Q2 2019 Earnings Call
Good day, everyone, you're holding for today's every holdings Inc. second quarter 2019 earnings conference at this time, we're still assembling today's audiences should be starting shortly.
Appreciate your patience and I thought you. Please continue.
Good day, everyone and welcome to the Everi Holdings Inc. second quarter 2019 earnings Conference call. Today's conference is being recorded at this time I'd like to turn things over to Mark <unk> Senior Vice President of Finance and Investor Relations. Please go ahead Sir.
Thank you Kelly and welcome to the call.
Joining me today are Microbal, our president and Chief Executive Officer.
Randy Taylor, our Chief Financial Officer.
Dean Ehrlich, our games business leader, there and Simmonds, our Fintech business leader and Harper to our general counsel.
Also joining us on the call today is bill thought who recently joined <unk> as Vice President of Investor Relations.
Bill brings a tremendous amount of experience in Investor relations, including most recently in the gaming equipment supplier space I'm sure. He is already familiar to many of you during the coming weeks he will fully assume our day to day IR activities.
Mike Randy and I will continue to be involved moving forward well Richland to Jim Leahy, a J.C. I are also continue to work closely with bill.
At the end of today's earnings release, you can find contact information for both build and the JC IR team with that I'd like to officially welcome Bill to the team and let everyone know just how pleased we are to happen here with us today.
Thanks, Mark I'm very excited to join the talented team at every as we continue to focus on driving increased shareholder value, including the expansion of our interaction with the investment community.
Let me begin the transition by reminding everyone of the Safe Harbor disclaimer in our public filings that covers this call and our webcast. Some of the comments to be made during this call contain forward looking statements and assumptions that are subject to risks and uncertainties, including but not limited to those contained in our SEC filings all of which are posted within the Investor Relations section of our corporate web site at every dot com.
These events could cause actual results to differ materially from those described in our forward looking statements and they should not be considered an indication of future performance, we do not intend and assume no obligation to update any forward looking statements. You are cautioned not to place undue reliance on forward looking statements, which speak only as of today.
In addition, this call may refer to certain non-GAAP measures such as adjusted EBITDA, adjusted EBITDA margin and free cash flow.
We reference these non-GAAP measures because management uses them in part to manage the business and to enhance investor understanding of the underlying trends in our business.
Management also believes these measures provide better comparability between periods in different years.
For a full reconciliation of our NAV of our non-GAAP measures to GAAP results.
Please see our earnings press release and related 8-K, both of which have been filed with the FCC and are available on our corporate web site within the section captioned investors.
This call is also being webcast a link to the webcast has been included within the Investor Relations section of our corporate website and a replay of the call will be archived.
With that I am pleased to introduce our president and Chief Executive Officer, Mike Rumbolz.
Well, Thank you and welcome Bill it's good to have you on board.
Good afternoon, everyone and thank you for joining us today.
This afternoon, we reported our twelveth consecutive quarter of year over year growth in both revenue and adjusted EBITDA at our sixth consecutive quarter of profitability.
Our second quarter revenue increased 9.3% to a record 129.7 billion.
And adjusted EBITDA rose, 7.7% to a record 64.1 million.
Second quarter, net income was $5.5 million or seven cents per diluted share.
Oh, no both revenue and adjusted EBITDA for our games and Fintech businesses. We're also quarterly records.
Randy will review the financial results and performance metrics in more detail with you in a few moments, but I would first like to focus on some of the key drivers of our business.
In our games business adjusted EBITDA up 34.7 million reflects continued growth across the majority of our key performance indicators.
We sold a record 1270 gaming machines in the second quarter.
And our average sales price at 17338 was essentially flat on a quarterly sequential basis and consistent with our expectations.
The 2019 second quarter was both our sixth consecutive quarterly record of unit sales and the seventh consecutive quarter of sequential quarterly growth.
This sales growth was achieved by strong demand for our mechanical reel games in our popular player classic cabinet as well as our video games in our E 43 cabinet.
Driving the success of the 43 or the new games developed specifically for this cabinet such as money ball, which we debuted at Gtwoe, we last year and Dragon surge, which is a follow up to our popular schwan game.
We also continue to release new games for our core Hds and player classic cabinets, which we expect will continue to drive healthy unit sales for these platforms.
Reinforcing our strength in high Vietnam, and mechanical reel, James I would note that players and readers selected our black Diamond of mechanical reel game as the number one best dollar slot for 2019 in the readers choice awards in the Southern California Gaming Guy.
Our progress in gaming operations is equally noteworthy as we achieved record revenue of 46 million in the second quarter.
As in recent quarters. The key driver of our revenue growth was the increase in our daily win per unit, which rose 9% to $32.26, our highest ever level in quarterly daily win per unit.
Also of note, we returned to quarterly sequential growth in our installed base during the quarter and we expect to see a similar trend in the second half of this year.
Premium units at June Thirtyth comprised approximately 25% of our total installed base compared with about 20% a year ago.
An important element in expanding our premium base has been the success that we've achieved in refreshing older legacy style premium cabinets.
