PlayAGS, Inc. Price & Performance (AGS)

Thank you for attending today's Play AGS 4th Quarter and Full Year 2023 Earnings My name is Sierra, and I'll be your moderator for today.

All lines will be muted during the presentation portion of the call. With an opportunity for questions and answers at the end.

I would now like to pass the conference over to our host, Brad Boyer, Senior Vice President of Investor Relations.

Thank you, operator, and good afternoon, everyone. Welcome to the PLAY AGS Incorporated 4th quarter and full year 2023 earnings conference call.

With me today are David Lopez, CEO and Kimo Akiona, CFO. A slide presentation reviewing our key operational and financial highlights for the Q4 fiscal year ended December 31, 2023, can be found on our Investor Relations website investors. Playags.com. On today's call, we will provide an overview of Q4 and full year 2023 financial performance and offer perspective on our current outlook for the business. This conference call will include the use of forward looking statements. Any statement that refers to expectations, projections or other characterizations of future events including financial projections or future market conditions, a forward looking statement based on assumptions today. Actual results may differ materially from those expressed in these forward looking statements and we make no obligations to update our disclosures. For more information about factors that may cause our actual results to differ materially from our forward looking statements, please refer to the earnings press release we issued today as well as risks described in our annual report on Form 10 ks particularly in the section of these documents titled Risk Factors. Our commentary today will also include non GAAP financial measures. We believe the use of these non GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends in our business.

These measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Reconciliation between GAAP and non GAAP metrics from our reported results can be found in our earnings release issued today. Please refer to our filings with the SEC for more information. With that, I would like to turn the call over to our CEO, David Lopez. Thanks, Brad, and good afternoon, everyone. The 4th quarter capped off an exceptional year for AGS with revenues and adjusted EBITDA increasing 15% year over year. Q4 represented our 11th consecutive quarter of double digit growth and our 5th consecutive quarter of double digit adjusted EBITDA growth The strength in the quarter was broad based with all 3 operating segments setting new quarterly records for revenue and adjusted EBITDA. The quality and consistency our financial performance is a true reflection of our incredibly talented and focused team Increasingly deep and diverse product offerings across all three segments and then improving efficiency and effectiveness of our execution. Before providing some perspective on the current year, would like to highlight a few notable achievements for the Q4. First, global EGM sales increased 36% year over year to a record 15 19 units surpassing the 30% growth level for the 3rd consecutive quarter.

Just like Q3, our record performance was not driven by a concentration of sales to any one customer or within a jurisdiction as we sold units to nearly 180 unique customers in the quarter, a new record for the company. 2nd, our interactive revenue grew by over 30% versus the prior year to 3,400,000 dollars with strong flow through of increasing interactive adjusted EBITDA by nearly 160% year over year to a record $1,300,000 Our refreshed and energized interactive team continues to further cement our position as a leading B2B content provider within the global real money gaming market. 3rd, table product sales recurring revenue reached new records in the quarter. Producing an approximately 20% increase in adjusted EBITDA to a record $2,800,000 and pushing full year adjusted EBITDA to approximately $10,000,000 I think it is important to remind everyone our table segment was doing less than $1,000,000 of annual EBITDA in 2018, with the 60% growth CAGR over the past 5 years from our entire Tables team. 4th, free cash flow increased more than 45% year over year to $11,000,000 topping the $10,000,000 for the 3rd consecutive quarter. We are encouraged by the progress made improving the consistency and magnitude of our free cash flow generation over the past several quarters and I believe our organizational focus on this key metric will continue to drive consistent growth and our free cash flow conversion in 2024 and beyond Kimo will provide some context around our free cash flow outlook for 2024 in his prepared remarks.

