Q4 2022 Everi Holdings Inc Earnings Call

Speaker 1: There.

Speaker 1: And.

Speaker 1: I TA.

Speaker 1: But.

Speaker 2: will be in a listen only mode. Following the prepared remarks, the call will be open for a question and answer session. As a reminder, this call is being recorded. Now, let me go ahead and turn the call over to Bill Fund, Senior Vice President Investor Relations. Please go ahead, sir.

Speaker 2: Following the prepared remarks, the call will be open for a question and answer session. As a reminder, this call is being recorded. Now let me go ahead and turn the call over to Bill Fund, Senior Vice President Investor Relations. Please go ahead, sir. Thank you, operator.

Speaker 3: Let me begin with a reminder that our safe harbor disclaimer, which covers the day's call and webcast, contains forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those discussed on the day's call. These risks and uncertainties include

Speaker 3: but are not limited to those contained in our earnings released today and in other SEC filings, which are posted in the investor section of our corporate website at every.com.

Speaker 3: Because of the potential risk, you are cautioned not to place undue reliance on forward looking statements. You do not intend and assume no obligation to update any forward looking statements, which are made only as of today, March 1, 2023.

Speaker 3: We will refer to certain non-gape financial measures.

Speaker 3: such as adjusted EBITDA, adjusted EPS, free cash flow, and net cash position. A description of each of these non- GAAP measures , and a reconciliation to the most directly comparable gap measure, and be found in our burning release.

Speaker 3: and related AK today as well as in the Investor section of our website.

Speaker 3: This call is being webcast and recorded. A link to the webcast and a replay of today's call can be found in the investor section of our website.

Speaker 3: On our call today, our Randy Taylor, Chief Executive Officer, Mark Labai, Chief Financial Officer, Kate Loehaw, Fisher, General Counsel, Dean Arilig, Games Business Leader, and is Computing Baron Sendum in Cannes???192, Eric Bond. Cut Point, Eric Bond, Engineering 2011. Do you see the gas???rup. office.

Speaker 3: I would like to take this opportunity to also introduce Jennifer Hales, who recently joined at ReBenz by his president in best relations.

Speaker 3: Jennifer has wide-ranging experience as an analyst, both on the sell and buy side, and made the transition to IR several years ago. She has extensive IR experience, and in the coming months, she will quickly learn about our great industry and the exciting long-term prospects we have here at EBRI.

Speaker 3: As well as working to meet many of you on the call today.

Speaker 3: While I have not yet set a firm departure date, I will increasingly be transitioning the day-to-day IR responsibilities to Jennifer over the coming months.

Speaker 3: I plan to remain part of the Everey family for some time, but in a more limited advisory role starting later this year.

Speaker 3: Additionally, Steve Coppio, who has been in IR during the last two years, has been promoted to Vice President and is working full-time with Marble Abai on everything financial, from FPNA to acquisitions to continuing to assist with IR.

Speaker 3: So welcome Jennifer and best wishes to you Steve with your added responsibilities.

Speaker 3: So welcome, Jennifer, and best wishes to you, Steve, with your added responsibilities. Now I will turn the call over to Randy.

Speaker 3: Thank you, Bill. Good morning, and thank you all for joining us. I would like to add my personal welcome to Jennifer, and we look forward to a very successful journey together.

Speaker 3: I'd also like to add a huge thank you to Bill. He stepped up our game in IR and has been a pleasure to work with.

Speaker 3: I'm not saying goodbye as I intend to keep Bill here as long as possible to ensure a seamless transition and leverages years of experience. Now on to the business at hand. Our fourth quarter, 2022 performance reflects the balance and diverse strengths across our operations.

Speaker 3: games and digital gaming, fintech, loyalty, and our growing mobile capabilities.

Speaker 3: Against a strong fourth quarter-conflict year, our operating income increased 8% and adjusted EBITDA increased 5%.

Speaker 3: Our improvement in revenues and operating earnings drove free cash flow of 42 million in the fourth quarter, capping a year in which we generated an all-time record, 187 million in free cash flow, which is equivalent to just over a dollar 90 cents per diluted share.

Speaker 3: Total revenues for the quarter increased 14% year-over-year with organic revenue up 9%, and acquisitions contributing an additional 5%.

Speaker 3: Revenues from our high margin recurring revenue streams represented approximately 70% of our total revenues are $143 million in the quarter.

Speaker 3: While we continue to execute on our growth priorities with our usual discipline, we expect to benefit in 2023 from several new initiatives that will provide incremental growth opportunities for every.

Speaker 3: Over the last six quarters, we have leveraged our cash flow growth into steady increases in investments for internal, new product initiatives, and attractive tuck-in acquisitions.

Speaker 3: We expect these investments to collectively generate growth in both revenues and adjusted EVA over the course of this year and even further benefits in 2024 and beyond.