At the end of 2017 legacy cabinets with only limited new content support represented 53% of our premium footprint.
Today. These older cabinets represents only 17% of the premium installed base.
Our initiative to replace these older units is a significant improvement in positioning our footprint to benefit from the new content and the strong demand for our new Empire 55, 27 cabinet.
With the base of older units, becoming stabilized and the strong demand exhibited for our player popular game titles on our E. 55, 27 cabinet, we see an opportunity for continuing growth in our premium installed base.
At the end of the second quarter, we had 55 27 placements at only 228 customer locations.
These locations represent less than half of our present market of leased customers.
With the strong current performance of our new titles the demand for these units and the development of additional new themes, we expect to see double digit annualized growth in E 55, 27 placements over at least the next several quarters.
The highest performing units within our premium segment, our our wide area progressive units or Wes.
At June 30, our installed base was 800 units, which is up 77 units or about 11% from March of this year.
Today Wap units comprised just over 6% of our total installed base.
With our existing level of casino penetration at our pipeline of new games. We believe there is an opportunity for further growth. However, expanding the wap footprint is a historically challenging process with casino operators and therefore, our expectations are for a modest level of what unit growth in the second half of the year.
A couple of our more noteworthy games currently performing very well on our Empire 55, 27 cabinet are smoking hot stuff, we could wheel and shark week.
At the end of the second quarter, we had about 700 smoking hot stuff, we get real games installed which is up more than 300 units for March 30, Onest of this year.
We continue to see strong demand building for this game theme among our lease customers.
At quarter end, we had 250 shark week units installed and that is up 168 units from the first quarter end.
The game performance of Shark week, which takes advantage of our Rina technology continues to exceed the best performing games in our portfolio.
Given the continuing strong demand, we expect to double the installed base of shark week units by the end of the third quarter.
Well, our current cabinets are performing very well for us we remain focused on R&D efforts that we expect will continue to expand our product lines cremate create more opportunities to grow our ship share and support continued growth.
I believe our teams of both cabinet and game designers have done a fantastic job in the last few years dramatically expanding and improving the slot players experience that's offered by every.
This year's G. Two we will be our most exciting G. Two we ever.
We will be showcasing our development teams efforts with the introduction of innovative new games.
In addition, these games will have significant product category debt and importantly be primarily field ready by next summer.
At Gtwoe, we will also demonstrate a brand new cabinet and we expect to be released in the first half of 2020.
We hope to see many of you there so that we can share these exciting new every game offerings with you.
Turning to interactive our interactive initiative also continues to progress nicely.
Well this venture is still a small part of our business. Our first half 2019 revenue increased about 1.7 million over the first half of 2018.
On the B to B side of interactive interactive.
Our new remote game server or Rgs for short has been live in New Jersey for real money gaming for about three months and is performing above our expectations.
We anticipate going live in Pennsylvania in the coming weeks and we're exploring additional go live opportunities in several other markets.
Now, while we had expected to see some of these revenue opportunities materialized earlier in 2019 jurisdictional approvals have taken longer than we had initially anticipated.
In our B to C direct to customer social gaming business, we continued to invest in Patriot acquisition efforts for both our Super jackpot slots and high Rolling back this digital offerings.
The early metrics are showing very promising results. In fact, we were excited to learn that our super jackpot slots social casino was rated the number one best slot mobile app in an extensive player voting pull for the readers choice awards for 2019 in the Southern California Gaming Guide.
We expect our growth in digital revenue to improve as a result of the continued investment that we're making to enhance our our rgs architecture.
Significant advantage of our flexible design is the capability to quickly add new game themes from our land based content library, thereby taking advantage of successful new themes quickly.
The launch of our cash money game is a great example, we launched this theme in may into our social slot casinos channel almost simultaneous with the launch into our land based casinos on our core Hds cabinet.
Turning now to our Fintech business.
The 2019 second quarter was a record 10th consecutive quarter for both year over year revenue.
And adjusted EBITDA growth.
Transaction volumes and total dollars processed in the second quarter continued to increase and we grew our market share.
Record second quarter Fintech adjusted EBITDA up 29.4 million was up nearly 14% over the prior year inclusive of the contributions from our acquired player loyalty technology.
In our cash access business, both total face amount processed and total number of transactions increased for the 19th consecutive quarter.
This achievement also reflects continued growth in same store locations.
Our revenues were flat overall, reflecting a challenging.
Time regarding the.
Timing of an increase in certain interchange costs that are related to our ATM transactions and our ability to pass a portion of these costs on to our customer base.
It also was challenged by recently renewed agreements with several of our large customers and Randy will walk you through the specifics of these in a few minutes.
On the equipment side Fintech equipment sales revenues in the quarter were up more than 62% or 7.8 million over the prior year quarter, and that's inclusive of 1.1 million from the player loyal loyalty business.
Now we previously highlighted for you our belief that we are in the early stages of a refresh cycle for our kiosk equipment.
