PlayAGS, Inc.
Q4 2018 Earnings Call Transcript

Published: 6 Mar 2019

[Operator:]

Good afternoon, and welcome to the AGS Fourth Quarter 2018 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Julia Boguslawski, Chief Marketing Officer and Executive Vice President of Investor Relations. Please go ahead.

[Julia Boguslawski:]

Thank you, and good afternoon, everyone. Welcome to AGS's Fourth Quarter and Full Year 2018 Earnings Conference Call. With me today are David Lopez, President and CEO; and Kimo Akiona, CFO. We posted a slide presentation reviewing our key operational and financial highlights for the fourth quarter and full year 2018, which can be found on our Investor Relations website, investors.playags.com. Now, I will quickly cover the safe harbor. Today's call is to provide you with information regarding our fourth quarter and full year 2018 performance in addition to our financial outlook. This conference call includes forward-looking statements. Any statement that refers to expectations, projections or other characterizations of future events, including financial projections or future market conditions, is a forward-looking statement based on assumptions today. Actual results may differ materially from those expressed in these forward-looking statements and we make no obligation to update our disclosures. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the earnings release that we issued today as well as risks described in our Form 10-K filed today, particularly in the section of these documents titled Risk Factors. Our commentary today will also include non-GAAP financial measures. We believe that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. Reconciliations between GAAP and non-GAAP metrics for our reported results can be found in our earnings release issued today. Please refer to our filings with the SEC for more information. With that, I'd like to turn the call over to David Lopez.

[David Lopez:]

Thank you, Julia, and thank you, everyone, for joining AGS's Q4 and 2018 year-end earnings call. For those using the slide deck, please turn to Slide 3. I'll start by providing a brief overview of our fourth quarter and fiscal year 2018 operational highlights, along with an update on some of our recent strategic initiatives. After a financial overview from Kimo, I'll close the call by sharing our growth drivers and business outlook for 2019 followed by a review of some annual guidance metrics. I'm pleased to announce that Q4 capped another record-breaking year for AGS. In our first year as a public company, we set records across nearly every key performance category

[Kimo Akiona:]

Thanks, David, and good afternoon, everyone. The fourth quarter of 2018 marked yet another impressive quarter for AGS and Slide 15 and the appendix provide a comprehensive operational summary. For the fourth quarter, total revenues were up 25% to $72.1 million, of which $68.7 million was from EGMs, $2.1 million from Table Products and $1.3 million from Interactive. The increase in revenues in the fourth quarter were driven by EGM equipment sales, primarily in early-entry markets such as Canada and Nevada as well as ramping markets like California and Florida. We also experienced increased performance in our gaming operations business, which grew by 8% year-over-year. Growth in our recurring revenue was driven by several factors. First, the contribution of a full quarter of EGMs purchased from Rocket Gaming last December. Second, an increase in Orion Portrait and Orion Slant cabinets on lease year-over-year. We ended the year with nearly 1,900 Orion Portrait cabinets on lease, up 100% year-over-year, and over 840 Orion Slant cabinets on lease, highlighting the successful rollout of this new cabinet. Third, continued year-over-year growth in our domestic and international RPD performance. And fourth, an increased installed base of Table Product units on lease, up 762 units year-over-year, driven by the In Bet assets, new openings and the continued success of our progressives and side bets. For the fourth quarter, net loss of $10.3 million increased year-over-year from a net loss of $8.5 million in the prior year period, primarily caused by a pretax impairment of goodwill of $4.8 million from our Interactive social reporting unit that we recorded in the quarter to be discussed later. Total adjusted EBITDA was up $5.1 million in the quarter, driven primarily by our EGM segment, which grew revenues by $14.5 million, gross profit by $9 million and was partially offset by increased adjusted operating expenses of $3.3 million, primarily due to increased headcount-related costs in SG&A and R&D. Included in that amount was approximately $1 million of operating costs from Gameiom. Total adjusted EBITDA margin decreased to 44% in the fourth quarter 2018 compared to 46% in the prior year period due to several factors

[David Lopez:]

