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spk07: Good afternoon and thank you for attending today's play AGS Q2 2022 earnings call. My name is Austin and I will be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you'd like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to our host, Brad Boyer. SCP Corporate Operations, and Investor Relations. Brad, you may begin.
spk03: Thank you, Operator, and good afternoon, everyone. Welcome to the PlayAGS Incorporated Second Quarter 2022 Earnings Conference Call. With me today are David Lopez, CEO, and Kimo Akiyama, CFO. A slide presentation reviewing our key operational and financial highlights for the second quarter ended June 30, 2022. can be found on our investor relations website, investors.playags.com. On today's call, we will provide an overview of our Q2 2022 financial performance and offer perspective on our current financial outlook for the business. This conference call will include the use of forward-looking statements. Any statement that refers to expectations, projections, or other characterizations of future events, including financial projections or future market conditions, is a forward-looking statement based on assumptions today. Actual results may differ materially from those expressed in these forward-looking statements, and we make no obligation to update our disclosures. For more information about factors that may cause our actual results to differ materially from our forward-looking statements, please refer to the earnings press release we issued today, as well as risks described in our annual report on Form 10-K, particularly in the section of these documents titled Risk Factors. Our commentary today will also include non-GAAP financial measures. We believe the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends in our business. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. Reconciliations between GAAP and non-GAAP metrics for our reported results can be found in our earnings release issued today. Please refer to our filings with the SEC for more information. With that, I would like to turn the call over to our CEO, David Lopez.
spk06: Thanks, Brad, and good afternoon, everyone. As I reflect upon our second quarter financial performance, I can't help but think back to the sentiment in the market exactly one year ago. As you may recall, most investors were wondering if the trends they were seeing across the broader U.S. game industry were as good as it gets. The stars all aligned for our casino operator partners in Q2 of 2021, resulting in record-setting gaming revenue for nearly every operator in the major US markets. At the time, though we were able to leverage the strength in the broader market to establish some new records of our own, I was fairly confident Q2 2021 did not reflect peak performance for AGS. Our 2022 second quarter results validated those views from one year ago, as we were able to build upon several records established last year. Let's take a few minutes to review some of the record-setting highlights from the quarter. First, Q2 2022 domestic EGM gaming ops revenue increased 1% year-over-year to a new company record of $46.2 million. Although modest growth, we are extremely encouraged by this accomplishment, considering it was achieved against the prior year period that comprised the greatest three months in the history of gaming. Second, our install base of premium EGM products nearly doubled year over year, accounting for 12% of our domestic EGM install base at the end of Q2 2022 compared to 6% this time last year. Our continued success in the premium gain category serves to highlight the strong returns we have been able to generate on tactical investments into R&D, sales, and product management teams. Third, our table product segment continues to fire on all cylinders, with revenues and adjusted EBITDA setting new all-time records in the quarter. Early commercialization of our PAX S single-deck shuffler, accelerating demand for our bonus spin extreme progressive, and growing customer adoption of AGS site licenses drove our record-setting table games performance. With all that said, I imagine some of you are probably wondering, If Q2 2021 wasn't as good as it gets for AGS, how should we think about Q2 of this year? From my perspective, though several new records were established in the quarter, I believe we can significantly build upon our recent success moving forward. Looking ahead, while I'm encouraged by our recent financial performance and excited about the direction which we are heading from a product perspective, I'm equally as enthused by the sales and product management teams we have in place to monetize our R&D investments. Over the past 24 months, we've added considerable talent to the front end of the business, which has directly supported our impressive premium install base growth and record domestic gaming ops revenue. Our recent success clearly demonstrates the power of having our R&D team work in concert with the front end of the business to allow our products to reach a broader subset of key customers. In addition to our execution-led growth catalyst, we continue to search for strategic opportunities capable of transforming the long-term growth trajectory of our business. Recent examples of these types of opportunities include our successful expansion into the historical horse racing, or HHR market, and continued exploration of avenues to accentuate growth outside of our core North American markets. Additionally, We