Speaker 3: Within to a co-acquisition, we add a developed team well-seasoned technology platform nuances of historical horse race.

Speaker 3: The addition of this talented team accelerated our internal HHR development efforts.

Speaker 3: We expect to launch the first of every's new HHR gaming machines and the initial expansion of our deep library of content onto two-coats proprietary cabinets toward the end of the first

Speaker 3: This will expand our addressable market and give us entree into a new growing category that we expect will benefit our quarterly ship share over time.

Speaker 3: acquiring the asset's Atlas Gaming provided us with a base for geographic expansion into Australia, the world's second largest slot market after the U.S.

Speaker 3: Now let's also establish a foundation to form a new game development studio in Australia.

Speaker 3: Our first game themes from this studio for the US market are anticipated to debut this fall at G2E, and we expect to launch new games into the Australian market sometime in 2024.

Speaker 3: In the second quarter, we expect to begin shipping the new Dynasty View video gaming cabinet.

Speaker 3: The view is the first in our line-up of new next generation cabinets.

Speaker 3: It is another key step in our efforts to continue growing our unit ship share, particularly in the video category where we remain under-penetrated.

Speaker 3: Importantly, the replacement market for video slots is estimated to be three to four times a size, the mechanical real category giving us plenty of runway to grow our share.

Speaker 3: Beyond Dynasty View, we expect to debut additional new cabinets in the Dynasty line at G2E.

Speaker 3: Currently, 2024 may be over the horizon for most investors, but I would point out that our development efforts also include a planned entrance into the North American BLT market in early 2024.

Speaker 3: While no jurisdictions appear to be prepared to legalize iGaming in the near term, we expect to achieve steady year-over-year revenue growth in 2023 from our digital iGaming operations.

Speaker 3: This will reflect the benefit of additional eye gaming operator sites, such as the recent launch of our content onto Caesar's sports book and eye gaming casino platform.

Speaker 3: along with the further expansion of our game themes portfolio.

Speaker 3: We will continue to leverage our historical library of successful land-based titles in addition to new introductions from our development studios. Furthermore, with the US currently representing less than 5% of the total global market, a portion of our increased internal iGaming development effort is positioning us to take our player proven content and make it available to the players.

Speaker 3: into larger and more mature international markets. We expect to be licensed in the UK in the coming months.

Speaker 3: which would then allow us to begin the integration process of our Spark remote gaming server with eye gaming operators. This should lead to being live with our first customers in the UK toward the end of this year.

Speaker 3: Within our Fintech segment, we have focused our strategy on leveraging our strength and financial access to expand our digital neighborhood, adding new layers of products and enhanced features. We have created incremental sales opportunities by improving casino operators across efficiencies with such products as Jack Pottspress, FedExpress.

Speaker 3: and Readers Express. We are also placing heavy emphasis on mobile-first applications, including our ongoing Cash Club wallet effort, and growing our state-of-the-art loyalty and rewards mobile platform. Our mobile-first strategy leverages consumers' preference to increasingly spend more time on their mobile devices to access information and provide more information about their mobile devices.

Speaker 3: and engage with their favorite entertainment, including gaming, sports, and dining.

Speaker 3: From our customers point of view, mobile, self-service engagement for loyalty and other actions helps them improve productivity and save on labor costs. Our acquisition of enterprises, they very complimentary fit with our internal mobile first development efforts, with a broad face of about

Speaker 3: 200 already established third party app integrations.

Speaker 3: Benutides will enable us to bring added skills, capabilities, and experience into the gaming space, including for entertainment venues beyond the gaming floor such as concert and sports arenas. For the first time, we now also extend our addressable market for products like our mobile wallet and loyalty technologies into new gaming adjacent markets such as sports.

Speaker 3: entertainment and hospitality venues on a global basis.

Speaker 3: And with the ever widening reach of sports betting, every gaming license, payments, wallet, and loyalty products are moving toward the intersection of sports betting and sports business.

Speaker 3: As we move through 2023 and into 2024, we expect the combination of every and venue ties will open up new avenues of additional growth worldwide. We have previously shared our success at the new Sky River Casino in Northern California as clear evidence of the synergies and cross-sowing opportunities.

Speaker 3: that we can generate by providing operators with a full suite of our slot products, financial access services, loyalty and rewards, and RegTech compliant solutions.

Speaker 3: we've always believed every is greater than the sum of its parts. I'd also like to highlight another notable element of our success which is our development of SkyRivers white labeled mobile patron app which included embedding our wallet and loyalty technologies.

Speaker 3: Sky River has been so successful they are already making plans for expansion and we're proud to be part of their exciting success story.

Speaker 3: Well, I mentioned the Atlas acquisition for supporting our initial growth for game segment in Australia. Our eCatch acquisition also provides growth opportunity for our Fintech business.

