Greetings and welcome to the Everi Holdings Incorporated Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded.

I’ll now turn the conference over to your host, Bill Pfund, Vice President, Investor Relations. You may begin..

Thank you. Welcome, everyone. Our team is working from multiple locations today and while I don’t expect any gremlins, I would ask your patience if we experience any technical difficulties. Let me remind everyone of our safe harbor disclaimer that covers today's call and webcast.

Our call will contain forward-looking statements and assumptions, which involve risks and uncertainties that could cause actual results to differ materially from those discussed during our call.

These risks and uncertainties include, but are not limited to, those contained in our earnings release today and in other SEC filings, which are posted in the Investors section of our corporate website at everi.com. We do not intend and assume no obligation to update any forward-looking statements.

You are cautioned not to place undue reliance on forward-looking statements, which are made only as of today, November 2, 2020. We will also refer to certain non-GAAP financial measures such as adjusted EBITDA, free cash flow, total net debt, total net debt leverage ratio 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 website. This call is being webcast and recorded. A link to the webcast and replay of today's call can be found in the Investors section of our website.

Joining me on the call today are Mike Rumbolz, our Chief Executive Officer; Randy Taylor, our President and Chief Operating Officer; Mark Labay, Executive Vice President and Chief Financial Officer; Dean Ehrlich, our Games Business Leader; Darren Simmons, our FinTech Business Leader; and Harper Ko, Chief Legal Officer and General Counsel.

Now, it's my pleasure to turn the call over to Mike Rumbolz..

Thank you, Bill. Hello everyone and thank you for joining us today. Now, before Randy and Mark share their insights into how our business performed during the quarter, I'd like to share a few highlights and observations. Overall, our third quarter results were significantly better than expected.

Our revenues, operating income, adjusted EBITDA and free cash flow all meaningfully improved sequentially over the second quarter of this year. This faster than expected recovery, driven by the strong performance of our large base of tribal and regional customers is clear evidence of the ongoing strength in our business.

In particular, the third quarter results highlight the resilience of the contributions from our recurring revenue streams, which comprised more than 75% of our third quarter revenue.

Our third quarter results also demonstrate that the focus on our long-term strategies and investments across our product portfolio have positioned us to continue to grow both of our business segments going forward.

Furthermore, it's notable that our adjusted EBITDA as a percentage of revenues improved by 500 basis points from last year's third quarter, reflecting the actions that we've taken to reduce our overall cost structure and the benefit from a greater mix of our higher margin products.

In games, the ongoing success of our portfolio of premium units in both tribal and commercial casinos, together with the overall growth in our installed base of operating units despite this pandemic has clearly reinforced the benefits of our strategic planning.

We've prioritized the execution of our game development and in preparing our roadmap for future development, we have based it not only on the creative talent and experience of our studio teams, but also on data analysis of player trends and feedback from operators.

I’m proud of the great collaboration between our product management people and our game development studios, under the leadership of Dean Ehrlich. Together as a team, they have driven positive performance for an extended period of time, both prior to the pandemic and following the reopening of casinos.

I have never felt more confident in our pipeline of new games than I do today. Likewise, the growth and recovery in our FinTech business, under the leadership of Darren Simmons reflects the strength of our execution and strategic focus on developing a comprehensive digital neighborhood for our casino customers.

Our digital neighborhood encompasses far more than the ATMs, Cash Access Solutions, and our fully integrated kiosks. It also extends into products like Jackpot Xpress and Central Credit, as well as a full array of compliance services needed in the highly regulated gaming industry of today.

Furthermore, in 2019, we added a range of strategic player loyalty products, that added to our comprehensive solution set, and was an important step for us in the path toward the convergence of loyalty and payments in the digital world.

Importantly, what sets us apart in the industry is that all of these products and services are fully integrated with each other.

This increases both the standalone value of each service and due to the tremendous efficiencies that we realized through their use of these products, this significantly increases the total value that we bring to our customers when these products are embedded into their casinos enterprise wide network.

Now one of the most important advancements in the development of our digital neighborhood is the introduction of our digital white labeled CashClub Wallet Solution.

The CashClub Wallet is simply the next step in bringing value to both the player and the operator, offering convenience for players and significant cost efficiencies for operators, the CashClub Wallet is a convergence of our digital cash access funding capabilities with our digital player loyalty services.

It is a mobile app, and a true digital wallet. It can act as the hub for payments across the breadth of a casino operators resort enterprise, from the gaming floor to food and beverage, from retail to hotel and resort amenities.

It can even provide the funds for players to engage with an operator's online retail and entertainment channels, such as iGaming and online sports books. In addition to the cost efficiencies for the operators, our Wallet has the ability to extend the relationship and the connection time between our casino customers and their players.

