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spk06: Good afternoon. Thank you for attending today's AGS Q4 2022 earnings conference call. My name is Tamia, 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 would like to ask a question, please press star 1 on your telephone keypad. It is now my pleasure to pass the conference over to your host, Brad Boyer, Senior Vice President of Investor Relations.
spk04: Thank you, Operator, and good afternoon, everyone. Welcome to the PlayAGS Incorporated fourth quarter and full year 2022 earnings conference call. With me today are David Lopez, CEO, and Kimo Akiyona, CFO. A slide presentation reviewing our key operational and financial highlights for the fourth quarter and full year ended December 31st, 2022, can be found on our investor relations website, investors.playags.com. On today's call, we will provide an overview of our Q4 and full year 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, 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 a 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.
spk12: Thanks, Brad, and good afternoon, everyone. Q4 2022 was a record-setting quarter for AGS on many fronts. That said, I would like to highlight a few of the many impressive accomplishments from the quarter. Total company revenue increased 16% year over year to a record $82 million. Net income and adjusted EBITDA grew to quarterly records of $2.5 million and $37.3 million, respectively. Domestic EGM recurring revenue grew by 8% year over year to a record of over $47 million. Global EGM unit sales increased by more than 35% year over year to over 1,100 units. Our premium EGM install base increased by nearly 60% year over year. And table product revenue was up more than 20% year over year to approximately $4 million. All the highlights I just described were directly driven by the investments we have made into our R&D, sales, and product management teams over the past several years. Looking back, it is remarkable to think how far we have come in such a short period of time. The payoff from these investments is not only reflected in our record-setting fourth quarter results, but also in the consistent improvement in our financial performance over the past several years. Here are a couple of high-level examples. First, total company revenues have now increased sequentially in each of the past eight quarters, while adjusted EBITDA has made similar progress by growing in seven of eight quarters. Drilling a little deeper, domestic EGM RPD has held above the $30 level for the past seven quarters, while our domestic EGM install base has grown sequentially for three consecutive quarters. Looking ahead to 2023, I see a set of company-specific growth catalysts forming within all three segments of our business that should allow our operating momentum to continue. Turning first to EGM sales, our recently launched Spectra cabinet continues to serve as the star of the show. Spectra has now achieved top billing in the ILRS cabinet report for five consecutive months, with reported performance consistently exceeding two times house average. Spectra's launch titles, Long Bow Bow and Shamrock Fortunes, continue to support the cabinet's chart-topping performance, with each theme achieving a top 15 ranking for Eilers. In addition to Spectra, our first two high-denomination game themes, Mega Diamond and Gold Inferno, continue to deliver strong game performance both inside and outside of the high-limit room. Factra and our high-denom game pack a serious one-two punch by enabling us to attack various segments of the operator's floor, contributing to an increase in our average order size. Shifting to the people side of the EGM business, recent investment in R&D, product management, and sales should not only provide our team with a deeper and more diverse portfolio of products to sell, but it will also enhance market penetration in turn, strengthening returns on our investments. In 2023, we intend to nearly double our core game content releases as compared to the number of launched in 2019, allowing for more shots on goal with our customers. Finally, we recently received state level regulatory approval to begin selling our products into Colorado, Minnesota, and Missouri. three states that collectively represent an addressable market of over 40,000 units. We plan to make our initial sales into these markets later this year. Ultimately, I believe our unique blend of product, people, and new market growth catalysts should allow us to increase our share of the domestic slot sales market in 2023. Moving on to our domestic EGM recurring revenue business, although we have produced 12 consecutive quarters of premium footprint growth, we estimate we have only penetrated 65% of the addressable casino market for our products. That said, when viewed in conjunction with the over 25 new premium titles scheduled to launch throughout 2023 and the added diversity of our product offerings, we intend to expand upon our 15% premium unit mix as the year progresses. Additionally, we plan to further leverage the expanded scope of our core product portfolio and added capabilities of our product management team to further optimize the performance of our core unit footprint. All told, I believe the steady performance of our existing