Hello everyone. Thank you for standing by and welcome to the Everi Holdings 2022 Fourth Quarter and Year-End Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. [Operator Instructions] As a reminder, this call is being recorded.

Now, let me go ahead and turn the call over to Bill Pfund, Senior Vice President, Investor Relations. Please go ahead, sir..

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 our call.

These potential risks and uncertainties include, but are not limited to those contained in our earnings release today and in other SEC filings, which are posted in the Investors section of our corporate website at everi.com. Because of the potential 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, March 1, 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 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. 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, our FinTech Business Leader.

I would like to take this opportunity to also introduce Jennifer Hills, who recently joined Everi as Vice President, Investor Relations. Jennifer has wide ranging experience as an analyst, both on the sell and buy side and made the transition to IR several years ago.

She has extensive IR experience and in the coming months, she will quickly learn of [our great industry] [ph] and the exciting long-term prospects we have here at Everi, as well as willing to meet many on you on the call today.

While I have not yet set a firm departure date, I will increasingly be transitioning the day-to-day responsibilities to Jennifer over the coming months. I plan to remain part of the Everi family for some time, but in a more limited advisory role starting later this year.

Additionally, Steve Kopjo, who has been in IR during the last few years has been promoted to Vice President and is working full-time with Mark Labay on everything financial from FP&A to acquisitions to continuing to assist with the IR. So, welcome Jennifer and best wishes to you Steve for your added responsibilities.

Now, I will turn the call over to Randy..

Thank you, Bill. Good morning and thank you all for joining us. I would like to add my personal welcome to Jennifer, and we look forward to a very successful journey together. I'd also like to add a huge thank you to Bill. He stepped up our game in IR and has been a pleasure to work with.

I'm not saying goodbye as I intend to keep Bill here, as long as possible to ensure a seamless transition and leverage his years of experience. Now, on to the business at hand.

Our fourth quarter 2022 performance reflects the balance and diverse strengths across our operations, games, and digital gaming, fintech, loyalty, and our growing mobile capabilities. Against a strong fourth quarter comp last year, our operating income increased 8%, and adjusted EBITDA increased 5%.

Our improvement in revenues and operating earnings drove free cash flow of 42 million in the fourth quarter, capping a year in which we generated an all-time record 187 million in free cash flow, which is equivalent to just over $1.90 per diluted share.

Total revenues for the quarter increased 14% year-over-year, with organic revenue up 9% and acquisitions contributing an additional 5%. Revenues from our high-margin recurring revenue streams represented approximately 70% of our total revenues or 143 million in the quarter.

While we continue to execute on our growth priorities with our usual discipline, we expect to benefit in 2023 from several new initiatives that will provide incremental growth opportunities for Everi.

Over the last six quarters, we have leveraged our cash flow growth into steady increases in investments for internal new product initiatives and attractive tuck-in acquisitions. We expect these investments to collectively generate growth in both revenues and adjusted EBITDA over the course of this year and even further benefits in 2024 and beyond.

With the Intuicode acquisition, we added a development team well-seasoned with the technology platform nuances of historical horse racing. The addition of this talented team accelerated our internal HHR development efforts.

We expect to launch the first of Everi's new HHR gaming machines and the initial expansion of our deep library of content onto Intuicode's proprietary cabinets toward the end of the first quarter. This will expand our addressable market and give us entree into a new growing category that we expect will benefit our quarterly ship share over time.

Acquiring the asset to Atlas Gaming provided us with a base for a geographic expansion into Australia, the world's second largest slot market after the U.S. Atlas also established a foundation to form a new game development studio in Australia. Our first game themes from this studio for the U.S.

market are anticipated to debut this fall at G2E and we expect to launch new games into the Australian market sometime in 2024. In the second quarter, we expect to begin shipping the new Dynasty Vue video gaming cabinet. The Vue is the first in our lineup of new next-generation cabinets.

It is another key step in our efforts to continue growing our unit ship share, particularly in the video category, where we remain underpenetrated. Importantly, the replacement market for video slots is estimated to be 3x to 4x the size of the mechanical rail category, giving us plenty of runway to grow our share.

Beyond Dynasty Vue, we expect to debut additional new cabinets in the Dynasty line at G2E. Currently, 2024 may be over the horizon for most investors, but I would point out that our development efforts also include a planned entrance into the North American VLT market in early 2024.

While no jurisdictions appear to be prepared to legalize iGaming in the near term, we expect to achieve steady year-over-year revenue growth in 2023 from our digital iGaming operations.

This will reflect the benefit of additional iGaming operator sites such as the recent launch of our content on to Caesars Sportsbook and iGaming Casino platform, along with the further expansion of our game themes portfolio.