Another key feature of our digital wallet is its flexibility. White labeled to carry the casinos branding, the CashClub Wallet is fully customizable, so that the operator can deploy it with a customer experience that is reflective of their brand and meaningful to their patrons.

Our digital wallet also meets the extensive needs of the various gaming regulators across multiple jurisdictions throughout the U.S., as well as banking and other financial regulations. We expect to have the first operational uses of the wallet with two large well known tribal casino operators later this month.

The use of the CashClub Wallet will enable guests to access their funds and loyalty program benefits when they want, how they want and where they want to use them, all across the casino financial ecosystem.

In addition, all of this will be seamlessly integrated for the convenience of the patron and will carry those increased cost efficiencies for the operator. And with that, let me turn the call over to Randy..

Thank you, Mike. Hello, everyone. Throughout the third quarter, more casinos continue to reopen.

And despite limitations such as restrictions on capacity, and social distancing requirements, player attended casinos was good, as you've heard from a number of public operators that have already reported, with a majority of our revenues driven by recurring activities such as play levels on our gaming operations units, transactional funding actions or subscription models for player loyalty and regulatory compliance services.

Our business recovery has occurred quicker and stronger than we originally expected. Let me call out just a few notable metrics. For the third quarter, many operators focused on optimizing their slot floors to enable a greater number of their gaming machines to remain active.

The combination of more active games, a greater mix of premium units, and our games strong performance yielded a daily win per unit of $32.81. This was well ahead of the second quarter, and just below the average daily win per unit generated in the 2019 third quarter, during which all of the games in our installed base were active.

We estimate that the daily win for only those games actually active during the quarter exceeded $37 per unit. Our total installed base of leased machines increased 7% over a year-ago, and by more than 300 units on a quarterly sequential basis from the end of the second quarter.

This growth was largely due to our basic premium games, which increased both year-over-year and on a quarterly sequential basis. Higher yielding premium units now represent just over 40% of our total installed base.

Recent additions to our game portfolio, such as our premium non-wap game, The Vault, and the two new wide area progressive games on our dual curved screen DCX cabinet, The Mask and The Karate Kid are continuing to perform well. These additions were the primary driver behind the increase in premium units in the third quarter.

Existing premium units with original themes such as Shark Week, and Smokin’ Hot Stuff Wicked Wheel also remain strong performers. While The Vault is our best ever performing game with a lot of runway for further placements in the quarters ahead.

While unit sales of slot machines improved 29% over the second quarter, most operators remain in capital conservation mode. Our average sale price was up slightly year-over-year, partially reflecting a favorable mix of our new premium flex cabinets and the overall mix of units sold.

We continue to expect the slot spend by casino operators will remain at reduced levels during the fourth quarter and at least through the first half of 2021.

However, we believe the broad strength of our high denom mechanical real offerings and the launch of our four sale Flex Video Cabinet at the beginning of the year positions us well to continue to gain a shift share. 18 of the top 25 top indexing high denom mechanical real games in the latest Eilers & Krejcik Game Performance Report or EVRI.

The initial performance of the Flex with its combination of a differentiated cabinet and new game themes with proven features and play mechanics provides further support for growing our ship share. In the FinTech segment, cash access revenues improved dramatically over the second quarter.

The decline versus the 2019 third quarter reflects both the impact of casinos closed during the quarter, and a modest decrease in transactional activity on a same-store basis.

While same-store transactional activity did improve from the beginning of the quarter, it appears to have plateaued during recent weeks to a level modestly below pre-COVID levels.

Reflecting ongoing operator interest in our player loyalty products, Information Services and other revenue grew 22% over the 2019 third quarter, driven by the year-over-year increase in player loyalty subscription revenue. Compliance services and self service loyal products are becoming must have solutions for casino operators.

The operator interest in our self service player loyalty kiosks led to a 33% increase in loyalty equipment revenues. However, this was more than offset by a decline in other equipment sales, reflecting operators capital conservation efforts.

A portion of the increase in loyalty shipments reflects the postponements associated with orders placed earlier in the year. Having said that, I'll highlight that our backlog for loyalty deliveries remain strong.

We've integrated our loyalty acquisition assets into a single platform, which is integrated into our digital neighborhood that Mike discussed, and have rebranded all our player loyalty products and services under the Trilogy brand.

With a significant installed base of existing products in the marketplace, we will continue to support all our customers, but all future product developments will be under the Trilogy brand efforts. I also want to bring attention to some of the terrific industry acknowledgments we've recently received relating to our products and our product roadmap.

As part of their 2020 gaming and technology awards, Global Gaming business once again recognized Everi for two notable awards. The first was for our premium game theme, The Vault, which received the Gold Medal for best slot product.

