Everi - Q3 2023

Executive Summary

• Q3 2023 revenue was $206.6M (+1% YoY), Adjusted EBITDA was $96.2M (flat YoY), and Free Cash Flow was $34.3M (down YoY), with Games facing near‑term headwinds and FinTech growing mid‑single digits.
• Management lowered the full‑year outlook: Net income, EPS, Free Cash Flow, and Adjusted EPS now expected at the lower end of prior ranges; Adjusted EBITDA expected to be in line with the prior year, citing games softness and higher interest costs.
• Games segment revenue declined 1% YoY to $111.5M; gaming equipment sales fell 12%, DWPU dropped to $36.26, and unit sales were 1,449, while FinTech revenue rose 4% to $95.1M on higher financial access and software revenue.
• Management highlighted strong FinTech wallet traction (all‑time high $11.9B funds to floors) and product launches (Player Classic Reserve, Dynasty Dynamic), with new cabinets and market entries (VLT, UK mobile) targeted for 2024 as key catalysts.
• Consensus estimates from S&P Global were unavailable via our tool; result comparisons to Street are therefore not provided (S&P Global data unavailable) [SpgiEstimatesError].

What Went Well and What Went Wrong

What Went Well

• FinTech delivered 4% revenue growth to $95.1M, with financial access services +7%, software and other +12%; funds delivered to casino floors hit an all‑time quarterly record of $11.9B (+9%) and cashless transactions +51% YoY.
• Recurring revenues increased 7% YoY to $154.3M, representing 75% of total revenue, supporting stability despite lower one‑time sales.
• Management emphasized strategic progress: “We continue to execute on our operational and product roadmap… next generation cabinets… more than 80 new game themes” and advances in Digital Neighborhood and mobile wallet; entry into VLT and UK mobile markets targeted in early 2024.

What Went Wrong

• Games revenue declined 1% YoY to $111.5M; gaming equipment & systems fell 12%, DWPU decreased to $36.26 (vs. $39.56 YoY), and units sold fell to 1,449 (vs. 1,841 YoY).
• Net income fell to $26.6M (vs. $29.4M YoY) and Free Cash Flow fell to $34.3M (vs. $44.9M YoY), reflecting higher interest paid and discrete capex tied to the new production facility and IT investments.
• Management expects installed base and DWPU to be down sequentially in Q4 due to seasonality and product transition; recurring HHR contributions reduced by theme buyouts (upfront payment received).

Transcript

Operator (participant)

Good morning, and thank you for standing by, and welcome to the Everi Holdings 2023 third quarter earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the prepared remarks, the call will open for a question-and-answer session. As a reminder, this call is being recorded. Now, let me turn the call over to Jennifer Hills, Vice President, Investor Relations. Please go ahead.

Jennifer Hills (VP, Investor Relations)

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 in 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 investor section of our corporate website at everi.com. Because of the potential risks, you are cautioned not to place undue reliance on forward-looking statements. We do not intend and assume no obligation to update any forward-looking statements, which are made only as of today, November 8, 2023. 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-K today, as well as in the investor 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 investor section of our website. On our call today are Randy Taylor, Chief Executive Officer, Mark Labay, Chief Financial Officer, Kate Lowenhar-Fisher, General Counsel, Dean Ehrlich, Games Business Leader, and Darren Simmons, FinTech Business Leader. Now, I will turn the call over to Randy.

Randy Taylor (President and CEO)

Thank you, Jennifer. Good morning, and thank you all for joining us today. For the quarter, we reported revenue of $206.6 million, adjusted EBITDA of $96.2 million, and Free Cash Flow of $34.3 million. This brings our year-to-date free cash flow to $122.1 million. During the third quarter, we returned $33.9 million to shareholders through share repurchases, bringing the total share repurchases since the inception of our program to $158 million. We have $106 million remaining on our current $180 million repurchase authorization. Our FinTech business continued to deliver strong revenue growth in our financial access and software and other businesses. We reached another quarterly high for funds delivered to casino floors of over $11.9 billion.