continue to look for opportunities to further leverage key competitive advantages, including our extensive game content portfolio, unique development capabilities, and deeply rooted customer relationships to strategically broaden our Class 2 business. Recently, these efforts have extended well beyond the borders of our largest Class 2 markets. as we were able to benefit from a favorable June Supreme Court ruling to execute growth opportunities presented to us within the Texas Class II market, a market we have steadfastly supported for a very long time. While it's still too early to put hard numbers around what the Supreme Court ruling will mean for us in terms of incremental revenue or EBITDA in the long run, we believe our historical support of tribal operators within the state could present us with meaningful growth opportunities as our customers elect to expand the scale and scope of their existing Class II operations. Looking beyond EGMs, we see an equally compelling growth trajectory with our table product and interactive businesses. Supported by the three-pronged growth engine of Paxos, Bonus Spin Extreme, and AGS Arsenal, we continue to identify a long runway for growth within our table games division. Over the past few years, we have proven to be the most innovative product company in the industry, most recently highlighted by the launch of a homegrown shuffler, the Pax S. I know we have covered it on previous calls, but this is the first competitive single-deck specialty shuffler to be released in North America in over 15 years, breaking up a dominant position held by one of our competitors. Turning to interactive, we continue to make progress on our strategic plan to further leverage our high-performing game content and strong customer relationships to significantly grow our share of the North American RMG market. Q2 provided a glimpse of where we believe our RMG business is heading, as North American RMG revenue increased by over 15% sequentially. As with the land-based business, we continue to be encouraged by the strong performance and AGS game content in the online channels. To that end, I think it's important to remind everyone that we have achieved a top five supplier ranking in the Eilers Online Gaming Performance Report for six consecutive months. Moving forward, as we execute upon initiatives to accelerate the flow of AGS content, broaden our B2C operator-partner relationships, and expand our reach into untapped North American jurisdictions, we believe we will see a material acceleration of growth within our interactive business in the quarters ahead. Before closing, I would like to share some perspective on the trends we have observed within the business through July. Despite swirling uncertainty over the health of the consumer and the direction of the global economy, we have been encouraged by the incredible consistency demonstrated within our business quarter to date, as we have witnessed no meaningful change in July trends as compared to our strong June results. I would like to remind everyone we drive over 70% of our annualized revenue from recurring sources and our balance sheet is in great shape with over 70 million of available liquidity at quarter end and no maturities until 2027. With that, I will turn the call over to Kimo to walk you through our second quarter results in greater detail.
spk01: Thank you, David, and good afternoon, everyone. I would like to start off today's call by reviewing several highlights from the second quarter and providing some perspective on how we see the business trending as we look forward into Q3. I will also address a few items related to the balance sheet and close by sharing some thoughts on our capital allocation priorities for the remainder of the year. It is important to note my forward-looking commentary assumes no material change in prevailing global macroeconomic conditions. Turning first to our domestic EGM business, second quarter domestic EGM RPD increased 6% on a quarterly sequential basis to $32.55, topping $30 for the fifth consecutive quarter. The sustained strength in our domestic EGM RPD performance reflects continued successful execution of our premium game growth initiative with premium units increasing by 15% sequentially, the compounding benefit of our install-based optimization efforts, and resilient industry-wide GGR trends. Looking ahead to the third quarter, as David mentioned, trends within our domestic EGM recurring revenue business remain remarkably consistent through July. That said, we do expect industry-wide domestic gaming market revenues to moderate slightly as the quarter progresses following a historically normal seasonal pattern. Accelerating demand for our premium EGM products and further implementation of our optimization initiatives should offset a good portion of these seasonal influences, in turn allowing us to sustain third-quarter domestic EGM RPD comfortably above $30. Shifting to our domestic EGM installed base, we had a total of 16,027 units installed at the end of the second quarter, representing an increase of 112 units sequentially. Upside resulting from our outsized growth within our premium EGM installed base supported by the strong performance and growing customer adoption of Orion Curve Premium and the modest expansion of our Texas Class II footprint on the heels of the recent favorable Supreme Court ruling, was partially offset by the impact of our continuous fleet optimization efforts. We expect our domestic EGM