This is the second consecutive year that one of our premium slots was recognized as this casino industry's gold medal for best slot product. Winning the top spot last year was our Smokin’ Hot Stuff Wicked Wheel premium theme. Our FinTech business is recognized for the third consecutive year by the Gaming and Technology Awards.

This year, we received the silver medal for the best consumer technology for our digital CashClub Wallet solution. Last year QuikTicket, another cashless solution was awarded the silver medal.

Now I'd like to turn the call over to Mark to share his perspective on our performance and trends as we begin the fourth quarter, and what that could mean for the remainder of the year.

Mark?.

Hey, thanks, Randy. While the awards and recognition with the industry are always provided great validation from our customers and peers of our product investment strategy and even better measure of our success is the improvement we’re achieving in our financial results and free cash flow.

So with that, let me focus on some of those highlights for the quarter. Driven by the strong recovery in our recurring revenue streams and the margin enhancement we achieved in part from our efforts to reduce our costs, our third quarter adjusted EBITDA was $59.8 million, and our free cash flow was $22.8 million.

Our free cash flow more than doubled the amounts we reported for the third quarter of 2019. With this strong free cash flow generation and our improved liquidity, we were able to repay the entire $35 million outstanding on our revolving credit facility in the third quarter.

At current interest rates, this will save us almost $500,000 per quarter in future quarterly cash interest costs. Reflecting that debt paid down, the total principal face amount of our debt outstanding declined to $1.1 billion at September 30.

Our net cash position at the end of the quarter was $128 million as compared to $133 million at the end of the 2020 second quarter. However, the second quarter net cash position was reflective of the cash on hand and $35 million in revolver borrowings.

I'll finish up my debt discussions by pointing out that at the end of the third quarter, despite the $125 million increase from our new incremental term loan that we borrowed in April, the total outstanding principal face amount of our debt less our actual net cash position is more than $100 million less than it was at the end of the prior-year period.

While we’re currently maintaining our cash balances to preserve liquidity through these uncertain times, this overall decrease supports the progress that we have been making in our goal to delever. Moving on to our outlook. As we look to the fourth quarter, there is still uncertainty in the current gaming environment.

This includes visibility for the portion of our gaming operations footprint that is currently installed but inactive.

However, because we expect our total premium footprint will continue to grow, more of the inactive units in our installed base will become activated and the units that are active will perform at levels consistent with our current performance, we believe that our active units will continue to over index their performance relative to their prior-year pre-pandemic levels.

Our strong third quarter performance offers encouragement for continued momentum in the recovery of our business.

Based on the levels of activity, we’re currently experiencing, our continued strong relative performance in both our games and FinTech businesses, and the number of casinos open as well as their player visitation levels across the country, we’re guardedly optimistic that our fourth quarter adjusted EBITDA will be comparable to the third quarter performance.

This is despite the typical fourth quarter holiday declines which have historically resulted in slower quarter for some of our recurring revenue streams. In the fourth quarter, and for next year, we expected adjusted EBITDA as a percentage of total revenues will remain stronger than at typical historical levels.

This reflects the current mix of our business as well as the ongoing benefits of the overall cost improvement initiatives taken in the second and third quarters. On a quarterly sequential basis, revenues are expected to increase slightly over the third quarter levels.

And we anticipate that adjusted EBITDA as a percentage of total revenues will contract slightly as we start to see increasing equipment sales. The third quarter was exceptionally strong as the faster than anticipated recovery enabled revenues to ramp more quickly than our costs.

However, as I've suggested on previous calls, we expect fourth quarter SG&A and R&D expense exclusive of non-cash compensation to increase slightly from the third quarter levels in order to support the increasing business volumes, as well as prepare us for future growth opportunities.

Having said that going forward, we still expect to have an overall cost structure that is lower when compared to pre-pandemic run rates.

I want to remind you that on our last call, we stated our intentions to continue to evaluate and optimize our general office and warehouse facility needs to support a changing business climate and in more remote work environments.

In the fourth quarter, we expect to see further consolidation of warehouse and assembly operations, as well as some other general office consolidation. As a result, in the fourth quarter, we expect to incur certain one-time non recurring charges of between $1 million and $2 million as we exit certain of these existing facilities.

But we believe these charges will position us to save future operating expense. We expect the free cash flow will remain positive in the fourth quarter despite higher sequential cash interest costs. As a reminder in the fourth quarter, we will pay $10.7 million of semiannual interest on our 7.5% unsecured notes.

With adjusted EBITDA and capital expenditures coming in comparable to the 2020 third quarter, no additional placement fees, and an immaterial amount of cash paid for taxes, free cash flow is anticipated to exceed the $4.4 million generated in the fourth quarter of 2019. That concludes my prepared remarks.

But before I turn it over to the operator, I want to remind you all that we're responding to these questions from remote locations. Well, I think we're getting pretty good at this. I apologize in advance. We're still a little clunky as we handle the responses. With that, I'll turn it back over to the operator for questions..