We will continue to leverage our historical library of successful land-based titles in addition to new introductions from our development studios. Furthermore, with the U.S.

currently representing less than 5% of the total global market, a portion of our increased internal iGaming development effort is positioning us to take our player-driven content into larger and more mature international markets. We expect to be licensed in the U.K.

in the coming months, which would then allow us to begin the integration process of our Spark Remote Gaming Server with iGaming operators. This should lead to being live with our first customers in the U.K. toward the end of this year.

Within our FinTech segment, we have focused our strategy on leveraging our strength in financial access to expand our digital neighborhood, adding new layers of products and enhanced features.

We have created incremental sales opportunities by improving casino operators' cost efficiencies with such products as Jackpot Xpress, PitXpress, and MetersXpress. We are also placing heavy emphasis on mobile-first applications, including our ongoing CashClub Wallet effort and growing our state-of-the-art loyalty and rewards mobile platform.

Our mobile-first strategy leverages consumers' preference to increasingly spend more time on their mobile devices to access information and engage with their favorite entertainment, including gaming, sports, and dining.

From our customers' point of view, mobile self-service engagement for loyalty and other actions helps them improve productivity and save on labor costs. Our acquisition of Venuetize is a very complementary fit with our internal mobile-first development efforts with a broad base of about 200 already established third-party app integrations.

Venuetize will enable us to bring added skills, capabilities, and experience into the gaming space, including for entertainment venues beyond the gaming floor such as concert and sports arenas.

For the first time, we now also extend our addressable market for products like our mobile wallet and loyalty technologies into new gaming adjacent markets such as sports, entertainment, and hospitality venues on a global basis.

And with the ever-widening reach of sports betting, Everi's gaming license, payments wallet, and loyalty products are moving toward the intersection of sports betting and sports business. As we move through 2023 and into 2024, we expect the combination of Everi and Venuetize will open up a new avenues of additional growth worldwide.

We have previously shared our success at the new Sky River Casino in Northern California as clear evidence of the synergies and cross-selling opportunities that we can generate by providing operators with a full suite of our slot products financial access services, loyalty and rewards, and RegTech compliance solutions as we've always believed Everi is greater than some of its products.

I'd also like to highlight another notable element of our success, which is our development of Sky River's white-label mobile patron app, which included embedding our wall and loyalty technologies. Sky River has been so successful, they are already making plans for expansion and we're proud to be part of their exciting success story.

While I mentioned the Atlas acquisition for supporting our initial growth for Games segment in Australia, our ecash acquisition also provides growth opportunity for our FinTech business. Their kiosks for smaller pubs and clubs facilities, which are the mainstay of the Australian market, provide us with a new growth avenue in the U.S.

We expect that in the second half of 2023, we will launch ecash kiosk into the U.S. distributed gaming market, which includes route operators who placed VLTs, VGTs, and other gaming machines in smaller high-frequency locations, such as truck stops in Pennsylvania or VGTs in Illinois.

ecash also provides us with an entry point to bring our AML and cashless solutions into the Australian market. We have completed a number of acquisitions over the last few years that have expanded our product capabilities and allowed us to enter new markets.

The core principle underlying each of these acquisitions is that they represent an opportunity to scale up a leading solution that is underpenetrated in respective marketplace. By plugging these products into our development and distribution system, we leverage our expertise with their respective product capabilities to drive very positive results.

These positive results include scaling up those business lines, but also integrating them into our product capabilities to drive product innovation. In this way, we are very confident we will generate an attractive ROI and cash flow over the long-term and provide multiple levers for growth.

Obviously, these exciting incremental growth prospects must be tempered against the uncertainty of current macroeconomic conditions and its possible impact on the gaming industry.

While the gaming industry has historically been more resilient than other discretionary consumer spending industries, we do not have a crystal ball that tells us that that dynamic will be similar this time around.

However, the uniquely balanced strength of our businesses, Games and iGaming, Fintech, loyalty and mobile, and the very high percentage of recurring revenues we generate, all coupled with our improved balance sheet and strong cash flow generation, provide us with a solid foundation to effectively manage through any change in macroeconomic initiatives.

This proved out with the success we achieved as the industry rebounded from the depths of COVID, and we believe an uncertain economic environment, may even provide us with new opportunities.

Given our successful track record, our significant recurring revenue base and our solid balance sheet, we are confident in our expectations for continued free cash flow generation.

We will continue to prioritize the use of our free cash flow on high-value internal product development initiatives and capital projects such as our new efficient build-to-suit production facility under construction, along with attractive tuck-in acquisitions, and opportunistic stock repurchases.

