Everi Holdings Inc. (EVRI) on Q3 2021 Results - Earnings Call Transcript
Operator: Greetings. Welcome to Everi Holdings Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the former presentation . Please note this conference is being recorded. At this time I'll turn the conference over to Bill Pfund, Vice President, Investor Relations. Bill, you may begin.
Bill Pfund: Thank you, Operator. We welcome everyone to our call today. Let me begin by reminding you of our Safe Harbor disclaimer that covers today's call and webcast. Our call contains forward-looking statements that involve risks and uncertainties, which could cause actual results to differ materially from those discussed on this call. These risks and uncertainties include but are not limited to those contained in our earnings released today and in other SEC filings, which are posted in the investors section of our corporate Web site at everi.com. We do not intend and assume no obligation to update any forward-looking statements, which are made only as of today, November 3, 2021. You are also cautioned not to place undue reliance on forward-looking statements. Our call will also refer to certain non-GAAP financial measures, such as adjusted EBITDA, free cash flow and net cash position. A description of each non-GAAP measure and a reconciliation to the most directly comparable GAAP measure can be found in our earnings release and related 8-K as well as in the Investors section on our Web site. 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 Web site. On our call today are Mike Rumbolz, Chairman and Chief Executive Officer; Randy Taylor, President and Chief Operating Officer; Mark Labay, Chief Financial Officer; Kate Lowenhar-Fisher, General Counsel; Dean Ehrlich, Games Business leader; and Darren Simmons, our FinTech Business Leader. Now, I will turn the call over to Mike Rumbolz.
Mike Rumbolz: Thank you, Bill and good morning, everyone. Thank you for joining us. Let me begin by sharing a few highlights from the third quarter. Our key financial results and our operating metrics were all up dramatically compared to 2020, and we increased substantially over the pre-pandemic 2019 third quarter periods. We achieved these impressive results through the successful execution of our growth strategies, which are focused on high return investments in both new games and new technologies. On a consolidated basis, the best evidence of our progress is our free cash flow growth. We generated a record $56 million of free cash flow in the third quarter with strong contributions coming from each of our business segments. This outstanding performance is clear proof of the strength and complementary nature of our games in FinTech products. It’s further supported by the strongly favorable feedback we receive from our customers at this year's G2E tradeshow. At G2E cashless was the hottest topic. While many would be competitors have been quick to release cashless related press releases, we have been focused on winning new customers and deploying our industry leading solutions. Our cashless solution, the CashClub Wallet, is now in 15 casinos across four jurisdictions in the United States and is presently in the process of going live at two additional properties, including another jurisdiction by the end of the year. Our cashless technology places us squarely at the leading edge of an exciting new long term growth opportunity in the casino industry. There's a simple reason why our wallet solution is outperforming the competition. Our competitive advantage draws its strength from our many decades of experience and expertise in funding patron initiated transactions across the gaming industry. We also benefit from our considerable prior investment in developing and integrated portfolio of efficiency creating products for casinos. Our CashClub Wallet leverages the existing infrastructure of our digital neighborhood of products, resulting in an easy to use convenient experience for casino guests that also enables significant cost efficiencies in the back of house operations of the casino. Now G2E, we also showcased several new patron loyalty and RegTech related products. These new applications expand our existing portfolio of integrated products, while creating additional new cost saving opportunities for casino operators. Turning now to our games business. We currently have more depth in our product selection than ever before, and that breadth and diversity of products was also on display at G2E. Across the spectrum of mechanical and video games, from standard units to wide area progressive and our non-wide area progressive premium units, our booth featured an array of new products. The games we presented have all been either recently approved and introduced to the market or are expected to be available no later than the first half of 2022. Our newest cabinet, the Player Classic Signature, was very well received by customers. This cabinet incorporates updated technology and yet retains that classic player appeal that has driven our tremendous success in mechanical real products for over 10 years. Importantly, in addition to the introduction of this broad selection of new games at G2E, we have a significant quantity of yet to be released newly developed content. In fact, our new product pipeline is more robust than ever before and we have many more exciting games and cabinets to bring to market in 2022 and beyond. Each cabinet that we commercialize is supported by a strong pipeline of original content that will be available for distribution in both Class II and in Class III markets. Now in addition, this vigorous development effort also helps us support the continued growth of our iGaming product set. So as a result of all of our operating progress with successful refinancing of our debt a few months ago and our substantial free cash flow, Everi has never been in better financial shape. And of course that brings up the question, what will we do with our free cash flow. Our focus is first and foremost on internal organic growth opportunities. We will continue to invest in internal product development initiatives in both our games and FinTech