At the beginning of 2019, we estimated that approximately 70% of the installed kiosks were more than three years old.
Given the high transaction volume of these productive self service kiosks, it's crucial for casino operators to keep this equipment well maintained.
This need for state of the art cash access equipment spring, both the refresh cycle and driving increased service revenues related to maintenance agreements.
As the overall base continues to expand and products grow older. We expect fintech revenue growth to benefit this year and in the coming years, we believe customers will continue to replace existing units and enter into service contracts for maintenance of their older units.
Revenue from information and other services increased 56% were $4.6 million, including 3.8 million from the acquired player loyalty and marketing business.
This revenue is comprised of our kiosks service and maintenance revenues that I just discussed.
It also includes revenue from new software license sales and recurring software maintenance and support associated with our credit information compliance and player loyalty products.
Now as anticipated revenue from compliance solutions rebounded nicely from a slow start in the first quarter and is now reporting a slight increase in revenue on a year to date basis.
Now moving into our annual guidance.
As noted in this afternoon's press release, we are reaffirming our outlook for 2019.
This includes year over year revenue growth and adjusted EBITDA in a range of 252 million to $255 million.
Additionally, we expect free cash flow to double this year and our priority is to deploy this free cash flow to pay down debt.
To that end, we paid down 15.7 million on our term loan in the second quarter.
And with that I'd like to turn the call over to Randy.
Thank you, Mike and good afternoon, everyone.
The second quarter of 2019 total revenues were a record $129.7 million.
Reflecting a 5% year over year increase in games revenue and a 14% increase in Fintech revenue.
Our player loyalty and marketing business generated $4.9 million of revenue in the quarter.
Adjusted EBITDA for the second quarter, 2019 increased by $4.6 million or 7.7%.
The $64.1 million, reflecting record adjusted EBITDA in both our games in Fintech segments.
And our games segment gaming operations revenue increased $2.3 million or 5.3% year over year to a quarterly record 46 million inclusive of $4.9 million from our New York Lottery operations and $1.3 million from our interactive business.
Well our quarter end installed base was smaller year over year. The base increased on a quarterly sequential basis the year over year decline primarily reflected the previously discussed non premium unit removals that had occurred in the second half of 2018 and early this year.
The quarterly sequential increase of 50 units primarily reflects the growth in our premium unit installed base, we expect our total install base to grow in both the third and fourth quarters, primarily due to the strong demand for our premium E 55 27 cabinet.
The year over year increase in our daily win per unit of $2.77 more than offset the impact from the lower installed base.
Although this is our highest ever daily win per unit, we expect to achieve further growth in the second half of 2019.
This expected growth will be fueled by our new premium games.
As well as a higher percentage of premium units in our installed base.
Our interactive business continues to gain traction and we expect interactive revenue to be higher in the second half of 2019 as compared to prior periods.
Driving this growth are expected expansions of our b to B real money and social gaming offerings, along with our B to C. Social gaming platforms at Super Jackpot slots and high Rolling Vegas.
Revenues from game machine sales were $23.4 million for the second quarter of 2019 compared to $22.3 million in Q2 2018.
The year over year increase was driven by 14.6% increase in unit sales.
Partially offset by a slight decrease in average selling price to 17338 in the quarter compared to 17650 in last year second quarter.
As we look to the second half of 2019, following our strong 16% increase in unit sales in the first half of the year.
We have revised our expectations for second half unit sales growth.
With the late timing at Gtwoe, we this year and the strong comp in the fourth quarter 2018, we are expecting our annual unit sales growth to be in the mid to high single digit range.
Even with this revision we believe our growth will still exceed the average growth rate of the industry for the full year interest our ASP should remain above 17000.
I also want to point out that we will be up against a tough ASP comp in the fourth quarter due to the inclusion of a high number of tournament units sold to a large strategic customer in last years fourth quarter.
Overall, our unit sales expectations translate into growing ship share and floor share for 2019.
Adjusted EBITDA margin for the game segment was 50% in the second quarter 2019, compared to 51.1% in the prior year quarter.
The decline primarily relates to higher SDMA and R&D expense, which includes higher marketing cost associated with our B to C interactive operations.
Our Fintech segment second quarter marked the 19th consecutive quarter of same store growth in both transactions and dollars processed.
However, cash access revenues were flat when compared to the prior year quarter.
The benefit to cash access services revenue from the increase in same store growth and from growing market share were primarily offset by two factors first as we highlighted on our first quarter call. We recently renewed agreements with several of our largest customers that includes slightly higher commission payments to those customers for core cash advance services.
Importantly, these extensions secure a meaningful portion of future recurring revenue and cash flow will result in slightly lower net revenues or cash access services.
We expect to see continued growth in transactions in dollars process with these customers, which should lead to future increased revenue.
Second during the quarter, we experienced an increase in certain interchange related costs for certain ATM transactions.
This change interchange fees amounted to approximately $1 million loss net revenue in the quarter.
Which all would have flowed through directly to adjusted EBITDA.
Our customer agreements generally allow us to pass along these changes as commission reductions after proper notice to our customers.