While daily same-store sales growth has returned to the pre-pandemic level of low- to mid-single-digit year-over-year growth, we have continued to grow our revenues at a higher rate as a result of our ability to add new customers, products, and services. During the recent Global Gaming Expo (G2E) our FinTech business continued to highlight our strategy for our Digital Neighborhood, which is focused on improving the patron experience and drive operator efficiencies. We showed new and updated products across our diverse portfolio of payment solutions, casino and loyalty products, and our mobile offerings that demonstrated our unique position to capitalize on the convergence trends of gaming, hospitality, and online in our core customer footprint, as well as extending our reach into venues and other adjacent business sectors. Our CashClub Wallet won the Payment Solution of the Year award.

We introduced Vi, which combines our digital capabilities with strong game content and allows an operator to offer on-premise digital gaming. We have received strong interest in Vi and are making progress on securing agreements with several operators. We also introduced our mobile BeOn Wallet, a digital wallet that casino patrons will be able to use across multiple properties and jurisdictions and includes a comprehensive offering of our mobile wallet for cash access, ticketing, gaming, mobile ordering, engagement and loyalty, rewards, and other amenities. We believe these new products, together with our existing mobile products, will continue to gain traction with our customers. We see additional FinTech opportunity in 2024, including our plan to sell the smaller eCash kiosks in the North American distributed gaming markets in the first half of next year.

Our mobile-first initiatives utilize the assets that we acquired from Venuetize and provide us with the opportunity to grow our base of recurring revenues and expand our market into new adjacencies, including sports, venues, entertainment, retail, hotel, food, and beverage, by leveraging our payment and loyalty capabilities. Our Games business continued to experience near-term headwinds in the third quarter. We expect a similar impact in Q4 of this year. However, at G2E, we highlighted new cabinets, new content, and new market opportunities for 2024 and beyond. Starting in 2022, over a 24-month period, we will launch seven new cabinets that refresh our mechanical and video reel for-sale and premium cabinets. These cabinets incorporate newer components and technologies and complement our existing portfolio of cabinets.

In addition to the new cabinets at G2E, we showed a diverse portfolio of new Games and are targeting release of 25 new themes this quarter to support the launch of our new cabinets and over 80 new themes in 2024. Importantly, this portfolio represents a diversity of content for our video offerings that build in players' favorite game features, additional never-seen-before innovative themes, and our new Everi content that, all in all, targets both the entertainment and the avid players. We successfully launched two new cabinets at the end of Q3, Player Classic Reserve and Dynasty Dynamic. Customer response has been positive, and as of the end of October, we have placed nearly 50 of these cabinets into our installed base, with another 200 expected to be placed by year-end.

We look forward to the rollout of our new cabinets in Q4 and into the next year to drive growth in 2024. As we move into 2024, we have additional opportunities to accelerate our growth by increasing our presence in the historical horse racing market, entering the video lottery terminal market in Illinois in the second quarter, and expanding internationally, starting with Australia later in the year or early 2025. Despite some recent challenges, we continue to grow share at new casino openings and expansions. We estimate that our share will be more than 10% of the slot floor at new openings in the fourth quarter. Our digital gaming business recorded a 27% revenue growth, and the performance of our bingo operations through the acquisition of the Video King assets, has exceeded our expectations for the quarter and year to date.

Now, let me turn the call over to Mark.

Mark Labay (EVP, CFO & Treasurer)

Thanks, Randy, and let me begin by adding a little more color on the third quarter operating results. We reported year-over-year quarterly revenue growth of 1%, driven by a 4% growth in FinTech revenues and partially offset by a 1% decline in Games revenues. FinTech continued to see solid growth in revenues from Financial Access Services, which grew by $4 million or 7%. Software and other revenues increased by 12%, benefiting from both organic growth and the contribution from Venuetize, which was acquired in the fourth quarter of 2022. Hardware sales decreased by 20% from the prior year. However, the prior year quarter had the benefit of increased sales to support more new openings and expansions than in the current year.