premium footprint, the opportunity for additional premium unit growth, and our unique set of core unit optimization tools should allow us to improve upon our record 2022 recurring revenue performance. Although it is still very early in the year, I would note 2023 is off to a very encouraging start as we set new all-time monthly record for domestic EGM recurring revenue in January and trends through February remain on a similar trajectory. Looking beyond EGMs, I'm equally excited about the outlook for our table products business. PAX S are recently launched single deck card shufflers off to a strong start with our footprint expanding to nearly 150 units at year end. With PAX approval in all major North American markets and supported by the overwhelmingly positive customer feedback we continue to receive on the product, we believe we remain in the very early stages of realizing the product's true growth potential. In addition to PAX, We also see accelerating demand for our bonus spin extreme table game progressive. At year end, BSX was installed in nearly 20 different gaming jurisdictions throughout the United States and Canada with an install base of over 400 units. Last but certainly not least, the growth prospects for our interactive segment are as bright as they've ever been. Following the recent announcement of several impactful new customer wins, including DraftKings and BCLC, our portfolio of over 30 proven AGS titles is now live in nearly every active North American jurisdiction and with all five of the highest revenue generating operators in the United States, a group that collectively accounts for over 80% of market-wide GGR. Additionally, We believe recent strategic new hires on our technical and commercial teams should meaningfully transform the trajectory of the business by accelerating the flows of AGS game content into the online channel. In summary, I believe that with the investment we have made in people, along with the momentum and potential we have in all three product lines, we are on pace to challenge our record full year adjusted EBITDA performance in 2023. Before closing, I would like to address a topic that is usually reserved for chemo, the balance sheet and deleveraging, an area where I'm happy to report achievement of our year-end net leverage target of less than four times. I want to reinforce to our investors that as an organization, we are intently focused on increasing cash flow and reducing the amount of leverage on our balance sheet via shrewd expense management and the careful and calculated reinvestment in our products, and install base. To wrap up my comments, I would like to thank our AGS team members for their hard work and dedication throughout 2022. Without you, we cannot deliver the type of record results we reported today. I truly believe we have the strongest team and deepest product lineup in my tenure as CEO, and I am greatly encouraged by what lies ahead for our company in 2023 and beyond. With that, I will turn the call over to Kimo.
spk03: Thank you, David, and good afternoon, everyone. I would like to start off today's call by reviewing a few highlights from the fourth quarter and providing some perspective on how we see each of our business segments trending as we look forward into 2023. I will also address a few items related to our balance sheet and close by sharing some thoughts on our free cash flow outlook for the current year. Unless otherwise noted, all of my forward-looking commentary contemplates macroeconomic conditions that are relatively consistent with those we are experiencing today. Turning first to our domestic EGM gaming operations business, fourth quarter revenue increased 8% year-over-year and 13% versus Q4 2019, to a new company record of approximately $47 million. Our domestic EGM install base increased sequentially for the third consecutive quarter, while domestic EGM RPD exceeded $30 for the seventh quarter in a row. Further penetration of the higher yielding premium gain market segment continues to simultaneously drive growth in our domestic install base and reported RPD. At the end of the fourth quarter, premium gains accounted for 15% of our domestic EGM install base compared to 10% in the prior year period. In addition to our sustained premium unit momentum, the successful launch of our initial gains in the higher yielding high denomination gain segment, the strong performance of our launch titles on the recently introduced spectra cabinet, continued implementation of our installed based optimization initiatives, and consistent GGR trends across our served markets further supported our record setting recurring revenue performance in the quarter. Looking ahead to 2023, we expect a strong pipeline of premium unit demand and an increasingly stable core unit footprint to support consistent sequential growth in our domestic EGM install base at a level similar to what we achieved over the past several quarters. As it relates to domestic RPD, we believe we are uniquely positioned heading into 2023 as our ability to leverage multiple company-specific catalysts should allow us to consistently deliver performance that exceeds broader industry-level revenue trends, similar to what is reflected in our Q4 2022 results. While encouraged by our sustained premium game momentum