PlayAGS - Q2 2022

Transcript

Speaker 0

Afternoon, and thank you for attending today's Play AGS Q2 2022 Earnings Call. My name is Austin, and I will be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to our host, Brad Boyer, SCP Corporate Operations and Investor Relations. Brad, you may begin.

Speaker 1

Thank you, operator, and good afternoon, everyone. Welcome to the Play AGS Incorporated Second Quarter 2022 Earnings Conference Call. With me today are David Lopez, CEO and Kimo Akiana, CFO. A slide presentation reviewing our key operational and financial highlights for the Q2 ended June 30, 2022 can be found on our Investor Relations website, investors. Playags.com.

On today's call, we will provide an overview of our Q2 2022 financial performance and offer perspective on our current financial outlook for the business. This conference call will include the use of forward looking statements. Any statement that refers to expectations, projections or other characterizations of future events, Including financial projections or future market conditions is a forward looking statement based on assumptions today. Actual results may differ materially from those Please refer to the earnings press release we issued today as well as risks described in our annual report on Form 10 ks, particularly in the section of these documents titled Risk Factors. Our commentary today will also include non GAAP financial measures.

We believe the use of these non GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends in our business. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. Reconciliations between GAAP and non GAAP metrics for our reported results can be found in our earnings release issued today. Please refer to our filings with the SEC for more information. With that, I would like to turn the call over to our CEO, David Lopez.

Speaker 2

Thanks, Brad, and good afternoon, everyone. As I reflect upon our Q2 financial performance, I can't help but think back to the sentiment in the market exactly 1 year ago. As you may recall, most investors were wondering if the trends they were seeing across the broader U. S. Game industry were as good as it gets.

The stars are aligned for our casino operator partners in Q2 of 2021, resulting in record setting gaming revenue for nearly every operator in the major U. S. Markets. At the time, though we were able to leverage To strengthen the broader market to establish some new records of our own, I was fairly confident Q2 2021 Did not reflect peak performance for Age Yes. Our 2022 second quarter results validated those views from 1 year ago as we were able to build upon several records established last year.

Let's take a few minutes to review some of the record setting highlights from the quarter. First, Q222 domestic EGM Gaming ops revenue increased 1% year over year to a new company record of $46,200,000 Although modest growth, we are extremely encouraged by this accomplishment Concerning it was achieved against the prior year period that comprised the greatest 3 months in the history of gaming. 2nd, our installed base of premium EGM products nearly doubled year over year, accounting for 12% of our domestic EGM installed base at the end of Q2 2022 compared to 6% this time last year. Our continued success in the premium game category serves to highlight the strong returns we have been able to generate on tactical investments into R and D, sales and product management teams. 3rd, Our Table Products segment continues to fire on all cylinders with revenues and adjusted EBITDA setting new all time records in the quarter.

Early commercialization of our PAX S single deck shuffler, accelerating demand for our bonus spin Extreme Progressive And growing customer adoption of AGS site licenses drove our record setting table games performance. With all that said, I imagine some of you are probably wondering if Q2 2021 wasn't as good as it gets for AGS, How should we think about Q2 of this year? From my perspective, though several new records were established in the quarter, I believe we can significantly build upon our recent success moving forward. Looking ahead, while I'm encouraged by our recent Financial performance and excited about the direction which we are heading from a product perspective. I'm equally as enthused by the sales and product management Teams we have in place to monetize our R and D investments.

Over the past 24 months, we have added considerable talent to the front end of the business, which has directly supported our impressive premium installed base growth and record domestic gaming ops revenue. Our recent success clearly demonstrates the power of having our R and D team work in concert with the front end of the business to allow our products In addition to our execution led ropes catalyst, We continue to search for strategic opportunities capable of transforming the long term growth trajectory of our business. Recent examples of these types of opportunities include our successful expansion into the historical horse racing or HHR market And continued exploration of avenues to accentuate growth outside of our core North American markets. Additionally, we continue to look for opportunities to further leverage key competitive advantages, including our extensive game content portfolio, Unique development capabilities and deeply rooted customer relationships to strategically broaden our Class 2 business. Recently, these efforts have extended well beyond the borders of our largest Class II markets as we were able to benefit from a favorable June Supreme To execute growth opportunities presented to us within the Texas Class 2 market, a market we have steadfastly supported for a very long time.