In terms of quarterly cadence for equipment sales in the FinTech side of the business, I'd remind you that these can be quite lumpy on a quarter-by-quarter basis. Long term, we continue to see opportunities for ongoing replacement sales of our financial access kiosks and increased market penetration for our loyalty and other FinTech hardware. adjusted EBITDA for the FinTech segment increased 1% year-over-year to $39.8 million, inclusive of the impact of higher cost of labor and increased R&D spending. Within the Games segment, adjusted EBITDA was $56.5 million, compared to $57.2 million a year ago. Our install base and daily win per unit decreased compared to both the prior year and the second quarter. This was consistent with our expectations as we continue to transition to our next generation of cabinets.

In the fourth quarter, we expect our installed base to be down slightly and partially due to seasonal influences. We also expect daily win per unit to be down sequentially from the third quarter. As our new cabinets gain traction in the market, we expect the declines in both the units in our installed base and our daily win per unit to moderate before returning to growth. Gaming equipment sales were down $4.4 million from the prior year quarter, which reflects 392 fewer units sold. Partially offsetting the equipment sales decline is $1.4 million in new equipment sales from our Video King acquisition in May and $2.3 million in game theme buyouts related to our recurring revenue portion of the HHR business. The HHR platform provider has the right to buy out certain game themes under certain conditions.

When they exercise this right, we receive an upfront payment to compensate us for our share of the lost future recurring revenue related to these game themes. Consolidated gross margin expanded by 110 basis points to 79.7%, primarily due to revenue mix shift to higher margin Gaming Operations and Financial Access Services revenues from lower margin gaming equipment and hardware sales. Consolidated adjusted EBITDA of $96.2 million was essentially flat year-over-year to the $96.6 million reported in the third quarter of the prior year. adjusted EBITDA as a percentage of revenues was 46.6%, compared with 47.3% a year ago, primarily reflecting higher payroll expenses and other costs as we continue to invest for future growth.

We expect adjusted EBITDA as a percentage of revenue to remain in the mid-40% range in the fourth quarter. Our Adjusted Earnings Per Share was $0.44 in the third quarter, which was flat compared to the prior year. A lower income tax provision and a decrease in our diluted shares outstanding, primarily from our share repurchase activity, which was offset by the impact of lower net income due to lower operating income and higher interest expense. Net interest expense in the quarter was $20 million, an increase from $15 million in the prior-year. As a reminder, we have $400 million of outstanding unsecured notes at a fixed rate of 5% and $587 million of term loan that has a variable rate of interest. At the end of the quarter, our weighted average borrowing rate was approximately 6.7%.

Also included in interest expense is the cash usage fee on our ATM vault cash arrangements. Our estimated full-year expense for our vault cash is expected to be approximately $21 million, compared to only $9 million in 2022. We remain comfortable with our current level of debt and our cash interest costs. We ended the third quarter with total net leverage at 2.5 times trailing adjusted EBITDA, which remains in line with our 2.5-3 times target. Free Cash Flow generated in the quarter was $34.3 million, compared with $44.9 million a year ago.

The decline was the result of $5 million of increased net cash interest costs and $5 million of higher capital expenditures related primarily to the discrete capital items we discussed for 2023, including the new assembly facility in Las Vegas and other IT infrastructure investments. We will continue to focus our capital allocation strategy on reinvesting in our business for growth. This includes maintaining R&D spending on a consolidated basis in a range of 8%-8.5% of revenues, and as we transition to our next family of gaming cabinets, making increased capital investments in our installed base to drive future revenue growth. While we are still working to finalize our views for 2024, overall, we currently do not expect any material increase in the total capital expenditures from the 2023 levels.