to date, our enthusiasm does not stop there, as we see an equally compelling opportunity to leverage our new chart-topping Spectra gaming cabinet, increasingly deep and diverse core game content portfolio, including our first-ever high-denomination games, and the enhanced capabilities of our product management team to further optimize the RPD performance of our core unit footprint. All told, we believe these catalysts position us to comfortably sustain our domestic EGM RPD above the $30 level for all four quarters of 2023, even in a scenario in which market-level GGR trends were to moderate slightly from 2022 levels. Shifting to EGM equipment sales, fourth quarter global unit sales eclipsed 1,000 units for the second consecutive quarter, reaching their highest level since Q4 2019. We successfully launched our chart-topping Spectra gaming cabinet during the quarter, with over 150 units sold into the market. Additionally, we benefited from the introduction of our first-ever high-denomination game content as we continue to leverage the added product diversity resulting from our recent R&D investments to capture a greater share of our customers' slot capital spend. Finally, our strategic focus on broadening our customer account penetration both inside and outside of North America further supported our Q4 unit sales performance. As we look ahead to 2023, overall market level purchasing demand continues to prove resilient as we have yet to observe any material change in our customers' purchasing behavior to date. That said, Provided the current purchasing resiliency persists throughout the remainder of the year, we believe the company-specific catalyst David laid out earlier in his prepared remarks uniquely positioned us to achieve global EGM unit sales that far exceed 2022 levels. Turning to pricing, fourth quarter global average selling price, or ASP, eclipsed $19,000 for the fifth consecutive quarter. Q4 ASP benefited from initial sales of our premium price Spectra cabinet, which carries a higher ASP relative to Orion Curve. Additionally, we were able to leverage our price integrity initiatives and the strong performance of our newly launched high denomination games to hold the line on curve pricing throughout the quarter. Looking out over 2023, as Spectra grows to comprise a greater portion of overall sales unit mix, we would expect ASP to drift slightly ahead of full year 2022 levels, all else being equal. Moving to our international EGM segment, total international EGM recurring revenue increased 12% year over year to 4.4 million, supported by the consistent macroeconomic recovery we continue to observe throughout Mexico. Additionally, our holistic approach to optimizing our global fleet of recurring revenue EGM units has allowed us to continuously strengthen the quality of our Mexico installed base in a capital efficient manner, further supporting the consistent improvement in our Mexico performance. To that end, international EGM recurring revenue has now increased sequentially for 10 consecutive quarters, dating back to Q2 of 2020, a trend we expect to continue throughout the current year. Looking beyond EGM, our table products business remains on an encouraging trajectory, with fourth quarter revenue and adjusted EBITDA each increasing by over 20% versus the prior year. While we achieved year-over-year growth across all of the table products verticals, shufflers and progressives remain our two largest strategic growth drivers. Our Pax-S single-deck card shuffler footprint approached 150 units at quarter end, nearly doubling versus the prior sequential quarter, while our progressive install base increased by over 25% year-over-year, surpassing 1,800 units for the first time. Looking ahead to 2023, we expect further customer adoption of our Pax S Shuffler, Bonus Spin Extreme Progressive, and AGS Arsenal Site License Program to result in consistent sequential growth in both our table products revenue and adjusted EBITDA as we progress throughout the year. Shifting to interactive, trends within the business remain stable throughout the fourth quarter, as revenue exceeded 2.5 million for the third consecutive quarter, while adjusted EBITDA was positive for the 12th quarter in a row. Real money gaming, or RMG, revenues increased by 7% versus the prior year, supported by continued outsized growth within the North American RMG channel, which accounted for over nearly 90% of Q4 RMG revenue mix compared to 67% in the prior year period. Looking ahead, as David indicated in his comments, we're excited by the growth prospects for our RMG business in 2023. Turning to margins, fourth quarter adjusted EBITDA margin was approximately 46%, nicely ahead of the expectations articulated on our Q3 call. We attribute our relative outperformance in the quarter to a combination of revenue upside, better than anticipated EGM sales gross margin performance, and the timing of new hires. For the full year, adjusted EBITDA margin was approximately 45%. Looking ahead to 2023, we expect our full year adjusted EBITDA margin to land in the 44% to 45% range. Our current margin outlook contemplates the following. Mixed headwinds resulting from an anticipated increase in EGM product sales revenue that exceeds the rate of growth in our EGM recurring revenue