While it's still too early to put hard numbers around what the Supreme Court ruling will mean for us in terms of incremental revenue We believe our historical support of tribal operators within the state could present us with meaningful growth opportunities as our customers elect to expand the scale and scope of their existing Class 2 operations. Looking beyond EGMs, we see an equally compelling growth trajectory with our cable product and interactive businesses. Supported by the 3 pronged growth engine of PAX S, BONUS SPIN Xtreme and AGS Arsenal, we continue to identify a long runway for growth within our table games division. Over the past few years, we have proven to be the most innovative product company in the industry, Most recently highlighted by the launch of a homegrown shuffler, the PAX S, I know we have covered it on previous calls, but this is the first Competitive single deck specialty shuffler to be released in North America in over 15 years, breaking up a dominant position held by one of our competitors. Turning to Interactive.

We continue to make progress on our strategic plan to further leverage our high performing game content And strong customer relationships to significantly grow our share of the North American RMG market. Q2 provided a glimpse of where we believe our RMG business is heading as North American RMG revenues increased by over 15% sequentially. As with the land based business, we continue to be encouraged by the strong performance and AGS game content in the online channel. To that end, I think it's important to remind everyone that we have achieved a top 5 supplier ranking in the Eilers online gaming performance Moving forward as we execute upon initiatives to accelerate the flow of AGS content, Broaden our B2C operator partner relationships and expand our reach into untapped North American jurisdictions, We believe we will see a material acceleration of growth within our Interactive business in the quarters ahead. Before closing, I would like to share some perspective on the trends we have observed within the business through July.

Despite swirling uncertainty over the health of the consumer In the direction of the global economy, we have been encouraged by the incredible consistency demonstrated within our business quarter to date, as we have witnessed no meaningful change in July trends as compared to our strong June results. Finally, I would like to remind everyone we drive over 70% of our annualized revenue from recurring sources, and our balance sheet is in great shape With over $70,000,000 of available liquidity at quarter end and no maturities until 2027. With that, I will turn the call over to Kimo to walk you through our Q2 results in greater detail.

Speaker 3

Thank you, David, and good afternoon, everyone. I would like to start off today's call by reviewing several highlights from the Q2 and providing some perspective on how we see the business trending as we look forward into Q3. I will also address a few items related to the balance sheet and close by sharing some thoughts on our capital allocation priorities for the remainder of the year. It is important to note my forward looking commentary assumes no material change in prevailing global macroeconomic conditions. Turning first to our domestic EGM business.

2nd quarter domestic EGM RPD increased 6% on a quarterly sequential basis To $32.55 topping $30 for the 5th consecutive quarter. The sustained strength in our domestic EGM RPD performance Reflects continued successful execution of our premium game growth initiative with premium units increasing by 15% sequentially. The compounding benefit of our installed base optimization efforts and resilient industry wide GGR trends. Looking ahead to the Q3, as David mentioned, trends within our domestic EGM recurring revenue business remain remarkably consistent through July. That said, we do expect industry wide domestic gaming market revenues to moderate slightly as the quarter progresses Following a historically normal seasonal pattern, accelerating demand for our premium EGM products And further implementation of our optimization initiatives should offset a good portion of these seasonal influences, In turn, allowing us to sustain Q3 domestic EGM RPD comfortably above $30 Shifting to our domestic EGM installed base, we had a total of 16,027 units installed at the end of the second quarter, representing an increase of 112 units sequentially.