install base to further expand in the third quarter, fueled by accelerating customer demand for our high-performing premium EGM product. Looking at EGM sales, we sold a total of 934 units globally in the second quarter, representing an increase of over 50% versus the prior year. Our global unit sales performance continues to benefit from the strategic broadening of our customer account penetration, the harvesting of initial returns from our accelerated R&D investments, further leveraging of our exceptional HHR gain performance, and complementary unit sales into select international markets. Additionally, we believe our manufacturing team's ability to maintain lead times in line with pre-COVID norms has created a key competitive advantage for our EGM sales business. Looking ahead to the third quarter, we expect to further benefit from the strategic initiatives I just described. Additionally, we have yet to observe any meaningful change in operators' capital spending behavior in response to the recent global macroeconomic volatility. Combined, We believe these factors should allow us to offset a good portion of the seasonal moderation in sales activity that often occurs in the lead-up to G2E, resulting in Q3 global unit sales volumes that are relatively consistent with Q2 levels. Second quarter domestic average selling price, or ASP, eclipsed $19,000 for the third consecutive quarter, supported by steady demand for our premium-priced Orion Curve Cabinet and continued implementation of our price integrity programs. Although anticipated compositional changes are likely to moderate our Q3 2022 domestic ASP performance relative to Q2 levels, we believe we should be able to stay around the 19,000 level for the fourth consecutive quarter. Turning to our international EGM segment, RPD increased 8% sequentially to 669, reflecting the consistent recovery we continue to witness within our Mexico business. International EGM RPD has now increased sequentially for eight consecutive quarters. We estimate approximately 93% of our international recurring revenue units were active and playable at the end of the second quarter, compared to 80% at Q1 quarter end. Our international EGM install base decreased by 428 units sequentially, predominantly driven by the imposition of a new gaming tax in one Mexican state. Looking ahead, our outlook for the remainder of the year remains unchanged as we expect international EGM RPD to continue its gradual recovery with full retractment to pre-pandemic levels occurring sometime in 2023. We sold a total of 76 EGM units into international markets in Q2 2022, bringing our year-to-date international sales to 94 units. We have identified additional international EGM sales opportunities which we expect to execute upon throughout the back half of the year. Looking beyond EGMs, our table products business delivered second quarter revenue of $3.5 million, establishing a new company record for the fourth consecutive quarter. Quarterly segment adjusted EBITDA exceeded $2 million for the first time, supported by a record-setting revenue performance and the business's strong margin profile, with Q2 adjusted EBITDA margin exceeding 57%. Looking ahead to Q3, we expect accelerating Pax S shuffler rollout momentum, steady bonus spin extreme progressive demand, and additional AGS Arsenal site license adoption to increase the rate of quarterly sequential revenue growth achieved within our table products business. Shifting to Interactive, Trends within our business continue to reflect early returns from our decision to strategically refocus our resources to better capitalize upon near to immediate term growth opportunities within the regulated North American RMG market. We generated Q2 RMG revenue of 2.1 million, representing an increase of 7% sequentially. Looking more closely to our North American RMG business, revenue increased by over 15% sequentially reaching a record 1.8 million. We derived approximately 85% of our Q2-22 RMG revenue from North America and markets compared to 66% in Q2-2021. Importantly, we expect our improving RMG revenue trend to continue into Q3, supported by the improved flow of AGS content into the online channel, the activation of new B2C customer relationships, and the expansion of our online content's reach into the additional North American jurisdictions. Turning to margins, second quarter adjusted EBITDA margin was approximately 45%, relatively consistent with the prior sequential quarter. We estimate transitory costs related to global supply chain and logistics disruption impacted our adjusted EBITDA margin performance by approximately 100 basis points on a year-over-year basis. Looking ahead to third quarter, while we are witnessing further moderation in global supply chain and logistics disruption, we continue to work through component inventory that was procured when supply chain disruption was more acute. Additionally, we also intend to make incremental R&D investments to support our long-term growth initiatives. As a result, we believe we could temporarily experience modest compression in our Q3 adjusted EBITDA margin as compared to the 45% margins achieved in the first half of the year, with improved operating leverage and further supply chain normalization producing a Q4 margin that is more in line with first half levels. Looking at the balance sheet, we ended the second quarter with net leverage of 4.1 times, supported by our solid financial performance through the first six months of 2022, the product