Finally, we ended the year with net leverage at 3.2 times, down from 3.8x at the start of the year and slightly below the low end of our targeted 3.25 times to 3.5 times range. We have considerably improved our leverage profile over the past several years and will continue to prioritize further deleveraging as our preferred use of excess capital for the foreseeable future. With a path to below 3.0 times well within our site. With all that said, I would like to turn my attention to 2024 and the exciting path forward for our company. As you have heard me say on prior calls, I continue to believe we have the strongest most diverse product offerings in our company's history Additionally, the quality of our team across all three operating segments and at the corporate level Lastly, continues to steadily improve as evidenced by our recent string of record operating performance.

Collectively, I believe the 3 P's of people, product and process position us to not only improve upon our record 2023 results in the current year, but also set us up for compelling multiyear Within our EGM segment, the expanded scale and scope of our game content and cabinets portfolio focused go to market strategy and driven sales team have For the first time in the company's history, we've had 2 high performing cabinets Spectra 43 and Spectra 49 with deep game libraries targeting the most in demand product segments, Additionally, as we progress into the back half of twenty twenty four, we remain on schedule to make our initial push into the mechanical reel and jumbo segments. [indiscernible] recently receiving GLI approval. Collectively, these two segments account for over 15% of the total units sold into the North American market. Dramatically expanding our addressable market. Ultimately, our growth algorithm and thoughts sales is simple. 1st, further leverage our focused and targeted sales strategy And second, utilize the added diversity and quality of our product offerings to increase the within our activated customers. Am confident successful execution of our strategy will not only lead to shift share gains in 2024, but it will also set us on a path to becoming a top 5 supplier of choice for many years to come.

On the recurring revenue side of our domestic slot business, the outlook is equally as compelling. We have demonstrated over the past several quarters our unique mix driven growth catalyst including an increasingly powerful premium game offering and more diverse array of core content have armed us with the necessary tools to deliver consistent, modest growth in both domestic RPD and within our domestic EGM installed base. Looking to 2024, I believe the unprecedented depth diversity of our cabinet and content roadmaps across both the core and premium market segments should allow us to utilize a similar growth algorithm to deliver relative outperformance in domestic gaming operations revenue as compared to the rate of change observed in the market level GGR. Moving on to tables. Although we have come a long way over the past 5 years, I believe our recent momentum will continue throughout 2024 as we further solidify our position as a partner and innovator of choice within the market. The enhanced features and functionality of our Bonus Spin Extreme Progressive continue to be well received. As evidenced by the 5% sequential growth in our BSX installed base [indiscernible] the 4th quarter. Additionally, customer adoption of our efficient and effective Pax S Shuffler continues to surge with our footprint surpassing 330 units at year end and a healthy pipeline building for Q1.

Finally, we continue to drive greater adoption of our AGS Arsenal site license offerings with several notable launches lined up for the Q1. All told, I believe the unwavering strength of our 3 growth pillars BSX, PAX and Arsenal coupled with our strategic focus on broadening our geographic and customer account reach and our continued progress on the development of a new multi deck shuffler keep our table game business on a compelling multiyear growth trajectory. Finally, I'm greatly encouraged by the increasingly consistent and efficient execution with our Interactive segment. Where our run rate of annualized revenue and adjusted EBITDA is now topping $13,000,000 $5,000,000 Although interactive is in the early innings of an outsized multiyear growth cycle, think it is important to highlight the February 2024 Eilers Industry Survey ranked us as the 6th largest provider of slot content to North America online market with a reported market share of approximately 5%. Additionally, we produced the 4th best overall spot performance in the report with a reported index of 1.6 times site average with our capital gains theme performing as the 2nd best slot overall. Looking ahead, I believe the quality of our interactive team and the great number of strategic growth objectives in our line of sight positions AGS to emerge as a leading share gainer within the high growth RMG channel in both 2024 and beyond.

In closing, would like to thank our team members around the globe for their commitment focus and dedication throughout 2023. The record setting performance we have been able to achieve is a true reflection of the quality products you have developed. Successful strategies you have orchestrated and the efficient execution of your plans. With the most exciting lineup of new products and the highest quality team in my tenure as CEO, I remain extremely excited about what lies ahead for AGS and I look forward to sharing our progress with you on future calls. With that, I will turn the call over to Kimo.