businesses. These initiatives are aimed at driving further growth and market share gains through product enhancements, as well as extensions and expansions of our product portfolio. We will continue to leverage our distribution channel and our digital neighborhood, layering in new products to drive growth and strengthen the ongoing relationship between Everi and our customers. We're also going to continue to emphasize high return capital investments that expand our gaming operation’s installed base. This includes growing our placements of these high value recurring revenue units and securing those placements for extended periods of time. New additions to our installed base provide a very attractive and quick return on capital when done properly, as we have demonstrated for many years. And we'll also continue to support operations that are in a very early phase of rapid growth, such as iGaming and as you can imagine, cashless and digital FinTech products. Beyond internal opportunities, we will also look externally as we continue to evaluate bolt-on or tuck-in acquisitions. Generally, we're focused on products, technologies or talents that complement our core businesses. Following the path of our successful track record, we look for newer products and technologies in the casino universe that may not be getting appropriate attention. These include opportunities that we believe we are uniquely positioned to profitably scale and which will drive rapid revenue growth with minimal risk. We're also always looking for new geographies, regions that we're not currently in or where we may not be as heavily penetrated as we would like. Now finally, if we do not find worthwhile external growth opportunities or organic opportunities, we will of course assess the opportunity to invest in ourselves. If the appropriate decision is to purchase every share then we will adopt a program to return capital to our shareholders. Now, let me turn the call over to Randy to provide a bit more insight into our operational successes.
Randy Taylor: Thank you, Mike and hello, everyone. We hope you're doing well. A key driver of our continuing growth is our core high value recurring revenue operations, which accounted for 78% of the third quarter revenue and 77% of year-to-date revenue. These are high margin operations that demonstrate consistent growth. In the third quarter, our recurring revenues grew 42% over the third quarter of 2020 and 31% over the 2019 third quarter. Within our game segments, it is gaming operations that provides strong recurring performance. Total gaming operations revenue increased 52% year-over-year, and is up 48% over the 2019 third quarter. Our total installed base continued to grow as we added 170 units on a quarterly sequential basis. At quarter end, our total installed base was up 8% over a year ago despite the 238 units that were converted from lease to sale in the quarter as we highlighted on the second quarter call. The growth of premium units is a significant driver of our performance. This was the 13th consecutive quarter of sequential growth in our premium unit installed base, it’s up to daily when per unit increasing 26% over the then record level in the pre-pandemic 2019 third quarter. Placement of new premium games, such as Cashnado on Flex Fusion, Monsterverse on DCX and Gold Standard and Cash Machine Jackpots on our Skyline Revolve cabinets, were key drivers of the incremental net growth. Continued strong performance of our older units was another key element in both the growth of the base and daily win per unit. A further contributor to our strong gaming operations growth was the 90% year-over-year increase in digital gaming revenue. And subsequent to quarter end, our online content went live in both Ontario and Connecticut. In Connecticut, we supported both Mohegan Sun and Foxwoods with content as their iGaming sites launched. Alongside our success in gaming operations, product sales revenue more than doubled from the 2020 third quarter and was up 24% over the 2019 third quarter. The increase was driven largely by replacement sales. Excluding the variable quarterly impact from unit sales for new casino openings and expansions, unit shipments for replacements have increased sequentially in each quarter in 2021 and we believe that trend will continue in the fourth quarter and beyond as we are now targeting 15% quarterly shift share. Turning to our FinTech business, record total segment revenues increased 32% year-over-year and are up 11% over the 2019 third quarter. Our financial access services revenues increased 8% over the 2019 third quarter, driven primarily by higher same store transactional activity, which led to 13% increase in total transactions completed. Incremental revenue from new customers added during the last two years also contributed to higher revenue growth, partially offset by a few customer sites that are still closed or operating with limitations, as well as reduced demand from an almost non-existent international player in the US. We're hopeful that international travel to US gaming markets will improve once travel restrictions lift. Our software and other revenue, which includes loyalty software sales and subscriptions, our RegTech software for regulatory compliance, our unique gaming industry credit bureau and equipment maintenance services, grew 42% over the 2019 third quarter. The strong demand for our loyalty products has been a key contributor to this growth, as we have increased a number of customer properties by more than 40% since the end of 2019 and instituted a recurring revenue subscription service. Like financial access services, our software services have a large recurring revenue component. Recurring revenue portion represented 77% of software and other revenues in the third quarter of this year and last. Revenue from hardware sales, although, below pre-pandemic 2019 third quarter level, grew 45% year-over-year. We have expanded our portfolio of hardware offerings and we expect ongoing growth in the future. Now I'd like to turn the call over to Mark to share his perspective on our financial position, free cash flow and outlook. Mark?