Any increased spending on customer equipment should offset the expected reduced spending of discrete items, like the build-out of our new warehouse and assembly facility in Las Vegas. From 2018 to 2021, we experienced tremendous revenue growth as we launched our last family of cabinets into our premium footprint. We believe our current increased investment in a broader array of new cabinets and a deeper library of new game themes will result in improvements to our Gaming Operations and will provide increased revenue and adjusted EBITDA growth. We will continue to focus on driving market share gains with new and existing customers and expanding our product lines and geography service to leverage our existing offerings.

While we will continue to evaluate tuck-in acquisition opportunities that support our product development and growth objectives, in the near term, with our share price far below what we would consider to be fairly valued, we expect to place a higher priority in our capital allocation towards returning excess cash flow to shareholders through share repurchases. Moving on to our outlook. For FinTech, we continue to expect to see high single-digit revenue growth for the year. For the Games business, based on the current headwinds, and until our new cabinets and Games have the opportunity to gain traction with operators and their patrons, we expect greater near-term pressure on our unit sales and decline in our installed base and daily win per unit. We also expect reduced recurring revenue contributions from our HHR portfolio due to the third quarter game theme buyouts.

In total, for Games, we now expect revenues to be flat to down 1% for the full year. On a consolidated basis, primarily as a result of our lowered outlook for the Games business, we now expect consolidated adjusted EBITDA for the full year 2023 to be in line with the prior year. Net income, GAAP-based earnings per share, free cash flow, and Adjusted Earnings Per Share are now expected to be at the lower end of the guidance ranges provided in August during our second quarter earnings call. We expect our lower operating income to be offset by lower net interest expense, lower taxes, and lower capital expenditures.

Our estimates for earnings per share and Adjusted Earnings Per Share are based on the shares outstanding at the end of the third quarter and do not reflect any potential benefit from future share count reductions from any additional buyback activity. As Randy highlighted, we continue to execute on our roadmap for long-term profitable growth in both our Games and FinTech business. We are excited to begin to see our recent investments in people and the new studios reach casino floors over the next several quarters. We believe this, combined with our expansion into the VLT market, will drive a return to growth in Games next year. With that, I'll now conclude our prepared remarks and turn the call over to the operator for questions.

Operator (participant)

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. The first question comes from the line of Jeff Stantial with Stifel. Please go ahead.

Jeff Stantial (Analyst)

Hey, good morning, guys. Thanks for taking our questions. Starting off here on the game ops business. You know, Randy, I think last call, you talked to targeting sequential growth and installations to resume sometime around year-end, potentially bleeding a bit into 2024. Now that Q2 is in the rearview mirror and you're starting to see installations ramp up for some of the newer cabinets, just curious, is that still the right time frame or just how are you thinking about that? You know, given some of the think about data points. Thanks.

Randy Taylor (President and CEO)

Sure, Jeff. I would say we probably were a little more bullish where we would end the year. Probably thought we would be up. I think, at this point, I think our install base will be slightly down by the end of the year. There's a couple factors in there. We do have some units that are out due to renovation. They'll come back in the first quarter. But what we are seeing, our newer cabinets get out in the field. So we put out about 50 of the newer cabinets in October, and we have another 200 that we expect to install. So overall, I think we'll see a slight decline in our install base through quarter end. And we do—but we do expect to start to grow next year, whether that'll be-

... Q1, it's hard to say. It'll just depend on how the new units and the new cabinets are taken on. But, the expectation is next year, the install base will start to grow again.

Jeff Stantial (Analyst)

Okay, great. That's, that's helpful. Thanks, Randy. And then maybe stick with the Games. This is one for, Dean or, or Randy, whoever wants to take this. Obviously, a ton of focus last couple of quarters on the stepper category, in particular, coming out of the G2E. Curious if, if you have a sense on, on kind of how overall category market-wide sales have been trending, just given it does seem like we're coming into a bit of a refresh cycle, for, for stepper specifically. And then from a shift share perspective, is your expectation as we look out to 2024 and, and 2025, that you'll continue to sort of share this, this category evenly with a couple different competitors?