Thank you, David. And good afternoon to all of you on the call. As in prior quarters, I will review a couple of highlights from our reported results and provide perspective on how we see each of our business segments trending as we look ahead to the current year. I will also share some thoughts on our free cash flow outlook for 2024 and close by addressing a few items related to our balance sheet. Turning first to EGM equipment sales, 4th quarter global unit [indiscernible] increased 36% year over year to a record 15 19 units, representing our 3rd consecutive quarter of growth in excess of 30%. Sustained Spectra 43 momentum supported by the continued strong performance of the cabinets expanded suite of game content, initial sales of our successfully launched Spectra 49 cabinet, a more than 70% increase in our total customer count to nearly 180 unique customers and stable market level demand trends once again contributed to our outsized unit sales growth in the quarter. 4th quarter global ASP was approximately 20,700 up 7% versus the prior year. A greater mix of higher price Spectra Family cabinet sales which accounted for over 80% of total unit sales in the quarter and further implementation of our price integrity initiatives contributed to our improved ASP performance in the quarter.

Looking ahead to 2024, current consensus estimates project we should be able to grow global EGM unit sales by approximately 3% over our just reported full year 2023 total of 5,244 units, That said, believe our ability to increase average order size through concurrently delivering a variety of high performing titles on both Spectra 43 and Spectra 49 Further activation of new customers continued outsized share capture within the growing HHR market, our scheduled back half launch into the mechanical reel and jumbo product verticals a slightly more robust set of international sales opportunities and the relatively consistent market level customer purchasing behavior observed 2024 to date should allow us to surpass the level of growth currently reflected in consensus. From a cadence perspective, we expect 2024 to follow a similar seasonal pattern to 2023, with Q1 serving as our lowest volume quarter of the year and volumes building as we progress throughout the year. With respect to ASP, the $20,000 level should serve as a good proxy for 2024. Supported by the premium pricing we continue to command on our Spectra family cabinets. And further execution of our price integrity strategies. Shifting to game ops, positive underlying trends within our domestic EGM Gaming Operations business in the 4th quarter with RPD topping $30 for the 11th consecutive quarter while our domestic EGM installed base increased sequentially for the 7th consecutive Continued growth in our high yielding premium game footprint further optimization of our core unit installed base, supported by deployment of our Spectra cabinet and increasingly diverse game content library, and relatively stable market level GGN trends GGR trends push domestic RPD to 4th quarter record of $31.68 Looking out over 2024, current Wall Street estimates project full year market level gross gaming revenue to be flat to up 1% year over year with Q1 GGR expected to be down 1% to 2 percent versus the prior year as a result of the heavily discussed weather disturbances [indiscernible] As we reflect on the outlook for our gaming or domestic EGM gaming operations business in 2024, our high level growth algorithm remains relatively consistent with the prior years.

Notably, we expect to leverage our growing suite of premium EGM products with multiple new premium form factors and titles scheduled to launch throughout the year to thoughtfully and consistently expand the mix of higher yielding premium games within our domestic installed base. Building on our 16th consecutive quarter of premium unit growth, Additionally, we plan to utilize the enhanced scale and scope of our core EGM cabinet and content portfolio to execute upon the continuous installed base optimization strategies. Combined, we believe these mix driven initiatives should allow us to once again deliver domestic RPD that outperforms relative to the market level GGR forecast I provided while also keeping our domestic EGM installed base long term growth trajectory.

