Everi Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 9, 2023

There are 10 speakers on the call.

Operator

Everyone. Thank you for standing by, and welcome to the Everi Holdings, Inc. 2nd Quarter 2023 Earnings Conference Call. During today's presentation, all parties will be in a listen only mode. Following the prepared remarks, the call will be open for a question and answer session.

Operator

As a reminder, this call is being recorded. Now, let me turn the call over to Ms. Jennifer Hills, Vice President Investor Relations. Please go ahead.

Speaker 1

Thank you, operator. Let me begin with a reminder that our Safe Harbor disclaimer, which covers today's Call and webcast contains forward looking statements that involve risks and uncertainties that could cause actual results to differ materially from those discussed on today's call. These risks and uncertainties include, but are not limited to, Those contained in our earnings release today and in other SEC filings, which are posted in the Investors section of our corporate website at everi.com. Because of the potential risk, you are cautioned not to place undue reliance on forward looking statements. We do not intend and assume no obligation to update forward looking statements, which are made only as of today, August 9, 2023.

Speaker 1

We will refer to certain non GAAP financial measures such as adjusted EBITDA, adjusted EPS, Free cash flow and net cash position. A description of each of these non GAAP measures and a reconciliation to the most directly Comparable GAAP measure can be found in our earnings release and related 8 ks today as well as in the Investors section of our website. This call is being webcast and recorded. A link to the webcast and a replay of today's call can be found in the Investors section of our website. On our call today are Randy Taylor, Chief Executive Officer Mark Labbei, Chief Financial Officer Kate Lowenhauf Fischer, General Counsel Dean Ehrlich, Gaines, Business Leader and Darren Simmons, FinTech Business Leader.

Speaker 1

Now I will turn the call over to Randy.

Speaker 2

Thank you, Jennifer. Good morning and thank you all for joining us. The quarter we reported revenue of $208,700,000 adjusted EBITDA of $96,100,000 and free cash flow of 47,700,000 This brings our year to date free cash flow to $87,700,000 During the Q2, we used the free cash flow generated Along with cash from our balance sheet to acquire certain assets of Video King and to return $40,000,000 to shareholders through share repurchase. Our FinTech business continued its strong revenue growth with a 13% increase over the prior year period. Our games business revenue was relatively flat as compared to the prior year, primarily due to lower unit sales in Q2 of 2023.

Speaker 2

Our unit sales in the quarter compared to a Strong year for new openings and expansions in 2022. Our FinTech business continues to perform well with strong double digit revenue growth driven by growth in dollars delivered to the casino floor for our customers and the expansion of products and services to new and existing customers. This creates a greenfield of growth opportunity that we believe will provide a runway of high single digit Revenue growth for the full year and is driven by a healthy pipeline of existing signed orders across our diverse, High recurring revenue product line including payments, regtech, loyalty and mobile solutions. As we reinvest for growth, we are executing on our multiyear strategy that centers around maximizing value to both the patron And the operator through our digital neighborhood of interconnected touch points, which we expect will grow our total addressable market.

Speaker 3

We are

Speaker 2

also expanding financial access services across attended, self-service and mobile channels. We can now fully enable cashless across the casino floor without the need for sign ups in external apps or through slot system integrations. By leveraging Concierge, our mobile payment product, QuickTicket, our cashless purchase of a traditional gaming voucher, And now quick transfer, which allows patrons to deposit their slot tickets directly back to their bank card. We extend cashless at the tables, slots and our full service kiosks. Our digital wallet continues to gain traction and we work closely with our customers as they adopt digital and cashless capabilities to provide new financial access products and services to their patrons.