Speaker 3: They're a Tios for smaller hubs and clubs facilities, which are the main stay of the Australian market. Provide us with a new road avenue in the US. We expected in the second half of 2023, we will launch E-Cash Tios into the US-distributed gaming market, which includes route operators who place BLTs, BDTs, and other gaming machines in smaller, high frequency locations.

Speaker 3: truck stops in Pennsylvania or VTTs in Illinois. He cash also provides us with an entry point to bring our AML and cashless solutions into the Australian market. We have completed a number of acquisitions over the last few years that have expanded our product capabilities and allowed us to enter new markets.

Speaker 3: The core principle underlying each of these acquisitions is that they represent an opportunity to scale up a leading solution that is under penetrated in their respective marketplace. By plugging these products into our development and distribution system, we leverage our expertise with the respective product capabilities to drive very potent results. These positive results include scaling up those business lines.

Speaker 3: but also integrating them into our product capabilities to drive product innovation. In this way, we are very confident we will generate an attractive ROI and cash flow over the long term and provide multiple levers for growth. Obviously, these exciting incremental growth prospects must be tempered against the uncertainty of current macroeconomic conditions.

Speaker 3: and its possible impact on the gaming industry. All the gaming industry has historically been more resilient than other discretionary consumer spending industries. We do not have a crystal ball that tells us that that dynamic will be similar this time around. However, the uniquely balanced ranks of our businesses.

Speaker 3: Games and I-gaming, FinTech, Loyalty and Mobile, and the very high percentage of recurring revenues we generate. All coupled with our improved balance sheet and strong cash flow generation provide us with a solid foundation to effectively manage through any change in macroeconomic conditions. This proved out with the success we achieved as the industry rebounded from the depths of COVID-19.

Speaker 3: And we believe an uncertain economic environment may even provide us with new opportunities.

Speaker 3: Given our successful track record, our significant recurring revenue base and our solid balance sheet, we are confident in our expectations for continued free cash flow generation.

Speaker 3: We will continue to prioritize the use of our free cash flow on high value internal product development initiatives and capital projects such as our new efficient build to sleep production facility under construction along with attracted target acquisitions and opportunistic stock businesses

Speaker 3: Now let me turn the call over to Mark, who will provide more insight into our expectations for 2023.

Speaker 4: Thanks, Randy, and hello to everyone on the call today.

Speaker 4: Before turning to our current year outlook and the guidance we provided in our earnings lease, I'll start by briefly highlighting the strength of our balance sheet, which is better than ever.

Speaker 4: Over the years, many of you have measured our progress through our efforts to deliver today because of our consistent operating execution.

Speaker 4: Our continued prospects for high-return investments and our ongoing growth total net leverage is 2.4 times trailing adjusted even though.

Speaker 4: with our total leverage currently below our target range. And an expectation for growth and earnings combined with our periodic death principal payments.

Speaker 4: We should remain at or below that range throughout 2023. As you review our fourth quarter income statement, I would remind you that net income in last year's fourth quarter included a 64 million or 62 cent per share non-cash tax benefit from the reversal of certain deferred tax asset valuation allowances.

Speaker 4: For better comparability and the current year, if you'd slew that one time non-cash tax benefit, last year's fourth quarter earnings would have been 26 cents per diluted share. We continue to expect to utilize our net operating loss carry forers, and at the end of 2022, the remaining gross value of our federal NLLs was approximately $116 million.

Speaker 4: We believe this should continue to provide a cash fact shield for our pre-tax income in 2023 and possibly into early 2024.

Speaker 4: Moving on to our album. As noted in our earnings release, we expect 2023 net income to be within a range of 88 to 100 million.

Speaker 4: This is down from our net income in 2022. Due to the expected higher interest expense associated with rising interest rates.

Speaker 4: and an increase in non-cash depreciation and amortization from the growth in our business and the purchase accounting impact of our recent acquisitions.

Speaker 4: Our range for adjusted EBITDA is 384 to 396 million, which represents growth in approximately 3 to 6 percent over 2022. We expect to generate free cash flow between 150 and 160 million.

Speaker 4: Using approximately 95 million diluted shares outstanding throughout 2023, that equates to approximately $1.55 to $1.65 per diluted share.

Speaker 4: This reduction from 2022 includes the expected impact of higher cash interest expense and approximately $15 million for the cost of tenant improvements for our new build to suit production and warehouse facility.

Speaker 4: This new lease building will consolidate the assembly and warehouse facilities of our slot machines and fintech kiosks into one streamlined operation here in Vegas.

Speaker 4: Based on our current projections, we anticipate the transition will most likely begin in the third quarter, but most of the cost will occur in the fourth quarter of this year.

Speaker 4: We have also planned for approximately 18 million in incremental cash spend related to the Screte Capital Projects in 2023.

Speaker 4: These projects are largely focused on upgrading certain portions of our internal IT and data center infrastructure, as well as our ERP systems. This is a little more than double what we spent for comparable

Speaker 4: The largest portion of our capital expenditure budget remains focused on maintaining and growing our gaming operations installed base.