We Turning to our international EGM business. The continued strong performance of our established AGS franchise game themes throughout the Mexico casino market further execution of our global installed base optimization initiatives, stable macroeconomic backdrop and favorable foreign exchange fluctuations contributed to a 16% year over year increase in 4th quarter gaming operations revenue. International RPD increased over 15% versus the prior year or approximately 4% on a constant currency basis. A 4th quarter record of 8.86 [indiscernible] Looking ahead to 2024, we expect our international installed base to remain relatively consistent while our ongoing optimization efforts and stable market level trends should contribute to a modest growth in constant currency international EGM RPD for the full year. Looking beyond EGMs, table product revenues increased more than 20% year over year to a record 4,800,000 dollars Greater customer adoption of our reliable and efficient PAX S card shuffler innovative Bonus Extreme Progressive Technology and an all inclusive AGS Arsenal site license offering pushed recurring revenue to a record of nearly 4,000,000 dollars Equipment sales revenue also established a new high watermark the quarter, supported by the sale of more than 20 Pax S units in conjunction with a recent high profile Las Vegas Strip Casino opening.

Turning to 2024, unwavering PACS interest and demand, a favorable customer response to the enhanced features and functionality recently added to our Bonus Spin Extreme Progressive targeted jurisdictional expansion opportunities a compelling pipeline of arseno activations should keep our table product lease revenue stream on a trajectory of consistent and predictable growth similar to the one demonstrated in 2023. That said, would encourage everyone to keep the timing and magnitude of sales revenue related to 2023 new casino opening activity in mind when putting together segment level projections for the current year. Shifting to Interactive, revenues grew by over 30% versus the prior year and 8% sequentially to a record 3,400,000 accelerating cadence of new game launches including the introduction of the company's first [indiscernible] first game theme Double Shamrock, improving efficacy of our more tactical and targeted business development activities within our B2C operating partners. The continued strong performance of franchise brands including Capital Gains in the online channel, and the activation of more than 10 new B2C operator partners globally paced our record setting performance in the quarter. Outsized revenue growth once again flowed through to segment level EBITDA. Which more than doubled year over year to a record 1,300,000 dollars Looking ahead to 2024, we believe the added depth and diversity of our content roadmap planned new customer and jurisdictional launches, and increasingly effective business development efforts put our interactive business on a path to delivering the highest level of year over year revenue growth amongst our 3 operating segments.

With consistent sequential growth anticipated as we progress throughout the year. Additionally, as demonstrated over the past several quarters, to flow through a significant portion of the incremental revenues generated throughout the year. Contributing to a considerable adjusted EBITDA margin expansion adjusted EBITDA growth within the segment. Turning to margins, 4th quarter adjusted EBITDA margins surpassed 45 [indiscernible] exceeding the expectations articulated on our Q3 call. And improving margin profile within our Interactive business supported by the segment's continued outsized revenue growth superior gross margins on the highly modular and efficiently designed Spectra family of EGM cabinets and operating leverage resulting from the over 15% year over year increase in total revenues all contributed to our solid margin performance in the quarter. As it pertains to 2024, we expect to achieve an adjusted EBITDA margin in the range of 40 4.5 percent to 45.5 percent representing a modest lift over 2023 at the midpoint. Our margin outlook incorporates the revenue growth should allow us to realize operating leverage With respect to R and D, we expect to reinvest behind growth ensure we are arming the business with the products and resources necessary to remain on an upward sloping multiyear growth trajectory.

As a result, anticipate 2024 expensed R and D remaining relatively consistent on a percentage of revenue basis at approximately 12%. Finally, we expect to execute upon the sale of approximately 1,000,000 of used Orion Family Cabinets to a distributor in Q1. These sales, which will not be reflected in our reported KPIs for the quarter, are likely to push 1st quarter margins in line with to slightly below the low end of our targeted full year range. That said, we expect margins to steadily expand as we progress throughout the year pulling us comfortably into the targeted range by year end. 4th quarter capital expenditures totaled 15,000,000 dollars bringing the full year capital spend to just under 62,000,000 dollars Turning to 2024, expect full year capital expenditures inclusive of anticipated capitalized R and D to land in the range of $65,000,000 to 70,000,000 Cash interest in the quarter was approximately 14,000,000 dollars increasing the full year cash interest expense to just under 54,000,000 dollars On February 5, 2024, we successfully completed a repricing of our term loan credit facility which effectively reduced the interest rate spread applied to our term loan borrowings by 35 basis points. Additionally, in conjunction with the repricing transaction, we elected to voluntarily repay $15,000,000 of our total debt outstanding.