Speaker 2

The wallet data is compelling with the most mature installed Properties showing that the wallet accounts for more than 10% of their overall cash to the floor and the majority of patrons using the wallet have Showing a 2.5 times increase in their number of transactions per visit and a 15% to 20% more dollars spent per visit. We've already added additional revenue generating payment types including Apple Pay, PayPal and Quick Transfer and expect this to grow as patron acceptance of the wallet increases. We remain bullish on the opportunities to grow our business with our recent acquisitions including eCash, which should drive long term growth in North American distributed gaming markets. VenueTies is also contributing to our Ongoing mobile first initiatives that will grow our base of recurring revenues and expand our market into sports, venues, entertainment, retail, hotel, Food and beverage by leveraging our combined capabilities with payments and loyalty. All of this will be on display at G2E demonstrating our gold standard Digital ecosystem of mission critical products and services.

Speaker 2

In our games business, we are executing on our extensive new product roadmap. We are moving forward with the introduction of our next generation family of new premium and for sale cabinets over the next several quarters. At the end of the Q1, we began selling the 1st cabinet in our next generation family of cabinets, the Dynasty View. With this new for sale cabinet and a growing portfolio of game themes, we expect sales of Dynasty View to continue to ramp and be an increasing contributor To our game sales in the future, building on this foundation of additional hardware, we will introduce our next for sale cabinet, the Dynasty Soul at G2E in October. The Dynasty Soul is a portrait based cabinet with a 49 inches curved screen that includes a more integrated button panel And our most powerful CPU to date.

Speaker 2

This cabinet will be available for sale beginning in Q4. However, as we mentioned in our Q1 call, we are seeing slight Near term headwinds. In the for sale category, these headwinds reflect the highly competitive dynamics of our industry in both video and mechanical games. For example, 2 of the largest suppliers with a history of success in the Mechanical Real segment have introduced new cabinets for the first time in many years. With the continued great performance of our high DNOM and low DNOM mechanical real games, we expect to continue to be a leader in this segment.

Speaker 2

Our game content and cabinet roadmap for both video and mechanical games should provide longer term growth in all our game segments despite the increased competition. Consistent with the Q1 of 2023, premium cabinets in our installed base continue to experience a slightly higher churn than we originally anticipated. We expect to launch our new premium Dynasty Dynamic and PC Reserve cabinets late in Q3. The introduction of these 2 cabinets was accelerated in our hardware plan so that we could introduce them both ahead of G2E and provide new cabinets, Premium Cabinets for an installed base. RG2e game content will include the first new game themes developed by our studio in Australia And we believe this differentiated content will be a great addition to our portfolio of games in the U.

Speaker 2

S. With a tremendous number of new products in both cabinets and game themes, cash flow to make internal investments in game development, our FinTech Digital Neighborhood and adjacent categories to set us up well for the future growth. This strategy has returned a 30% year over year increase in digital game content revenues as we continue to scale that business. Our cash deployment has also allowed us to expand into bingo with our acquisition of video team, continued our expansion in the historical horseracing, Propel our planned entrance into the distributed gaming markets in 2024 and support the expected launch of Pie, our omnichannel mobile gaming payments and loyalty platform. On May 1, we closed our asset acquisition of Video King, which provides an opportunity for every to leverage our Sales force and relationships to grow the existing business and ultimately expand our gaming content into an additional platform.

Speaker 2

The integration of these assets is well underway. We have already begun to add new customers during the Q2 and we have seen increased interest from existing Every customers in our new Bingo products. We expect to continue to integrate every products with those acquired from Video King, including offering side games on the Bingo tablets, Integrations into kiosk and ultimately the addition of our cashless wallet solutions to provide incremental growth opportunities. Now let me turn the call over to Mark, who will provide more insight into our Q2 financials and current outlook for the remainder of the year.

Speaker 3

Thanks, Randy. Let me begin by adding a little more color to our operating results. We reported year over year quarterly revenue growth of 6%, driven by a 13% growth in FinTech revenues and a 1% growth in games. FinTech continued to see a strong growth in financial Services revenue, which grew by $5,000,000 or 9%. We delivered nearly $11,700,000,000 in financial value to our customers and their patrons, which is a 10% increase compared to the Q2 of last year.