Thank you, Kimo. 2019 is already off to a strong start and we feel very confident about our levers for growth this year and beyond. I'll list a few at a high level as outlined on Slide 11. The first strategic initiative I'll talk about is continued penetration of Orion Portrait. Due to its outstanding game performance, innovative lighting and eye-catching hardware design, the Orion Portrait has become a staple on the casino floor. We still have several casinos in markets that have yet to add Portrait, however, the biggest opportunities we see for growth are secondary orders for Portrait based on customers having too few on the floor. Bolstered by the fact that we expanded the content library with 24 titles currently available and another 15 to 20 rolling out this year, Portrait remains underrepresented on many floors. Of the casinos that have Orion Portrait, coverage have, on average, about 6 to 12 units on the floor. Based on current performance numbers, we believe many properties should have at least 18 to 24 units on the floor. The second initiative is the ramping of Orion Slant and our STAX Table Progressive, two relatively new products that are seeing strong momentum as we start 2019. We highlighted the progress both products made in the fourth quarter, exiting the year strong to prepare for an even better 2019. With 25 titles planned for launch on Orion Slant throughout the year and a growing number of compelling case studies that prove STAX drive increased revenue for customers, we believe both products will be significant needle movers in their respective business segments this year. The third initiative is new product introductions, and we have several that we're excited about this year. We saw the first unit of Dex S card shuffler go into a select couple of properties on trial in December. The feedback has been encouraging, consistent and informative in this introductory stage. We're currently in a handful of properties and right where we want to be with the rollout, having just completed some enhancements to prepare us for a broader launch. By Q2, we believe we'll be in position to ramp up the rollout to several jurisdictions, including California, Florida, Oklahoma, Nevada, Michigan and New Mexico to start. The Orion Upright, the third cabinet in the Orion family which debuted at G2E, is scheduled for commercial rollout in the second half of the year and we feel confident with that timing. We are excited about the strong value proposition for the cabinet, hosting both new trials and proven icon favorites like the Golden Wins family of games. Our new Orion Upright will serve as a compelling high-performance core cabinet in a market that desperately needs strong core performance. We also look forward to launching our AGS content in the real-money gaming space within the next few weeks, which will address pent-up market demand for our game titles and provide us with the most favorable economics. We believe this will be one of the strongest growth drivers in the Interactive segment in 2019. The fourth initiative is penetration into new and early-entry markets. Slide 12 shows the many markets where AGS remains well under our 5% market share goal. We remain focused on working to secure some new licenses this year, but we believe that the bigger opportunity is placing incremental EGM and table units into new markets like Canada, Pennsylvania and Ohio as well as further growth in Oklahoma, California and Wisconsin to name a few. We're looking forward to placing our first units in British Columbia in the first half of 2019, representing a new Canadian province for AGS to help drive growth throughout the year. I previously mentioned our official entry in the Philippines and, depending on performance, we believe this market has the potential to serve as a significant recurring revenue contributor over the coming years. In our Interactive business, we look forward to completing license requirements to enter new markets with our RMG platforms such as New Jersey, Malta, Canada, Spain and Pennsylvania. These markets provide considerable reach with multiple online operators. Our fifth initiative centers on bolstering recurring revenue across all business segments. Our recent acquisition of Integrity is a great example of our commitment to strategically grow our EGM installed base. The Integrity units also provide a way for us to grow recurring revenue through yield optimization of underperforming units over time. The introduction of Alora, our entire suite of Table Products, our RMG business and the introduction of both ICON and Orion in Mexico present various levers for growing recurring revenue on an absolute dollar basis. Additionally, we see domestic opportunities to grow recurring revenue in our EGM business with some Class II expansions taking place in 2019. Our sixth initiative is to strengthen the balance sheet to further provide -- further optimize financial performance. Because of our ramping free cash flow generation, we're in a position to pay down debt this year while still investing in the business to capitalize on growth opportunities. We will strategically manage CapEx to enable growth in the gaming ops business, thoughtfully pursue synergies with the Integrity acquisition and continue to drive efficiencies in our business. We're laser-focused on internal systems and processes this year such as ERP, warehouse management, CRM, material resource planning and product life cycle management, which we believe, over time, will help with our inventory efficiencies and overall cost reductions. And finally, our last, but certainly not least, growth initiative centers on our tireless commitment to maintain and strengthen our corporate culture. We passionately believe that this is a key differentiator for us and the stronger and healthier our culture is, the more we can grow in a meaningful way. And we will continue to focus on attracting and retaining the best talent using our growth trajectory and award-winning culture as two major incentives. Our unique culture enables us to have one of the strongest and most empowered R&D teams in the industry and we will continue to invest in key development talent and further studio expansion to help sustain our momentum for years to come. We understand that culture starts with the ones at the top and we will continue to aggressively ensure AGS senior leadership is consistently practicing our core values on a daily basis. If you turn to Slide 13, you will see that given many levers for growth across all segments that I just covered, and we believe that we are in position in 2019 to produce between $160 million and $164 million in adjusted EBITDA, which includes approximately $9 million in contribution from the Integrity acquisition. And we believe that adjusted EBITDA will be similar to 2018 in the 47% to 48% range. We believe the right way to think about annual CapEx is approximately $65 million to $69 million as we pursue strategic growth opportunities in the gaming ops business. Kimo mentioned our year-end leverage ratio of 3.4x. We have consistently communicated that we're comfortable with our leverage ratio being under 4x. However, given our growth prospects and continued product performance entering 2019, I believe that our increased adjusted EBITDA as well as free cash flow generation will enable us to put us in position to be under or equal to 3x in 12 months pending any potential M&A activity. And finally, before we move to Q&A, I want to thank our shareholders and our customers for their support and confidence in AGS as well as the entire AGS team, now more than 700 employees globally, who made 2018 yet another historic year for us and are working tirelessly to deliver an even better 2019. With that, we thank you for listening and we'll move to the Q&A portion of the call.