Upside resulting from our outsized growth within our premium EGM installed base, Supported by the strong performance and growing customer adoption of Orion Curve Premium and the modest expansion of our Texas Class 2 footprint On the heels of the recent favorable Supreme Court ruling was partially offset by the impact of our continuous fleet optimization efforts. We expect our domestic EGM installed base to further expand in the Q3, fueled by accelerating Customer demand for our high performing premium EGM products. Looking at EGM sales, we sold a total of 934 units Globally in the Q2, representing an increase of over 50% versus the prior year. Our global unit sales performance continues to benefit From the strategic broadening of our customer account penetration, the harvesting of initial returns from our accelerated R and D investments, Further leveraging of our exceptional HHR gain performance and complementary unit sales into select international markets. Additionally, we believe our manufacturing team's ability to maintain lead times in line with pre COVID norms That's created a key competitive advantage for our EGM sales business.

Looking ahead to the Q3, we expect to further benefit from the Additionally, we have yet to observe any meaningful change in operators' capital spending behavior in response to the recent global macroeconomic volatility. Combined, we believe these factors should allow us to offset a good portion The seasonal moderation in sales activity that often occurs in the lead up to G2E, resulting in Q3 global unit Sales volumes that are relatively consistent with Q2 levels. 2nd quarter domestic average selling price or ASP Eclipse 19,000 for the 3rd consecutive quarter supported by steady demand for our premium priced Orion curve cabinet And continued implementation of our price integrity program. Although anticipated compositional changes are likely to moderate Our Q3 2022 domestic ASP performance relative to Q2 levels, we believe we should be able to stay around the 19,000 level for the 4th consecutive quarter. Turning to our International EGM segment, RPD increased 8% sequentially to 669, Reflecting the consistent recovery we continue to witness within our Mexico business.

International EGM RPD Has now increased sequentially for 8 consecutive quarters. We estimate approximately 93% of our international Recurring revenue units were active and playable at the end of the second quarter compared to 80% at Q1 quarter end. Our international EGM installed base decreased by 428 units sequentially, predominantly driven by the imposition of a new gaming tax Looking ahead, our outlook for the remainder of the year remains unchanged as we expect international EGMRPD To continue its gradual recovery with full retractment to pre pandemic levels occurring sometime in 2023. We sold a total of 76 EGM units into international markets in Q2 2022, bringing our year to date international sales to 94 units. We have identified additional international EGM sales opportunities, which we expect to execute upon throughout the back half of the year.

Looking beyond EGMs, our Table Products business Delivered 2nd quarter revenue of $3,500,000 establishing a new company record for the 4th consecutive quarter. Quarterly segment adjusted EBITDA exceeded $2,000,000 for the first time, supported by our record setting revenue performance And the business is strong margin profile with Q2 adjusted EBITDA margin exceeding 57%. Looking ahead to Q3, we expect accelerating PAX S Shafter rollout momentum, steady bonus spin extreme progressive demand An additional AGS Arsenal site license adoption to increase the rate of quarterly sequential revenue growth achieved within our Table Products business. Shifting to Interactive. Trends within our business continue to reflect early returns from our decision to strategically refocus our resources To better capitalize upon near to immediate term growth opportunities within the regulated North American RMG market, We generated Q2 RMG revenue of $2,100,000 representing an increase of 7% sequentially.

Looking more closely to our North American RMG business, revenue increased by over 15% sequentially, reaching a record 1,800,000 We derived approximately 85 percent of our Q222 2022 RMG revenue from North America end markets compared to 66% in Q2 2021. Importantly, we expect our improving RMG revenue trend to continue into Q3, Supported by the improved flow of AGS content into the online channel, the activation of new B2C customer relationships And the expansion of our online content's reach into the additional North American jurisdictions. Turning to margins, 2nd quarter adjusted EBITDA margin was approximately 45%, relatively consistent with the prior sequential quarter. We estimate transitory costs related to global supply chain and logistics disruption impacted our adjusted EBITDA margin performance by approximately 100 basis points on a year over year basis. Looking ahead to the 3rd quarter, While we are witnessing further moderation in global supply chain and logistics disruption, we continue to work through component inventory that was procured when supply chain disruption was more acute.