Speaker 3

Additionally, software and other revenues increased by 26% And hardware sales increased by 6% from the prior year. Adjusted EBITDA for the FinTech segment increased 6% year over year to $38,000,000 inclusive of the impact of higher cost of labor and increased R and D spending. Within the Games segment, adjusted EBITDA was 58,000,000 compared with $59,000,000 a year ago. Our installed base increased 348 units from last year's Q2, but declined by 29 units sequentially. We believe any further declines in our installed base in the second half of the year will be less than 1% of the units installed as of the end of June.

Speaker 3

Consolidated gross margin expanded by 100 basis points to 79.1%, primarily due to a mix shift to higher margin Gaming operations and financial access services from the lower margin gaming equipment and hardware sales. Consolidated adjusted EBITDA rose 2% year over year to $96,100,000 Adjusted EBITDA as a percentage of revenues was 46% compared with 48% a year ago, reflecting higher payroll expenses and R and D spending as we continue to invest for future growth. We expect adjusted EBITDA as a percentage of revenue to remain in the mid to high 40% range through the end of this year. Our adjusted EPS was $0.41 in the 2nd quarter compared to $0.48 a year ago. A lower income tax provision And a decrease in our diluted shares outstanding, primarily from our share repurchase activity, partially offset the impact from substantially higher Net interest expense incurred during the quarter as a result of rising interest rates.

Speaker 3

Interest expense in the quarter was $20,000,000 an increase of $12,000,000 from the prior year quarter. As a reminder, we have $400,000,000 of outstanding unsecured notes at a fixed rate of 5% And $586,500,000,000 of term loan that has a variable interest rate. Also included in interest expense Is the cash usage fee on our ATM bulk cash arrangements. Our estimated full year expense for our bulk cash is expected to be approximately 20,000,000 compared to only $9,000,000 in 2022. At the end of the quarter, our weighted average borrowing rate was approximately 6.6%.

Speaker 3

Based on our expectation for strong free cash flow, we remain comfortable with our current level of debt and our current cash interest costs. We ended the 2nd quarter with total net leverage at 2.5 times trailing adjusted EBITDA, which remains in line with our 2.5 to 3 times target range. We expect to remain at or below this target throughout 2023. Free cash flow generated in the quarter was $47,700,000 compared with $49,800,000 a year ago. The decline was primarily the result of $7,000,000 of increased net cash interest costs, partially offset by $6,000,000 of lower capital expenditures.

Speaker 3

Although Randy discussed our share repurchase activity in the quarter, I would add that since we began repurchasing shares of our common stock in May of last year, We have acquired 7,700,000 shares or approximately 124,000,000 of total common stock. These repurchases have more than offset new share issuances from our employee equity incentive plan and have been the primary driver of the 5,000,000 share or 5% decline in our fully diluted shares outstanding in the Q2. We have $140,000,000 remaining available to repurchase under the $180,000,000 authorized by the Board in May. We expect to maintain our current capital allocation strategy and continue to focus 1st, on the direct investments in our business that generate long term growth opportunities. 2nd, we will seek acquisition opportunities that support our product Development and growth objectives.

Speaker 3

And finally, after making these investments, we expect to utilize a consistent approach towards share repurchases, Returning a portion of the excess free cash flow to our shareholders. Moving on to our outlook. With an expectation for modest growth in the second half of twenty twenty three, above the $188,500,000 of adjusted EBITDA generated for the first half, We have revised our annual guidance. Our revised expectation is for adjusted EBITDA of between $380,000,000 to 386,000,000 and free cash flow of between $147,000,000 to $153,000,000 This level of free cash flow remains strong As the midpoint applies, we're currently trading at a free cash flow yield of approximately 12%. Due to the increased benefit of certain Discrete items related to the current year, we have reduced our expectation for the provision for income taxes on a GAAP basis to 18% to 20% of pretax income.