Therefore, the impact in Q2 is more akin to a onetime charge as we expect to pass along a significant portion of these higher interchange costs in future periods. We expect our cash access revenues will will return to growth in the second half of the year.
Equipment sales revenue was up more than 62% or $3 million in the quarter, primarily due to higher year over year sales, a fully integrated kiosk and other operator efficiency products at a higher average ASP.
And 1.1 million of equipment sales from our player loyalty and marketing operations.
Information services and other revenue, which includes kiosks maintenance compliance products central credit and software sales and support from our player loyalty products rose, 56% compared to the prior year period.
The primary driver of this increase was 3.8 million revenues marked player loyalty solutions, most of which are of a recurring nature.
We expect double digit revenue growth in our Fintech business for the remainder of the year.
This growth will primarily be driven by our equipment sales and information services.
Due to our strong pipeline for kiosk and other equipment sales and the inclusion of the operations from our loyalty and marketing operations.
Cash access services should continue to benefit from the overall macro economy.
Net new customer wins, and new casino openings like Encore Boston Harbor.
We also expect full year Fintech adjusted EBITDA to grow in the high single digits compared to 2018 inclusive of the contributions related to the acquired player loyalty operations.
Adjusted EBITDA margin for the Fintech segment in the second quarter was 48.8% compared to 49% for the second quarter of 2018.
Moving to the balance sheet the outstanding principal on our long term debt was 1.17 billion and we had no amounts outstanding under our revolving credit facility as of June Thirtyth 2019.
Reflecting our ongoing commitment to reduce leverage we utilize free cash flow to pay down a portion of our debt in the second quarter. We made total payments of $15.7 million on our outstanding term loan with approximately $9 million related to the 2018 excess cash flow required payment.
Going forward, we continue to utilize free cash flow to further pay down debt.
The weighted average interest rate on our total outstanding debt obligation was a privacy was approximately 6.1% at June Thirtyth and our total leverage ratio declined to 4.7 times adjusted EBITDA.
For 2019, reflecting the improvement in the interest rate environment, we have lowered our expectations for consolidated interest expense to a range of 80 to 83 million.
Our expectation includes a reduction in interest on bulk cash to approximately $7 million for the full year and 3.6 million in non cash amortization of capitalized debt issuance costs.
In the second quarter placement fees totaled 6.3 million and other capital expenditures totaled $23.5 million.
Excluding placement fees games, Capex was $20.1 million and Fintech Capex was $3.4 million.
Games segment capital expenditures related to game platform design was approximately $7 million.
And gaming equipment Capex is approximately $12.1 million.
The gaming equipment amount includes equipment upgrades replacement for existing installed base units and new trial units.
In July 2019, we made our final required placement fee payment under the player station agreement, which we entered into in 2017.
This agreement with our largest customer in Oklahoma will now continue without additional placement fees through June 2024, unless we expand our footprint.
For 2019, we expect the full year placement fees will be just over $17 million and we expect minimal placement deep payments for the foreseeable future.
Our estimate for total 2019 capex at the midpoint of our range is approximately a 107 million.
This total includes the expected capex related to our acquired player loyalty business.
Games Capex is expected to be between 85 and $87 million.
In Fintech Capex is expected to be between 20 and 21 million.
I would note that the capex spend related to customer equipment in our game segment was approximately $23.6 million for the first half of the year, which sucks debt, which suggests that we could potentially spend less than our estimated range. However, as Mike and I have previously mentioned, we expect gaming equipment expenditures to ramp in the second half of 2019, reflecting the anticipated growth in the premium installed base due to the strong demand for our E 55 27 cabinets.
Good afternoon, we reiterated our outlook for 2019, adjusted EBITDA of $252 million to $255 million.
Our full year guidance includes our foreseeable opportunities as well as the impact from the headwinds we discussed.
I would highlight that while our team is focused on addressing and mitigating the impact of these challenges.
We believe the core underlying strength in our business continues to position us to achieve our full year guidance.
For modeling of outstanding for modeling about shares outstanding we expect to remain profitable in each of the remaining quarters of 2019.
We have experienced an increase in our outstanding shares to the exercising of employee equity awards and therefore, we expect the diluted share count to increase slightly to approximately 80 million shares per quarter in the second half of the year.
We expect total depreciation amortization expense in 2019 to be approximately $130 million to $134 million inclusive of our estimate for our player loyalty acquisition.
We expect recorded income tax tax benefit at between two and $3 million.
We expect cash tax payments of approximately $1 million.
Finally, we expect free cash flow will double this year compared to 2018 free cash flow of nearly $25 million.
With that I will now turn the call back to the operator for questions.
Thank you at this time, if you do have a question that will be star one.
And again that is star one for question well hear first today from John Davis with Raymond James.
Hey, good afternoon guys.
Randy its value.
Hi, guys, maybe just talk a little bit about how the atria an acquisition is going to be disclosed the contribution in the quarter, how its going relative to your expectations and just what the outlook is there with the cross sell opportunity have you had success. So far just any kind of high level color there would be helpful.