Additionally, we also intend to make incremental R and D investments to support our long term growth initiatives. As a result, we believe we could temporarily experience modest compression in our Q3 adjusted EBITDA margin As compared to the 45% margins achieved in the first half of the year, with improved operating leverage and further supply chain normalization producing Q4 margin that is more in line with first half levels. Looking at the balance sheet, we ended the second quarter with net leverage of 4.1 times, Supported by our solid financial performance through the 1st 6 months of 2022, the product momentum building within multiple segments of our business And the consistency we continue to observe within our day to day operations, we remain on pace to deliver upon our previously issued year end 2020 two net leverage target of less than 4 times. Before closing, I would like to offer some perspective on Q2 capital expenditures And help frame our capital allocation outlook for the remainder of the year. 2nd quarter capital expenditure of $19,000,000 bringing our year to date capital spend to approximately $30,000,000 Gaming equipment related investments into our EGM and table product installed bases Accounted for over 60% of capital expenditures incurred year to date.

Driven by the accelerating demand we are seeing for our High performing premium EGM products and the emergence of incremental placement opportunities into the Texas Class II market following the favorable Supreme Court ruling in June, We now expect to incur full year capital expenditures of $62,000,000 to $67,000,000 representing an increase of approximately $6,000,000 at the respective midpoint versus our previously articulated range. We generated over $9,000,000 of free cash flow in the 2nd quarter, bringing year to date free cash flow to just under $5,000,000 Looking out over the balance of the year, even after taking into account Our revised CapEx outlook and the recent move higher in global interest rates into account, we expect second half free cash flow To meaningfully exceed the levels generated in the first half of the year, we continue to prioritize 2 channels for our excess cash flow, Deleveraging and Investing in Ourselves. While we are on pace to achieve our year end net leverage target of less than 4 times, Our intermediate term focus remains on restoring and subsequently improving upon the level of financial flexibility we had prior to COVID When our balance sheet was levered in the mid-3s. In addition to deleveraging, we continue to prioritize high return opportunities to invest in ourselves, Both through continued optimization of our AGM installed base and the evaluation of strategic recurring revenue growth opportunities, both in new and existing end markets.

Operator, this concludes our prepared remarks. We would now like to open up the line for questions.

Speaker 0

Thank If you're using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. Our first question is with Barry Jonas from Truist Securities. Barry, your line is open.

Speaker 4

Great. Thanks for that. I want to start with Texas. I know you said it's really too early to quantify Anything, but maybe can you give more color on the magnitude of opportunity we could see there for AGS near term and longer term? Thanks.

Speaker 2

Thanks, Barry. So a few things here. First, obviously, this is Class 2, which is great for us. It's right in our wheelhouse and our expertise. Also within that sort of Class 2 commentary is As we said in those prepared remarks that we've really been sticking with these tribes in Texas and supporting their situation down there.

We always believed firmly that they would prevail, which is really the rights that they have all along. So that's helping us As they expand and we'll say sort of that O and E aspect and certainly focusing on the letter E. The other thing is that like we've already started increasing our unit count there modestly. I'd say so the short term effect will be modest. I wouldn't say it's small, but it's modest.

And then the long term effect Hands down should be one of our greatest opportunities over the next few years depending on when That expansion comes into play. But when it does happen, it's going to be exactly that, hands down one of our best opportunities because, A, our commitment. B, we're Class 2, and this is our expertise. And C, we know these customers. I mean, the relationship on its own It's fantastic.

As far as giving you magnitude, it's just a little bit early on that, but You could probably make some assumptions knowing that a couple of the locations have a lot more bandwidth for growth. And when I say a lot more, It's really truly considerable. When we say an expansion, it would be, obviously considerable expansions for some of these guys down there.

Speaker 4

That's great. Appreciate that, David. Just as a follow-up question, wanted to touch on supply chain. A competitor Last week noted its sales have been impacted as a result of those issues. I know you've talked about the margin hit, But are you seeing anything in terms of not being able to fulfill orders or maybe taking advantage of other people's challenges?

Thanks.

Speaker 2

Yes. So we're not being affected at this point. And I'd say it's been steady as she goes. Our team in Oklahoma is they're fantastic. Best, I'm all set hands down again, but that's true.

I've worked with, in probably my entire career. They're always out in front of the ball. I'd like to say that by the time the senior team is asking them to jump on something, they had already jumped on it 60 to 90 days ago. Our lead times are largely the same as they've always been. So we're not losing any orders based on that.