business. into our R&D organization, albeit at a more moderate rate than in 2022 to support our future growth initiatives and the impact of market level inflationary cost adjustments on our business. We believe the realization of improved EGM product sales gross margins driven by a greater mix of our value engineered spectra cabinet sales and further supply chain normalization and implementation of additional operating efficiency measures should help to offset a significant portion of the impact of items I described to have on our reported margin performance. While it is too early to formally comment on our outlook for 2024, we do believe the operating leverage we are expecting to realize as we progress throughout 2023 should continue into the next year, all else being equal, allowing for additional margin expansion. Looking at the balance sheet, we ended the year with total liquidity of just under $80 million, inclusive of the $40 million available under our undrawn revolving credit facility. Net leverage at year end was 3.8 times, in line with our expectation to exit the year with net leverage inside of four times. Supported by the company-specific catalyst emerging across all three operating segments of our business, the resilient trends we continue to observe within our day-to-day operations and our cautiously optimistic outlook for the remainder of the year, we expect to exit 2023 with net leverage in the range of 3.25 times to 3.75 times. I would note the assumptions underpinning the 3.5 times midpoint of our targeted leverage range contemplate a modest pullback in prevailing market level conditions as compared to those encountered in 2022 and in the 2023 year-to-date period. That said, should broader market conditions or trends remain consistent with those we are currently experiencing, we would expect to exit 2023 with net leverage in the bottom half of the range. Looking beyond 2023, our organization remains squarely focused on reducing net leverage to inside of three times. A goal we believe is attainable over the next 18 to 24 months based upon the current trajectory of the business. Before closing, I would like to address a few items related to our cashflow performance in the quarter and provide some perspective on our outlook for the current year. Fourth quarter capital expenditures totaled 19 million, bringing full year 2022 capital spend to approximately 70 million. Looking ahead to 2023, We expect to incur full year capital expenditures of 65 to 70 million, inclusive of anticipated capitalized R&D expenditures. As a reminder, we continue to target cash on cash payback of less than 12 months on all equipment related capital deployments. We generated approximately 6 million of free cash flow in the fourth quarter, pushing full year free cash flow to 8.5 million. Excluding one-time cash costs associated with our February 2022 debt refinancing, full-year free cash flow would have been approximately $15 million. Turning to 2023, although recent moves higher in market-level interest rates are expected to increase our debt service costs relative to the levels incurred in the prior year, we believe the anticipated growth we expect to achieve in our operating cash flows coupled with our targeted level of capital investment, should allow us to deliver a year-over-year increase in our normalized free cash flow output. From a quarterly cadence perspective, we expect to be free cash flow positive in all four quarters of 2023 after normalizing for seasonal employee bonus payments in Q1, and expect free cash flow generation to build sequentially throughout the year, with Q4 serving as the high watermark for the year.
spk06: operator this concludes our prepared remarks we would now like to open the lineup for questions absolutely we will now begin the question and answer session if you would like to ask a question please press star followed by one on your telephone keypad if for any reason at all you would like to remove that question please press star followed by two again to ask a question please press star one as a quick reminder if you are using a speakerphone Please remember to pick up your handset before asking your question. Our first question comes from David Bain with B Reilly. You may proceed.
spk08: Great. Thank you. First, I just want to congratulate you on the quarter and where I believe you guys are now. It seems like the last few years have been about stabilization, execution, improvements, and just, you know, a lot of building blocks being put in place. And, you know, we're kind of a new position now. And I guess the question is, you commented, David and Kimo, a little bit about the differences in product and positioning today versus 19. In 19, you printed about, I think it was 146 million of EBITDA. Maybe you can walk through some of the largest, and again, you may repeat yourself here, but segment differences today versus then. And one reason I ask is when we look at consensus that's at 142 million, I look at your 4Q run rate, which is about 19 levels in your quarter-over-quarter track record of growth here. Maybe there are some other factors outside of macro that we should consider there. So I'm just trying to understand if the trends and setup looks good, if not better in that period from a company-specific perspective.