Yeah, I would say John in a nutshell its been a very good acquisition from our standpoint.
That Darren here and he can add some color but.
I would say right now, it's probably slightly exceeding our expectations, which they were pretty high that's why we bought it that's why we did what we did but.
You know is performing very well.
Again, some that's equipment sales, which can be lumpy. So always determining when those sales were hit is a little difficult for us since we've only owned it for just over 90 days.
But were really excited about it.
It's.
Getting Derek can talk with you about the cross selling and way seeing but.
Now with that but our customers are very excited yes, I think the quarter definitely was really good and as Randy mentioned the cross sell opportunities are certainly strong we look to do that with all of our.
Fintech deals that we do we look at all of our products all of our services and let's see how we can leverage our scale to bring the loyalty platform into all of those deals so really happy with where we're at as of Q2 and are looking forward to the rest of the year with that with that platform.
Okay, and then maybe just quickly just so I understand the dynamics of the payment to yield Randy.
The interchange that goes away in the third quarter, I think you called out three or $4 million.
That goes away in the third quarter or is that something that takes some time, it's partially third quarter and fourth quarter and then based on what the impact of the renewals just trying to parse the kind of 5% or sorry, five basis point decline in the yield versus the interchange and the renewal and X. I'm, assuming that renewal and that will continue throughout the back half.
Yes, I think a couple of things so we laid out in the quarter by $1 million.
Lower net revenue hit us so and that really was like a one time because a lot of that we will pass through going forward, but you have to have noticed and so it hit in the quarter and we should be able to claw some of that back.
And see our net revenue improve the piece on the on the large customers, it's hard to parse out because.
Depends on the transactions they do what their volume is.
Yes, but it's had an impact and I haven't gotten to that level of it because it's just hard to totally parse out, but I think the million you can see.
And.
The piece on the larger customers they'll start to also start to lap. Some of these were later in the in the year in 2018. So some of that's been built in a little bit.
But I think the one that we wanted to focus on was just the interchange piece, which should.
Should not reoccur going forward.
Okay, and then last one for me I know, Mike you called out.
The slower lab growth in the back half of the year I think the win per day came in better than our expectations I think it was up a little over 9% in the quarter.
So how should we think about lower while sales and what that would imply for the win per day kind of in the back half of this year.
Yes, I mean, I don't think I don't think.
I was suggesting that we had been knocking it out of the park with our west placements to date I mean, they they tend to be smaller because there.
More difficult to get into casinos casinos.
You have a have a long history of having very long discussions with you about putting wide area progressive units on their floor and so all I was really trying to message to everyone is don't expect us to just have blow outs of of wide area progressive units throughout the industry that I'd say, it's a process and I think we've done well with the process to date, but.
We're expecting it to be.
Steady and solid during the rest of the year I mean, John I would say.
In looking at its it's not only that that may be a little slower, but the E. 55, 27, which is our premium unit is got a really nice backlog. So I do expect the win per day per unit to be up in that in that high single digit growth.
In Q3, and Q4, so thats, what youre looking at I wouldn't.
Yes, I wouldn't start I wouldn't start bringing that number. This is one of the few times that I will say hey don't.
Don't.
Don't come to conclusion, there I think right now we feel if the if the product continues to perform the way it has and we can place them, which is why some of the capex is stronger in the in the back half of the year that win per day per unit can can really hold that high single digit growth rate.
And also the wide area progressive installed base really comes to a 2020 story as we get into commercial markets and so forth. So what we wanted to do was.
Given that expectation of what 2019 looks like but that's because we're in a.
We're not in all the markets that we intend to be in.
At that point in time.
That's great news thanks, guys.
Thanks, John .
Well hear next from Barry Jonas with Suntrust.
Hey, guys Congrats bill for joining the team.
As as we sit here in August just wondering what do you think the flex points are between the high and low end of your guidance.
Oh boy.
Yeah. There is there is there is a laundry list actually.
It could be it could be right at the end clearly the macro economy will play into it.
The ability of us to to fulfill all of the orders that we have for the premium games that we are going to be putting on casino floors, our ability to increase.
The number of wide area units, our ability to continue penetration with the player loyalty.
Product that we just purchased and and continue it I mean, those are kind of the.
The topline ones, but theyre there have to be a laundry list of 15 or 20 different things that will be important for us to get all the way through and any one of them would not singularly stop us from being either at the top end to the low end, but if you had a combination come together then then that could push you one way or the other.
I understood and then we have recently seen two of your larger competitors announced deals within Oklahoma distributor. Just wondering if you see potential for any changes in market share dynamics were in properties, where you're not contractually locked in.
Well, that's always hard to predict it's clearly up with the operator.
It's their decision so it's up to them, but at the end of the day. The two deals you've seen have been from class three providers of devices and they are going to continue to provide those devices to the third party.
And they are going to continue to share and their premium unit base.
And so far I don't see any reason why our class two footprint in Oklahoma should be subject to something like that.