Or I guess, in other words, kind of what point does the performance of the content start to outweigh, you know, push from other operators to diversify hardware a bit? Let me know if that makes sense, kind of the way I framed it out.

Randy Taylor (President and CEO)

No, I think it does, Jeff, and I'll take the first piece, and then Dean can add on. But look, I think we're still very comfortable and very bullish on our mechanical products. Clearly, two big competitors have refocused in on the mechanical area, so we think that, you know, there'll be more of a split. I think we got or we received a greater amount of our fair share in the last few years, and now I think it's gonna be closer to, you know, a split between those three main operators in that area. So we still feel very comfortable with mechanical. And I would say, again, mechanical is only 20%-30% of the market.

Let's realize that we're also focused on video, and that's where we think is the best area for us to grow. But we think we're gonna continue to maintain a very nice share in mechanical, and think that we'll continue to compete very well, and in my view, we'll be at the top of that. But we'll see how that plays out. Dean, anything to add?

Dean Ehrlich (EVP and Games Business Leader)

I would just say that we continue to provide a pipeline of what we think are very compelling products. You know, if you look at the Eilers list and high denomination and even lower denomination in the mechanical side, we still dominate it. I mean, we're half of the list, so that's telling me that our products continue to resonate. And what we're most excited about is the stuff that's also coming out that we feel put us in a good position to continue to move forward on the mechanical side.

Jeff Stantial (Analyst)

Great. That's very helpful. Thank you both. I'll pass it on.

Randy Taylor (President and CEO)

Thanks, Jeff. Appreciate it.

Operator (participant)

Thank you. Next question comes from the line of Barry Jonas with Truist Securities. Please go right ahead.

Barry Jonas (Analyst)

Hey, guys. You've seen—we've seen the consolidation in the space between lottery and gaming. How strong is the case still for Games and FinTech to be together?

Randy Taylor (President and CEO)

Look, from our standpoint, we've had this combination since 2014, and it's done very well for the company. There are cost synergies, there are revenue synergies, and these businesses are complementary. So we continue to believe in the combination of the two businesses. However, we don't have an entrenched management. If someone ever came to us with an offer of one or the other side of the business that was compelling, we'd definitely look at it, but I still don't believe the market, you know, really sees some of the things that we do with these two businesses, with our byproduct, where now we're utilizing our digital assets and incorporating our cash access into a, you know, on-prem mobile product, mobile gaming product.

I think there are other synergies here. So I still believe right now that these two businesses together is the right answer for Everi, but we will continue to, you know, to evaluate anything that comes our way.

Barry Jonas (Analyst)

Great, that's really helpful. And then, you know, I'm somewhat excited about your international roadmap. Would love to kind of hear more about it, and somewhat curious to get your views about how big international could be, you know, relative to the domestic business in terms of revenue or EBITDA. Thanks.

Randy Taylor (President and CEO)

Sure. I'll start a little, Dean, probably give a little more color. Look, we're in the early stages, so I don't want to overstate what's out there. But clearly, going into Australia, where it's the second largest, you know, market for gaming machines, is gonna be big for us. We just need a small piece of that market, and if our content and cabinets resonate, I think it'll be very positive for us. Look, it's more like at the end of 2024 and into 2025, but I think it just adds to the other markets and areas that we're going into, you know, VLT, continuing to increase our share in HHR in Australia. So I think all those things continue to allow us to grow and show growth in 2024 and 2025.

It's early, but it's very promising from our standpoint.

Barry Jonas (Analyst)

Great. All right. Thanks so much.

Randy Taylor (President and CEO)

Thank you.

Operator (participant)

Thank you. Next question comes to the line of Chad Beynon with Macquarie. Please go ahead.

Chad Beynon (Analyst)

Morning. Thanks for taking my question. Wanted to start with FinTech for Randy or Darren. Based on your guide, revenues are expected to grow high single digits, so really positive there. On the financial access service transaction side, that year-over-year growth remains significantly higher than the market growth.