spk12: All right, David, appreciate the question. I think I know... That's a multi-part question there, I think. I'm going to talk about product just a little bit, and then I'll turn it over to Kimo if he's got anything in reflection to your 2019 EBITDA commentary and everything. Obviously, from a product perspective, quite a bit's changed on a few fronts. Table games was in its infancy. Also, we did not have the pack shuffler. We were nowhere near the momentum we have now. on our progressives. So that's a big change in the business there. If you turn the clock back, I mean, we're just talking about, you know, we're comparing and topping the 2019. The premium business wasn't really in its infancy. It didn't exist. And so we've come quite a ways there now. When you look at the number of premium units we have installed, rather impressive. So that mix has changed for us considerably on the slot side. As we know, interactive as well, that's a whole new line of business for us compared to 2019 from a real money gaming perspective. So I think the setup is good for us. I think when you look at our product mix and between new products that didn't exist back then, but even just thinking in the last year or so, You look at the product mix with premium and the setup we have there and how it's still a new business and we've got a lot of white space ahead of us. I think we're sitting pretty well. I mean, even I'll sort of pivot a little bit to Q4 and Q1, if you don't mind. You know, Q4, if you look at macro GGR numbers, not us, but macro GGR numbers, I think year over year, if you look at that, you know, macro GGR was up. I mean, a percent or two. And if you look at Q3 to Q4, macro GGR was, we'll argue, flat or down a smidge. And in both those instances, we were up 8% year over year. And I think we were up about 2% Q3 to Q4 from a game ops perspective. So I think, you know, all the fruits of the labor and everything are working out. And, you know, going back to 2019, we might have had two studios. up and running, and I think we're right around seven now. And as I've always said, hey, well, we've got seven studios, but only five cylinders firing. We got seven out of seven now. And not only are they all firing away and making games, but they now all, each and every one of those seven, are producing content and their content is in the field. Now I'm going to turn it over to Kimo for whatever part of your question I missed. And maybe he can snatch that. I'm not sure.
spk03: Maybe there's a little add-on to what David already said. You know, if you look at frame up 2022, right? Like, David, if you look at what we've already achieved, like, on the revenue front, like, we've exceeded 2019 levels. I think, like, your comment specific that he picked up, if you go into, you know, kind of some forward-looking language that was in the prepared remarks, we talk about our leverage range, right? And I think, you know, specific to something I said in there was if you look at the midpoint, of our leverage guidance, so call it three and a half times. You know, in that, we're already saying that, you know, we have some macro pullback in the, you know, call it the back half of the year. But I think implicit in that, right, I think you kind of get to a point where you can see us, I'll use the word challenge, 2009 EBITDA, right? I won't say, you know, fairly easily, but we're already talking about being back at that level. So, you know, 22, we exceeded 19 level revenues. based on investments that we've made, right, primarily in R&D and our commercial team, EBITDA has lagged a little bit compared to 2019, but I think we feel really, really great about the 23 setup as it relates to EBITDA compared to 2019.
spk08: Awesome. I promise this one will be short. The Spectre cabinet, I mean, top cabinet performer according to some surveys, it's within the portrait category, which is, you know, the deepest, I believe. So, you know, how do you really support that? I mean, you talked about 30 games. Can you compare that, 30 titles, can you compare that to other cabinet launches that you've done in terms of being able to support it with content? And I ask, I know that, you know, we're doing 1,000 games historically per quarter, so it's going to have a, you know, should have a nice differential to you, but... Is this something that can really break if we have enough content and where we stand there?
spk04: Yeah, David, I'll take that. This is Brad. Great being with you today. So I think Spectra is really a culmination and reflection of all the changes we've put in place as an organization. You know, this product was very carefully launched with content that we sort of knew featured form factors that were very prominent and relevant in the market. We tested it extensively. As you may recall, we had it in the market with prominent operators prior to G2E. So we were able to sort of, you know, sell that performance, so to speak, at the show to customers. And not only that, you know, so not only the preparation on the front end, but we supported it on the back end as well, right? We're expecting to launch this cabinet with over 30 titles in year one to support it. So we have a depth of content to support the launch that we've never had before. So from the front end side, those are some highlights. I would also add, I think it's equally as important, this is a cabinet that our operation and production team sort of participated in the design of from day one. So it's a very value engineered cabinet, very margin friendly cabinet. In this current day and age of some inflationary cost pressure that everyone likes to talk about, having this value engineered cabinet has really helped us. You saw it a little bit in Q4. If you look at our product sales margin, they were up a couple hundred basis points sequentially. And as we highlighted in the prepared comments, as we move into 23 and Spectra grows to comprise a greater portion of the mix, you should see that gross margin number start to move even higher. So just a lot of really good things going on with Spectra. A lot of content, well-tested before it ever went out into the market commercially. We're really excited about the prospects for it here in Q1 and beyond.
spk08: Awesome. Thanks, Brad. Nice execution of the team again.