momentum building within multiple segments of our business, and the consistency we continue to observe within our day-to-day operations. We remain on pace to deliver upon our previously issued year-end 2022 net leverage target of less than four times. Before closing, I would like to offer some perspective on Q2 capital expenditures and help frame our capital allocation outlook for the remainder of the year. Second quarter capital expenditure of $19 million, bringing our year-to-date capital spend to approximately $30 million. Gaming equipment-related investments into our EGM and table product installed bases accounted for over 60% of capital expenditures incurred year-to-date. Driven by the accelerating demand we are seeing for our high-performing premium EGM products and the emergence of incremental placement opportunities into the Texas Class II market following the favorable Supreme Court ruling in June, we now expect to incur full-year capital expenditures of $62 to $67 million. representing an increase of approximately 6 million at the respective midpoints versus our previously articulated range. We generated over 9 million of free cash flow in the second quarter, bringing year-to-date free cash flow to just under 5 million. Looking out over the balance of the year, even after taking into account our revised CapEx outlook and the recent move higher in global interest rates into account, we expect second half free cash flow to meaningfully exceed the levels generated in the first half of the year. We continue to prioritize two channels for our excess cash flow, deleveraging and investing in ourselves. While we are on pace to achieve our year-end net leverage target of less than four times, our intermediate term focus remains on restoring and subsequently improving upon the level of financial flexibility we had prior to COVID when our balance sheet was levered in the mid threes. In addition to deleveraging, We continue to prioritize high return opportunities to invest in ourselves, both through continued optimization of our AGM install base and the evaluation of strategic recurring revenue growth opportunities, both in new and existing end markets. Operator, this concludes our prepared remarks. We would now like to open up the line for questions.
spk07: Thank you. As a reminder, to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. If you're using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. Our first question is with Barry Jonas from Truist Security. Barry, your line is open.
spk04: Great. Thanks for that. I want to start with Texas. I know you said it's really too early to quantify anything, but maybe can you give more color on the magnitude of opportunity we could see there for AGS near term and longer term? Thanks.
spk06: Thanks, Barry. So a few things here. First, obviously, this is class two, which is great for us. It's right in our wheelhouse and our expertise. Also, within that sort of Class 2 commentary is that, as we said in those prepared remarks, that we've really been sticking with these tribes in Texas and supporting their situation down there. We always believed firmly that they would prevail, which is really the rights that they have all along. So that's helping us as they expand and we'll say sort of that O and E aspect and certainly focusing on the letter E. The other thing is that we've already started increasing our unit count there modestly. I'd say so the short-term effect will be modest. I wouldn't say it's small, but it's modest. And then the long-term effect, hands down, should be one of our greatest opportunities over the next few years, depending on when that expansion comes into play. But when it does happen, it's going to be exactly that, hands down, one of our best opportunities because A, our commitment, B, we're class two and this is our expertise, and C, we know these customers. I mean, the relationship on its own is fantastic. As far as giving you magnitude, it's just a little bit early on that, but you could probably make some assumptions knowing that a couple of the locations have a lot more bandwidth for growth. And when I say a lot more, it's really truly considerable. You know, when we say an expansion, it would be obviously considerable expansions for some of these guys down there.
spk04: That's great. Appreciate that, David. Just as a follow-up question, I wanted to touch on supply chain. A competitor last week noted its sales have been impacted as a result of I know you've talked about the margin hit, but are you seeing anything in terms of not being able to fulfill orders or maybe taking advantage of other people's challenges? Thanks.
spk06: Yeah, so we're not being affected at this point, and I'd say it's been steady as she goes. Our team in Oklahoma is, they're fantastic. Best, I almost said hands down again, but best proof I've worked with, in probably my entire career, they're always out in front of the ball. I like to say that by the time the senior team is asking them to jump on something, they had already jumped on it 60 to 90 days ago. Our lead times are largely the same as they've always been. So we're not losing any orders based on that. And I think we sneak in there and grab a couple orders here and there. I know of a couple of instances where others could not deliver, and I know ourselves and maybe one other company that was able to do that. So four to six-week lead time still, that's very consistent within the range that we have promised customers for years, I should say.