Mark Labay: Thanks, Randy. I'd like to start by expanding on our message of consistent execution and ongoing growth. Our focus on execution has enabled us to consistently strengthen our operating performance these past several years. This has led to a dramatic rise in our free cash flow. For the first nine months of this year, which includes our record third quarter total, our total free cash flow is more than a total of the last five years combined. We largely deployed this free cash flow to significantly de-lever our balance sheet. And with the high proportion of high margin recurring revenue we generate, we have never been in a more solid financial position. As a result of our enhanced free cash flow profile, the very significant portion of our recurring revenue streams and our expectation for continued adjusted EBITDA growth, we are very comfortable with maintaining our long term total net leverage target at 2.5 to 3 times adjusted EBITDA, which is the levels we are at today. We believe this target leverage level provides the flexibility for us to pursue the high return accretive growth opportunities that Mike discussed, whether they are organic or externally generated. Looking to the fourth quarter and our expected free cash flow. We have recently taken several opportunities to secure large portions of our installed base and provide for future growth of the high value recurring revenue of our gaming operations business. First, we entered into a new agreement, which replaces and extends our former agreement with the major tribal customer. This agreement locks in our current install footprint of more than 4,500 units for a six year term for an incremental investment of $28.9 million. This amount was paid in the fourth quarter. Second, last week, we announced a five year deal with the Delaware Lottery to place nearly 500 units at casinos throughout the state. We expect to begin installations later this quarter and we expect to install more than half of the plant units by year end. The remainder of these units are expected to be installed in the first quarter of 2022. Finally, we expect to complete the installation of several hundred lead gaming machines at a new tribal casino in Oklahoma that we previously discussed last quarter. As a reminder, this will include a placement fee of approximately $3 million and will secure our unit placements for a period of almost seven years. Collectively, these deals secure long term placements of existing and new high value recurring revenue for five or more years. With the cost of these new units, the placement fees to the tribal customers and our ongoing normal expected quarterly growth in our installed base, we expect a sequential increase in capital expenditures and placement fees in the fourth quarter. As a reminder, our free cash flow in the fourth quarter will benefit from the change in the timing of the semiannual interest payments on our unsecured notes that were issued on July 15th. The semiannual interest payments for the new notes will occur in January and July as compared to the previous payments that were made in June and December. Thus, our comparable former December interest payments will now be made in January. As a result of these items, including the impact of the expected $32 million in placement fees, we believe we still will exceed the strong free cash flow generated in last year's fourth quarter. Let me now turn to the other elements of our raised guidance from this morning. For the full year, we now expect net income to be in a range of $98 million to $100 million and adjusted EBITDA to be in a range of $342 million to $346 million. Let me share some of the variables that shape our view. As we continue to execute on our ongoing growth strategy and we add the incremental units expected from the expansions in Delaware and Oklahoma, we believe the total install base at year end could approach or even exceed 17,000 units. I would note that while most of these targeted for both the new Delaware and Oklahoma properties will be standard units, there will also be a component of premium units at those locations. We expect our Q4 daily win per unit to exceed the daily win per unit we reported in the fourth quarter of 2019 and 2020 and we also expect this total to be above $40 for the third consecutive quarter. Our operating expenses are expected to increase in the fourth quarter, primarily reflecting the costs associated with G2E, which was not held last year. Additionally, we expect to see a modest rise in R&D expense, reflecting our increased focus on internal new product development along with a slightly higher payroll, which reflects our growth and the current tight labor market. Although not factored into our guidance, as noted in the press release this morning and as a result of our strong operating performance of the business, there exists a high probability that we may reverse some portion of the company's deferred tax asset valuation allowances during the fourth quarter. To the extent this materializes, a significant non-cash income tax benefit may be realized. This would likely result in a substantial quarterly and full year income tax benefit and increase the reported net income for the company in the quarter well above the guidance levels. While this may have a substantial impact on our reported tax benefits and the income for book purposes, it will not affect our cash taxes paid or free cash flow. Regarding unit sales, as Randy mentioned, we expect to see an increase in total units sold. Similar to recent quarters, we believe we are continuing to achieve gains and shift share for our unit sales. And on that positive note, I'll now turn the call over to the operator for questions.