Speaker 4: I will highlight that while our capital spending for gaming operations is expected to be comparable to 2019, this is despite our installed base increasing by more than 22% or a growth of an additional 3,200 gaming machines over the last three years.

Speaker 4: With our balanced revenue generating sources across games and digital gaming, Fintech, loyalty and mobile, we expect to see continued total revenue growth in 2023.

Speaker 4: Obviously, the extent of our growth may be impacted by the overall growth in the gaming industry. But the uniqueness of our business model, is that slower growth in one category due to the variable timing of product launches, is offset by gains in another category. This reinforces our confidence and ability for us to grow our total top-line revenues. Similar to 2022.

Speaker 4: We expected the growth in sales of gaining machines and Vintech hardware will outpace the growth of gaining operations and financial access services. Due to our cruise ship share, as operators, capital spending on total gaining machines and our Vintech hardware rebounds towards pre-COVID levels.

Speaker 4: We expect our revenue mix from gaming machine and hardware sales will trend a bit higher than pre-covid levels. Our revenue mix in 2023, therefore, should be in line with the revenue mix we experienced at the fourth quarter of 2022.

Speaker 4: We expect that the full year growth in the sale of gaming machines will be driven by the introduction of new games for in-store course racing.

Speaker 4: the launch of our new Dynasty View Cabinet, and increases in overall capital spending by our casino customers.

Speaker 4: We expect revenue growth in gaming operations. This includes the revenues from our installed base of gaming machines, our digital or online gaming,

Speaker 4: and the New York Lottery Operations.

Speaker 4: While financial access transactions are currently tracking upwards on a same store basis in the first quarter of 2023, we would expect this growth of the balance of the year to correlate to the growth in the industry's growth gaming revenues. Given the continued high-level demand and ongoing customer discussions regarding their interest in our cashless digital wallet,

Speaker 4: We expect to see the continued rollout of our white label, Cast Club Wallet Technology, to new locations in 2023.

Speaker 4: We also expect to see continued growth and new market expansion from our RegTech products, as demand remains steady for these software solutions, as recently evidenced by the purchase and upcoming installation of our AML solution by British Columbia.

Speaker 4: Did it look to the levels in the third and fourth quarters of 2022? We expect our R&D expense to remain in a range of 8 to 8.5% of total revenues in 2023.

Speaker 4: We expect operating expenses of the percentage of total revenue to be slightly higher in 23 as compared to the average of the second half of 2022.

Speaker 4: This reflects the impact from the added expenses of our acquisitions, the cost of rising labor, overall price inflation, and our other growth initiatives.

Speaker 4: We expect this percentage to average lower than the 30% experienced in 2019 and 2018.

Speaker 4: I'd also note a couple of digital housekeeping items related to our 2023 annual guidance.

Speaker 4: As noted at the end of our end release, we expect detriciation and advertization to rise.

Speaker 4: This larger reflects the impact the purchase accounting on our acquisitions, which allocates a significant portion of the purchase price to amortizing intangible assets, and therefore increases our non-cash amortization expense.

Speaker 4: With the large amounts of net operating loss carry forwards, we expect our cash taxes paid in 2023 will remain minimal, similar to 2022. And we expect to record income tax provision for gap purposes in the range of 23 to 24% of pre-tax income. Again, this is consistent with the prior year.

Speaker 4: In the press release today, we also include a supplemental information on interest expense for 2023. I would make note that this interest includes both interest on our debt and the cost associated with certain commercial agreements, where we can track the third parties providing cash for easy ends of certain customer locations. We that, but so now we'll conclude our prepare remarks and turn the call over to the cooperative questions.

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Speaker 2: One moment please, I'll repul for questions.

Speaker 2: Our first question comes from David Bain with B. Riley's Securities. Please proceed with your question.

Speaker 4: Awesome, thank you. First, nice execution again and thank you for all the detail. Randy Mark, you listed multiple growth drivers for 23, you know, starting with over a thousand units and game ops, HHR, you know, video with view Australia, E-Cache, International Online.

Speaker 4: start with a larger base domestically. I can go on for a while, actually turn event replacements and I can. But if I look at all that and I look at your guidance and I understand the low end has growth, but it seems to be balanced a little bit more conservatively on the macro front, perhaps.

Speaker 4: I know there's a superfactors, but does your low end essentially call for decreased buying year-over-year, flat GGR despite the one queue trends today? And how should we look at the midpoint? Is it sort of like low growth from an industry standpoint? He just kind of helped us on that end. Yes, sure, David. Yeah, I think even in a release he talked about that the low...

Speaker 3: for the first couple of months things are seeing positive to the industry. But again, as we put this together, we don't have a crystal ball as to how the rest of the year will go. On the upside, I'm never going to get away from my conservative, I guess, reputation. But...