spk04: Great, great. All right, thanks so much. Appreciate it.
spk07: Thanks, Barry. Our next question is with Jeff Sancho from Stifle. Jeff, your line is open.
spk02: There you go. Thanks. Afternoon, everyone. Thanks for taking our questions. You know, starting here on the game ops business, I wanted to unpack one of Kimo's comments towards the end a bit more regarding yield staying comfortably ahead of $30 per day, I believe, was the verbiage. Kind of a two-parter here. First, can you just frame out some of the puts and takes you're considering when you compare it? that commentary for Q3 to the 32.55 you reported for Q2? And then second, is it reasonable to think you could revert back to positive year on year growth now that we're mostly past the difficult stimulus compares? Thanks.
spk01: Yeah, so a couple of things, Jeff. I think if, you know, the comment being, you know, comfortably above 30, I think the way to think of it is, you know, it's important to remind people that, you know, coming off of Q2, right, so Q2, would normally be, you know, historically a seasonal high, you know, across the industry and most definitely for us. So I would say Q2, generally the high watermark for the year. But, you know, offsetting that, going the other way, you know, we, again, assuming a stable macro, right? And as David sort of commented, I think in his prepared remarks, like we saw and have witnessed what July looked like, and we'll say July was great. July was pretty consistent with, you know, what June looked like. But assuming stable macro, you know, the ongoing initiative and momentum that we see in premium and additional placements in, I'll say, higher yielding placements that we've already made and will continue to make in the quarter, you know, will help us land at an RPD for Q3 2022 that will be at or maybe even slightly above, you know, Q3 of 2021. So I think that's probably a good way to frame up how we see RPD for Q3 of this year.
spk02: Great. That's really helpful. Thanks, Kimo. And then switching gears a bit, David, I believe you mentioned potentially exploring additional international markets that could complement the core North America market. Could you just expand upon that comment a little bit? Any markets in particular that stand out that you're referring to?
spk06: You know, we always try to stay away from this question, and I apologize because until we truly launch in those markets, we don't want to get carried away with mentioning them. We've been prepping in a couple of markets for years, three, four, and even I'd say as much as five years for some market opportunities in Latin America. I think that we're getting much closer to doing some soft launches. And when that time comes, we're going to get it right on top of that communication with you should those launches. We'll set almost like doing test banks in America here. When we do test banks, we get our numbers, we determine how our games do, and then we move forward based on how that performance is. So we're going to get out there. We'll do some test banks in Latin America. And then we'll talk a little bit more about, A, how it's going, and, B, maybe the size of those opportunities as we begin to roll them out. Apologize for being so vague, but sometimes from a competitive aspect, we like to keep it a little covered up there.
spk02: No, that's great. Appreciate you taking a stab at it despite the sensitivity. Both very helpful. Thank you both, and congrats on another strong quarter. Yeah. Thanks. Appreciate it.
spk07: Our next question is with Chad Baynon from Macri. Chad, your line is open.
spk05: Thanks for taking my question. Good afternoon. Wanted to ask about the premium units, which continue to grow. I think in the prepared remarks, you said it's at 12% right now. In the press release, you noted that you still have, you know, a good pipeline of new premium games. Can you just talk a little bit about, you know, maybe some near-term goals or kind of key mode to your point on, on our, can this continue to just account for a bigger piece of the portfolio, you know, through the, through the rest of the year and then looking into 23. Thanks.
spk01: Yeah. So, I mean, we haven't thrown a target out there, right, Chad. So we haven't said like, you know, our short-term hurdle is to have our, you know, goal be 20% or something of our base. But what we will say is, you know, looking in the short term that, The momentum we see going into Q3, you know, we'll see a slight acceleration in premium placements over what we just witnessed in Q2. You know, so I mean, I don't think we're quite ready to throw a target out there yet as far as, you know, what our goal is for our mix and our base. But we will say it's very encouraging that, you know, the kind of momentum and the pipeline that we see specifically, you know, behind premium for us.