Combined, the rig pricing and repayment are expected to reduce our annualized cash interest expense by approximately $3,000,000 at current market level rates. 4th quarter free cash flow defined as net operating cash flow plus proceeds from payments on customer notes receivable less CapEx reached 11,000,000 surpassing the $10,000,000 level for the 3rd consecutive quarter and pushing the full year 2023 free cash flow to approximately 27,000,000 dollars Looking ahead to 2024, we believe our consistent operating momentum and execution Heightened focus on efficient and effective working capital management continued CapEx deployment discipline, and anticipated cash interest savings from our recent debt repricing and repayment should allow us to grow a full year free cash flow by 25% or more. With material levels of positive free cash flow generation projected in all 4 quarters. Finally, net leverage fell to 3 at year end compared to 3.8 times at the start of the year, below the low end of our targeted 3.25x to 3.5x range. Supported by the relative resiliency observed 2024 to date, both with respect to gross gaming revenue trends customer purchasing demand, the growing appeal and strong performance of AGS's deeper and more diverse suite of EGM cabinets, and game content the anticipated continued outsized growth in interactive revenues, and unwavering commitment to cost containment and operational efficiency and steadily improving free cash flow conversion, we expect to exit 2024 with net leverage in the range of 2.7x to 3x.

Finally, I would like to reiterate our approach to deleveraging remains unchanged. As we continue to target a combination of adjusted EBITDA growth and consistent free cash flow generation. Operator, this concludes our prepared remarks. We would now like to open up the line for questions.

Absolutely.

We will now begin the question and answer The first question is from the line of Barry Jonas with Truist. Your line is now open.

Great. Thank you.

Guys, what do you see as the implications for AGS from the IGT every deal guess both in the short term and the long term? Thanks. Hey, Barry. Thanks. I think history has instructed us here a little bit on this And if we look back to that sort of 2012 to 2014 period where there's a lot of consolidation. It was also a time where we had acquired Cadillac Jack and neither one of us were very big in Class [indiscernible] Following that consolidation period, The non Big four suppliers nearly tripled or actually about tripled their ship share from that period going up to about 20 17, 2018.

So we think that this will create a little bit of air pocket here for some smooth sailing and give us an opportunity to sort of step up in this case from a ship share perspective and and get more eyeballs from the customers. So we feel pretty good about that. But I think the key is for us is to run our playbook and do what we do best, which is invest in R and D, invest in our sales and product management, teams and obviously great people across the organization. Not just in those three areas, and sort of stick to the plan, which is putting out great content, leveraging it not just in the casinos and the online space, but also eventually we have a very big opportunity to go abroad with it. And we haven't really gone past Mexico and a bit of Latin America to do so. So we like it for us. I think it's probably good for the the industry. Consolidation is long term good for the industry because it does sort of refresh the lower base of the non Big four where you'll start to see some smaller companies pop up and really come up with some some good games and some innovation.

So that's how I feel about it.

That's great. Really appreciate your thoughts there. And then just a follow-up I think there's probably some AGF specific tailwinds set for this year. But maybe, David, maybe talk a little bit about how you see the health of the overall market right now? So I think the health of the market, Q1 is stable. And I think Barry, everything we see looks pretty good there and we don't see a whole lot of change. I think others have commented the same on their earnings calls. But I think what we're focused on is our growth drivers and a little bit of what we said in the prepared remarks, which is this is sort of the first time where we've had 2 cabinets that are right in the hot spot of what's going on with Spectra 43 and Spectra 49, we have some great opportunities there. That just gets back to if you look at us on the Eilers reports, you look at our performance on these cabinets, very early days with Spectra 49, but Spectra 43 has really been crushing it for lack of a better term. The content has been fantastic. I don't think or I'm sure that we have never had a situation where we've had this many core games And on top of that, now we have another premium gain that's come hot out of the gates and the performance is from a premium perspective, the best performance we've ever had in our organization.