And Barry I would add that you know what the good content prevails simple is that our backlogs very very strong and as long as we continue to put out.
Similar successful titles that we've been putting out to this point, especially in the premium side.
It Shouldnt have an impact.
Fair enough last one just a high level one on the payments side it seems like in the non gaming world.
Cash transactions continue to lose share to other form of payments.
Where do you think we are in that cycle for the gaming world.
Well, we're well we're developing the wallet specifically because we want to be prepared in case, we're at the beginning of that cycle. Yes, I mean, I think cash is still strong for us I mean, you know if you look at what we do from a volume standpoint by transaction type.
Cash is still very strong transaction type. It provides a lot of flexibility for the consumer so that's not going away anytime soon but as Mike mentioned, we certainly have pivoted our strategy to be able to address.
Digital forms of payment to be able to.
Assist our customers with their overall strategy to become more cashless, but.
Cash is not going away anytime soon.
I think.
What what we've seen is.
Our customers want to be able to support all forms of payment.
And make it convenient for their customers. However, they want to be able to access their funds to to to have their gaming experience and Barry I would add I mean weve on the one end you have purely digital transactions on the other end yet pure cash we've introduced a product that really sits right in the center of that is quick ticket.
Where you can actually purchase the ticket directly from the kiosk.
And then and then use it on the slot floor. So it eliminates the cash but it doesn't put you into the digital universe immediately.
Yes, and I think what we see is.
The.
The desire for operators if they do have.
Some some digital business, whether that be sports wagering, whether that be interactive to be able to have a consolidated holistic experience.
With their brick and mortar so were seeing how they want to be able to to bring those two together. So I think we're well positioned to be able to do that.
Great Thats really helpful. Thanks, so much guys.
Thank you.
Again that is star one for questions, we'll move next to George Sutton with Craig Hallum.
Thank you.
Well the glass is half full Randy was good to point out some of the tough.
Q4.
Items as always is glass is half full George would like to ask Dean about some of the substantial.
New product that you have in the market and just if you can give us some more granular.
Sense, and I'm, referring to things like shark week, and smoking hot with goodwill, which you talked about but also.
Dragon surge myths and legends et cetera.
And a high level I would just tell you the amount of product releases in both our.
Standard for sale category and our premium category are pretty robust, let's say within the next couple of quarters. Two to three we'll have over 30 titles that will be introduced in both mechanical and video side, and then and premium area we have.
Somewhere between 10 to 12 that will be introduced in the next.
Few months so.
If they come out with the level of success.
That we've seen with smoke at Hardwick of wheel and shark week.
We're putting ourselves in a great position, which is why I mean, I would tell you with GE to Wi.
As Mike mentioned, we're going to have a phenomenal so I couldn't be more excited about what we're going to be disciplined.
Really there's too many to talk about specifics I mean that could go into the whole laundry list titles, but probably a lot better for another time rather than.
Just spit out a bunch of titles here right now during the conference call.
One thing I would say the one thing I would say George.
And nothing not the dean has ever been shy about about.
Letting people know how well is.
Development teams have been doing but the the best performance that we've seen in this company since.
Since we came together.
Have been in the last in the last several months in the newest titles that have come out of our development teams. So the investments that we made early on.
15, 16, 17 have now started to pay off in the end of 18 and starting in 19 and and that I think is itself a tribute to the teams coming together.
Coalescing, coordinating and and really finding their rhythm and that's why you see our newest titles doing the best at this point.
The only thing I would add if you want to couple of titles with DCIX, our new cabinet coming out.
Within the next couple of months you will see the masking karate Kid those were pretty excited about especially being on.
A brand new cabinet, we also in our mechanical side ABS old car coming out.
In the very near future. So those are.
So those are three just ride out right out off the top of my head, but there's a pretty good list of.
A premium content, that's going to hit the field shortly.
Randy you mentioned the cost of having some new trial units out there can you just give us a sense of year over year.
Trial unit numbers.
Actually the interesting thing is.
George is that our trial units are coming down.
So there are under 300.
At the end of the quarter. So I think you know.
To all the things, Mike and Dean talked about I really do you believe that we're not tapping deck keep as many trials out there and as long. So we always have trials. So I mentioned them as part of our Capex spend because it hits us every quarter, but the number of units are down which.
I don't think speaks to the product I think it speaks to the trial the product. It speaks to the fact that people are willing to take them quicker.
And so its been very thin.
Very encouraging from that standpoint.
Perfect. Thanks, guys.
You bet.
And from Stifel, we'll move to Rod.
Yeah.
Oh, sorry figured out and we'll have a question.
Yes, sorry, guys I was on mute your correct just didn't want to talk to bill.
Anyway.
So my first question is probably best suited for for Dean.
I'm just trying to get a sense of some of these early wins that youve had particularly on the premium and web site.
Could you give me a flavor for sort of how diverse that footprint is today.
By operator, it sounds like if I, if I heard your comment earlier correctly that.
The early wins as sort of to be expected have sort of been over index to the tribal properties and that there there could be a nice.