spk06: I'll just add, Chad, and good afternoon. I'll just add that we know our competitors and we know one of our closest competitors. They're about 40% on that figure. I'm not hanging that out there as a goal. I'm saying that that means that those kind of things are achievable in our industry for smaller gaming suppliers. So that's not a stated goal at this point, but with where we are right now, we're at 12. Some others are above 40. So we think we have some runway, and that's driven not by that performance of other companies, but what's going to drive this whole thing is our commitment to investing in R&D and, quite honestly, the fact that we have supreme confidence in our team there and their ability to execute both from the core and premium side. But in this case, I know we're talking about premium, so... We feel very good about the future there.
spk05: Perfect. Thank you. Appreciate that. And then separately on share repurchases, I think last quarter you talked about potentially dipping your toe in the water with a keen focus on that sub four times leverage, which you're still on track to meet. With the CapEx increase because of the Texas opportunity, does that push repos kind of down the list just because of You know, the strong returns that you expect to get on Texas, maybe that's a better use of the capital at this time.
spk01: Yeah, I think, you know, I think you hit the nail on the head, right? I think it's an iterative process as far as how we think of, you know, where uses capital could be. But I think consistently the winners have been invest in ourselves. And I think based on the momentum that we see in premium, most definitely, I think the Supreme Court decision around Texas, and the opportunities that that opens up in the short term and the longer term, you know, I think it definitely puts that above something like share repurchases. But I think like in the prepared remarks, what we said, right, I think, you know, our capital allocation strategy is invest in ourselves and then de-lever. And then after that, I think we would look at something like share repurchases. So in the short term or mid-term, I think, you know, share repurchases is pushed off a little bit, but most definitely it's important to remind everyone, right, that we have that flexibility should something come up that it makes sense to be opportunistic and go out in the market and do something like that.
spk06: And that doesn't even count some of, and I know Jeff had asked the question that we give a bit of a veiled answer on, but that doesn't count that if some of those things pop for us in our expansionary sort of areas, then we want to be mindful of what capital we'll need there as well. So, you know, we're excited about a lot of these opportunities, and I think chemo obviously did a good job of framing up what our priorities there are.
spk05: Thanks, guys. Nice quarter. Appreciate it.
spk06: Thanks.
spk07: Our next question is with Edward Engel from Roth Capital. Edward, your line is open.
spk08: Hi, thanks for taking my question, and congrats on another solid quarter. Some of the industry data on the slots is really showing the replacement cycle. It feels like it's recovered pretty well this year. Just kind of based on what you're seeing on the ground, does it feel like the replacement cycle has kind of accelerated as we progressed, or does it kind of just rebate at a higher level earlier in the year and then kind of plateau from there?
spk06: uh so you're asking if i'm sorry uh the line's a little off there but you're asking if it's accelerating at this point yeah and kind of as we progress through the year has that replacement cycle kind of accelerated or kind of stepped up earlier in the year then kind of plateaued i think it i think it's been firm and consistent i don't know that it's accelerating still at this point i think it's stepped up and and and now it's been uh rather consistent I think the driving forces from here on out will be some of our product releases that are coming up. So, you know, there's some things that we're excited about as far as, you know, product release, cabinets, games, et cetera, that, you know, generally speaking should drive some. And, you know, we... Brad just passed a little bit of data on to me that Eilers does show some modest pickup. So whether we want to refer to that as acceleration or just maybe a modest pickup, that's probably the best way to put it. That's the latest data from that front, which is an independent source, as we know.
spk08: Um, perfect things for the color and then just wondering, and I know you're kind of didn't want to get too much into it, but just any update you have on Brazil, um, at least his bigger picture, it looks like there was some updates on the regulatory front row this year and just kind of wanted to see what, what you're seeing down there.