Operator: Thank you. At this time, we'll be conducting question-and-answer session . And our first question coming from the line of David Bain with B. Riley.
David Bain: I guess my first question would be on FinTech. Do you have any updated thoughts on digital FinTech adoption to the end casino customer in terms of penetration of current rewards numbers to use this ramp for those patrons that are digitally connected at this point?
Mike Rumbolz: I'm not sure that we’re in a position yet though. So I can lead with the disappointment that we're not really capturing all of that information to a degree that we could start sharing it at this point in time, but we expect to have KPIs on that soon. But Darren, is there any color you want to add to that?
Darren Simmons: I think our customers are obviously targeting their existing players club, somewhat low hanging fruit right to them and incentivize them. I would say, again, as I indicated previously, we're very happy with, call it, the growth trajectory. We keep seeing volumes grow week over week. The number of patrons using it across our enterprise grows week over week. And again, I think as we penetrate more properties, I think the KPIs will be clearer as we get into early 2022. But I would say very encouraging. I think our customer base is very happy with the trajectory and analysis, the matter of coming up with those creative ways to continue the incentive. And I think, again, timing with our loyalty will obviously be important from a long term standpoint to have that growth continue.
David Bain: And then on the game side, subsequent to G2E now the fiscal year end for certain tribes. Do you have any more color as to your view for '22 industry replacement levels relative to any other year you'd want to look to? And also any reason to believe commercial casinos would defer greatly from a directional standpoint from the tribes and what they're sort of indicating?
Dean Ehrlich: I think for all of our key takeaways that we've been hearing from customers, I think it's going to be slightly better next year than what we're currently seeking on both fronts but there's not really much more additional color I can give than that.
Operator: Our next question is coming from the line of Barry Jonas with Truist Securities.
Barry Jonas: Guys, great to hear the 15% games target. I'm just wondering if you can give any more color on how you see that composition playing out? Maybe slicing it mechanical versus video, new openings versus replacements or any other ways?
Dean Ehrlich: You know, the way I see it is 15% is a further out target or around 10% mark right now took out a few years to get there. My opinion with our product portfolio, I think, it's a quicker timeframe to get to that target that we set, and it's going to be of both. We have great performing mechanical products on our existing player classic cabinet but we have a new one coming out that's going to hit the market into Q1 beginning in Q2 next year. In addition to a great product portfolio of Flex products on our video for sale cabinet, can I say it's going to be 50/50? I’m not absolutely sure on that. Obviously, it's going to depend on customer purchasing behaviors. But what I'm targeting is a need to place in both but we know the pie is bigger on the videos side of it is going to be high denomination mechanical fees. So we are heavily, I would say, placing additional new themes even much more so in Flex than we would even be doing in our high denomination mechanical if you were sum up old cabinet support versus newer cabinet to products.
Barry Jonas: And then just as a follow-up question. Can you give any color on how supply chain issues are impacting Everi or just the industry at large?
Randy Taylor: To date we’ve really not been impacted in a material way from supply chain, it’s there. I think our team is doing a great job, I would say, finding additional parts, supplies but really not had a material slowdown. To some extent the stuff you hear the media on chips for automobiles are not the same thing that we use in our products but it's a challenge. But I would say to date we're not having anything material but we are having the challenge out there and we're continuing to work through it. And I am really pleased at how well our team has been able to manage this.
Barry Jonas: And I guess just on the flip side, are hearing any competitors having issues which maybe presents opportunities for you given your situation?
Randy Taylor: I don't think I'm going to talk about the competitors. But I would say, we know that we're doing a good job on our side but I'm not going to speak to how the competitors are handling at this point.
Mike Rumbolz: Barry, honestly, if we stay focused on ourselves and just handle what's in front of us to do the best that we can do, let the others worry about themselves and just know if we can keep our lead times right where we need them to be then we will be very successful.
Operator: The next question is from the line of George Sutton with Craig-Hallum.
George Sutton: First, Randy, I did not know you had 15% in your vocabulary. So I was excited to hear that.
Randy Taylor: That was Dean, just so you know. So you know that his vocabulary not mine, but I'm all for it now that we got it out there.