So yes, market stable and AGS I think better stable. We're looking pretty good with our product line and the pipeline. Perfect. Thanks so much. Thanks, Barry.

Thank you.

The next question is from David Katz with Jefferies. Your line is now open.

Hi, afternoon everyone. Thanks for including me.

Look, I wanted to talk about how you think about market share, right? Like we all probably I mean, we spend a great deal of time thinking about gaining share, losing share, etcetera. Is it as important as we think it is or are you just making games, selling games, driving profits, driving cash flow, and the share does what it does. [indiscernible] Dave, that's a great question. I'm surprised haven't really gotten this one before, but that's a good question. I like it because we sort of should be running our playbook, right? And we should do what's best for us. And at the end of the day, sort of creating value generating free cash flow, improving margins and all the things that you mentioned, right? We've been demonstrating EBITDA growth, revenue growth, free cash flow improvement has been a huge focus of ours.

I think that we don't obsessed with ship share, right? Because if ShipShare wobbles 1 quarter versus another quarter and it's not like maybe something that you guys would deem fantastic we're still looking at our financials. [indiscernible] And we're looking at the Eilers report and we're looking at what's going on because the proof is in our performance of our games. And right now, we probably track performance of games a lot closer than we do ship share. Long term, yes, ship share could come should just follow that nicely, should sort of tuck in and draft that very closely Over time, Yes, David, I would just add, this is Brad. Another thing about the ship share metric [indiscernible] I encourage everyone to keep in perspective is that There are big segments of the market in North America that we currently do not sell into that our competitors are selling a significant number of games into. Including the route markets here in the United States and in Canada. Additionally, from a swim lane perspective, we're not fully penetrated at this point. We're making some strides here in the back half of this year getting into MacGrill and jumbo, but there still are some other categories that we're not in.

So I think when you view our ship share I definitely encourage folks to look at it on an adjusted basis relative to the markets that we actually play in. [indiscernible] ShipShare gives us a reason to call you guys. Naturally, the follow-up is with respect to valuation and I know management teams shouldn't necessarily be overly focused on it, But yours could be better. And has some headroom, How do you think about the possibilities of trying to get a bit more recognition to that end. And how do you and the Board sort of focus on it and think about taking some action?

I'll tell you, speaking of recognition, I think one of the things that we took very seriously was this latest $15,000,000 payment, debt payment. I know it might maybe on the surface it doesn't seem like a move we're trying to say, hey, we want to see some multiple expansion. But the feedback that we got from investors was fantastic. There's always this question of share buybacks just keep your powder dry or pay down some debt, And this one is a move that got some serious applause from our investors. And if you sort of just line that up maybe with our repricing we did do a bit of a pre release on Q4 and then that debt pay down we saw some considerable movement in the stock. So as far as like doing it the old fashioned way, I think sticking to the plan here and continue to delever is a huge move, right? And I think that as we cross that next leverage barrier 3.0 times, we'll get some of that recognition there David. But there's also I think that from a IR strategy, and some things I won't bore everybody on the call, but I think we obviously can get more active in particular once we get to that 2.9.

Right? When we get to that 2.9, know there's a whole shareholder base we can speak to again So that's what I'm excited about talking to more investors I'm excited to get out there post this payment and really flagging to our investor base and potential investors that we're confident about our free cash flow generation going forward.

I'll agree with that. Thanks. Appreciate it.

Thanks, David.

The next question is from the line of Jeff Stanchal with Stifel. Your line is now open.

Hey, great afternoon everyone. Thanks for taking our questions.