[Operator:]

[Operator Instructions]. And our first question comes from Barry Jonas of SunTrust Robinson Humphrey.

[Barry Jonas:]

Just a couple of questions. First on the guidance, maybe talk about the difference in the top end and the low end? And also, I think, for 2018, your CapEx guidance came in a little higher than guidance. So maybe just -- why is that?

[David Lopez:]

I'll let Kimo start with our CapEx, and then I'll answer your guidance.

[Kimo Akiona:]

Barry, so for CapEx I think -- we came in a little bit higher, I think for a good reason, which you saw a lot of really good momentum in Q4. So you know when we were out saying that we were going to end the year domestically, net up in lease placements year-over-year, and we did that a lot of that hard work at Q4. So the extra CapEx came in primarily from incremental leased units out in the field. There was a little corporate CapEx related to vehicles and service infrastructure. But most of it, again, was from growth machine CapEx.

[David Lopez:]

Right. And then on the guidance range, Barry. I think the things to focus on there, from a variability point of view, is obviously slot sales is a big driver of that. RPDs overall could drive us up depending on how things go this year. The Interactive division for sure could be a bigger contributor than anticipated or be it a piece of that. We're just entering the Philippines. It's very early in the game. We're not counting on a whole lot there. So we've got some levers for upside there. And then of course, you've got the shuffler business and the table game business that's really firing up. The table business right now are progressive business is on fire. And we're just launching the shuffler. So we've got some upside there, and that's sort of the bottom end and to the top end of that range is depending on how bunch of those levers go up.

[Barry Jonas:]

Got it. And then I guess just from a seasonality perspective. I know in the past you said not too much seasonality, but given the timing of Upright in the second half of the year, I guess what's the best way to think about seasonality in 2019?

[David Lopez:]

I think, there's probably a couple of things as we look at 2019. 2019 could be a little smoother than we've seen in the past, the way that we're looking at it. You look at Q4, we saw some seasonality in Q4 on our lease business again. I think that was pretty clear in the numbers. I don't know that you have to look at Upright and think that the launch of the Upright will be affected, necessarily positive or negatively. I think that we'll have a good backlog of orders when we launched the product. You have to keep in mind that, that product were shown at G2E of last year. It probably had an even better reception than the Slant, and it's for showing. I think it's just the design of the cabinet. It's fantastic. Our R&D team did a fantastic job with that. So I don't know that seasonality is going to have any big impact on the second half launch.

[Barry Jonas:]

Got it. And then just last one for me. Another strong quarter for ASPs, but maybe can you just talk about the pricing environment out there? Are you seeing any pressures from any customers?

[David Lopez:]

Thanks, Barry. So nothing specific. I think that there is the usual. I think that there's always a corporate or two that will take some shots at the end of the quarter and try to be opportunistic. We don't really fall into that because, as you know, that's trap, and that's something that we stay away from. We'd rather take out that we just took a pass on some units than giving away units that are cheaper at a lower margin, cheaper price. So I think the environment for pricing is fine. I think that we'll be sort of pressing that in the future with new cabinet design. And we'll try to press that pricing up even further in the future. So Upright is not a higher end, higher price cabinet. But in the future, I think there's still room for some upside on pricing.

[Operator:]

Our next question comes from Brad Boyer of Stifel.

[Brad Boyer:]

First question is just around the margins. Another quarter where you guys had exceptional revenue growth, but some of the corporate level costs came in a little bit ahead of kind of where we were modeling and I think where The Street was modeling. And so appreciate the fact that you guys are investing in the business for the long term. But just kind of curious how we should be thinking about the cadence of margins for 2019 and beyond? And when we -- you guys think we should start to be able to see some leverage in the business from the improved revenue environment?