spk03: Thanks. Appreciate it, David.
spk06: Thank you. The next question comes from David Katz with Jefferies. You may proceed.
spk02: Thanks. Thanks for taking my question. Hi, everyone. I wanted to just go into the product sales number, which obviously stood out as having some strength. And I think you made some mention about some international sales. Can you unpack for us where those are? And I'll throw my follow-up in, which is, what are you hearing from operators in terms of their comfort with budgets and
spk12: um you know given the the economy you know question that's out there that that has yet to be answered thanks thanks david and uh thanks and i think good morning where you are so appreciate you calling in um just barely yeah it's either so late that it's early or so early that it feels late i'm not sure but um so on the on the Yeah, I think it's really Latin American sales that you're referring to. It's still pretty to sort of very small. So there's not a whole lot there to unpack at the moment. I think the potential is there in the future. Aspirationally, those numbers will be much higher going into the second half of 23 and I think into 24. But I'll refer to those as aspirational numbers. but it is something that we're focused on. I know that our product, as an update I just got, what, two or three days ago, our product performs very well down in Latin America and a couple of countries in particular, but we got some updates there, so that's going great. From the capital perspective, game sales perspective, I think it's the same thing every quarter. We don't see anything at this point in time. We're waiting, you know, as everyone that watches CNBC, we wake up every morning and we see the news and then we see numbers. We look at numbers real time here, pretty close to real time. January, we mentioned the prepare to march record. It's a record January again. So we have a record January for game ops. Game sales are strong. Customers aren't indicating that they're trimming anything. You know, there's nothing that's been said to us at this point. So as I like to say, the gaming industry has not flinched. I know that it seems like the stock market has and watchers of CNBC have flinched. But right now, gamblers have not flinched.
spk02: Understood. So if I can just follow that up quickly, right, with respect to the quarter and the game sales. we always look for sort of large chunks or lumps that may have driven some upside or would you consider it just kind of a normal kind of growth across the board of your customer base?
spk12: I'll give that one to Brad. He likes to hit this depth and breadth answer. different than it used to be.
spk04: Yeah, I think it's the latter, David. I think it's a function of really, you know, key strategic priority of ours on the sales side is to open more doors. So it's really twofold. We're opening more doors, selling into more customers, and given the added breadth of our content portfolio, you know, supported by some high-denom games, we're able to drive up our average order size. So that's really sort of the method to the madness, open more doors and sell more units into each customer. So that's what you see in that quarter. There's really no large outliers or anything in that number.
spk02: Perfect. Thanks very much, guys.
spk05: Thanks, David.
spk06: Thank you. Our next question comes from Chad Benon with Macquarie. You may proceed.
spk09: Hi, afternoon. Thanks for taking my question. Just to follow up, Brad, on the open more doors category. At the outset, David, you talked about some new markets, Colorado, Minnesota, Missouri. These are pretty big markets with good order flow. Does this kind of put you at the point where you've kind of colored in all the white space? Are there any markets left after that? And then could you just kind of remind us when you historically have gotten licensed in markets, how long it takes for you to, you know, maybe get close to what your market share is. Thanks.
spk04: Yeah, Chad, I can take that one. So, yeah, definitely, you know, three good markets for us. You know, that sort of, you know, closes the book, so to speak, from a, you know, level of materiality perspective of markets where, you know, we could get licensed or You know, we're pretty much ready to roll everywhere now in the U.S. From a timing perspective, I mean, I think conservatively speaking, you know, probably looking more to the back half, right? You know, there's a twofold process in licensing. One is to get your license, and then you have to submit your products to get them licensed as well. So, you know, we've already started that process here in Q1. on the product side. So, you know, I think, you know, I'd expect to start to see some lift there in the back half. The beauty of, you know, two of those markets is they're generally dominated by operators that we have existing relationships with in other jurisdictions. You know, if you look at Missouri, Colorado, there's a lot of sort of multi-jurisdiction operators in those markets. So, they know our product. And so, you know, we can hit the ground running there. And one other thing I would just add on your opening doors comment, I think it ties into this a little bit. If you look at it today, our sales team is effectively double the size it was in 2019. We have a new head of corporate accounts, a position that we didn't have back in 2019. We have regional sales directors overseeing all the regions. Our touch points are greater than they've ever been. And so that's really playing a key role in helping us sell into more customers. And I think you see that in the numbers.