Speaker 3: You know, I think part of it is we have to execute on all these things, David, and I think we can, and I think we have upside even to that number, but you know, I think we are very comfortable as a team to say, look, that's the high end right now given, you know, what we're seeing, some of the integrations we have to do with the acquisitions, and you know, we have some other development items that we're doing, right? We've got Atlas that that...

Speaker 4: Okay, perfect. And then my follow-up beyond Fintech, Darren David, you know, Penn gave some or any of you. Penn gave some very encouraging commentary, I think, about the expanding demographic with cashless. Can you maybe offer some of your own?

Speaker 4: data points across your spectrum with existing in terms of volume and demographic. In terms of proliferation, I know some of the headwinds have been jurisdictions being approved. Casinos, maybe now that that's happened are casinos.

Speaker 4: seemingly getting closer to deciding what they're going to do with the tech if anything, and our CMS providers a little bit of a headwind at this point, or what's sort of the lay of the land from that perspective, if you will.

Speaker 5: Yeah, I mean, look, the growth of sort of our wallet strategy is largely as we expected. You know, I said this many times, there's things that are very evolutionary, things that are very revolutionary about what we're doing. So, you know, we feel good about our trajectory in terms of the fact that, you know, we have launched six new locations this year.

Speaker 5: We just a major tribe just launched this week actually. So, you know, 21 jurisdictions that, you know, in our range, 42 locations, you know, more than probably close around 100,000 slots that we're connected to now. So, look, I think a lot of a lot of you all might think of the strip and sort of how they're thinking about maybe their strategy. But yeah, I go to Cats

Speaker 5: we see obviously the greater growth in sort of tribal and regional markets, which again, more locals, more frequent visitation that way. And so, you know, I don't know if there's any necessarily big headwind. It's on track as far as I'm concerned. And we feel good about our trajectory. And, you know, I think the robust product that we have, which we think is leading in the space because of

Speaker 5: you know, the payments aspects of it, the loyalty aspects of it, and the the AML aspects of it, which I think are unparalleled. Okay,

Speaker 2: Thanks, Ed. Our next question comes from Barry Jonas with Truest Securities. Please proceed with your question.

Speaker 6: Thank you. I wanted to start with supply chain, maybe just a little more color on how issues are trending as of late and how that feeds into some of your margin outlook for 23. And then just also with that ASBs and Q4, we're up really nicely.

Speaker 3: Curious if that's mix related or you successfully pushing pricing. Thanks Sure, Barry, I'll take maybe the first one and then Push it back to Dean for a little bit on the on the ASP But we feel feel like our our team not feel But we believe and know that our team did a great job in managing through the challenges of you know

Speaker 3: think that you'll have less freight costs. So you know overall you know will the margin be better because of the cost side? You know there's still other costs that are increasing but I think we're going to be able to manage through that pretty well so I don't think you're going to see a huge change in that

Speaker 3: exclusive of any changes in pricing. So I think we're at a pretty good spot on the cost side. If anything, maybe slightly better because of some of those improvements on the supply chain. But again, not seeing anything that I think concerns us from that standpoint. And on the ASP, I think I'll just turn it over to Dean to talk about a little bit what happened in the quarter and why that we had a nice ASP.

Speaker 3: Thanks, Randy. On the ASC side, literally driven by TARBAT. Let's say the amount of orders that we deployed in Q4 managed some of our...

Speaker 3: our best deployments in terms of overall units at Turn event over the last couple of years for sure. So look to see a little bit more of that. And also our Empire Flex with the fully fully merchandise package seem to be a bigger driver as well.

Speaker 3: Also help with respect to to add and our player classic signature is Starting to take pretty good shape as well. So if you blend all those factors in I say is the major reason why you've seen An ASP increase. Yeah, I would just say very lucky. No, I think sometimes people forget that

Speaker 3: That's a great footprint for us, that being the determined products out there and we continue to enhance that product. And as it comes up to refresh, we try to put in newer units and then the newer systems associated with it. So we think that's again another area that should really benefit us in the future.

Speaker 6: Got it. And then just a little more fall if I could, you know, I wanted to touch on the gaming valley wind per unit in the quarter. I think it was the third consecutive quarter was down year on year. You noted some exploitation on the sequential seasonality, but how much of that also is mixed related with those sort of...

Speaker 6: longer term release units and maybe just talk about underlying growth and more and apples to apples basis.

Speaker 3: What I'd say is, you know, we look at daily win per unit as a, you know, as one data point to look at, and we've always really managed the overall revenue that we can generate from this install base. So you're exactly right. At the end of 21, and early to 22, and, you know, more than 22, I think, than 21, we...

Speaker 3: 3200 units in this all install base since 2019 and we've actually had about a 15% growth in our daily one pre-unit over that period from I'll say the 19 period till now. But we continue to manage that portfolio of installed units and you know...