Opportunity with some commercial operators, though.
A little more reluctant to take that type of product, especially on the website, but there could be some opportunity there as we sort of transitioning to 20. So can you just give me a little bit of a flavor on the diversity of the early wins on premium.
I would say it's spread out across the board on premium non Wap side.
What I was talking about earlier, what Mike was mentioning is we have not launched wide area progressive in the commercial side at all so.
That's a growth opportunity, which will come in 2020, but I would tell you for.
The breadth of different product categories within premium we're fairly spread out across.
The major segments.
At the end of the day, what I mentioned in there Brad was that we have penetrated less than half of the casinos that we view as casinos that except lease product.
But we're only in about 200 2025, I believe with those 282 to one to 28.
And that's less than half of what we view as the market for those products and embedded I'd add on to on top it is.
Where we have them, we have limited banks and I think thats. The where we also think is as I work with both Dean and I work with.
Jesse deals from two of our game upside I mean, he is very excited about his ability to put more of.
The 55 27 that you meet that was that hit big push into this year was a new wide area Progressive was when you slow down until as Dean said, we could get into commercial be felt like.
With this cabinet and how its performing he can he can put a lot out there and look we still have some older stuff that we can replace and if I can replace it somebody at doing $20, a day and I can get to 50.
If some of these are doing it's going to be beneficial that's why I'm real comfortable with the the growth net daily win per unit brand. The best way I would wrap my arms around it now I think our level of excitement.
Really it's manifesting is we have about five different swim lanes of product categories that hit that premium segments. So between renegade and the launching of DCIX Ni 55, 27, which is killing it right now skyline revolver and then our player classic.
We have a very robust set of products coming out from each of those swim lanes. So when we talk about that 10 plus themes that are getting launched within the next few months. They cover each of those and you know what if these things do what they're supposed to do and we're seeing and we see what weve been seeing over the last few months.
We're in a great position.
Okay helpful and then.
Second part of my question around premium it's just.
Just trying to get a better sense of sort of unit growth expectations.
In the back half of the year and this is kind of more on participation in general just not exclusive to premium, but if I heard your comment correctly, Mike It sounds like so shark week, you have 250 at quarter end.
You are expecting to double that by the end of the third quarter I assume you are expecting to see some continued growth in some and smoking hot stuff.
And then you know as you just alluded to Dean you have some other products out there as well on the lease side. So.
I'm not sure what else you could say around.
How we should think about growth in units, but any color you can provide would be helpful.
No I understood Brad what we had indicated all along that we intend to have more machines at the end of the year than we had.
At the end of last year, so our installed base will grow.
The difficulty in trying to get to a more finite number for you is.
There there are tons of ins and outs that go on.
And while we get continue to get our fair share in new casino openings and expansions.
We always have to be mindful of the fact that there may be casinos out there that are.
That are undertaking and things that are in their interest.
Shifting from a class two to class three for example that will start disruption within our installed base, but our plan.
And so far it's holding true is that we're going to have more machines at the end of the year.
And then we all collectively took out several hundred units at a.
Non.
I would say a challenge to yielding.
Customer.
That we disclosed prior so you've got to bake that into it as well.
Okay helpful and then lastly.
For Dean and Mike.
It seems like the the H R M opportunity kind of continues to grow here.
In the U.S. several of the more prominent operators are are starved.
For new content new hardware.
Just curious if you guys had any thoughts high level on the market and if that would ever be anything that interested you guys. Thanks.
Well no we would I.
We would always be interested in new markets and we're always interested in looking at at new opportunities, Brad So absolutely and we have followed.
Those historical racing devices, and we're aware of who is in the space and how much content. They need and you should assume that we're always in discussions with people on potential new markets.
Thanks, guys.
Thank you thanks.
Well now hear from Brian Mcgill with Telsey Advisory group.
Yes, good afternoon, and good results and congratulations to bill as well that the Harry is back.
I have a question on game sales I guess, what's changed from the last quarter and where are we with corporate buyers in general have we had any.
Further impact on the consolidation with the operators and the industry.
All right.
Brian Thats going to be a wait and wait and see right, especially between.
The announcement with El Dorado, but I would tell you there's still there's still activity.
It's you know without going into too much detail.
It has not completely shut off there is definite activity that's happening amongst the major strategic accounts. The question is going to be how much and.
No.
As we finish out the year and then once next year comes along.
It's we got to wait and see we're not going to know until.
They sort out some of the things that they need to sort out on there and I think part of what you are hearing from us.
Frankly was that we've got some difficult comps.
Two to come up against now coming into the third and the fourth quarter.
And while we continue to grow.
It's it's not easy to grow over.
What you did the year before when you just grown over yet again.
And so as we as we look at the potential.
Question marks around some of these properties.
Capital expenditures and what they're going to have for budgets.
Or they tell us that they are not sure what they have in their budgets.
Then we just want to be mindful of that and make sure that everyone out there understands that all while we still have set our goals out there and we're going after them.