spk12: Just to add a tiny bit there, obviously our sales team's firming up nicely, and I think we've got a lot of strong players, but obviously with core games performing, you know, and some of the figures that on multiples of three times and up and our premium business doing very well, I think between the sales people and the performance of the games, opening the door should be rather, you know, quick and easy, but Sales people listening, I don't know that they'll agree easy, but the games are doing fantastic. So we've got great opportunities there.
spk09: Thank you. Appreciate it. And then a follow-up question just on your leverage guidance, which kind of implies EBITDA, I guess somewhere between 22 EBITDA and 2019 EBITDA. Was there any assumption for kind of a Texas windfall? I know we've talked about that over the past couple of quarters. Could you just kind of update us in terms of where that is in the process and if anything's factored into your outlook there? Thanks.
spk12: Thanks, Chad. No windfall revenue in our numbers. As a matter of fact, when we do our planning over the next three and four years, we just take windfall stuff out of the equation. and we plan all our growth absent of that. Not that we don't think it's going to happen, but we don't like to count on things like that. As far as approvals, and I think you're referring specifically more to one of the tribes in Texas, nothing as of yet. They're still in the planning phases. We have always thought that it would be sometime in the first half, so we're sticking to that timeframe. We think we'll hear about their plan sometime in the first half of this year. And obviously when that happens, I think it'll not only come from us, but it'll be rather public and they'll be announcing that via press release when that time comes. But no, none of our, our numbers do not include Texas expansion.
spk09: Okay. Thank you very much. Nice quarter. Thanks, Chad.
spk00: Appreciate it.
spk06: Thank you. Our next question comes from Barry Jonas with Truist.
spk01: You may proceed. Barry, your line is open. Please ensure that you are not muted. The next question comes from Jeff Stantial with Stiefel, you may proceed.
spk05: I think we had some issues with the last question. Jeff, is that you? Hello? Yeah, yeah. Can you hear me? Yeah. Jeff, go ahead.
spk10: You're live.
spk12: You're live. Yeah, go for it, man.
spk10: Perfect. Great, great. After that, everyone. Maybe starting off on the slot side of things, more so on the leasing, you know, Keto, you had some comments there, you know, suggesting the pace of installs is likely going to continue here into 2023. Can you maybe break that down into premium as well? You know, if you think about where you're at in the J curve, conversely, maybe, you know, having already realized some of the lower hanging fruit, do you kind of expect similar momentum or similar pace of sequential growth to continue on the premium side as well. Just kind of unpacking that for you would be helpful. Thanks.
spk03: Yeah, I mean, I don't want to dive too deep into the pool there, Jeff, but I mean, you know, like we commented, I think overall true net placement should continue at a similar pace across all of the areas in slots. I think obviously, you know, we commented that we do still see really good momentum in premium, you know, I think, again, without getting too deep into the pool, I think we'll just leave it at that.
spk12: Yeah. I mean, I think the good news is we've got good momentum. Our initial launch of premium has gone very well here. We're confident not only in that, but we're confident in our ability to continue to deliver games. We think we've got some good ones on the way, but we're really more focused right now on what's out there instead of promising things that haven't happened yet. So we think we've got not only the gains, we've got the right premium cabinets, but we also have, you know, seven studios cranking away. And we've got some interesting things, like maybe some high-denon premium that we'll mix in there as well that'll be pretty fun once it comes out. So, you know, without getting into specifics, we think we've got a nice lineup and good momentum.
spk10: Great. That's, that's helpful. Thank you. Then moving on to the capital allocation, you know, you know, you talked about free cash flow sort of ramping from here as the year progresses, you know, now that leverage is, you know, we're still moving towards longer term targets, but, but making a lot of progress. Can you just kind of walk us through the priorities for, for capital allocation?
spk03: Yeah, I mean, I think it's consistent with what we've said in recent quarters, right? I think, you know, as loud as we could make it on this call, including in, like, David's prepared remarks, right, we are so focused on deleveraging. So I think, you know, when you look at capital allocation strategy, we continue to support R&D like we commented. I think one important thing to note, right, is we will continue to grow R&D, but as it relates to, you know, the rate of growth in R&D, this year will be less than last year, you know, is one thing we wanted to highlight there. But, you know, we'll continue to invest internally. And then after that, I think the sole focus will be on deleveraging and generating incremental free cash flow. That's like our number one priority.