Speaker 3: We, it's a capital outlay as well. So we try to manage that. And I would say, look, we feel very good about the games and themes that we have coming out for this year. We have a couple cabinets that will come out later in the year. So overall, I feel good where our install base is at. And it will really just depend on how the year.

Speaker 3: unfolds in 23.

Speaker 6: All right, well, thanks for that. Appreciate it.

Speaker 6: Got it, got it. All right, well, thanks for that. Appreciate it. Thanks, Bert.

Speaker 3: Our next question comes from Jeff Stinchall with Steve Llew. Please proceed with your question. Thanks for taking our questions. I'll start off by thanking Matt for the new roles and Randy thanks for holding on to Bill for as long as possible and deferring out that goodbye. We definitely appreciate that.

Speaker 3: Starting off here on just EBITDA guidance, recognizing that you guys don't typically guide quarterly EBITDA, but I was just hoping you could kind of qualitatively walk through some of the puts and takes on how you see seasonality playing out this year, relative to historical trends.

Speaker 3: Again, that's why we don't give up on the guidance. But I know you're trying to come around from another angle. But look, I think we do know the tier seasonality. Yeah, you do.

Speaker 3: The fourth quarter is a slower time period or from a seasonality standpoint. We also saw that in the fourth quarter there were good unit sales and that's consistent with what happened last year. And so, you know, I think some of that cadence would be...

Speaker 3: Similar to what we saw last year in 22 if you're looking at some of those things, but it's just really hard right now Jeff, you know to kind of get it quarterly when I'm really mad and kind to do so. So I'm I don't know that I'm giving you much But that's what I've given you and I am glad no I feel around as much as I can

Speaker 3: That's fair, I appreciate that's still that's still helpful. Thank you and then for for my follow up moving to the game Off this this you know just running some math based on the site and mixed percentage It doesn't look like the sequential growth and premium games still healthy, but you know below the rate you've been averaging

Speaker 3: more recently in recent quarters. Is that just typical quarterly lumpiness or should we expect growth in the NSLBs moving forward to continue to trend a bit more to non-premium versus premium versus what we've seen recently to date? Just any color there would be helpful. Sure, sure, yes. So look, I would say,

Speaker 3: We still expect the install base to grow in 2023. It won't grow in our view, but I don't expect it to grow like it did in in 22 given some of the large placements that we had, one in Delaware and a couple of placements where we had a nice share of those placements. So if you...

Speaker 3: If you pull those back, you know, we've historically, and this is a year, a few years going back, said we would grow maybe 100 to 150 units a quarter, but that can be lumpy, right? It could be a quarter where we have very little and it really kind of depends on when the opening hits. So I still expect the install base to grow in 23, but not like it did in 22. And then I would say, you know, I think we feel that at about a 49, you know, we're at 49%, a 50%

Speaker 3: premium to standard is a pretty good mix. I don't think you're going to see us grow premium more than that. We could, but I think that mix is about where we feel comfortable at because we still make very good turn on investments in what I'll call our bread and butter. And, you know, operators don't want all big premium units either. So.

Speaker 3: I think if you're doing some look there, I would say that I think we're pretty comfortable at that level. So if we grow our install base, we will grow the number of premium units. But I don't see the percentage growing substantially higher than that. Not at this time anyway, Jeff. Understood. That's helpful. Just to be clear, the year-on-year decline in guided capex.

Speaker 3: you know, is that pretty much just everything you just talked about with, you know, with the piece of GameOps installs coming in a little bit, or is there other factors that supply you anything else, you know, to consider when looking more at your data? Yeah, no, I think you're right. I think the one is the lower units that we think that we would add this year, you know, we will, you know, as we always do look at...

Speaker 3: you know, when do we have to replace units and get the right lift by doing it versus just spending capital to get to get a smaller lift. Okay, I understand. Very helpful. Thank you.

Speaker 2: Our next question comes from David Katz with Jeffries. Please proceed with your question. David, are you there? Our next question comes from Frank Pancras with his honorees with whom we engage. today.

Okay. We'll take Chad Benyon from McQuire. Please proceed with your question.

Afternoon. Thanks for taking my questions. Mark, you talked about 2.4 times leverage. I know in 22, particularly at your G2E investor day, you guys talked about some effective tuck-ins and you've highlighted some of those today.

How are you thinking about that leverage number right now? I believe it's slightly below kind of your medium term target. Given your guidance, I know there's some small headwinds on free cash flow, but how are you thinking about more potential tuck ins to kind of bolster, you know, fintech loyalty, et cetera. Alright next...

I think again, we, as you're seeing, we kind of gave our midterm target when we were high, higher than that, and we were coming down and paying down, and we've had some tremendous growth, and that obviously helps the leverage ratio as well in terms of your EBITDA growth. So, I would tell you, I think from a capital structure perspective, and actually absolute total bar, and we're at a pretty good level of where we are.