And I think we Sneak in there and grab a couple of orders here and there. I know of a couple of instances where others could not deliver And I know ourselves and maybe one other company that was able to do that. So, 4 to 6 week lead time still, That's very consistent within the range that we have promised customers for years, I should say.

Speaker 4

Great, great. All right. Thanks so much. Appreciate it.

Speaker 2

Thanks, Barry.

Speaker 0

Our next question is with Jeff Stanchill from Stifel. Jeff, your line is open.

Speaker 5

Hey, great. Thanks. Good afternoon, everyone. Thanks for taking our questions. Starting here on the game ops business, I wanted to unpack one of Kimo's comments Towards the end a bit more regarding yields staying comfortably ahead of $30 per day I believe was the verbiage.

Kind of a 2 parter here. First, can you just frame out some of Puts and takes you're considering when you compare that commentary for Q3 to the $3,255,000 you reported for And then second, is it reasonable to think you could revert back to positive year on year growth now that we're mostly past the difficult stimulus compares? Thanks.

Speaker 3

Yes. So a couple of things, Jeff. I think if the comment being comfortably above 30, I think the way to think of it is, it's important to remind people that coming off of Q2, right, so Q2 would normally be historically a seasonal Hi. Across the industry and most definitely for us, so I would say Q2 generally the high watermark for the year. But offsetting that going the other way, we again assuming a stable macro, right?

And as David Sort of commented I think in his prepared remarks like we saw and have witnessed what July looked like and we'll say July was great. July was pretty consistent with what June looked like. But assuming stable macro, the ongoing initiative and momentum that we see in premium And additional placements in, I'll say higher yielding placements that we've already made and will continue to make in the quarter will help us land And RPD for Q3 2022 that will be at or maybe even slightly above Q3 of 2021. So I think that's probably a good way to frame up how we see RPD for Q3 of this year.

Speaker 5

Great. That's really helpful. Thanks Kimo. And then switching gears a bit, David, I believe you mentioned potentially exploring additional international markets That could complement the core North America market. Could you just expand upon that comment a little bit?

Any markets in particular that stand out that you're referring

Speaker 0

We always try to stay away from this question

Speaker 2

and I apologize because until we truly launch in those markets, We don't want to get carried away with mentioning them. We've been prepping in a couple of markets for Years, 3, 4 and even I'd say as much as 5 years for some market opportunities in Latin America. I think that we're getting much closer to doing some soft launches. And when that time comes, we're going to get it right on top of that communication with you, Should those launches we'll set almost like doing test banks in America here. When we do test banks, we get our numbers, We determine how our games do and then we move forward based on how that performance is.

So we're going to get out there. We'll do some test banks in Latin America, and then we'll talk a little bit more about, A, how it's going and B, maybe the I apologize for being so vague, but sometimes from a competitive aspect, we'd like to keep it a little covered up there.

Speaker 5

No, that's right. I appreciate you taking a stab at it despite the sensitivity. Both very helpful. Thank you both and congrats on another strong quarter.

Speaker 2

Yes. Thanks. Appreciate it.

Speaker 0

Our next question is with Chad Beynon from Macquarie. Chad, your line is open.

Speaker 6

Thanks for taking my question. Good afternoon. Wanted to ask about the premium units, which Continue to grow. I think in the prepared remarks, you said it's at 12% right now. In the press release, you noted that you still have Good pipeline of new premium games.

Can you just talk a little bit about maybe some near term goals or kind of chemo to your point on ARPU? Can this continue to just account for a bigger piece of the portfolio through the rest of the year and then looking into 2023? Thanks.

Speaker 3

Yes. So I mean, we haven't thrown a target out there, right, Chad, so we haven't said like our short term hurdle is to have our goal be 20% or something of our base. But what we will say is looking in the short term that the momentum we see going into Q3, We'll see a slight acceleration in premium placements over what we just witnessed in Q2. So I mean, I don't think we're quite ready to throw a target out there yet as far as what our goal is for our mix and our base. But we will say it's very encouraging that the kind of momentum And the pipeline that we see specifically behind premium for us.