Now, let me turn the call over to Mark, who will provide more insight into our expectations for 2023..

Thanks, Randy, and hello to everyone on the call today. Before turning to our current year outlook and the guidance we provided in our earnings release, I'll start by briefly highlighting the strength of our balance sheet, which is better than ever. Over the years, many of you have measured our progress through our efforts to de-lever.

Today, because of our consistent operating execution, our continued prospects for high-return investments, and our ongoing growth total net leverage is 2.4x trailing adjusted EBITDA.

With our total leverage currently below our target range and an expectation for growth in earnings, combined with our periodic debt principal payments we should remain at or below that range throughout 2023.

As you review our fourth quarter income statement, I would remind you that net income in last year's fourth quarter included a 64 million or $0.62 per share non-cash tax benefit from the reversal of certain deferred tax asset valuation allowances.

For better comparability in the current year, if you exclude that one-time non-cash tax benefit, last year's fourth quarter earnings would have been $0.26 per diluted share. We continue to expect to utilize our net operating loss carryforwards. And at the end of 2022, the remaining gross value of our federal NOLs was approximately $116 million.

We believe this should continue to provide a cash tax shield for our pretax income in 2023 and possibly into early 2024. Moving on to our outlook. As noted in our earnings release, we expect 2023 net income to be within a range of 88 million to 100 million.

This is down from our net income in 2022, due to the expected higher interest expense associated with rising interest rates and an increase in non-cash depreciation and amortization from the growth in our business and the purchase accounting impact of our recent acquisitions.

Our range for adjusted EBITDA is $384 million to $396 million, which represents growth of approximately 3% to 6% over 2022. We expect to generate free cash flow of between $150 million and $160 million. Using approximately 95 million diluted shares outstanding throughout 2023, that equates to approximately $1.55 to $1.65 per diluted share.

This reduction from 2022 includes the expected impact of higher cash interest expense and approximately $15 million for the cost of tenant improvements for our new build-to-suit production and warehouse facility.

This new lease building will consolidate the assembly and warehouse facilities of our slot machines and fintech kiosks into one streamlined operation here in Vegas. Based on our current projections, we anticipate the transition will most likely begin in the third quarter, but most of the costs will occur in the fourth quarter of this year.

We have also planned for approximately $18 million in incremental cash spend related to discrete capital projects in 2023. These projects are largely focused on upgrading certain portions of our internal IT and data center infrastructure, as well as our ERP systems. This is a little more than double what we spent for comparable projects in 2022.

The largest portion of our capital expenditure budget remains focused on maintaining and growing our gaming operations install-base.

I will highlight that while our capital spending for gaming operations is expected to be comparable to 2019, this is despite our installed base increasing by more than 22% or a growth of an additional 3,200 gaming machines over the last three years.

With our balanced revenue-generating sources across games and digital gaming, fintech, loyalty, and mobile. We expect to see continued total revenue growth in 2023. Obviously, the extent of our growth may be impacted by the overall growth in the gaming industry.

But the uniqueness of our business model is a slower growth in one category, due to variable timing of product launches is offset by gains in another category. This reinforces our confidence in the ability for us to grow our total top line revenues.

Similar to 2022, we expect that the growth in sales of gaming machines and FinTech hardware will outpace the growth of gaming operations and financial access services.

Due to our improved ship share as operators capital spending on total gaming machines and our fintech harbor rebounds towards pre-COVID levels, we expect our revenue mix from gaming machine and hardware sales will trend a bit higher than pre-COVID levels.

Our revenue mix in 2023, therefore, should be in-line with the revenue mix we experienced in the fourth quarter of 2022.

We expect that the full-year growth in the sale of gaming machines will be driven by the introduction of new games for in-store course racing, the launch of our new guidance [video cabinet] [ph] and increases in overall capital spending by our casino customers. We expect revenue growth in gaming operations.

This includes the revenues from our installed base of gaming machines, our digital or online gaming, and the New York Lottery operations.

While financial access transactions are currently tracking upwards on a same-store basis in the first quarter of 2023, we would expect this growth of the balance of the year to correlate to the growth in the industry's growth gaming revenues.

Given the continued high demand and ongoing customer discussions regarding their interest in our cashless digital wallet, we expect to see the continued rollout of our white label CashClub Wallet technology to new locations in 2023.

We also expect to see continued growth and new market expansion from our RegTech products as demand remains steady for these software solutions as recently evidenced by the purchase and upcoming installation of our AML solution by British Columbia.

Similar to the levels in the third and fourth quarters of 2022, we expect our R&D expense to remain in the range of 8% to 8.5% of total revenues in 2023. We expect operating expenses as a percentage of total revenue to be slightly higher in 2023, as compared to the average of the second half of 2022.