Speaker 3

As a result of all these changes, we have raised the range for net income and our outlook for adjusted EPS. We now expect annual net income of between $98,000,000 $106,000,000 and adjusted EPS of 1.62 $2.67 per diluted share. This estimate is based on the shares outstanding at the end of the second quarter and does not reflect any potential benefit from future share count reductions due to additional share buyback activity. And with that, I'll now conclude our prepared remarks I'll turn the call over to our operator for questions.

Operator

Thank you. We will now be conducting a question and answer session. One moment please while we poll for questions. Thank you. And our first question comes from the line of David Katz with Jefferies.

Operator

Please proceed with your question.

Speaker 4

Hi. Good morning, everyone. It is still morning for me and for you. If you could just Give us a sense on the premium participation side, sort of where we are. I know we've talked about this, Say 90 days ago, what we're going to see some new product as we get into G2E.

Speaker 4

And I just want to be clear that those are going to be relatively ready to hit the market And start to sell from that point on. Help us understand how the sort of unit flow and wind per day flow could conceivably All of it meets your expectations.

Speaker 2

Sure, David. So I think you're a couple of things. So we have 2 premium cabinets that are actually going to be out before G2E. So we expect to see some of those placed at the end of this quarter, early Q4. And then we have 2 more premium cabinets coming out, 1 in, I think, early in Q1 of 'twenty four and 1 in Q2 of 'twenty four.

Speaker 2

And look, we have the content within the roadmap to support those. So my first would be, I think We talked about the churn. There's more churn. From my viewpoint, we only really lost 29 units in the quarter. As Mark said in his opening comments, we think we may go back less than or around 1% as of where our installed base was at the end of the year.

Speaker 2

So To me, it's important to hold our installed base, which I think we are doing. Our win per day is still above that 37, which is what we told you about or what we've Talked about and that appears to be where we'll be for the full year. That's our expectation. So I think there's That should come out of these new units that get placed in the Q4, late Q3. Again, there won't be that's just Two products and then the other products come out next year.

Speaker 2

So my expectation, I think our expectation is towards the end of 'twenty three and clearly a 'twenty four turnaround is when we'll see wind per day start to creep up and when we see The installed base go back to growth. So I think we've got a great amount of new hardware coming out. And I think the fact that we're holding and people are waiting for new content in the new cabinets is a good sign and Should show growth

Speaker 3

again towards the end of

Speaker 2

the year and into next year.

Speaker 4

Got it. Understood. And if I can just follow-up quickly on the topic of leverage. I know there's been you did share a fair amount of commentary around Capital allocation. But as we look at sort of what your ideal leverage is or should be, Do you feel like that target level is and this is not a leading question in any way.

Speaker 4

Do you feel like That level, I have you somewhere between 2 and 2.5 turns. Is that the ideal place For you to sit or any thoughts on whether you could conceivably be lower or potentially higher for some reason?

Speaker 2

Yes. I think we like the between 2 and 2.5 times. Could we go a little higher? I don't think that bothers. I don't really want to go above Much more than maybe 2.75 times, but I like the 2 to 2.5 times.

Speaker 2

And so I think that's what we'll continue to shoot for. And so I think we're in a good Position from a leverage standpoint, David. So I don't see really any change in that unless there's something opportunistic that comes up.

Speaker 4

Understood. Thanks very much.

Speaker 2

Thanks, David.

Operator

Thank you. Our next question comes from the line of Barry Jones with Truett Securities. Please proceed with your question.

Speaker 5

Thanks and good morning everyone. Cash access business same store trends sounded really solid despite Flattest CGR growth across the market. Can you maybe just help us better understand that relative outperformance? Are you gaining market share? Any color would be helpful.

Speaker 3

I'll add a little bit

Speaker 2

and then Darren Ken, probably correct me, but I would say a couple of things. We do continue to win more than we lose, Barry, so that does help our overall growth in The Cash Access, I would say, we've been seeing on a same store is that lowtomidsingledigitgrowth In cash to the floor, so I think that's probably more in line with GGR. But from our standpoint, why we're performing better I think a couple of things. 1, just our ability to win more than we lose and second of all, just our ability To, I think, process more transactions with how we do our cash access. It's just we believe we have Better products, better networking, and it just allows us to put more cash to the floor.