George Sutton: I'll read back through the prepared comments. So I wanted to make sure I understood your investment goals and you mentioned products, you mentioned technology, you mentioned talents. Can you just go through those areas and talk about what are you looking for, for these investment returns just so we have some perspective?
Randy Taylor: Part of it, I think, is captured well in our most recent acquisition, meter imaging, talented people and a great product that just was having a hard time scaling. And as many products do, it's a large industry, it's coast to coast, it's border to border, it's Canada and the US is a very broad market. And if you're a small operator with a new product trying to introduce it to the market and you get traction, it's difficult and we can provide significant scale to those kinds of products. In addition, people that are coming up with great ideas, they're extremely talented but perhaps don't have the wherewithal themselves to bring in product even to fruition or the kinds of people that we're most interested in talking to. And then there's products that are out there that are doing well but we think would do even better if they were included as part of our digital neighborhood. And I'd refer you to patron and MGT as acquisitions that fit well into that category. So if we're looking externally, that's what we're looking for. Internally, we're looking at very similar kinds of products that we see coming sometimes to market or sometimes being talked about in the marketplace and getting those integrated into our network and into our neighborhood and bringing those back up. So it really is both internal and external and they have a lot of the same characteristics. Fairly it's easier to look at one that's already in the market than it is to create one of both but we look at both of those equally.
George Sutton: Mike, I wonder if you could put a timeframe on this investment concept. And I wonder if we'll oddly look at an announced buyback in the future as a recognition that you weren't able to continue to make investments. Just want to make sure I fully understood that.
Mike Rumbolz: I don't envision -- I don't think you should expect to see some sort of buyback announcements near term. I mean, if we were to put a program in place, it doesn't mean that we would activate it. I've got a very good feeling about a variety of targets that we're looking at right now out in the marketplace. Hard to put a timeline on, because you never know what due diligence is going to produce. You don't know whether you'll come to a stalemate around pricing or terms but we have several things in the pipeline. Currently, we have a lot of targets that are available for us to start working as soon as we get through the ones that are on our plate today. So I would expect that you'll see as we did with the loyalty and our RegTech acquisitions, you'll see them come in, in sort of a usual cadence. I can't tell you it’ll be two or three a year, it will be one or two a year, but you should expect regular cadence on that.
Operator: Our next question is comes from the line of John Davis with Raymond James.
John Davis: First, maybe one for Mark, just wanted to touch on the margin. I think guide implies full year EBITDA margins are roughly 53% this year. I think if you go back pre-pandemic, those are running in the high 40s. Just as we think about going forward, is 53% is a sustainable level and do you think they're elevated this year? I think you said that there would be structurally higher margins on the other side of the pandemic. Just trying to understand kind of the magnitude and how we should think about it?
Mark Labay: I think really what you're looking at is a little bit of a mix of revenue, I don't want to be challenged but where we are today. Obviously, really the high margin recurring revenue has come back the most quick -- pandemic where equipment sales have been a little bit lagging just as customers have been a little more cautious with their capital budgets. So what that's resulted in is less revenues from the lower margin products, which are still decent margin products but you don't have those equipment sale margins and that's why you're seeing these above 50% kind of margin levels. I think as we move forward, and again, we're working on our budgets and plans for '22 and beyond now. I think you'll see a gradual settling down of that number back more close to the historic levels. And that's really just because we think the mix kind of -- mix will be growing in both the recurring revenue and the equipment sales as we move forward in time. So I think you kind of start reverting back closer to those kind of margin levels as opposed to staying at these 53%, 54% kind of levels that we're even seeing this year.
John Davis: And then maybe, Mike, wanted to talk a little bit about the Shift4 partnership. I think as we've thought about cashless, it was part of the thesis there as you mentioned beyond the gaming floor into some of the restaurants and retail, but also Shift4 has a partnership with MGM on the sports betting side. So just want to understand from your perspective what the opportunities are there? Is this more about expansion into the restaurants and retail or was there also kind of a sports look angle here? Just any further detail on that partnership would be helpful?
Mike Rumbolz: And I'll turn it to Darren to give you maybe even deeper color on that, John. But absolutely, we're looking at the retail and being able to address all of the sales opportunities that exist inside these very large casino operations. So retailers is the principal going forward. Clearly, getting into the sports wagering side and any of our customers is something the wallet is capable of doing and maybe something that our customers ultimately wanted to do. But right now, we're focused with Shift4 on the retail side. Darren, do you want to talk about?