This reflects the impact from the added expenses of our acquisitions, the cost of rising labor, overall price inflation, and our other growth initiatives. We expect this percentage to average lower than the 30% experienced in 2019 and 2018. I also have a couple of additional housekeeping items related to our 2023 annual guidance.

As noted at the end of our earnings release, we expect the depreciation and amortization to rise. This largely reflects the impact of purchase accounting on our acquisitions, which allocates a significant portion of the purchase price to amortizing intangible assets and therefore, increases our noncash amortization expense.

With the large balance of net operating loss carryforwards, we expect our cash taxes paid in 2023 will remain minimal, similar to 2022. And we expect to record income tax provision for GAAP purposes in the range of 23% to 24% of pretax income. Again, this is consistent with the prior year.

In the press release today, we also included supplemental information on interest expense for 2023. I would make note that this interest includes both interest on our debt and the costs associated with certain commercial agreements where we contracted third parties to provide the cash for ATMs in certain customer locations.

And with that, that will now conclude our prepared remarks and turn the call over to the operator for questions..

[Operator Instructions] Our first question comes from David Bain with B. Riley Securities. Please proceed with your question..

Awesome. Thank you. First, nice execution again. And thank you for all the detail. Randy, Mark, you listed multiple growth drivers for 2023, starting with over 1,000 units in game ops, HHR, video with Vue, Australia, ecash, International online, you know start with the larger base domestically. I mean, I can go on for a while.

Actually TournEvent replacements and I can't. But if I look at all that and I look at your guidance, and I understand the low end has growth, but it seems to be balanced a little bit more conservatively on the macro front, perhaps.

I know there's a super factors, but does your [loan] [ph] essentially call for decreased buying year-over-year, flat GGR, despite the 1Q trends to date? And how should we look at the midpoint? Is it sort of like low growth from an industry standpoint? Can you just kind of help us on that end?.

Yes, sure, David. I mean, yes, I think even in the release we talked about that the low-end does assume flat overall for the full-year. So, that is part of that guidance, which might suggest that unit sales might be again flattish compared to last year. So, I think you're reading that right, more of a flat year.

I understand so far for the first couple of months, things seem positive to the industry, but again, as we put this together, we don't have a crystal ball as to how the rest of the year will go. On the upside, I'm never going to get away from my conservative, I guess, reputation.

But – I think part of it is, we have to execute on all these things, David. And I think we can, and I think we have upside even to that number.

But I think we are very comfortable as a team to say, look, that's the high-end right now, given what we're seeing, some of the integrations we have to do with the acquisitions, and we have some other development items that we're doing, right. We've got Atlas, that's not going to generate new revenue this year.

So that offsets a little bit on the acquisition side. So, I feel really good about the range. I can't tell you that we could do better than that because I think we could, but I think at this point, that's the range that we've, kind of settled.

I don't know, Mark, if you have anything to add?.

No, I think you covered it..

Okay. Perfect. And then my follow-up would be on fintech. Darren and David, [Penn] [ph] gave some – or any of you, [Penn] [ph] gave some very encouraging commentary, I think, about the expanding demographic with cashless.

Can you maybe offer some of your own data points across your spectrum with existing in terms of volume and demographic? And in terms of proliferation, I know like some of the headwinds have been jurisdictions being approved.

Casinos maybe, now that, that's happened, our casinos seemingly getting closer to deciding what they're going to do with the tech, if anything.

And our CMS providers a little bit of a headwind at this point or what's sort of the lay of the land from that perspective, if you will?.

Yes. I mean, look, the growth of, sort of our wallet strategy is largely as we expected. I said this many times, there's things that are very evolutionary and things that are very revolutionary about what we're doing. So, we feel good about our trajectory in terms of the fact that we have launched six new locations this year.

We just got – a major [trial] [ph] just launched this week actually. So, 21 jurisdictions in that range, 42 locations, more than – probably close to around 100,000 slots that we're connected to now. So, look, I think a lot of you all might think of the strip and, sort of how they're thinking about maybe their strategy.

But we see obviously the greater growth in, sort of tribal and regional markets, which again, more locals, more frequent visitation that way. And so, look, I don't know if there's any necessarily big headwind. It's on track as far as I'm concerned, and we feel good about our trajectory.

And I think the robust product that we have, which we think is leading in the space because of the payments aspects of it, the loyalty aspects of it, and the AML aspects of it, which I think are unparalleled..

Okay, great. Thank you so much..

Our next question comes from Barry Jonas with Truist Securities. Please proceed with your question..