Speaker 2

So I think it's in line, but We expect it to perform better than in the market. That's perfect, Randy. That's good.

Speaker 3

Great. And then just was hoping to

Speaker 5

get a little more color on Video King, how the integration is progressing? And also Help us think about the contribution it's adding to EBITDA guidance, at least relative to what you were thinking last quarter, if there's any change? Thanks.

Speaker 2

Sure. Look, I would say the integration is going really well. It's I actually visited that acquisition a couple of months ago. I think it's a really tight group. They're well run.

Speaker 2

We have someone separate from this Team, a gentleman named Tim Richards who oversees that. He was keen on or part a big part of the actual acquisition itself. So, so far the integration has gone very well and we're actually seeing growth more than what we had expected or Projected at the acquisition. Mark, do you want to add anything on what we've had in the guidance? I'm not sure that How much we provide?

Speaker 3

I think we haven't really provided any explicit guidance, Randy. But we certainly think as we've talked about the acquisition, we kind of framed out that we think It could be about $7,000,000 or so EBITDA contribution on an annualized basis for us. And again, we think there's tremendous opportunities to take That core product and expanding our existing customer set and really see some nice growth in future periods as we get it integrated and get some of our other products layered in on.

Speaker 5

Great. Thanks so much guys.

Speaker 6

Thanks, Barry.

Operator

Thank you. Our next question comes from the line of Jeff Stanchal with Stifel. Please proceed with your question.

Speaker 6

Hey, good morning guys. Thanks for taking our questions. Starting off here on the slot sales side of things, which appears to be sort of the main incremental takeaway relative to When we last spoke, Randy, whoever wants to take this, could you just maybe add some color on what specifically you see us driving Some of the softness you're calling out for the back half, are you seeing a slower ramp in Dynasty View than you had previously modeled? Is it more of the competition you're seeing in steppers? Is it just competition broadly speaking?

Speaker 6

Just any additional context to help frame this shift in expectations would help. Thanks.

Speaker 2

Sure, Jeff. I mean, I think you've nailed it pretty much. I would say well, I'd say 2 things, probably not on one of them. But as we look to the back Couple of things, right? We had a really strong back half of the year in 2022 and that included a fair amount of steppers.

Speaker 2

And as we went into Q1, we still had a very nice share of stepper sales. Q2, we saw a decline in that. And look, we I'd always expected that there would be some pressure on our mechanical cabinet sales, In Q2, we think really operators are divvying that up more than they have in the past. I think we probably got more than our fair share in the past, but they now have a product I think operators are sharing. So the real impact from my standpoint is that we had expected a better Amount of sale of steppers in the back half and now as we see Q2 wrapping up, we expect that's going to be less.

Speaker 2

I think the video product is ramping, but and we had thought that, that ramp would kind of offset the stepper impact, But that's been a little bit more and so it's not quite offsetting it. We know we have a new for sale coming at the end of this year. So I still think there's A lot

Speaker 7

of growth opportunity for us.

Speaker 2

And I would say, look, our product in the mechanical is still doing very well. I mean, We rank high in EILERS in both high DNOM and low DNOM. So we're happy with the product, but it's I'll say the amount of impact on our projections for the back half of the year really needed to be revised based on what we saw in Q2.

Speaker 6

Okay. That's really helpful. Thanks, Randy. And then sticking on this theme, but shifting and thinking about things a little bit more strategically, given What you're seeing, some of these incremental, we'll call it changes in operator purchasing behavior, how they're spreading out, There, how they're purchasing between the different suppliers. Has this changed your R and D strategy at all?

Speaker 6

I guess what I mean by that is, Does it make sense to start to invest a little bit more in different categories than others as your view of the market continues to evolve? Let me know if that makes sense.