[David Lopez:]

So I'll just add. Kimo will start on your cadence question, and then we'll sort of come back to maybe your Q4 comment.

[Kimo Akiona:]

So I think cadence, Brad, when we look at '19, I think as we move through '18, one thing we kept saying related to '19 was that we look for '19 to look like full year '18. We know that Q3 came in a little lower. We talked about Gameiom and some other additional operating expenses we took on. I think Q4 is kind of more of the same. Remind everyone that we have G2E at Q4, and we're a company of a certain size that G2E does matter, and you do see it in our margins. But when you look for next year, we'd point you back to 48% kind of the range that we came in full year this year of just 48% -- so 47% or 48%. I think as far as cadence, you should see margins, EBITDA margins through the year be a little smoother than they were this year for a number of reasons. But that's how we look at 2019. Hopefully, that answers your question.

[David Lopez:]

I think that answered both questions, Brad. So sorry, let us know.

[Brad Boyer:]

Yes -- no, that was great. I appreciate the color there. And then just around Integrity. I think you called out roughly 2,600 units. Just curious how you're thinking about approaching optimizing that installed base year as we look out over, say, the next 12 to 24 months?

[David Lopez:]

Yes. So I think the entire Integrity acquisition and that project comes in phases. We'll start with low-hanging fruit early, which is sort of like some bad -- some public costs and some corporate public costs. We want to sort of monitor here -- early on here. Andrew and the team will watch very closely what's going on with the Integrity units, the installs. We really need to get another customers. We want to make sure we don't just run out there and start optimizing things sort of willy-nilly. We want to be very measured. This will go into our bucket of everything else that gets optimized. It's not like we're specifically going to target Integrity units. We're going to put it into the hopper. As we like to say, turn it over to our team of nerds, on Andrew's team and then finance, they'll analyze things, and then we'll optimize appropriately and judiciously throughout the year and make sure we don't jump out there and do anything too soon. But I think that that's the way we look at it. We -- as far as growth goes in the Integrity acquisition, we talked about somewhere around on the upper end of what we're looking for organic growth like around that 15% mark. And we expect to be able to execute on that. If you sort of take 2018 EBITDA for them and you pro forma it for the partial year and then you add back some growths, that's essentially what we've gotten the number for us this year.

[Kimo Akiona:]

And to be clear, Brad, I think, when we gave CapEx guidance for the year of $65 million to $69 million, that is inclusive of anything we will do with Integrity. So it's all-in.

[Brad Boyer:]

Okay, helpful. And then last question for me is just around the environment today for game development talent. Clearly, you guys have made some significant investments there. You have a nice product road map, content road map here for 2019. Just curious, do you feel like today you have the personnel in-house to sort of, let's say, hit the objectives that you laid out in your Road to 250 presentation? Or is this still an ongoing process? Or are you still going to need to be actively recruiting new talent to the platform? And maybe just talk a little bit about what you're seeing out there today from a competition and expectation perspective from the game development personnel?

[David Lopez:]

Yes. So a few things here. I think that in light of your sort of 250 or Road to 250 comment, that's something that we will just build over time. For starters, our team is fantastic. I would take our -- what I referred to as a relatively small team and put them up against any light-sized team or even bigger team in the industry. I think they're fantastic. I think Sigmund has done an amazing job assembling talent. And I'm really pleased with where we're at today. In order to get to 250 and really beyond, we don't want to just think about 250, we do need to continue to focus on recruiting in R&D. I would say this. That is a very competitive environment. But I would argue that we're winning. Looking at the talent that we've brought on in the last 12 to 18 months, I cannot be any happier with it. When I look at the talent that we're looking to recruit right now, I think that it's real deal first year talent, and I'm confident that that's -- those are the people along with our existing group that are going to help us get to that 250 number. And this really comes back to your two questions ago, right, that maybe we didn't fully answer. But you said, hey, corporate costs, can you talk about that, and this is really sort of coming full circle there is to talk about tech. That's where we're really investing now for the future so we know that we can get to that 250 mark and beyond. That's why you see a little of that cost in there now. And that will sort of have a slinky effect at times. We'll expand and that number will look a little bit better, and that will be happening, and we'll expand again. We always talk about that. So I think that's how to look at that a little bit higher cost right now. Why that cost is there. And hey, I think, we're winning on that R&D recruiting front.

[Operator:]

Our next question comes from Cameron McKnight of Crédit Suisse.