Speaker 2

I'll just add, Chad And good afternoon. I'll just add that we know our competitors and we know one of our closest competitors. They're about 40% on that figure. I'm not hanging out that out there as a goal. I'm saying that that means Those kind of things are achievable in our industry for smaller gaming suppliers.

So that's not a stated goal at this point, but With where we are right now, we're at 12%, some others are above 40%. So we think we have some runway and we're and that's driven not By that performance of other companies, but what's going to drive this whole thing is our commitment to investing in R and D and quite honestly, The fact that we have supreme confidence in our team there and their ability to execute both from the core and premium side, but in this Case, I know we're talking about premium. So we feel very good about the future there.

Speaker 6

Perfect. Thank you. Appreciate that. And then separately on share repurchases, I think last quarter you talked about potentially dipping your toe in the water with A keen focus on that sub four times leverage, which are still on track to meet. With the CapEx increase because of the Texas opportunity, Does that push repos kind of down the list just because of the strong returns that you expect to get on Texas, maybe that's a Our use of the capital at this time.

Speaker 3

Yes. I think you hit the nail on the head, right? I think It's an iterative process as far as how we think of where uses of capital could be. But I think consistently the winners have been Invest in ourselves and I think based on the momentum that we see in premium most definitely I think the Supreme Court decision around Texas And the opportunities that that opens up in the short term and the longer term, I think it definitely puts that above Something like share repurchases, but I think like in the prepared remarks what we said, right, I think our capital allocation strategy Invest in ourselves and then delever and then after that I think we would look at something like share repurchases. So in the short term or mid term I Thank you.

Share repurchases is pushed off a little bit, but most definitely it's important to remind everyone right that we have that flexibility Should something come up that it makes sense to be opportunistic and go out in the market and do something like that.

Speaker 2

And that doesn't even count some of and I Jeff had asked a question that we give a bit of a veiled answer on, but that doesn't count that if some of those things pop for us in our expansionary sort of areas, Then we want to be mindful of what capital we'll need there as well. So we're excited about a lot of these opportunities and I think chemo obviously did a good Job of framing up what our priorities are.

Speaker 6

Thanks guys. Nice quarter. Appreciate it.

Speaker 2

Thanks. Thanks, Chad. Our next question

Speaker 0

is with Edward Engel from Roth Capital. Edward, your line is open.

Speaker 7

Hi. Thanks for taking my question and congrats on another solid quarter. Some of the industry data on the slots is really showing the replacement cycle. It feels like it's recovered pretty well this year. Just kind of based on what you're seeing in the ground, does it feel like the replacement cycle has kind of Accelerated as we progressed or does it kind of just rebase at a higher level earlier in the year and then kind of plateau from there?

Speaker 2

So you're asking if I'm sorry, the line is a little off there, but you're asking if it's accelerating at this point?

Speaker 7

Yes. And kind of as we progress in the year, has that replacement cycle kind of accelerated or kind of stepped up early in the year then kind of plateaued?

Speaker 2

I think it's been firm and consistent. I don't know that it's accelerating still at this point. I think it stepped up and now it's Rather consistent. I think the driving forces from here on out will be some of our product releases that are coming up. So there's some things that we're excited about as far as product release, Cabinets, games, etcetera, that generally speaking should drive some.

And we Brad just passed a little bit of data on to me that Eilers does show some modest pickup. So Whether we want to refer to that as acceleration or just maybe a modest pickup, that's probably the best way to put it. That's the latest data from that front, which is an independent source as we know.

Speaker 7

Perfect. Thanks for the color. And then just wondering, I know you're kind of didn't want to get too much into it, but just any update you have on Brazil, At least just bigger picture, it looks like there were some updates on the regulatory front row this year and just kind of wanted to see what you're seeing down there.

Speaker 2

So I think that there's a few things going on in Brazil. I don't think that you're going to see any big legislative changes At the moment, we are prepared for those should they happen. But I think there could be some opportunities in Brazil over the coming Years, if you want to call it that. At the moment, we will update as things transpire there. And you guys will be, I guess, you could say the second or third to know, after our customers end us.