So, as earnings grow, that leverage number should come down and you know, we'll generate more cash and we'll use that tax opportunistically to invest in our business first and then look to return that to shareholders to be extent we can do so. I think we're always on the prowl looking for good tucking acquisitions. We kind of try to find those things that help us to grow into new markets and take existing products that we have.

accelerate growth. They are a fine new product that we can bring into this market to help our customers perform better and be more efficient in their operations. So I think all of those are still on the table. I think the leverage profile that we have at 2.4 right now is a good level. I tell you that the target is more now a comfort zone instead of a target. So now it gets into a below it. I think we are comfortably below it now. We will stay comfortably below it.

as earnings continue to rise and we have our normal scheduled debt repayments. And we will look to use and deploy our capital in the most efficient means possible for our shareholders. Okay, thanks. And then just kind of back on game sales, thinking about 23, with respect to the dynasty view, I believe you said this is really going to kind of open up the opportunities particularly into video.

But just trying to figure out when we should expect some of these units to take a bigger piece of your pie in the year. And if it really is like a completely new swim lane for the cabinets and the products, or if it's just kind of an extension from what you're currently offering. Thank you.

Yeah, Chad. Look, I'll add one item that Dean follow up on the unique and uniqueness in swim lanes, but look, we don't expect to have any material sales for the venue, I mean, for the view until Q2. So it really is Q2 and forward. And then Dean, maybe you can kind of add in your thoughts on a new swim lane or what you're thinking.

Chad, I would look at the ads in additional video cabinets, windlines. So we got the, I would say, larger portrait profile cabinet that will obviously continue to be part of the arsenal. But then with the view, it's a more low profile cabinet that would significant screen space for those that have seen it at GE2E. You'll know what I'm talking about.

that gives a value proposition near-door customers and want greater sight lines. So we're excited about it. The thing I would mention and Randy spot on on the Q2 side of it, that's where you're gonna really start seeing these cabinets begin to roll out. We got a solid backlog on the front end of this with some very solid kind of demand on it. So look forward to it.

Excellent. Thanks for the additional color. Appreciate it. Thanks, Chad. Our next question comes from David Katz with Jefferies. Please proceed with your question. Hi. Good morning. Apologies for earlier and thanks for taking my question. I wanted to just touch on the IT spending and the

factory consolidation that you've laid out. And just, I'd love a little more color about, you know, the IT investment and sort of what that's for and, you know, why now? And I suppose the same part of the question for the factory consolidation, you know, why now?

Thanks, David. So a couple items, you know, I'll take the consolidation first. I would say, David, you know, I've been here since the acquisition multimedia in 2014, and we always had expected at some point in time to consolidate manufacturing warehouse. We always felt like.

the production of the kiosk, although not exactly the same as games obviously, but there were synergies there. If you had the kiosk or slow in the quarter, if you utilize those people to build games. Having a central place to distribute the games out of, from a shipping standpoint, we think we'll do a little better. And it's just overall having this efficiencies of...

Everyone in the same location in Las Vegas where I think there's probably as much talent here from a manufacturing assembly is anywhere. So we had thought to do this probably at the end of 19 when we thought 2020 was going to be a great year and we obviously put it on hold. But we felt like this was the year to do it.

I really, we expect to probably save, you know, a million plus and a little over a million in...

Because a lot of other savings that could come from it, you know, long term as, you know, we're putting up the same parks in this, in one place, you know, purchasing power, things of that nature that make it a lot of sense. And I said, and I'd finally would say, look, we expect to grow, David. So, we need a bigger facility.

overall and we think this is a very efficient way to do it.

The second one is, you know, I think sometimes people lose, well, I should say lose, you know, we're in a day to day, but the amount of transactions that we process, you know, from a thin text side, and the network that we have and the IT equipment that we maintain to make sure our uptime is what it is.

is not insignificant and that hardware over time can, it gets over. So we have to replace it. We're also in the midst of upgrading our ERP system, which we think is important. So nobody likes to spend this extra capital, but we think again, as the company is growing, it's necessary, it's the right time, and we have.

the cash flow to do it. And so this is what we planned for this year. If somehow something changes, we can pivot, but I would say that the consolidation is not a changeable item. But you know the IT and ERP stuff, will it all be hit? Will it all hit in 2023?

comes from Edward Engel with the Roth M.K.M. Please proceed with your question.

Hi, thanks for taking my question and congrats on another record year. Appreciate all the color you gave on the costs for 2023, the guidance you gave. I guess it looks like again you have R&D and OpEx, your core OpEx are growing faster than revenue in 2023.

Just kind of wondering, what point do revenues actually start to outpace some of these fixed costs? Is 2023 kind of a transition year where you kind of lap into M&A and normalizing your R&D expense after maybe some under-invested empire years? Or, I mean, this is a business where you actually think that longer term, some of the corrupt access, he grows in line with revenues rather than below.