spk10: Great. That's helpful. Thank you both. I'll pass it on.
spk05: Thanks. Have a good day. Thanks, Jeff.
spk10: Appreciate it.
spk06: Thank you. We have a question from Barry Jonas with Truist. You may proceed.
spk11: Hey, guys. Can you hear me okay now? We got you. Great. Look, you've obviously had a big change since last quarter around board and shareholder composition. Curious if there's any related changes we should expect to see from a strategic or really any other perspective. Thanks.
spk12: Thanks, Barry. Not steady yet. I mean, you know, I think our objectives, many of which Kimo just stated, are the same now as they were before. Obviously, there's different personalities in the room, but the game plan, the playbook, the long-term planning is all very similar, if not the same. Those priorities that Kimo stated, de-levering and de-levering and de-levering and generating more cash flow, And, you know, responsible EBITDA growth and really taking care of our install base in an analytical and responsible way is how we view our future. And that's the way it was before and after, you know, that shareholder and sort of board level change.
spk11: Got it. Got it. And then just to follow up, David, what's the M&A environment out there right now? Any interesting things there?
spk12: available or for sale any tuck-ins or anything else uh that you're tracking we're always poking around as you know uh we're hoping you know some food falls off the table here and there and we'll pick it up um we're not too proud you know um tuck-ins are sort of the name of the game for us in particular i would say in the table space and then obviously in the um real money gaming space So we're always poking around there. We continue to look. Obviously, with our stated goal of deleveraging, if something were to be bigger and larger, it would have to be a real banger for us to want to dive in deep there. So we continue to sort of poke around the tuck-ins. And even with tuck-ins, we want them to be damn good if we're going to move forward with them.
spk11: Great. All right. Thank you, and congrats on an impressive quarter.
spk12: Thanks, Barry. Appreciate it.
spk06: Thank you. As a quick reminder, if you would like to ask a question, please press star 1 on your telephone keypad. The next question comes from Edward Angel with Roth MKM. You may proceed.
spk07: Hi. Thanks for taking my question, and congrats on the next quarter. Just on the topic of deleveraging, I mean, certainly your cash has been building and the net debt to you has been declining pretty rapidly. Just kind of curious, at what point do you kind of start accelerating the actual pay down of debt and maybe kind of offset some of that higher interest rates?
spk03: I mean, without obviously giving you a specific number, I mean, you know, one thing is optionality is great, right? Like, I think we will obviously continue to accumulate cash on the balance sheet. But, you know, looking forward, right, I think with people still discussing, you know, the idea of any form of recession or something in the very back half of the year or possibly even as far as 2024, I think optionality is nice to have. So I'm not going to you know, give you a specific number when we'll start to actually pay down debt. But, you know, in the short term, I think we'll just accumulate cash on the balance sheet.
spk07: Great. That's helpful. And then I guess quickly on the interactive side, you kind of talked about a step up in the 2Q of this year. Is there any one thing specific that's kind of driving that, or is that just a couple integrations you have in the pipeline just get turned on?
spk04: Yeah, this is Brad. I would just say, you know, it's kind of all of the above. You know, the way I like to think about it, if you look at some of the recent announcements we've had on the customer win side, on the jurisdictional win side, you know, we're really at a point where we have all of the, you know, let's call it the meaningful pipes are open, right? And now, supported by some of the new hires we've made on both the commercial and technical sides, we're really in a position to not only accelerate the flow of our traditional brick-and-mortar Casino content into the online channel, but we also have the means now to start bringing some some online first We'll call it content into the market and also potentially, you know get some of our table content into the market So we feel really good about where we are You know, I think we have you know, as we said we're live now as you know some recent wins with with the top five players in North America that collectively account for over 80% of the market and You know, we also have a very, you know, still have a very deep presence in Europe, a market where some of this online first content we think could resonate. So, you know, we feel really good about the direction in which that business is heading really on all fronts.
spk05: Great. Thank you. Thanks, Ed.
spk06: Thank you. Yeah, no further questions at this time. This concludes today's call. Thank you for your participation. You may now disconnect your line.
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