Speaker 2

Yes. No, you're spot on, Jeff, and it's where I think the game team has been. And I mean, Dean can add a little bit. Clearly, we know that our greenfield is in video, and that's where we're putting our resources to. We have a great share and a great product in the stepper side, and we do feel like we've got new cabinets and we've got content to back that up.

Speaker 2

So The R and D is focused on the video because we think that's where we can make most of our progress and growth. I don't know if you have anything else to add in there, Dean.

Speaker 4

No, you covered it.

Speaker 6

Okay, great. Thanks. That's really helpful. Thanks, Randy. I'll pass it on.

Speaker 6

Thanks, Jeff.

Operator

Thank you. Our next question is from Chad Beynon with Macquarie. Please proceed with your question.

Speaker 8

Good morning. Thanks for taking my question. On the FinTech side, just a high level question. There's been some movement, I guess, in the last Quarter 6 months from some of your competitors. Just regarding how big of a push they're making into this space, Has anything changed in terms of how you view partnerships in the industry or kind of your outlook on What the FinTech business can be in the next 2 to 3 years as acceptance takes further hold?

Speaker 8

Thanks.

Speaker 2

Thanks, Chad. I'll try to I think I can understand. Look, I would say it's still competitive. I know we've had a couple of changes where Competitor maybe being a little more aggressive, but I will say there's every deal that we go into because I Listen on the calls with Darren and Darren and I talked quite a bit, it's competitive, whether they're a smaller provider or a bigger provider. So I think It will always be competitive, but we go with our suite of products and our ability to provide more and in our view better product.

Speaker 2

So as I said earlier, we generally win more than we lose and it really doesn't change our outlook on FinTech. We think it's a great business. We think that cashless will continue to grow. We think that wallet will continue to grow and we think the overall omnichannel with Our byproduct and just adding loyalty and payments to that and hopefully adding payments to bingo. There is I think There are a number of other places that FinTech can grow.

Speaker 2

And so it really hasn't changed our, I'll say, bullishness on the FinTech side of the business.

Speaker 7

Yes. I think

Speaker 2

Chad, I think what

Speaker 7

I would just add a little bit is, what we've been working on as Or as again, our overall sort of digital strategy, which includes cashless and overall just a lot of mobile strategies, We continue to create a tremendous amount of value in the diverse and robust product set that we have As we kind of mentioned in the call there. And so it really gives us, in my view, A differentiated platform to offer to our customers because it's just not a one trick pony about an app that could do transactions, right? Because the reality is, it's how it's integrated across the ecosystem that becomes very important. And For example, something like a video game, we obviously believe that we've got significant opportunities to bring what I would say is our content Into that platform, which is payments and loyalty and other things that we believe will create again more tremendous value across What we provide to our customers because again, the more customers take with our products, the greater the value in terms of what we're providing. And Long term with FinTech, again, one of the acquisitions that we made with VenuTize last year, again, we are really thinking about just not The gaming floor, because what we're seeing from operators is trying to create value just across their enterprise, which includes Stepping outside of that, which is hotel, retail, food and beverage, the venues, sports relationships, sports teams relationships, league relationships.

Speaker 7

And So that is our long term strategy that we've been executing now for a few different years. And so I think we really start to gain traction As we move forward and so that's been our goal and that's what we've been executing on. And as Randy said, I think we've got a Significantly different in product that we've been investing for a long time and it gives us the layup long term.

Speaker 8

Thanks. Appreciate that, Darren. And then on the iGaming business, some nice sequential growth. I know you guys have talked about launching in a bigger way into UK, Which is the biggest market in the world currently for iGaming. Anything you can talk about there in terms of Partner signings or titles or games that are kind of working in the market and how we should think about when you can Have a bigger presence in this market and what it would mean to financials in 2024 and beyond?

Speaker 8

Thanks.