spk06: Uh, so I think that there's a, um, a few things going on in Brazil. Uh, I don't think that you're going to see any big legislative changes at the moment. You know, we are prepared for those, should they happen. But I think, you know, there could be some opportunities in Brazil over the coming, you know, years, if you want to call it that. At the moment, we will update, you know, as things transpire there. And you guys will be, I guess you could say the second or third to know. after our customers and us. But we're prepared. This is one of the regions that earlier in the call, I referred to it and I said, hey, we've been prepping for jurisdictions in Latin America for a number of years, you know, some over three, four years. And when I say over, over those figures to make sure that we're prepared for those opportunities when they pop. So we're ready. And I think that we're poised with the right products when that time comes.
spk08: Great. Thanks. Appreciate it. Thanks.
spk07: Our next question is with David Katz from Jefferies. David, your line is open.
spk00: Thank you, and good afternoon. Appreciate you taking my question. So you've talked a lot about the sort of RPD and premium mix relationship, which my sense is is probably the largest earnings lever. of in the model at this point uh and have you done any math that you've talked about where you know if your mix got to 20 uh how creative it might be to your rpd uh or you know every so such and such a number of units adds x or y you know any calibration might be helpful
spk06: Yeah, so, I mean, we've got some sensitivity analysis on that, but, you know, that spreadsheet is a pretty big spreadsheet about how it might impact our revenue, our EBITDA, et cetera. I think, you know, being that I don't have it in front of me, it's a little bit of a hard one to, you know, to dig into at the moment. I think the thing that is most glaring to me is that one, it's firming up our install base in general, right? So we're going to start seeing some sequential install base growth here like we did from Q1 to Q2. We're expecting the same or a little bit better in Q3, right? From there, obviously, this is, you know, these are better opportunities than just your average install. So we know, as you're saying, you know, from a sensitivity point of view or how it will impact us, that that has a greater impact on us than anything else. And then from there, we know that some of these installs that we can get out to, such as Class 2, where it's true participation and in many or most cases, no cap on that 80-20, those again can drive much higher RPDs, which all leads to sort of our recurring revenue run rate. I don't have the math right in front of me, and I don't want to do it off the top of my head, But if you look over time, where we used to sit in the past, sort of, I'll say in chemo late 19 or early 20, I guess the best way to say, David, would be late 2019, that we had retracted for a number of reasons. We had removed some integrity units. We had sort of reshaped the way we were doing business with a couple of customers, which contracted our recurring revenue just because of the texture and the mix of the business that we did. And now what we've done is we've not only come back from those numbers, but we're trending and our run rate is going to exceed that, you know, very soon now and actually our current run rate. would exceed that. But throughout the rest of the year, we'll prove out unit-based growth, RPD consistency, et cetera, will put us on a great trajectory for our recurring revenue base. And I think that will start to really sort of resonate with folks. And we believe investors as well. But your sensitivity and how we looked at it, yeah, we have it. I just don't happen to have it in front of us.
spk00: noted. And if I can just follow up with respect to the premium games that you're placing versus legacy, what's your experience or expectation around the duration of those games in terms of their sustainability or churn rate relative to what you already have their new versus old.
spk06: So, you know, there's, there's sort of like historical, when you look at other companies, this is new, this is new territory for us, David. And, And so because it's new territory for us, we have very limited experience because Big Red was the only product that we had as far as quote unquote premium, but it was very niche. It was a small piece of the business. What we know is this, is that there's some class three stats out there for other companies. And I think that we're exceeding those and we will be exceeding those with our performance because in class three, our premium product has been very sticky. In particular, our Curve premium product has been extremely sticky. On top of that, going back to sort of, hey, what we're good at as well, sort of what's in our wheelhouse is Class 2. Class 2 premium, you know, I can't emphasize enough, extremely sticky. So those installs will be a multiple of what we see in Class 3. But coming back to sort of the overarching topic, We are confident. We continue to launch and test new premium content. And we have a good pipeline going forward of sort of like additional games. And we'll eventually have additional cabinets, additional options. We'll have many swim lanes to jump into there. So we're confident about our R&D abilities, but we're also on track to exceed sort of the industry averages. And then I said, just to reiterate, class two, you know, super sticky. Thank you very much. Appreciate it.
spk07: Thanks, David. At this time, there are no further questions. So, as a reminder, it is star 1 on your telephone keypad. There are no further questions. So, thank you for your participation. You may now disconnect your line.
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