Thank you. I wanted to start with the supply chain. Maybe just a little more color on how issues are trending as of late and how that feeds into some of your margin outlook for 2023? And then just also with that, ASPs in Q4 were up really nicely, curious if that's mix related or are you successfully pushing pricing? Thanks..

Sure, Barry. I'll take maybe the first one and then push it back to Dean for a little bit on the ASP. But look, we feel like our team – not feel, but we believe and know that our team did a great job in managing through the challenges of supply chain issues in 2022. We think we're seeing an improvement in that.

Some of that should come through this year. So, we're starting to see just some green shoots of being able to get what we need. But we're also, I think, being proactive to acquire parts and we think that you'll have less freight costs.

So, overall, will the margin be better because of the cost side, there's still other costs that are increasing, but I think we're going to be able to manage through that pretty well. So, I don't think you're going to see a huge change in that margin exclusive of any changes in pricing.

So, I think we're at a pretty good spot on the cost side, if anything, maybe slightly better because of some of those improvements on the supply chain, but again, not seeing anything that I think concerns us from that standpoint.

And on the ASP, I think I'll just turn it over to Dean to talk about a little bit what happened in the quarter and why we had a nice ASP?.

Thanks, Randy. On the ASP side, literally driven by TournEvent, let's say the amount of orders that we deployed in Q4 matched some of our best deployments in terms of overall units of TournEvent over the last couple of years, for sure. So, I look to see a little bit more of that.

Also, our Empire Flex with a fully merchandised package seem to be a bigger driver as well. [indiscernible] And our Player Classic Signature is starting to take pretty good shape as well. So, if you blend all those factors in, I'd say, is the major reason why you've seen an ASP increase..

And I would just say, Barry, look, I think sometimes people forget that that's a great footprint for us, that being the TournEvent products out there, and we continue to enhance that product and as it comes up for refresh, we try to put in newer units and then the newer systems associated with it.

So, we think that's again, another area that should really benefit us in the future..

Got it. And just a little more follow-up if I could. I wanted to touch on the gaming daily win per unit in the quarter. I think it was the third consecutive quarter it was down year-on-year.

You noted some explanation on the sequential seasonality, but how much of that also is mix related with those, sort of more longer-term lease units? And maybe just talk about underlying growth on more an apples-to-apples basis..

What I'd say is, we look at daily win per unit as one data point to look at, and we've always really managed the overall revenue that we can generate from this installed base. So, you're exactly right.

At the end of 2021 and early 2022 and more in 2022, I think, than 2021, we had some nice placements in places where the yields are lower than we have with our – I'll say, our premium units. So that does impact us overall.

But I think sometimes it gets lost in the numbers that we've added 3,200 units in this installed base since 2019, and we've really had about a 15% growth in our daily win per unit over that period from, I'll say, the 2019 period till now. But we continue to manage that portfolio of installed units. And we – it's a capital outlay as well.

So, we try to manage that. And I would say, look, we feel very good about the games and themes that we have coming out for this year. We have a couple cabinets that will come out later in the year. So, overall, I feel good where our installed base is at, and it will really just depend on how the year unfolds in 2023..

Got it, got it. Alright, well thanks for that. Appreciate it..

Our next question comes from Jeff Stantial with Stifel. Please proceed with your question..

Thanks for taking the questions. I'll start off by a big congrats to Jennifer and Steve on the new roles. And Randy, thanks for holding on to Bill for, as long as possible and deferring out that good bye for the time being, we definitely appreciate that.

Starting off here on adjusted EBITDA guidance, recognizing that you guys don't typically guide quarterly EBITDA, but I was just hoping you could, kind of qualitatively walk through some of the puts and takes on how you see seasonality playing out this year relative to, kind of historical trends?.

Again, that's why we don't give our [quarterly] [ph] guidance. But I know you're trying to come around from another angle. But look, I think we do know that there is seasonality. [Indiscernible] the fourth quarter is a slower time period or from a seasonality standpoint.

We also saw that in the fourth quarter, there were good unit sales, and that's consistent with what happened last year.

And so, I think some of that cadence would be similar to what you saw last year in 2022 if you're looking at some of those [indiscernible] it's just really hard right now, Jeff, to kind of give quarterly when I'm really not inclined to do so. So, I don't know if that's given you much, but that's what I’m giving you.

And I am glad to [indiscernible] as much as I can..

That's fair. I appreciate it. That's still helpful. Thank you. And then for my follow-up, moving to the GameOps business, just running some math based on the site and mix percentage, it does look like the sequential growth in premium games, still healthy, but below the rate you've been averaging more recently in recent quarters.