... So as we look into 2024, understanding that you're not giving guidance, can you help us think about, you know, when either some of the acquisitions anniversary, kind of how you're thinking about, you know, can this business continue to grow at least mid-single digits? Really good momentum right now. Just wanna understand, you know, how that can look over the next 6-12 months. Thanks.

Randy Taylor (President and CEO)

Sure. I'll start again, and Darren can add. Look, I still think we're extremely bullish on FinTech. You know, Darren and that team has proven that even, and if you go back to pre-pandemic in 2019, when we had, you know, low to mid-single digit growth, we grew faster than, you know, the overall, I'll say, same store, you know, growth because we have the other products and services that we have to sell. And so we continue to do very, very well on new business that comes up.

You know, and so when you add that along with, you know, the investments we're making in loyalty and compliance, and now into Vi and Beyond, I think that, you know, we always look at the FinTech business as singles and doubles, and Darren continues to find ways to add revenue into that FinTech side of the business, and we would expect to continue to grow in 2024.

Chad Beynon (Analyst)

That's great. Can Venuetize in some of the nontraditional gaming pieces of that start to be a bigger contributor in 2024? Or are you still kind of planting the seeds on, you know, some of the items that you talked about, Randy, with, you know, relationship to sports, retail, hotel? Is that more of a multi-year opportunity, or can we start to see that in 2024?

Randy Taylor (President and CEO)

Well, I'm gonna turn it over to Darren, but I will just say that, you know, on Monday we had, you know, a major league team in the office and I will say Venuetize continues to look and work into the sports area. So I think it's an area for growth. But Darren, I'll let you kind of add on that one since you're a little closer to it.

Darren Simmons (EVP, FinTech Business Leader)

Yeah, look, I think, as I've said a few times now, you know, Venuetize really complements our overall, deep product roadmap that we've actually been executing on now for a number of years. So I think you need to look at it as complementary and, you know, the mobile solutions that we've got, you know, that are really resonating with customers. Again, we got tremendous feedback at G2E, you know, just around our whole mobile strategy as it relates to, you know, how we're thinking about sports, venues, entertainment, and you know, how our customers are seeing, you know, that convergence, that continues to trend, you know, with gaming, online, sports, and venues.

And so, you know, I think, you know, as Randy said, you know, I think we continue to win new business, win new customers, because of, you know, the deep product set that we have and our ability to execute and deliver on the value that we have across our ecosystem of products and services. So again, still feel good about where we're at and into 2024 with the momentum that we've got here.

Chad Beynon (Analyst)

Appreciate it. Thanks, Darren.

Darren Simmons (EVP, FinTech Business Leader)

Thanks, Chad.

Operator (participant)

Thank you. Next question comes from the line of George Sutton with Craig-Hallum. Please go ahead.

George Sutton (Analyst)

Thank you. Mark, I wanted to ask you about cash flow and free cash flow into 2024. Understanding you're not giving guidance, but just generically, as we look at the cash flow you're generating this year versus what you'll be positioned to do next year, can you just give us a sense of any large puts and takes that we should be aware of?

Mark Labay (EVP, CFO & Treasurer)

Yeah, you know, but I think we tried to, as you highlighted, we're not gonna give guidance, so I'll be careful not to suggest I'm giving guidance right now. But, we expect growth next year from where we are this year, in terms of the EBITDA line of where we are. We all know what's happening with interest rates. Certainly, we're exiting the year higher than we entered the year, so, that could be a little bit of a, a negative, depending on your views, forward views on how interest rates and how quickly they start coming down. I think there's a belief they will start coming down or at least, holding from these levels. So, so that should be kind of consistent, I think.

From a CapEx perspective, I tried to highlight that, we really are investing in the business next year. I think we've got a tremendous amount of, new products, specifically on the gaming side, available to us that we think is gonna drive some nice compelling revenue growth for us as we move forward. So we'll lean in a little bit more into the customer equipment side, as we have a lot of new products available to us to refresh that installed base and really drive revenue growth. But that growth in the customer equipment is probably offset by the declines in terms of what we're gonna see in terms of those discrete items.