Maybe starting off here on the EGM business. David, back at G2E, I seem to recall noted that the testing data, the initial testing data for the 49C was actually tracking better than the initial data for the UR-forty three. Now that you have some admittedly preliminary units on the floor, is that still the case? And I guess just broadly speaking, how would you characterize performance for the new cabinet maybe versus your expectations heading into next year?

Thanks.

Yes. Sorry. We I apologize. We have a little bit of delay here and I jumped the gun on you.

There.

Yes, I think broadly 49C is doing fantastic. Upright Spectra 43 has been out a while now. And maybe a comparison there might be tad unfair, but both The truth is both cabinets are really kicking butt and we've got, again, I referred to core content We've got some great core content out there. And and we keep expanding upon our strongest brands like Rake and Bacon And I think that's been a huge help to us Really goes back to our strategy and development and how we carve up our time what we work on. And we're in a very nice position right now that we've established a couple of brands continue to play off those brands. [indiscernible] every brand extension of Rake and Bacon has been pretty much more successful than previous version of it. We've been able to knock the cover off the ball with that.

So we're seeing a lot of success with 49C And I think that we'll continue to see that But don't count out spec Great. Thanks, David. And Kimo, in the prepared remarks, you cited some greater international opportunities in the EGM segment for the for sale business. And I think, David, you kind of hit on this as well in your answer to Barry's first question.

Could you just expand on this a bit more? Are you entering new markets selling more into existing markets?

And it's the former, can you just shed some light on which markets you're planning to expand into? Thanks.

Yes. I mean, if you think about the way our business has historically and even up to current, right? I mean, international like Brad just commented on, has predominantly been Mexico, right?

We've done sales here and there in different parts of call it Latin America or the Caribbean, but going into 2024, and with the launch of our newer cabinets like the Spectra family, we've really put a plan in place to kind of be able to address the broader Latin America market, Central and South, and address the Caribbean. So there's a lot of white space there for us to go after these markets in a lot more targeted way than we ever could before. Which includes games that obviously are made for that market or nuance to be able to work in those markets. So excited. I mean, it's a big white space for us just in that area. Without even talking longer term about Australia or let's call it Australasia or some of those markets. I don't know if David wants to add, but Yes. I think chemo nailed it and I was actually going to tack on that very bit at the end, which is he's just referring to our current markets and what we've got there. But something we've sort of made sure that we mentioned in almost every earnings call for the past probably year [indiscernible] is that figure of how many customers we sell to in sort of the North American market and that's where we've done quite well.

I think the number was 183 183. If I'm off, I'm off by a few, but it's But that's a number that's way up from what we used to sell. We used to be sub-one hundred in our number of customers that we sold to. So we're going deeper with more product domestically, we're going wider to more customers and then we're we're aiming a little bit more at Latin America and then we know that our next step hasn't been talked about yet, but our next step into the international market just opens up that much more white space. I think there's a lot of room to grow here in the future. [indiscernible] Very helpful. Thanks, David. Thanks, Ki Bin. I'll pass it on. [indiscernible] [indiscernible] The next question is from the line of Chad Bynon with Mac Macquarie, your line is now open.

Hey, guys. This is Aaron on for Chad. Thanks for taking our questions.

So I wanted to touch on Interactive for a bit. Obviously, great Interactive result this quarter. The business seems to be on a nice trajectory. With regards to the year ahead, how should we think about the major drivers of growth And any color you can share just on any reinvestments into the business necessary to support your growth there?

Thanks. Yes, thanks. So obviously, we'll get over time, we'll get into more customers I think that there's probably some some pretty straightforward drivers of growth One is more games and it's just that simple. If we look back a couple of years ago, definitely had customers that said, your stuff is awesome, can we just get more games? And we've talked about in the past how we've made the investment there in order to open up the pipeline, so we can move more of our brick and mortar content online much quicker and we've accomplished that. And then from there, growth will also come from unique online only content that we develop and we're developing that with our very sharp team that we have in place now We've really expanded that team, but I think forgetting about expansion of the team, the development team, it's about quality. It's just not about quantity of people, but it's about quality. And those folks not only can get our porting done quickly, but they also can generate or they can develop games for online only. So I think that's a bit and we're exploring partnerships and omnichannel and sort of just You got to look at online much like you look at the brick and mortar business.