Speaker 2

Yes. Look, I think the one thing that I can add and I think we talked about it, we do have our U. K. License now, but integrating in the U. K.

Speaker 2

Is a little And how we're doing here in the U. S. So I think we're on plan, but that plan really is probably late this year into next year. But I think once we get in the U. K, it allows us then to expand outside of that and grow that digital Business and we are still very excited about getting outside of just the U.

Speaker 2

S, getting in the U. K. But I would say we're on target, On plan and I'm very pleased with where we are right now on the digital side.

Speaker 7

Thanks. Appreciate it.

Speaker 2

You bet. Thank you.

Operator

Thank you. Our next question comes from the line of Edward Engel with ROTH Capital Partners. Please proceed with your question.

Speaker 9

Hi. Thanks for taking my question. You've talked about some product releases in the first half of next year as well. Were any of those originally expected to kind of happen in the second half of this year? And then would they be pushed back just a little bit?

Speaker 2

I think we're talking about the premium products and no, that's really not the case. We actually pulled forward a couple of the cabinets into The Q3 of this year, I think we anticipated Having to have new cabinets for our installed base and I think the games team was set debut everything at G2E, but given kind of the pressure, we pulled those up. But the 2 bigger cabinets for next Really, I think, were planned in the Q1 and Q2 of next year. Our goal is always to show at G2E what we can put in the field Prior to summer of the next year. So, and you also have to have the content behind that and that's what we're working on.

Speaker 9

Got it. Thanks. Just wanted to confirm that. And then I guess kind of bigger picture, I guess, once we kind of get through this little air pocket of product leases Kind of in the Q2. When you move into next year and even beyond that, are we going to have a much more consistent kind of cadence of product releases?

Speaker 2

That would be our intention, most definitely. I mean, look, it's I would say I'll stop there. That's our intention that we would have a much more consistent cadence and not have so much hardware at one time, but That's where we're at.

Speaker 9

Great. Understood. Thank you.

Speaker 2

Thank you.

Operator

Thank you. Our next question comes from the line of George Sutton with Craig Hallum. Please proceed with your question.

Speaker 4

Thank you. A question for Darren. I admittedly have never run a casino, but I think if you laid out the statistics that you're seeing with the mobile wallet where You're getting a 15% to 20% spend lift with those customers. I'm just not sure why I wouldn't The aggressively adding a mobile wallet. So can you just walk through the thought process that you're hearing back as you're pitching this offering?

Speaker 7

Look, I think the data that we have is very compelling. And as we said in the prepared remarks, we talked about What some of the more mature properties that we have have converted to cash flows. And in fact, I think the highest That we have is about 14% of the overall cash to the floor has gone to wallet. Those are the trends that we're seeing now. And so, I would say the conversations are great that we're having with our customers.

Speaker 7

We've got a terrific pipeline. We're expecting to A number of properties and operators here through the end of this year. So, I don't know if there's any Real difficulty with the conversations. It's just they're all sort of again retrenching after coming out of Our 2020, 2021 and 2022 sort of change in dynamics of their business and Just sort of by getting a cadence and now making those investments for what they need to do and thinking very strategically about it, which We've always said it's important, right? This is just not a one trick thing.

Speaker 7

It needs to be part of an overall digital strategy. So I think the conversations We've got a lot of projects in flight right now and I think we expect that to continue To ramp, again, not dissimilar to when Tito came into the market, right, and it wasn't an overnight success. It just ramped up over the years. We expect the exact same thing, because even as you recall, the TETO data was terrific. I mean, in terms of what how it Was helping performance.

Speaker 7

And so again, I think the same thing makes us compelling and I think operators are adopting it at sort of The rate that they want to go to as far as their overall strategy, which is what they're all working on.

Speaker 4

Great point. Quick question for Mark. You mentioned from a buyback perspective, you would effectively use a portion of your free cash flow to do so. I'm just curious, are you Potentially reactive to weakness in the stock. I mean to the extent that we're seeing weakness today, would that elevate your interest Or plans relative to the percentage of free cash flow?