You know, we'll have completed the build-out of our new Las Vegas assembly and warehouse facility, some of the discrete IT projects that we had mentioned at the beginning of the call. Those kind of things will be coming out of the numbers. So I suspect our CapEx number will be probably, when we come out with guidance, somewhere in the neighborhood of where we are today for 2023. And we still believe from a cash tax perspective, we'll still be in a pretty good spot from a cash tax perspective. I would suspect we're probably about much different than what we're paying this year in terms of cash taxes, unless tax rules change.

So it feels like we're in a nice spot for growth on that line right now, but again, I'll hold off and reserve the rest of that commentary until we kind of get to year-end and kind of share some more views of 2024.

George Sutton (Analyst)

Great. A question for Dean. Obviously, we've talked about this air pocket in terms of product availability and generations. Can you just make it simple for us in terms of what maybe the top three cabinet or content availability you're really focused on, when those are expected to be available? What should we be closely watching for?

Dean Ehrlich (EVP and Games Business Leader)

... So I'll go down the list of, new cabinets that are coming out and the timing. It's probably the easiest thing. So, Player Classic Reserve launched at the end of September. Dynasty Dynamic also launched at the end of September. So Randy talked about the 50 units that are currently out in the field and the 200-unit backlog. So those are the first two. Dynasty Sol, which is our new for-sale portrait cabinet, will launch in December, but it'll be a small amount of units towards the end of December, and then really into 2024. And then our Sol Sync, which is our premium version of our new portrait cabinet, will launch in early Q1. So those are the, that's, that's the cadence of the four cabinets.

Also, to remind you that we really just launched Vue at the end of Q1 this year, and a plethora of content really is coming out, I would say, towards the end of the year into next year as well. So we will have two, video cabinets, which is obviously the biggest category of opportunity to position out into the commercial market, so... Not commercial, all markets. So that's the strategy, George. I hope that answers that for you.

George Sutton (Analyst)

No, that's, that's outstanding. Very helpful. Thank you.

Operator (participant)

Thank you. Next question comes from the line of John Davis with Raymond James. Please go ahead.

John Davis (Analyst)

Hey, good morning, guys. Just wanted to follow up a little bit on the free cash flow commentary, but specifically, Mark, on CapEx. You know that you would expect it to be kind of flattish next year, but if I recall, you had about $25 million of one-time-ish type products between the $15 million for the new manufacturing facility and, you know, $10 million or so from I think a transition ERP, if I recall correctly. But just maybe talk about some of the puts and takes just specifically on CapEx as we enter 2024.

Dean Ehrlich (EVP and Games Business Leader)

Great way to get talking about guidance, John. I like it.

Mark Labay (EVP, CFO & Treasurer)

All right. I'll dance a little bit. Look, John, I think again, we talked about having maybe a little bit more CapEx this year. I kind of framed that in my prepared remarks. We think, you know, with what we've been spending so far this year, that our CapEx in total is kind of coming down a little bit from where we had provided, you know, explicit guidance maybe or an explicit update last quarter of, like, $142 million-$144 million for the full year. So I think we'll spend a little bit less just because Q3 was a little lighter in terms of customer equipment.

We're getting new equipment in now, we're starting to roll that out, and we've probably been a little bit under in some of the discrete items that we've spent on what we projected this year, which was kind of in that $25-$30 million kind of range, is what we kinda thought was there. So you're getting a little bit of total CapEx decline overall in where we are. Again, as we move forward, you know, I really wanna make sure it's important that we keep investing in the infrastructure of the footprint. But, you know, I'll also highlight that our R&D expense we think is adequate for what we need to spend, and it's still at that 8.5% range compared to revenue. So we think we're investing enough in that.

But from a CapEx perspective, I think you should expect to see it kind of similar, 'cause the discrete items that we're saving this year into next year, I expect will be made up for with the increased customer equipment spend as we refresh the install base.

John Davis (Analyst)

Okay.