Is that just typical quarterly lumpiness or kind of should we expect growth in the install base moving forward to continue to trend a bit more to non-premium versus premium versus what we've seen, kind of recently to date? Just any color there would be helpful..

Sure. Sure, Jeff. So look, I would say, we still expect the install base to grow in 2023. It won't grow in our view, it could, but I don't expect it to grow like it did in 2022, given some of the large placements that we had. You know, one in Delaware and a couple of placements where we had a nice share of those placements.

So, if you pull those back, we've historically and that's in the year – few years going back, said we would grow maybe 100 units to 150 units a quarter, but that can be lumpy, right? There could be a quarter where we have very little, and it really kind of depends on when the opening hits.

So, I still expect the installed base to grow in 2023, but not like it did in 2022. And then I would say, I think we feel that at about a 49% – we're at 49%, at 50% premium to standard, is a pretty good mix. I don't think you're going to see us grow premium more than that.

We could, but I think that mix is about where we feel comfortable at because we still make very good return on investments in what I'll call our bread and butter cabinets and operators don't want all big premium units either. So, I think if you're doing some look there, I would say, I think we're pretty comfortable at that level.

So, if we grow our installed base, we will grow the number of premium units, but I don't see the percentage growing substantially higher than that, not at this time anyway, Jeff..

Understood. That's helpful.

And just to be clear, the year-on-year decline in guided CapEx, is that pretty much just everything you just talked about with the pace of GameOps installs coming in a little bit or is there other factors in the supply chain or anything else to consider looking more on a year-on-year basis?.

No, I think you're right. I think the one is the lower units that we think that we would add this year. And we will, as we always do, look at when do we have to replace units and get the right lift by doing it versus just spending capital to get a smaller lift..

Okay, understand. Very helpful. Thank you..

Our next question comes from David Katz with Jefferies. Please proceed with your question. David, are you there? Okay. We'll take Chad Beynon from Macquarie. Please proceed with your question..

Good afternoon. Thanks for taking my questions. Mark, you talked about 2.4x leverage. I know in 2022, particularly at your G2E Investor Day, you guys talked about some effective tuck-ins, and you've highlighted some of those today. How are you thinking about that leverage number right now? I believe it's slightly below, kind of your medium-term target.

Given your guidance, I know there's some small headwinds on free cash flow, but how are you thinking about more potential tuck-ins to, kind of bolster fintech, loyalty, et cetera? Thanks..

Yes. Look, I think, again, we – essentially, we kind of gave our midterm target when we were high, higher than that, and we were cutting down and paying down, and we've had some tremendous growth. And that obviously helps the leverage ratio as well in terms of your EBITDA growth.

So, I would tell you, I think from a capital structure perspective and absolute total borrowings, we're at a pretty good level of where we are.

So, as earnings grow, that leverage number should come down, and we'll generate more cash and we'll use that cash opportunistically to invest in our business first and then look to return that to shareholders to the extent we can do so. I think we're always on the prowl looking for good tuck-in acquisitions.

We kind of try to find those things to help us to grow into new markets and take the existing products that we have and accelerate growth there or find new products that we can bring into this market to help our customers perform better and be more efficient in their operations. So, I think all of those are still on the table.

I think the leverage profile that we have at 2.4 right now is a good level. I'd tell you the target is more now a comfort zone instead of a target and we're below it. I think we're comfortably below it now. We'll stay comfortably below it as earnings continue to rise, and we have our normal scheduled debt repayments.

And we'll look to use and deploy our capital in the most efficient means possible for our shareholders..

Okay. Thanks. And then, just kind of back on game sales, thinking about 2023, with respect to the Dynasty Vue, I believe you said this is really going to kind of open up the opportunities, particularly into video. But just trying to figure out when we should expect some of these units to take a bigger piece of your pie in the year.

And if it really is like a completely new swim lane for the cabinets and the products or if it's just, kind of an extension from what you're currently offering? Thank you..

Yes, Chad. Look, I'll add one item and let Dean follow-up on the uniqueness in swim lanes. But look, we don't expect to have any material sales for the venue – I mean for the Vue until Q2. So, it really is Q2 and forward.

And then, Dean, maybe you can kind of add in your thoughts on a new swim lane or what you're thinking?.

Chad, I would look at it as an additional video cabinet swim lane. So, we got the, I would say, larger portrait profile cabinet that will obviously continue to be part of the arsenal, but then with the Vue, it's a more lower profiled cabinet, but with significant screen space for those that have seen it at G2E, will know what I'm talking about.

That gives a value proposition there to our customers who want greater sidelines. So, we're excited about it. The thing I would mention, and Randy is spot on the Q2 side of it, that's where you're going to really start seeing these cabinets begin to roll-out. We got a solid backlog on the front-end of this with some very solid pent-up demand on it.