And at this time, we'll be conducting a question-and-answer session. [Operator Instructions] And our first question is from George Sutton with Craig-Hallum. Please proceed with your question..

Thank you, just to be consistent, Randy, I wondered if we could walk through the car type that you currently are seeing. So in February, you felt you were driving a Ferrari with a throttle wide open on an open road, the stock was $13. In June, you felt like you were at Jeep on a rugged road, the stock was $6.50.

So here we've had a great third quarter and a good fourth quarter outlook.

I'm just kind of curious what car and what road this would represent?.

Well, George, I again, didn't put a lot of thought into this. But I think that we're definitely off that rugged road. And I'm trying to upgrade. I haven't quite got back to the Ferrari yet. But I feel like the road is smooth out slightly. And again, can't see everything up ahead of us.

But George, we had a really good quarter and we're very, I would say as we said guardedly optimistic about where we go from here. So how's that, not going to pick out a car just yet? I got to think about it some more..

All right, one question for Dean if I could, congratulations on your second annual award of the top game. And I'm just curious with your very low sharing in an area like Vegas, if I was a buyer, seeing you produce the top game each of the last two years.

I'm just curious, can you just give us a general interest level for those who haven't been working with your game product in the past? Is that starting to change in your view?.

I think so George, thanks for the question. I do believe that it is and it has been for a little while, it's a Marathon, you're not going to all of a sudden go get 100% of the ship share.

It takes a little bit of time and we've been gaining our fair share as we continue along, as long as we continue to produce what we had with respect to our mechanicals especially high denomination, and now all of a sudden with our Flex portrait cabinet coming out and doing extraordinarily well with 11 different games that our operators can choose on that brand new cabinet.

As of right now, we feel very good about it. So I look forward to see how it plays out. We're positioned very well..

All right, if I can just thank whoever forced Randy in his script to say Smokin’ Hot Stuff Wicked Wheel price. I appreciate it. That’s it for me, thanks..

Thanks George, I love you George, thanks..

And our next question is from Barry Jonas with Truist Securities, please proceed with your question..

Hey, thanks so much. Look, obviously, it’s little different than prior years. I'm wondering if you could talk about what you've been doing there, as you're speaking with customers, what feedback been on any new products or any indication around budgets for next year? Thanks..

Yes, that should probably be taken by Dean and Darren, they did the customer interactions on both our virtual GTV. But also we had some customers that actually made their way to our showroom.

So gentlemen, you want to take it first Dean, and then Darren?.

Okay. I think the response has been great. The real challenge is trying to present and have it come across in a similar format is actually being able to see feel touch machine, and just get a much more immersive experience in terms of understanding that. But with that, I mean we're doing our best virtually. And our customers are very receptive.

Right, they believe that we're completely going in the right direction, and our product strategy is sound. And there's just as high level of confidence that I've seen in the four years that I've been here about our product strategy.

I mean, with that said, capital and obviously, on our operator side, things have got not just sustain but continue to improve as we get through this pandemic, right. So, from a capital standpoint, if they get money available, we feel very good about it.

But it's a big issue, especially as we go through winter, we just got to make sure we stay the course, but as far as the product side of it, very encouraging.

Darren?.

Yes, similar, I guess absent the actual physical show, we have been easily busy last year, with lots of the virtual, we're still using the same nomenclature, kind of pre-meetings, and, and we've actually had some, where we've able to have in person with all the social distancing and safety protocols, which have all been very well received.

I agree with Dean from a product strategy standpoint, we’re very much resonating with our customers, from the FinTech side, you heard in the prepared remarks, and we've been talking about the expansion of our digital neighborhood, and all very well received by the customers a lot of enthusiasm.

I do believe that they're going to be constrained on budgets, from a capital standpoint. So, that will as indicated in the prepared remarks affect some capital purchases on hardware. Good thing is our loyalty hardware has been doing very well.

And I think we'll just kind of be in a wait and see as they plan their 2021 budgets, but I would say it's going to be constrained for the foreseeable future..

Great. And then I guess, relating to those answers about budgets, and capital purchases, do you think more operators are moving to gaming operations or participation models just in response to that, and then after I have a quick follow-up on cashless, thanks..

Dean, you want to take that?.

Yes, so Barry, I think the answer is it depends, right. It just depends on the operator and their particular situation. I will say that if you have great premium product, it seems to find its way on the floor. But they're going to be a little bit more scrutinized.

As far as product sales definitely a wait and see, do I think it's going to migrate between one or the other. I think it just really honestly depends.

It's a tough one to answer, certain customers for sure are going to try and get product on as suppliers get creative with trying to get new product introduced on their floor in terms of, I don't know pricing models and so forth. But, it's just once again, it's a really tricky question to answer that. I think it's not a one size fits all..