Mark Labay (EVP, CFO & Treasurer)

Hope I answered it.

John Davis (Analyst)

Yeah, no, that's perfect. I appreciate the color there. And then maybe Randy or Mark, you know, as we think about kind of the guide down, the $8 million or so versus your prior guidance in EBITDA for this year, how much of that would you contribute to macro versus micro? Like, you know, the air pocket and kind of cabinets and content versus, you know, potentially lower GGR or just, you know, general macro conditions.

Dean Ehrlich (EVP and Games Business Leader)

Look, John, it's hard to say. Look, we're still seeing reasonable growth in our... You know, as we look to our FinTech business, our cash access, cash to the floor. But it is going—it's lowering down, it's been lowering each quarter, but still, I'll say, a low double-digit growth. So I think there's some impact from the macro. I mean, you've heard it from operators, probably a little bit more in the regional market. Las Vegas still doing well. But I think, look, ours is we're in a transition period, and so we know that, there's some impact to us as we transition to the newer cabinets and the newer content.

So it's probably a little skewed more to that than macro, but again, right now, macro seems to be holding in line what we hear from other operators. And I think, you know, the big question will be how it does next year. But so far, I would say that it's more from our standpoint, this transition, getting those new cabinets, getting that new content so that we're set up well to grow in 2024.

John Davis (Analyst)

Okay, thanks. And then last, quickly, just wanna clarify one of Mark's comments to the prior question. Yeah, I believe I heard you say, Mark, that you would expect EBITDA growth next year. Just wanted to confirm that. And, you know, even if macro were to deteriorate further, do you think you can still grow EBITDA next year?

Mark Labay (EVP, CFO & Treasurer)

Look, we haven't given guidance yet. We always expect ourselves to grow on a year-over-year basis. And as I sit here today, looking at the macro where it is today, and without completing my true 2024 roll-up just yet, I am expecting growth year-over-year. I'm expecting to see us grow. We always strive to have growth on an annual basis, so, so I do see it growing.

Dean Ehrlich (EVP and Games Business Leader)

Yeah, John, I'll answer that really easily. The answer is yes.

John Davis (Analyst)

Thank you, Randy.

Mark Labay (EVP, CFO & Treasurer)

Thanks, guys.

Dean Ehrlich (EVP and Games Business Leader)

Thanks, John.

Operator (participant)

Thank you. Next question comes from the line of Ara Masias with Jefferies. Please go ahead.

Araceli Masias (Analyst)

Good morning, everyone, and thanks for taking my question. I just wanted to ask if we could get some color on R&D and whether it remains at a stable level or how to think about it moving forward. Thank you.

Randy Taylor (President and CEO)

Sure. I think Mark touched on it a little bit, but I'll just, I'll just reiterate. We still look to spend, on, say, on the expense line, somewhere between 8%-8.5% of expense, R&D expense as a, as a percentage of, of revenue. We think that number is in line with, you know, larger competitors. Obviously, from a, from a pure dollar standpoint, they spend more than we do, but we think that's an adequate amount to really support both businesses being FinTech and Games. And that doesn't account for the amount that you capitalize. So we feel good about that. It's what, Dean's worked with throughout this year to kind of line up his hardware, the new content he's got coming out, and we've stayed within that, that range.

I don't anticipate that range going up or down because I think we believe that, you know, one of our main, you know, tenets in capital allocation is to continue to reinvest in the company, and that really is that R&D line that drives both FinTech and Games.

Araceli Masias (Analyst)

Okay, great. That's all. Thank you.

Randy Taylor (President and CEO)

Thank you.

Operator (participant)

Thank you. There are no further questions at this time. I would now like to turn the floor over to Randy Taylor for closing comments.

Randy Taylor (President and CEO)

Well, we'd just like to thank everyone for joining us today. We appreciate your continued interest, and we look forward to providing an update on our business and our outlook for 2024 in our fourth quarter year-end call in March. Thank you very much.

Operator (participant)

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