But we're prepared. This is one of the regions That earlier in the call, I referred to it and I said, hey, we've been prepping for jurisdictions in Latin America For a number of years, some over 3, 4 years. And when I say over, over those figures, to make sure that we're prepared for those opportunities when they pop. So we're ready, and I think that we're poised with the right products when that time comes.

Speaker 7

Great. Thanks. Appreciate it.

Speaker 2

Thanks.

Speaker 0

Our next question is with David Katz from Jefferies. David, your line is open.

Speaker 8

Thank you and good afternoon. Appreciate you taking my question. So You've talked a lot about the sort of RPD and premium mix relationship, Which my sense is, is probably the largest earnings lever kind of in the model at this point. And have you done any math that you've talked about where if your mix got to 20, How accretive it might be to your RPD or every So such and such a number of units adds X or Y, any calibration might be helpful?

Speaker 2

Yes. So I mean we've got some sensitivity analysis on that, but that spreadsheet is a it's a Pretty big spreadsheet about how it might impact our revenue, our EBITDA, etcetera. I think Being that I don't have it in front of me, it's a little bit of a hard one to dig into at the moment. I think the thing that It's most glaring to me is that one, it's firming up our installed base in general, right? So we're going to start seeing Some sequential installed base growth here like we did from Q1 to Q2.

We're expecting the same or a little bit better in Q3, right? From there, obviously, this is these are better opportunities than just your average install. So we know, as you're saying, from a sensitivity point of view or how it will impact us that, that has a greater impact on us And then from there, we know that some of these installs that we can get out to, such as Class 2, Where it's true participation and in many or most cases no cap on that eightytwenty, Those again can drive much higher RPDs, which all leads to sort of our recurring revenue run rate. I don't have the math right in front of me and I don't want to do it off the top of my head. But if you look over time where we used to sit In the past, sort of, I'll say in chemo late 2019 or early 2020, I guess the best way to say, David, would be late 2019.

That we had retracted for a number of reasons. We had removed some integrity units. We had sort of reshaped the way we were doing business with a couple of customers, which contracted our recurring revenue just because of the texture and the mix of the business that we did. And now what we've done is we've not only come back from those numbers, but we're trending and our run rate It's going to exceed that very soon now and actually our current run rate would exceed that. But throughout the rest of the year, we'll prove out Unit based growth, RPD consistency, etcetera, will put us on a great trajectory for our recurring revenue base.

And I think that will start to really Sort of resonate with folks and we believe investors as well. But your sensitivity and how we looked at it, yes, we have it. I just don't happen to have it in front of us.

Speaker 8

Noted. And if I can just follow-up, with respect to the premium games that you're placing versus legacy, What's your experience or expectation around the duration of those games in terms of their sustainability or churn rate Relative to what you already have there, new versus old?

Speaker 2

So there's sort of like historical when you look Other companies, this is new territory for us, David. And so because it's new territory for us, we have very limited experience Because Big Red was the only product that we had as far as premium, but it was very niche. It was a small What we know is this, is that, there's some Class III stats out there for other companies. And I think that We're exceeding those and we will be exceeding those with our performance because in Class III, our premium product has Been very sticky, in particular, our curve premium product has been extremely sticky. On top of that, going back to sort of hand what we're good at as well, Sort of what's in our wheelhouse is Class II.

Class II premium, I can't emphasize enough, extremely sticky. So Those installs will be a multiple of what we see in Class III. But coming back to sort of the overarching topic, We are confident. We continue to launch and test new premium content and we have a good pipeline going forward Sort of like additional games and we'll eventually have additional cabinets, additional options. We have many swim lanes to jump into there.

So we're We're confident about our R and D abilities, but we're also on track to exceed sort of the industry averages. And then I said, just to reiterate Class You know, super sticky.

Speaker 8

Thank you very much.

Speaker 2

Thanks,

Speaker 0

Amy. At this time, there are no further questions. There are no further questions. So thank you for your participation. You may now