It is it is a more challenging environment than it was at the beginning of the year.
Yes, and I would say that.
What we are trying to also talk about what we did 14.6 in the quarter, we've done 16% growth.
First half of the year as Mike said tougher comps in the back half. So I just think try and you try to let people know that look we're focused on it.
Could we could we do better sure we could but I think people need to be realistic that doing 14% every quarter is difficult to do on a base that continues to grow.
But at the end at the end of the day look we've we've shown already that are least performance has been amazing on our games and his has come up significantly with the same thing is true with our standard James.
And Thats one of the reasons that you see the kind of sales increases that we've been getting so.
We're not we're not throwing the towel by any means Ryan I think it I think we ended with what Dean said, which is look we believe our our game performance is doing very well and that's where it all comes back to and if it continues.
We'll continue to sales.
That's helpful.
Then how about in Oklahoma, the Governor, there's some pretty aggressive talking about with the compact renegotiations of tribes need to spend more and I'm curious what do you think that could mean for the overall.
Industry and installed base from revenue and chairman share arrangements down there longer term.
No as much as I would love to talk politics with you I've been I've been told that Thats, probably not a good thing for me to get involved in.
Especially when our customers are on one side and the governors on the other so so I think I'll take a pass on that Brian I think it's right now.
The tribes have taken their position they banded together they are going to.
Go through the negotiations with their governor and and as a supplier to the tribes, we will support them and do what we can to help them.
As they go through these negotiations.
Okay, and then lastly.
Any update on what might happen in Texas with the Alabama shot as I mean.
Do you think that could ultimately end up as a much bigger.
Quest to facility on would you benefit from that potentially.
But.
Yes, I think thats going to depend on the courts to be honest with you.
I don't know I don't know that theres going to be much growth in Texas until.
You see the challenges that have been made.
Being overturned by one of the courts.
Yes, so far we haven't we haven't seen.
Yes, no I know, but if it doesnt I mean.
Yeah Trust me I'd, rather be in front of a judge than trying to convince this congress to pass a bill in my favor.
Now maybe maybe if it gets there I mean, it seems like you know I would love to see it happen I'm with you, 100% would love to see it happen I think it would be the best thing ever I, just know how difficult it is to get to get legislation.
All right. Thank you very much.
Thank you Brian .
And we have time for one final question, which will be from David Katz with Jefferies.
Hi, good afternoon, everyone.
David if if you needed somebody to read the disclaimer at the beginning of your earnings calls.
I mean, the short list of the absolute very best.
[laughter].
Thanks, a lot. So we we are disappointed by having have read it several times so.
Hi, I'm guessing you just read it a few times.
But.
So you you guys, probably just bought yourself some valuation.
Look I don't want to be glass half empty David but.
As we see a lot of the consolidations. So much of the earnings calls that we sit through and so much of the discourse from operators is around.
Cutting costs and one in particular within the past 24 hours talked about looking hard at participation games.
And yet you youve kind of showing up with with.
Something that obviously is quite opposed to that.
How much of that do you see beyond just the commercial market our.
Tribal entities.
Who don't talk to us quite as freely.
Looking at costs and exactly the same way and you know is is there a point at which this could start to.
Work against you because your games are good question.
But there is obviously lots of good games out there.
David I would tell you that.
I'm going to stick to the same same thing great content prevails, theres still going to be a meaningful.
A contribution to this protection particular business segment, and it's always been tight it's been tight for the last 15 years.
People being customers being very prudent with the dollars that they spent on any type of operating leases et cetera.
As I've gotten a little bit tighter.
I would say.
Yeah, sure a little bit, but you know what it's a great product find their way to the floor and that's how it's going to work its way through and David I mean as an industry. We've seen this go.
Balloon up and then come back down and there's always been a natural tension with the operators and the suppliers over over share.
Of winnings from a casino game, because the casinos always have taken the position that we spend billions of dollars to build hotel casinos and then you put up.
A $20000 Bucks on the floor and you expect to take money out of it and and Thats been there since the the wheel of fortune since Mega Bucks.
Ill bet tension has not changed the conversation around it.
Raises its head.
Sometimes.
More frequently than other times, but that tension is always there and that really hasn't changed so to Dean's point.
There will always be some games that will participate on the casino floor in any casino floor.
And the better games are the ones that are going to win out in that context.
But in addition, you also raised a good point and that is that.
Tribal operators don't don't speak the same way.
But you hear commercial operators speaking they they they take a position or have had with us at least that.
There were their partner and they expect us to produce good games to help their overall net income from their casino operations and Thats, what we are intent to do.
Got it okay nice quarter.
Nice work welcome Bill.
Thanks very much.
Thank you David Thanks, David.
And at this time I'd like to turn things back to Randy Taylor for closing remarks.
Thank you for joining us on the call. This afternoon, we look forward to seeing many of you at Gtwoe in October .
Following that we will discuss further progress on our business. When we report our 2019 third quarter results in November thanks for joining thanks, everyone.
Again that will conclude today's conference. Thank you all for joining us.