Speaker 3

We've always been pretty clear on our capital allocation strategy that the best investments are first and Foremost investing in building off from within, looking at strategic alternatives in terms of Acquisitions tuck ins maybe to accelerate growth, get us into new markets. And that third kind of piece was a share repurchase or returning capital to shareholders. I still believe our Stock price is very compelling where we are and we're a great investment in ourselves. So obviously, we look for 2 mystic buys of our own stock and when the stock price is lower, we would you would expect us to be buying maybe a little bit more and If it rises, we'll be a little bit less.

Speaker 2

Yes, George. I would just say, the answer is yes.

Speaker 4

All right. Thanks guys.

Speaker 2

Thanks. Thank

Operator

you. And our next question comes from the line of John Davis with Raymond James. Please proceed with your question.

Speaker 7

Hey, good morning, guys. Randy and Dean, I just want to touch on the installed base for a second. I think if we go back to last quarter, There was hope that you get back to growth in 4Q and it kind of seems that now the plan is more flattish. Just curious kind of what the change there and what kind of drove that kind of change in messaging assuming that I have it right?

Speaker 2

Well, it's all semantics, right, John? I think I tried to say towards the end of Q4, because I just We didn't know and we still don't know. I would say, I'll give you an example. We have a customer that may Take some units offline because they're doing a renovation. Those then come out of your installed base and then they come back in.

Speaker 2

What's What's the churn? We've seen a little bit more churn than we had anticipated, John. So that's one impact to it. 2nd of all, I think we're trying to be Realistic as to the 2 new products that we have coming out and will they really turn that tide in Q4, Q4 seasonality wise is a little bit Of a struggle as well. So not that I'm trying to be cute here, I just would say, look, we always thought that it would be Towards the end of Q4 excuse me, Q4 of this year, yes, in 'twenty three and then really start to move positively in Q4 In 2024.

Speaker 2

So it's So no material. I don't think so, John. No. Look, I hate to say I'm pleased with the 29 unit pullback, but I am. I think if we can continue to hold the install base, that's what I'm most concerned about because I think if we can That's what I'm most concerned about because I think if we can hold it and then get our new products out there, it really sets us up well for next year, John.

Speaker 2

So it's not A major change, but look, it's probably pushing a little bit more into 'twenty four,

Speaker 6

but I'm

Speaker 2

still hopeful we'll see some type of indication maybe Towards the end of this year, just to see if these new products are doing what we want them to do.

Speaker 7

Okay. No, that's helpful. And then either Mark or Darren, it looks like the yield in the FinTech, so if I just look at Your cash access revenue over the volume process, it's been pretty stable, but it was up about 4.5 basis points this quarter. Is that cashless, anything to call out there? Like is that sustainable?

Speaker 7

I think it's back over 50 basis points for the first time in a while, in the quarter. Just curious anything to call out there?

Speaker 3

I mean, look, I think we're continuing to see a little bit of a pickup in the signature based Financial access transactions, so think of your credit card usage as opposed to ATMs. ATMs are On a per product basis, probably a much lower like for like transaction or margin basis. So the more The credit card picks up the little bit more flow through you get to the bottom line. I wouldn't say it's a material shift, but we are seeing kind of that shift happening or kind of returning to Those pre pandemic levels of outpatient spent money. But other than that, I wouldn't say there's anything material I would call out for Shift.

Speaker 7

Okay. All right. Appreciate it. Thanks, guys.

Speaker 2

Thanks, John.

Operator

Thank you. We have reached the end of our question and answer session. And I would like to turn the floor back over to Mr. Randy Taylor for closing comments.

Speaker 2

Just like to thank everybody for joining us today. We appreciate your interest in Evertz and we look forward to providing you an update at our G2E in October As well as in Q3 for our Q3 results. Thank you.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Powered by Quartr
Earnings Conference Call
Everi Q2 2023
00:00 / 00:00