So, look forward to it..

Excellent. Thanks for the additional color. Appreciate it..

Our next question comes from David Katz with Jefferies. Please proceed with your question..

Hi, good morning. Apologies for earlier and thanks for taking my question. I wanted to just touch on the IT spending and the factory consolidation that you've laid out.

And just I'd love a little more color about the IT investment and sort of what that's for and why now? I suppose the same part of the question for the factory consolidation, why now?.

Thanks, David. So, a couple of items. I'll take the consolidation first. I would say, David, I've been here since the acquisition of Multimedia in 2014.

And we always had expected at some point in time to consolidate, I'll call it, manufacturing warehouses, one, we always felt like the production of the kiosks, although not exactly the same as games obviously, but there were synergies there, that if you had, you know if the kiosks were slow in the quarter, you could utilize those people to build games.

And having a central place to distribute the games out of from a shipping standpoint, we think we'll do a little better. And it's just overall having [just] [ph] efficiencies of everyone in the same location in Las Vegas, where I think there's probably as much talent here from a manufacturing assemblies anywhere.

So, we had thought to do this, probably at the end of 2019 when we thought 2020 was going to be a great year, and we obviously put it on hold. But we felt like this was the year to do it.

And I really – we expect to probably say, 1 million plus, and a little over 1 million [Technical Difficulty] there's a lot of other savings that could come from it, you know long-term as we're putting off the same parts in one place, purchasing power, things of that nature that makes a lot of sense.

And I finally would say, look, we expect to grow, David. So, we need a bigger facility overall, and we think this is a very efficient way to do it.

The second one is, I think sometimes people lose – well, I shouldn't say lose, we're at it day-to-day, but the amount of transactions that we process from a fintech side and the network that we have and the IT equipment that we maintain to make sure our uptime is what it is, is not insignificant. And that hardware over time can – it gets over.

So, we have to replace it. We're also in the midst of upgrading our ERP system, which we think is important. So, nobody likes to spend this extra capital, but we think, again, as the company is growing, it's necessary, it's the right time, and we have the cash flow to do it. And so, this is what we planned for this year.

If somehow something changes, we can pivot, but the – I would say the consolidation is not a changeable item. But the IT and ERP stuff can, you know will all be hit – will all hit in 2023? We don't know, but we're planning for it. So, hopefully, that gives you enough information..

And David, I would just add one more thing here. If you look back at what we spent in capital expenditures in the last several years, we were very judicious with our spend much like we're suggesting our customers were judicious in their spend with us.

So, some of this is really a little bit more of us catching on and making sure we're staying current with the spending of where we need to be to keep this infrastructure and our network because that's really one of the key value propositions that we have is that internal network we had embedded within our casino customers environment.

So, we want to make that as current as possible and keep that going. So, think of it too as partially a little bit of deferred spend that we just need to be [spending out] [ph] and [stay hard] [ph] and stay ahead of competition..

Understood. Thank you very much. Appreciate it..

Our next question comes from Edward Engel with Roth MKM. Please proceed with your question..

Hi, thanks for taking my question and congrats on another record year. Appreciate all the color you, kind of gave on the costs for 2023, just kind of the guidance you – the top guidance you, kind of gave. I mean, I guess it looks like, again, you have R&D and OpEx on your core OpEx, so kind of growing faster than revenue in 2023.

Just kind of wondering like, at what point do revenues actually start to outpace some of these fixed costs.

Is 2023, kind of a transition year, where you kind of lapping some M&A and normalizing your R&D expense after maybe some underinvestment in prior years? Or I mean, is this a business where you actually think that longer-term some of this core OpEx actually grows in-line with revenues rather than below?.

It's a great question, Ed. Look, I think what happened in 2021 and 2022, well 2021, we had the great growth year from a standpoint of revenues, and we were really, kind of in a catch-up mode in 2022 from R&D cost and operating expenses.

And so you hire those people throughout the year, so when you start 2023, you've got a higher base you're working off of. And I think we believe we, kind of, we've got to the level we want to be. So, we think that, as Mark put in his discussion, that 8% to 8.5% of R&D is about the right area.

And so, I expect that, that, you know the R&D and operating expenses won't grow significantly faster than revenue as it has, let's say, in 2022. And I know 2023 is going to be a little bit of it because you are getting a full [annualized] [ph] payroll to start, but I think that was important.

We added, Atlas is not generating revenues just yet, but we also – some of this stuff, some of this R&D and operating expenses really will impact 2024 as well because that's when we think we'll have some results in, hopefully, in Australia from Atlas, also the VLT that hopefully goes into 2024.