It's a great question. I think what happened in 2021-22, well, 21 we had the great growth year from the standpoint of revenues. And we were really kind of in a catch-up mode in 22 from R&D costs and operating expenses.

And so you hire those people throughout the year. So when you start twenty three, you've got to get a higher base. You're working off of. And I think we, we believe we've kind of, we've got to the level that we want to be. So we think that as Mark put in his discussion that eight, eight to eight and a half percent of R and D is about the right area. And so I expect that that the R and D and operating expenses.

won't grow, you know, you know significantly faster than revenue as it has let's say in 22 and at 23 there's going to be a little bit of it because you are getting a full annualized payroll to start. But I think you know that was important. We added, you know, Atlas is not generating revenue just yet, but it will. Some of this stuff is, some of this R&D and operating expenses really will impact 24 as well because that's when we think we'll have some

results in hopefully in Australia from Atlas, also the BLT that hopefully goes into 2024. So, you know, it's a little bit of a mixed bag, but I do think, you know, we're settled in on R&D and op-ex at those percentages.

Great, appreciate the color. And then you kind of talked about some growth drivers kind of happening throughout the year, but it kind of feels like things like HHR and the NIGaming kind of more back and weighted. So I guess I know you're not going to give corley guidance, but I guess we kind of at least assume that the second half of the year might be a bit more of your EBITDA than the first half. Okay.

Yeah, I think that's a reasonable assumption. I agree with you. You know, HHR just starting to get into iGaming has been growing pretty steadily, so our expectation is it would be growing throughout, so I'm comfortable with that assumption, which is we do expect the back half to be a little better than the front half. Our next question comes from George Sudden with Craig Howam. Please proceed with your...

Sure, I'll let Dean add a little bit, but I would say look.

Our ship's here still around that 10%. And again, this is a long-term goal. It's not something that we think was going to happen overnight. But as we get into HHR, as we get into BLT, I think those will add George over time. So I know it's a long-term goal of ours, and that's what Dean said. And I think we're very comfortable.

talked about, which are, you know, what they're strong to your point. The reality is it is long-term. I mean, we're looking to get another 50% increase from a kind of currently world-rads. So yes, Durand is point getting into all these other adjacent markets. When you look at it, it's accumulatively, absolutely. But it also is predicated on...

on the new cabinets that are coming out. And we really start in Q2 with view. So expect to see a lot of new cabinets at G2E. And I don't want to give a spoiler or a little bit early, but you're going to see some pretty incredible product come October that's even well beyond the view.

Gotcha. And then finally, Randy, someone put it in the script and you may have said it under your breath, but you mentioned that an uncertain environment could provide you with new opportunities. I'm wondering if you're starting to see some of those new opportunities and I assume you're referring more to MNA than anything else.

up at the right price, that's what we look to do. So I think you're reading the comments correctly and we'll just see what happens. But as Mark talked about, we've got a fair amount still of free cash flow after all the investments we're making this year in CapEx.

and the facility and so we're still out there looking and hopefully we'll find a few things that makes sense. Our last question comes from John Davis with Raymond James. Please proceed with your question. Hey, morning guys. Mark, first I just wanted to clarify what I think I heard was that you said the business mix, you expect to be similar.

to the fourth quarter in 23. So I assume you also mean kind of similar margins. So we should think about kind of mid 40s for the full year. I just wanna make sure I heard that correctly. Yeah, I think that's right. I think remember don't lose sight of the fact that G2E our largest gaming show of hers in Q4. So you got a little bit more of OpEx in Q4. So you probably see a little bit of.

a little bit better early on and Q4 comes back down to 11, but I think that that makes a little more equipment sales on both Bintech and game side of the business keeps that even down margin kind of in those biddish to high-ish 40s. Okay, thanks. And then free cash flow, I just want to again clarify. So we're spending 33, you're spending about $33 million you kind of called out on special projects this year between the manufacturing facility and the IT enhancements. And I think you said you spent about half that usually kind of on those IT type projects. So all else equal, you know, we should see kind of a 20 to $25 million bump in free cash flow and 20.

as those should not reoccur and kind of your capital spending on like the IT projects goes back to more of a normal rate. Am I thinking about that the right way? Yeah, you're thinking about 24 though already. Yeah, I think that's kind of what we were trying to convey. Yeah, spot on John . Okay. All right. Thanks guys. Appreciate it.

we occur and kind of your capital spending on like the IT projects goes back to more And I think about that the right way. You are thinking about 24 though already. But yeah, I think that's kind of what we were trying to convey. Yeah, spot on, John . Okay. All right. Thanks, guys. Appreciate it.

This concludes our question and answer session. I'd now like to turn the call back over to Mr. Taylor for his closing remarks. We'd just like to thank everybody for joining us today. We appreciate your interest in every and we shall be talking to you again in early May for our first quarter numbers. Thanks again. Today's conference. You may disconnect your lines at this time. Thank you for your participation. Thank you.

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