Yes, I would agree, I think we're probably in a similar position. What I will say though, is, from the FinTech standpoint, operators are certainly willing to invest capital to look for products and services that do create operational efficiencies and can reduce OpEx.

So I would say, things like the digital wallet that we're selling certainly is an opportunity for them to find some operational efficiencies and cost savings and create some great guest experiences.

Other things like our promotional Loyalty Mobile App, again moving to a more operational efficient, where people can self serve promotions on a mobile phone app. So a lot of those types of things are going to be, I guess sort of capital constrained questions that they can look for efficiencies, and then they'll make appropriate investments..

Great. And I guess last one, just following up on digital or cashless? I know, it's sort of developing in real time. And many operators have already talked about it on earnings calls this season.

But how are you thinking about, how this could ultimately transform your business? I guess, to what extent should we think about it replacing current revenue streams versus being entirely additive?.

Well, remember, right, so the digital wallet is an extension of the services that we're providing today in terms of how people access their funds. So it provides opportunities for us to provide a new sort of form factor in terms of how people access their money.

So we believe in additive from the standpoint is, it's a new way to get money for people entertainment experience, and then there is opportunities for us to introduce new transaction types, which again is going to be additive. So, I think it's sort of multithreaded in terms of the opportunity.

And remember, it's just how it connects with the rest of our products and services in that digital neighborhood. So it adds value to everything that we're doing, because they’re integrated, they’re interconnected in the digital neighborhood.

And as Randy indicated earlier from an AML standpoint, and a Loyalty standpoint, we've got kind of the must have products, which are all integrated with the digital wallet, so does it transform it, yes, as people move towards cashless. So that's how it will transform. And I think it'll be an evolutionary process..

Great, thanks a lot and great quarter..

Thanks, Barry..

Thank you..

And our next question is from David Katz with Jefferies. Please proceed with your question..

Hi, good afternoon, everyone. Congrats on the quarter. I have to say I'm certainly surprised by the magnitude of the number but not the tone and direction for sure. Can we just talk about some of the commentary that you made in the release around the FinTech segment, where you referred to some 80% of one specific segment of it being recurring.

What I'm getting at is, I'd love to know, just within that segment, which portions you would consider to be sort of recurring fees, so to speak, right? And which would be sort of recurring volume based obviously, we know some of those but help us break down that whole half of the business and understand what's sticky and what's not.

So that, should we have further shutdowns or et cetera.

But we know where the pressure points are, or not?.

Yes, sure. David.

Darren, do you want to take that?.

We might have Mark..

Yes, Mark that’s good..

It’s not each other..

David, the cash access line is primarily the recurring revenue from our long standing contracts that clearly is recurring in nature.

What we would be not necessarily recurring are the kiosk and loyalty sales in the equipment sales line, when you move on down into the information service is another which is not readily broken out, is activity, such as the new software sales for our compliance products or new software sales for our loyalty products.

But beyond that in there is your kiosk maintenance and service contracts, your loyalty support, and your compliance support as well as your central credit subscriptions, revenue services.

So I would tell you a small portion of the total revenue that we generate in that other information services and other line is probably what I would call non-recurring as we would look at it.

And it's probably if I had to frame it out in terms of relative size, it's maybe $5 million or so of that total number and Q3 would be one-time sales, the rest is pretty much recurring..

Okay, perfect. And if we could switch over to the gaming side of things. If you could just give us a tad bit more color on what you're thinking about in terms of unit sales in the fourth quarter, and what that looks like. That would be helpful also..

I’ll jump in..

Go ahead, Mark. Yes, go ahead, Mark..

In the quarter, we were just under 500 units in this quarter this quarter. And we think there'll be some sequential growth there. I don't know how much more sequential. How much higher we're going to be the net, but it'll be slightly up from that number.

What I suggest is Q4, we suspect it's kind of a little sequential for the next quarters as customers start releasing some more capital possibly as well..

Got it. Look, I don't have any more insightful questions. Nice quarter. I think I'm all set..

Really appreciate..

Thanks David..

Thanks David..

And our next question is from David Bain with ROTH Capital. Please proceed with your question..

Great, thank you and congrats on everything. It was great to see. I was hoping I could just briefly dive into your 4Q guidance. First, can you confirm 4Q quarter-over-quarter historical game ops seasonality that you cited, I mean, that we're not going to feel that typically about 4% or so. I'm just trying to go back and see that.

And then you mentioned a slight increase of active units so far in 4Q, if you can give us a sense, I didn't hear the active units in 3Q, sorry if I missed it.

And if you're just using the kind of the live game run rate from here, so any significant increase in live games will be gravy, or kind of just how you're looking at this 4Q over 3Q a little bit further would be great..