So, it's a little bit of a mixed bag, but I do think we're settled in on R&D and OpEx at those percentages..

Great. I appreciate the color. And then you kind of talked about some growth drivers, kind of happening throughout the year, but it kind of feels like things like HHR and the iGaming, kind of more back-end weighted.

So, I guess, I know you're not going to give quarterly guidance, but I guess, could we kind of at least assume that the second half of the year might be a bit more of your EBITDA than the first half?.

Yes. I think that's a reasonable assumption. I agree with you. HHR just starting to get into iGaming has been growing pretty steadily. So, our expectation is that would be growing throughout. So, I'm comfortable with that assumption, which is we do expect the back half to be a little better than the front half..

Edward Engel:.

Our next question comes from George Sutton with Craig-Hallum. Please proceed with your question..

Thank you. I wondered if we could look at the guidance under the construct of ship share knowing that Dean's laid out some pretty aggressive goals for continued growth there and up against your Sky River call out where we believe your ship share was pretty good.

Can you just talk about ship share relative to your guidance and where you think it comes out?.

Sure. And I'll let Dean add a little bit. But I would say, look, our ship share is still around that 10%. And again, this is a long-term goal. It's not something that we think was going to happen overnight. But as we get into HHR, as we get into VLT, I think those will add, George, over time.

So, I know it's a long-term goal of ours, and that's what Dean said. And I think we're very comfortable with that. So, I'll turn it over to him for anything to add to it..

I'd say the only thing to add is, we continue to introduce new cabinets. And as those new cabinets come out and our investment in R&D broadens our overall portfolio, gives us the best chance to get to the goals that I've talked about, which are – you know what, they're strong, to your point. And the reality is, it is long-term.

I mean, we're looking to get another 50% increase from, kind of currently where we're at. So, yes to Randy's point, getting into all these other adjacent markets when you look at it cumulatively, absolutely. But it also is predicated on the new cabinets that are coming out, and we really start in Q2 with Vue.

Expect to see a lot of new cabinets at G2E, and I don't want to give a spoiler alert this early, but you're going to see some pretty incredible product come October that's even well beyond the Vue..

Got you. And then finally, Randy, someone put it in the script and you may have said it under your breath, but you mentioned that an uncertain environment could provide you with new opportunities.

I'm wondering if you're starting to see some of those new opportunities, and I assume you're referring more to M&A than anything else?.

Yes, George. Look, I think we're out as well always start looking at things. I do think we're seeing maybe pricing to come down, right? That's what we're really waiting for. We've looked at things that at some point in time, people still have very high values on them.

So, if there is some type of opportunity to pick something up at the right price, that's what we look to do. So, I think you're reading the comments correctly. And we'll just see what happens. But if – as Mark talked about, we've got a fair amount still of free cash flow after all the investments we're making this year in CapEx in the new facility.

And so, we're still out there looking and hopefully, we'll find a few things that makes sense..

Our last question comes from John Davis with Raymond James. Please proceed with your question..

Hi, good morning guys. Mark, first, I just wanted to clarify what I think I heard was that you said the business mix you expect to be similar to the fourth quarter in 2023. So, I assume you also mean, kind of similar margins, so we should think about, kind of mid-40s for the full-year. I just want to make sure I heard that correctly..

Yes, I think that's right. I think remember, don't lose sight of the fact that G2E, our largest gaming share [indiscernible] in Q4, so you got a little bit more of OpEx in Q4.

So, you'd probably see a little bit better early on and Q4 comes back down to the level, but I think that a little more [indiscernible] sales on both fintech and game side of the business keeps that EBITDA margin, kind of in those mid-ish to high-ish 40s..

Okay. Thanks. And then free cash flow, I just want to clarify. So, we're spending – or you're spending about $33 million, you kind of called out on special projects this year between the manufacturing facility and the IT enhancements. And I think you said, you spent about half that usually, kind of on those IT type projects.

So, all else equal, we should see kind of a $20 million to $25 million bump in free cash flow in 2024 as those should not reoccur in kind of your capital spending on like the IT projects goes back to more of a normal rate.

Am I thinking about that the right way?.

You're thinking about 2024 there already..

Yes. Yes..

I think that's kind of what we were trying to convey..

Yes, spot on, John..

Okay. Alright. Thanks guys. Appreciate it..

This concludes our question-and-answer session. I'd now like to turn the call back over to Mr. Taylor for his closing remarks..

We'd just like to thank everybody for joining us today. We appreciate your interest in Everi. And we shall be talking to you again in early May for our first quarter numbers. Thanks again..

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