Darren Simmons: I mean, I think, again, we've indicated sort of our overall strategy is obviously extending wallet beyond the gaming floor and we've done that with a couple of our customers now with another integration with another provider. So Shift4 integration really get this extended into, deeper into the non-gaming retail side. And as Mike mentioned, look, we're obviously looking forward to enabling integration of a wallet to extend not only beyond the brick and mortar and retail but obviously, iGaming and sports. So that's all part of the strategy, all part of the roadmap and I expected that that's what's going to play out here as we move forward.
Operator: Our next question is coming from the line of Jeff Stantial with Stifel.
Jeff Stantial: I wanted to start on guidance for a second. You talked to daily yield in the game op business say north of $40 per day there before all the potential sort of consumer to state a bit sequentially. If you look out to 2022 and I assume for argument's sake that regional GGR starts to approximate 2019 level rather than the low double digit growth rate that it’s being running at for the past couple of quarters here. Is $40 per day plus or minus still the right way to think about your game op business given where the premium mix stands at this point, even with the normalized consumer? Just trying to get a sense for what's the next versus what healthy consumer when contemplating the outperiod?
Mike Rumbolz: You're touching on the right leverage. Let me have, Dean, give you some color on that.
Dean Ehrlich: I think we're very comfortable with $40 per day north just looking at the trajectory and seeing where we’re at, the mix of product between our premium, within our entire install base, I would say, I'm very comfortable with $40 per day.
Jeff Stantial: So switching gears over to the equipment sales. In the past December does tend to seem some positive seasonality on shipments getting commercial operators kind of start to use up their budget ahead of the fiscal year end from time to time. Are you expecting potential for a similar trend this year? Obviously, most of the commercial guys are pretty flushed with cash. It seems logical that the software will be one area to look at -- spend some of that budget, but just curious for your thoughts there. And would you say it’s factored in your guidance or are largely incremental?
Mike Rumbolz: You know why don't you go ahead and take that Mark, you follow that carefully.
Mark Labay: I do look at up the sales guys quite regularly and talk about their views and what they're seeing on the equipment side and where we are. Again, as I mentioned to John and Thomas, sort of the question he asked, equipment has been challenged throughout the year. We've been seeing sequential growth in our game sales, so for replacement kind of sales. So we've been seeing a slight pickup as we progress throughout the year. The year seem to have gotten better and better for the operators. And certainly, we're seeing right now as we enter Q4 part of our increase in our guidance is our comfort that we can expect those trends to continue into the fourth quarter. We haven't seen much in the way of change in the financial access volumes as we've entered through October and started November, and we see some increased demand on the game sales side of things. So we think there's an opportunity clearly for customers if they have that last Q4 capital and that they’re ending their fiscal year to see a little bit of upside in terms of where unit sales are. But right now we believe we continue the trend of seeing growth sequentially between Q3 and Q4 that we've been experiencing.
Operator: Our next question comes from the line of Chad Beynon with Macquarie.
Chad Beynon: Wanted to start with the 4,600 unit tribal operator renewal agreement that you announced. Should we expect within those units that there will be opportunities to upgrade and kind of you'll manage some of the machines that you currently have out on the floor or should we expect that little is done? And then as an add on to that question, given your library of new games and cabinets, could there actually be more opportunities in markets like Oklahoma given your balance sheet, given your games to do incremental deals?
Randy Taylor: I’d say, Chad, it's a little bit of yes and yes. So we always yield manage with the best product possible within all our -- not only our large installed base but all our customers. And that one we have laser focused on making sure that we, what I would say, yield optimize with our entire product portfolio within that particular count. And then to answer your other questions, obviously, new games and cabinets give bigger opportunities depending on the performance as these release. And we have a very high level of confidence that our success rate continues to move up and we see those trends, and we don't think anything would revert the other direction at all. So I'm very confident that that will help us obtain larger shift percentages that we've been talking about.
Chad Beynon: And then separately on the digital front, the iGaming, on the gaming side another quarter with revenues over 3.5 million. We haven't seen much on the legislation front, but you mentioned opportunities that you're just getting into in Ontario and Connecticut that should help build this sequentially. Can you talk about anything in terms of games that are working or expected market share just kind of how to think about this business until new legislation is approved, domestically?