Yes, I don't think we did, you didn't miss anything, David, I don't think we gave the actual numbers of what was active in 3Q.

But Mark, do you want to address that?.

Sure, I'll try to break apart the pieces for you. In terms of our kind of that, I use the term seasonality just because you used it in terms of what seeing in Q4, we usually do see a low on a like-for-like unit basis in terms of, if the same footprint were out this year, Q4 versus Q3.

The interesting thing about our business is really where we've had some great success, if you look backwards to 2019, we actually grew that pretty substantially, but there was a lot of growth happening in our premium units at around the same time as well.

So I think your framework of call it 5% or so is probably a reasonable way to think about how you see some, a little bit of some of the holiday times where the gaming ops volumes maybe aren't as strong for a couple of those bigger holidays, Thanksgiving, and Christmas, for example.

And we believe, as we said in our guidance would kind of be more than offset by continuing placements of total units, primarily premium units in Q4, plus more units becoming active again, we didn't really talk about what percentage of our footprint is active, but we’re still seeing new properties that were previously either totally shut down or coming back online growing.

So we think that kind of lends itself to showing some growth from Q3 levels of gaming ops revenue for us as we kind of move forward into Q4. So instead of seeing a decline, you probably see a flat to maybe even slightly up from Q3 levels..

Okay, great. And then if I get just one on CashClub kind of bifurcated as well, though. So, you gave us a sense as to kind of the initial capabilities that the placements are going to have in the next couple of weeks.

But how does that augment or change year from now and given this is going to increase the number of transactions as you cited earlier in the call, is there going to be a different surcharge to the end casino by or to the end customer by casinos? Have you discussed that with casinos and just ways of increasing awareness of the product when it launches?.

Well, as you can imagine, David there have been tons of discussions ongoing with operators about the launch of the Wallet, but let me have Darren take you through what the bulk of those have been about..

Sure, so from a patron fee standpoint, I would say there's a lot of philosophies around the acceptance and whatnot, for the most part, operators are looking at a consistent structure, there is potentially opportunities for there to be Flex of fees to incentivize and or changing the other fees, other transaction fees to incentivize people to go more cashless.

So I would say right now, most are planning something consistent with where they're at today, with opportunities to Flex fees for ways to motivate patrons to adopt it, and or incentivize them to convert half of other transactions.

The idea is ultimately, we have the opportunity to convert the existing physical cash transactions to digital, but then also offer new transaction types, which allows people to actually move money outside of their wallets and back into their bank account.

So we see velocity increases, money's coming in and velocity, potential opportunities for monies going out where we'll have fees associated with that also. So that's sort of where we're at with those..

Okay, and then product adoption, like just how you're going to increase awareness when it goes live?.

Sure, so this is significant for the operator and their marketing teams that we work with, in order to get the right marketing messages. And a lot of the experience is really around the integration that we have with the system provider, because that's really the technology that gets it down into the game.

And so from that standpoint, there's all sorts of opportunities from the website in email communication, text message communication, on screen, on screen messaging, with the applications themselves at the game itself, if it's going directly into a slot machine, so a lot of that is being worked on with the operators for communication to their players.

So we believe that it's a fairly seamless user experience from the standpoint of, they're not going to see anything that's really different than I think in other sort of mobile app experiences they're at they’re using today. But certainly, the operators are very keen from a marketing standpoint, to get those marketing messages, right.

And of course, they're going to amend them and tweak them and refine them at Everi launch..

Okay, great execution on the quarter. Thank you..

Thank you, David..

Thanks, David..

And our next question is from Chad Beynon with Macquarie Group. Please proceed with your question..

Hi, good afternoon. Thanks for taking my question tonight.

Your installed base and premium growth as we've talked about certainly a bright spot and I wanted to dive into this a little bit more, maybe reverse engineering into I guess what's left from an aged third-party unit standpoint or older proprietary cabinet standpoint, I know you gave us some figures on percentage of premium.

But I was wondering if you could shine a light on that, I believe it's pretty low and then related just on the CapEx side. How are you thinking about an updated CapEx number to support your growing premium footprint? Thanks..

Yes, Randy, do you want to get into that?.

I can I think, Mark probably has a little more but I would say on the CapEx..

Within the CapEx, I was going to give you the boxes..

You got it. So look, we feel like the older third-party candidates anyone to talk about, I think we have and Mark can correct me somewhere around 200 units, a very small that's the old wide body, so that is immaterial, not even really an impact to us.

But from there, our Core HDX has been out for a little while but relatively probably three to four years and then the mechanical which is a big part of again fairly new product out there. So I would say, I don't think our and then the Flex is new, had the Flex coming out, and then you get the premium games coming out.

