to support our contractors over there.
Okay. If I could just sneak one more in do you see any opportunities for.
For any additional travel placement agreements at this point.
No yeah.
You mean like those long term travel placement type of agreements.
Yes, correct.
Okay.
Yeah, so the one big customers that we engage with there.
They are in place and for the most part there isn't any.
Additional ones that we have to be.
Focused on there are there are some there might be some expansions that you can be referring to et cetera, but that will probably fit under our umbrella and the our existing agreements that we have right now there's probably no need to.
To sign a new agreement because we have flexibility within those agreements to do AD units et cetera.
Understood alright, thanks, so much guys.
Thanks.
Thank you Mr. Janice.
The next question.
Line of Chad Beynon.
<unk> with Macquarie. Please go ahead.
Hi, good afternoon, Thanks for taking my question.
Wanted to ask one about the tables business. So you announced the acquisition of Lucky Lucky and your revenues and EBITDA continue to.
Move up into the right just wanted to task a little bit more about that or are there still opportunities from an M&A standpoint to do more tuck ins and can you do these you know given that you are hyper focused on reducing leverage at this point and then just medium or I guess medium to long term I know you had historically talked about getting that.
Business closer to $10 million of EBITDA on an annual basis, it's kind of moving in the right direction just any other additional commentary in terms of goals on the on the table business. Thanks.
Hey, Thanks, Chad so yeah, the Lucky Lucky acquisition falls sort of right into our wheelhouse, where we can acquire something we think we have the ability just like we have with other games to expand the footprint at our technology.
Really makes for a very efficient form of growth for us, especially with what I would refer to as industry, leading technology and progressives.
As far as additional M&A Ngos.
The pool is not deep there, but we are always combing through it as you see you know this is one that we came across and we've been aware of it for our pretty much our entire careers. The game has been around for a long time, but our cable team and John do a great job of just sort of shifting through these things and is there room to.
Do small deals like this I think there is room to continue to do tuck ins, so long as they fit our criteria.
For returns and even E for just the efficiency in which these these businesses tuck into our business like I said with the technology the progresses et cetera. So that's sort of how we view that and then I don't know if chemo has any commentary about that EBITDA, that's moving up into the right, which we like to.
But I don't know if he has any additional thoughts on that for the.
Longer term I mean, you can see that the business is headed in the right direction like you said right and I think we are we will say well on our way towards that goal, but you mentioned that we had we had sort of thrown out there earlier I think thats, probably about the best thing.
Yeah, I think the key is the key is that we're setting up nicely.
Chemo setting on net we're directionally right on pace and everything are exceeding what we had hoped maybe at times, but when you look at it we now have great core table games, we have the best Progressive out there we have a great.
You know Arsenal program that we referenced in the prepared remarks, and then of course, we had the launch of the Pax Shuffler, which again.
So to speak about the team and the folks that we put together and the retention.
Recruiting that we've done.
This is this is really a fantastic.
<unk> for the team. It's now Gli approved as you heard again in our remarks, we've got a handful out there.
We like to say, it's been quiet, which quite as good when you released the shuffler in more ways than one.
And so we're very proud of and this is yet another step in that direction and beyond that youre referring to.
Great. Thank you and then.
On your decision to exit the Philippines.
I would assume that's a market that has probably lagged.
The domestic market here, it's probably just starting to.
To kind of improve and will increasingly improve with vaccination rates. So why why exit that market. Now did you just take a fresh look at kind of the medium term and the risk reward wasn't there I'm just curious on the timing on the announcement.
Yes, I mean, if you look at where the market is right. Today I think you used the right word lag right I think the Philippines market. There's COVID-19 is still a very relevant thing in the market and it is I think behind what our expectations would be for it right and I think if you look at the opportunity.
You look at where our capital and effort is best spent I think we just felt like we needed to be.
Based on a very clear decision and just exited the market rate, we need to be as good as if something like that then when we enter a market I think we just felt like it was the right time and just look forward in an attempt to other opportunities that we have in front of US yes, Chad I would just add that I would reinforce what was in the prepared remarks, which is that we don't.
Expect this decision to be material to our reported revenues or adjusted EBITDA. So I think that provides some additional context around how we're thinking about.
This decision.
Sure.
Perfect. Thank you guys appreciate it.
Thanks, Sean.
Thank you Mr. Micha. Thank you Mr Beynon.
We do have a follow up question from the line of David Katz with Jefferies. Please go ahead.
Hi, Thanks for letting me circle back.
I apologize if I missed it what have you said about sort of a capex.
<unk> for 22 did you give any indications on that.
No I think the only the only thing we put out there. David is just we mentioned our leverage target to be under four times by the end of the year.
Okay. Okay, that's really not only just want to make sure I understood the comp. Thank you.
Perfect.
<unk>.
Mr Katz.
No additional questions waiting at this time.
And that concludes the play Ags Q4, 'twenty One earnings conference call I Hope you all enjoy the rest of your day you may now disconnect your lines.
Okay.
Okay.