Mike Rumbolz: So Chad, the way I would look at it is we’re really in our early stages definitely with respect to porting content from our existing library and seems that we know are successful. You've seen some data points from our releases and stuff with Cash Machine and the likes with the other products that we released in the digital universe. But the fact of -- the breadth of content that we have that we haven't ported over there yet equals growth opportunities in addition to new jurisdictions that are brought up in life that we haven't been in yet.
Randy Taylor: And there's one other things you should look too and that is the custom games that we provide to many of our customers, they tend to be amongst their highest grossing games in their iGaming space and it's something that that our developers in the iGaming side do extremely well. So that's something that I think you should also keep an eye on for future growth in that area.
Operator: Our next question comes from the line of David Katz with Jefferies.
David Katz: Just expressing my appreciation for the fact that we're having a discussion about stock buybacks, which is quite an accomplishment for sure. I want to just really talk about digital gaming and I know you just touched on a bit. But thinking about it, is this a business that grows based on your ability to develop content in the land based direction that can be pushed out digitally or reworked digitally, or is it potentially in the other direction also? And with respect to tuck-ins, is that an area where we could see you look to invest also hypothetically things their live content offerings or any opportunity to really grow that within your…
Mike Rumbolz: I’ll let, Dean, address the first part of that and then I’ll talk to the second part of that. Dean?
Dean Ehrlich: So on the content side of it porting in both directions, I mean, obviously, if there's something that's developed in the digital side that seems to resonate then we are going to pull it over to the land based side. But at this point in time, though, it's really going to be driven from the other direction just because of the breadth of content that we have as they haven't utilized yet. So the porting effort is less significant. So there's no reason not to take games that are free timeless that have been out in the traditional market for years and years and not put those out first, but there will be times where we take innovative play mechanic. And if we're able to implement it more efficiently on the digital side to see how that resonate for players and then bring it over to the land based direction, we will. But that's a further down the line conversation.
Mike Rumbolz: With respect to tuck-ins, David, I mean we're looking at potential acquisitions across all of our business segments. So bricks and mortar games, FinTech, digital products in FinTech, as well as iGaming. And so as we look at the landscape out there, there are a lot of available companies and technologies, including in iGaming that we would look at to see if they provide additional value to every shareholders. And if they do and it's something we think we can tuck-in and will contribute to our growth then we will absolutely look at those.
Randy Taylor: And I would add one other item, which is that's part of, I think, was to another question earlier about where we’re investing dollars. We believe there's internal investments that can be made there. As Mike talked about unique games for operators that they have been very successful for us. So we're going to continue to invest internally in talent as Dean talked about. So if we can port more of our land base so that we can expand our portfolio to be provided. So we think it's an area that will do both and that some of it will be internal investment as well.
David Katz: And that's sort of that’s where I was headed with the follow-up, with games entering new yards. If I were to look at a utilization rate or penetration rate of what you use on your land base into digital. Are you a quarter of the way through the pile, halfway through the pile, how would you characterize that part of it?
Randy Taylor: We’re not even 10% in my opinion.
Mike Rumbolz: We're at the surface level still. It's a deep lake of content that we haven't really penetrated.
David Katz: If I may just one last one, with respect to tuck-ins just to play the devil's advocate starting it with respect to digital tuck-ins. We're certainly seeing a lot of valuation and sensitivity out there. Mike, if you could just share thoughts about how you think about valuations out there for digital assets in sales?
Mike Rumbolz: And you make a good point, David. I mean, there are there are some valuations that we think are way too high for us to be interested in and trying even meet their current valuation that's being given to them. On the other hand, there are others that really are flying under the radar. And while they may have, as many small operators do, they may have an inflated view of their value, we look at it -- we really do an analysis of what would it mean to have either the product set or the group of executives or a combination of products and executives and market share bought in under Everi’s umbrella and what that would mean to the overall company, including the acquired company. And so when we do that analysis, not everybody is out there with valuations on negative EBITDA. There are others that are out there that are that are doing okay and we think could do much better if they found a home with us.
Operator: At this time, we've reached the end of the question-and-answer session and I'll turn the call back to management for closing remarks.
Bill Pfund: Thank you for joining us today. We appreciate your interest in Everi, and I would assure everyone that our focus remains clearly on achievable sustainable growth and building long term shareholder value. We look forward to our update at fourth quarter. Thank you.
Operator: This include today’s conference. You may disconnect your lines at this time. Thank you for your participation.