So, I feel like our footprint is fairly new, but it's always one that you fight with, right? So as we bring out these newer cabinets, we're always going to be looking back at some of the older stuff and as you know, sometimes when the older stuff just doesn't move until somebody makes you move it, so I think we feel pretty good where our overall age of that footprint is and really where we want to grow and I talked about is really in the premium products, which is what we've done and those are relatively new between Hot Stuff Wicked Wheel.

And now The Vault where we're really growing our footprint is with newer product..

Yes, and Randy I'll just pile in the numbers you told is right around 300 units for those third-party games, it's out there. And again, to your point, they've been out there for a while and they're still generating returns. So we're happy to leave them on the installed base at this point.

In terms of CapEx, for the quarter, we’re still obviously working around where our customers are in terms of their desire to get new product on their floor, what we saw in the quarter was probably just under $13 million in terms of game refreshes and new unit placements.

For Q3, I think you'll kind of see us in that similar neighborhood, in terms of where we think CapEx kind of looks like going forward into Q4. And as we start 2021, we haven't come up with guidance yet.

But again, maybe a small little uptick up more casinos or more casino customers are willing to take product and hear from that call it $13 million-ish game refresh level. So call it 13 to 15 for the near-term. And maybe again, it's all a function of the level of interest in our customers and some of the new products, it's very successful.

So what you saw last year, at the same time period, as we were growing the premium installed base, very rapidly that number was approaching $20 million plus a quarter. So if we're spending that kind of level, it means our installed base is growing pretty rapidly.

And I think in the near-term, though, I'd be planning on something a little less, but still seeing growth in the installed base..

Okay. Thanks, Mark and Randy, and then separately, a high level one, just given your strong free cash flow and your guidance for the fourth quarter, I think allows me to ask this question.

Is it time to kind of start thinking about more accretive tuck-in acquisitions and go back on the offensive given how accretive loyalty and some of the FinTech ones were, is it still too early to think about some of those items?.

No, no, Chad, I think you're absolutely right. I mean I think we've been very successful with the small acquisitions, the tuck-ins that we've acquired so far, both on the compliance side and loyalty and we continue to be looking all the time.

And as you know, given the current environment, there are some developers of products that we find very interesting that may be interested in finding a new home. And so we’re continuing to look absolutely..

Thank you. Best of luck guys..

Thanks Chad..

Our next question is from John Davis with Stifel. Please proceed with your question..

Hi, guys..

You changed?.

I did not, I’m with Raymond James. All right, so Mark maybe start off, margin was up 500 basis points year-over-year, you alluded to your cost structure staying, I guess reduced relative to prior CODEC numbers. But how should we think about that 500 basis points? Does 200 basis points of that you give that back.

So it's 300 basis points on a go forward basis.

But anything you can kind of give us directionally for the margin as we kind of think about next year and beyond?.

Yes, I think we're still obviously looking ourselves where we think forecasts would be for revenues for overall, but I think just thinking about it in the right way, in terms of how that number comes down just a little bit again, because as we start selling more equipment on both the FinTech and the game side of the business, it's very reasonable think that a couple 200, 300, 400 basis points start coming out.

And I would tell you, the only reason that's going to fall more than that is equipment sales, and just one-time sales that are hardware driven, that have lower margins are making up more of our revenue numbers. So I'm hoping it falls even faster, because that means we're selling a lot of equipment hardware out there.

But I think at least in the near-term, you should expect to kind of see that kind of erosion a little bit in the overall blended adjusted EBITDA margin as we progress until equipment sales kind of start returning more to normal..

Okay, thanks. And then, Randy, I think he gave us $37 number for win per day on active units, which is almost mind boggling at this point. But just do some quick math off of that, that would imply correct me if I'm wrong, about 85% of your machines are currently being operated, which would be kind of 90% or so of machines at casinos that are open.

Just wanted to check the math there. See if those numbers make sense and why you think that so many of your machines at open properties I mean, close to 90% of machines, open properties is pretty staggering. So what's driving that is it just performance, it is newer games, just anything that would be helpful..

Sure, John. I mean, look I think your percentages are in the ballpark.

I mean, you even some of the stuff you will see in Eilers, where they try to parse that out puts us in that high percentage, and we believe really, it's the premium games, we have 40% of your installed base now premium, and between The Vault, the DCX, the dual screen that we came out with, done very well, Smokin’ Hot Stuff still does, well, Shark Week, Renegade even still performs well.

So, when you look at that base, and how many of those units are premium? It's to your point is very, very strong.

And I think that's a very reasonable number based on as we talked about, Mark alludes to, thinking that things will continue that way into the fourth quarter, if you know the environment stays the way it is, we just feel like we have a fairly good hand with The Vault and some of the other themes that are coming out.

And those are the games they're leaving off. And those are the games that are performing well. And we're very, we feel very good, where we're at right now going into fourth quarter..