Figure out where else you can go whether it's geographies of type or types of online gaming, we're obviously in social and we're in real money gaming right now. There's a lot of opportunity out there to drive this. And we don't just have to depend on new states opening up. I think that we have a lot of meat on the bone And in particular, if you look at our performance, again, we mentioned Eilor so many times, Todd is ringing the bell here. But Eilers, once again, our performance from a multiple perspective in the prepared remarks is phenomenal. So I think that we've got ourselves in good position again to run our playbook on Interactive and to grow the business.

Great.

Thanks for the color on that.

And then just turning to margins, you talked about 2024 R and D being consistent at around 12% of revenues. Can you just talk about how you got there? What gives you confidence that that's the right level? And just any color on what could cause you to move outside of that range?

Yes. I mean, if you look at our message has been pretty consistent, right? Like we've always felt that at the heart of our success is our creative team and our R and D team. So So over the last couple of years, right, we've embarked on expanding our studios, kind of expanding the depth of our talent in these different areas and as we analyze and look at the returns that we've been getting, we look at the opportunities in the front of us next year and we feel that the 12% level is right. Based on our experience. I think that still allows obviously right, it allows for continued investment in that being that revenues obviously going to be growing as well. So 12% level is right, and we feel comfortable about that that there won't be but call it like a stair step required, call it in the short term, right?

Great. Thank you very much.

Thanks, Aaron.

The next question is from the line of Jordan Bender with JMP Securities. Your line is now open.

EBITDA margins for 'twenty four kind of imply about up 40 basis points. I assume there's a positive impact still still coming from Spectra, but can you maybe talk about how mechanical reel and jumbo will impact that sequential margin growth? I guess compared to more of the organic margin expansion?

Yes. So we haven't really talked much about what what we're projecting here. In particular, for 2024 because this is a bit of back half activity We know that MetcREAL opens us up in a couple of markets where we're very strong. We can have an opportunity not just to place new units, but really improve our real estate when the situation is right for us. So we know that we can optimize with this product down the road. We know that we'll see growth with the product. And like I said, in jurisdictions, we're where we're very strong. Obviously, we have expectations of getting in the market [indiscernible] And sort of the strong macro markets But Jumbo and MacReel as far as 2024 goes, I'll turn it over to Brad if he has any additional commentary. But we're not really leading ourselves very far on this one just for this year, but we have obviously long term we got in this space for a reason. A, we've made the investments in people and B, because of the people we have, we're very well positioned for success and MECREAL and of course Jumbo. And Brad has nothing to add to that.

So I think we're good to go. All righty. And then, Kimo, you've given several of the inputs just on free cash flow for the year. But on this post, if you want to call it investment, period for the company, 17% free cash free cash flow conversion last year. How should we think about that rate kind of moving forward into 'twenty four and beyond? Thank you.

Yes. I mean, so not ready to put out a target or anything, right. But I think what we can say is that we're obviously and we're dead set on improving free cash flow conversion, right. Think in the prepared remarks, we talked least I said, we're going to we expect to get free cash flow growth about 25%, right? And I think that would obviously imply that there is sequential improvement year over year in free cash flow conversion. So So we've done a really good job, I think managing how we invest in the business, right? And obviously, I think as our products have continued to perform, every time we place a product in the field, whether it's on lease or sale, been able to increase the returns on that investment, right? So So going forward, we're very confident that our free cash flow conversion rate will continue to improve year on year.

Great.

Thank you very much.

Thanks, Jordan.

Thank you.

Are no additional questions in queue. So as a final reminder, if you would like to ask a question, it is There are no further questions. With that, we will conclude today's conference call. You all for your participation. May now disconnect your lines. [indiscernible]