And John, you've seen The Vault, I think Dean you’re going to say the same thing, I was to go ahead..

It also helps being in a Carousel-Configuration where it could have more games turned on because it promotes social distancing. So some of the strategies that we're doing is to either, have them banked in Carousel-Configuration or additional wedge strategy that meets the needs of our customers and so forth.

Those are the things that will help continue to do our part to have more games turned on than otherwise..

Okay, that's helpful. And then the last one for me, just on the FinTech side, just cash access volumes. Yes, I think they are about 10% year-over-year, which is pretty impressive. I think like an average of 85 or so percent of casinos were open. So that would imply your cash accessible and modestly properties that were open.

One, just wanted to check if that was the case, and then also kind of what you're seeing so far in October? That’ll be helpful. Thanks, guys..

Yes, I'll take this one start. I think there's guys out there like Fantini, who will pull together all the commercial jurisdictions in the state level reporting of revenues and volumes.

And again, I think what we were very pleasantly surprised in the third quarter that we saw was, you reported gross gaming revenue for the commercial jurisdiction that reported in July, we're down call it 16%, 17% for August, it was down only 15%, it hasn't come out with September yet.

But I think those are good data points, showing that it progressively got a little better as we progressed through the third quarter in terms of how revenues were tracking for the commercial report, logical to assume that the tribal and regional guys that aren't in those reports probably transacted similar kind of volumes, maybe a slightly better just because regional guys seem to do very strongly in terms of what you're seeing from operators out there.

What we've seen in October right now. And it's still I would say, relatively early. And obviously, there's quite a bit of other stuff going on in the macro environment right now, particularly with things like the Election, COVID starting to come back, resurgence a little bit making a fight as the weather's cooling off.

And we have seen a little bit of a softening in October compared to that kind of run rate of where we were exiting September quarter, September, the monthly activity in the September quarter. But still, it hasn't totally fallen off the cliff by any stretch.

It's just a little bit of a downtick on there, all of our analysis or all of our measures that we've done in terms of forecasting or projecting as we move into Q4, assume that there's no backslide, or material backslide into this kind of data, what we have seen too is several individual properties have had recent closures, in terms of outbreaks, or COVID outbreaks, that they look to shut down for a day, couple of weeks just to clean the property and make sure it's covered.

So I think those little one-offs are still happening and contributing to some of that overall slide in what we're seeing as we start Q4 and a little bit of the Election noise. I think that's also starting to contribute a little bit, but nothing materially is changed..

Hey, thanks, guys..

Thanks, John..

Thanks, John..

And our next question is from David Katz with Jefferies. Please proceed with your question..

Hi, thanks for letting me circle back. Mike, I just wanted to get a quick sense or whomever you'd like to form it out to which you're doing quite well. When we look at the cost savings, right, I mean, the gross margin in total was up considerably.

The degree to which you're able to save costs across the two divisions is that just aggressiveness within each division.

And given how well you're doing and cutting costs at the same time, how did you sort of think about that? And how should we think about that as an ongoing trend line?.

I will say that I think both businesses were aggressive and looked very carefully at all of their costs. But I think Mark really spoke to it going forward. And I'll turn it back over to him. I mean, you shouldn't expect that we're going to be able to continue with that kind of a rate or improvement rate going forward.

But Mark, do you want to step to that?.

Sure, sure. David, I think I've been trying to frame out on Q2 call, I kind of said on this call that when we look at R&D and operating SG&A expense, exclusive non-cash comp, I've kind of been framing outlook, we'd think those are going to run about $35 million, $40 million a quarter, this quarter probably near the middle of the high end or range.

And as we move into Q4, that that steps up just a little bit as again employees are back and we've ramped the business to the expenses match more of the revenues that have come back on board for the entire quarter in there. I think those kind of frameworks look good for us as we move forward.

You think of it kind of at $40 million, a little more than $40 million, maybe in Q4 and then as you start moving into next year is slowly ramping-up from there throughout the progression of quarters throughout the quarter.

I remind you, when you look back to 2019, Q4, you have a lot of expense sitting in there related to our Tournament of Champions event and GTV costs that are not going to be present in the current year.

But I'm talking absolutely saying, it's kind of around that $40 million plus range as we move into Q4 and then moving forward, you should expect to see those GTV kind of level costs coming back in Q4, that would be a little bit of an outlier for that kind of progression of run rate from there..

Thank you..

Thank you, David..

And we’re at the end of the question-and-answer session. And I will now turn the call over to COO, Randy Taylor for closing remarks..

Thank you for joining us on the call today. With the actions we've taken, the gaming industry's ongoing recovery and the business strength we have in our games and FinTech segments, we believe we’re well positioned to enhance the long-term value of the company. We look forward to providing you an update on our next quarterly call.

Thanks for joining us..

Thanks everyone. .

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