[Cameron McKnight:]

So question to David or Kimo. Just to follow on from the prior question. Did I hear it correctly, in terms of full year guidance of $160 million to $164 million, of that 19% growth, about 15% of that is organic, and the rest is the Integrity acquisition?

[David Lopez:]

It's about right. Roughly. I mean we can break that down for you a little bit finer.

[Kimo Akiona:]

Yes, so in the number -- in the guidance number, a couple of data points. So David pointed out that $9 million is coming from Integrity. I think on an organic basis, I think, we're looking at a range between maybe 12% and 15%.

[Cameron McKnight:]

Okay, great. Perfect. And David in your prepared remarks you mentioned on the recurring side of the business you see multiple opportunities to expand the footprint in 2019. Could you expand on a couple of those?

[David Lopez:]

Yes. So I think that when you look at recurring -- our recurring footprint, and I'll speak to that number sort of globally. When we're expanding in 2019, obviously, it's going to be sort of like equal opportunity sort of like placements for leases. But again, we're going to be right back in our very strong jurisdictions like Oklahoma. We're going to see real growth in Mexico again. We're obviously going to see going to see some international or what I'd say is true international growth because I sort of look at Mexico as almost domestic, but we'll see some true international growth with leased units in the Philippines. So when you put those all together, we've got real opportunities for recurring revenue growth in 2019 that, I think, that will shape up very nicely versus what we did even in 2018. But I think it's the usual suspect that can -- when you look at the domestic opportunities being led again -- once again by the state of Oklahoma.

[Cameron McKnight:]

Okay. Perfect. And then finally, in terms of the leverage target of sub-3x by the end of the year, would that imply around about $40 million to $50 million of levered free cash flow and a modest amount of debt paydown?

[David Lopez:]

So I think we said like right around, yes, it's probably a little bit less than that, right. But you can sort of work it out. You take our range. I think you just probably backed into the math there. You can take our range for next year, you can take the leverage ratio and then you can see where the gap is and you can sort of fill it in. And of course, our range is $160 million, $164 million, so that leads a little bit of variability. And I think that also gives you the variability for cash flow next year, right, free cash flow. So -- but I think that we're targeting that 3-ish range, and that is obviously in the absence of any M&A.

[Operator:]

Our next question comes from Carlo Santarelli of Deutsche Bank.

[Carlo Santarelli:]

David, just when you think about some of the puts and takes for the growth this year. And obviously, there's some organic and the $9 million you referenced from Integrity. But when you think about that Table Products and the Interactive divisions contribution to the overall growth or I should say to the organic growth. In 2018, I think the net of those two was about $1 million loss. How much do you think in 2019 those two segments on a combined basis could contribute to the year-over-year EBITDA growth within the range of your guidance?

[David Lopez:]

So we'll probably not break that down that finite at this point in time. But I think if you look at it -- you summed it up nicely. I think that between the two is a negative $1 million or so. If you break down Table games, I think it was a much better results, right. If you look at our Interactive, the second half of the year alone was about minus $2 million. So our growth year-over-year is really lapping some negative. On the Interactive segment, I think that you'll see a little bit of loss once again in Q1. And then by the time we're exiting Q2, we should be EBITDA neutral. And then in the second half of the year, that's where you'll really start to see the Interactive segment and mainly driven by real-money gaming, really start to churn from. On the Table Products segment, I think, I'll refer to as being a real contributor. In this -- both in mid-single-digit-ish range or better. And I think that if you look at our progressive performance and the opportunity, and not to just focus on progressive because we have a lot of great products in our Table segment, but the progressive performance along with the shuffler opportunity, it's a little bit of a wildcard. And that's why when I was asked earlier about the range that could drive us to the upper end of our range, Tables could be even bigger contributor. I've always said, I felt like 2018 we were just coiling up, right. And I think that we proved that 2018, we coiled up at the end of the year, we're starting to launch. And then in 2019 here, it's really going positive for us.

[Carlo Santarelli:]

Great. That's super helpful. And then just one follow-up on the upside. Obviously, you guys have a -- what's going to look like at year-end, significant year-over-year installed base growth between both the domestic footprint with the Integrity acquisition plus anything organic you do as well as the Philippines opportunity. My question is, I believe -- and correct me if this is wrong, but I believe the Integrity acquisition may be the -- those units are like $14 a day or something like that? And I believe that the Philippines units, you guys have talked about before as maybe being like $12 a day. So when you think about the mix of those units on a combined basis, are you -- do you believe you'll be able to show gaming ops yield growth year-over-year in '19?

[David Lopez:]

So if you're talking about actual RPD growth, right. I guess it's -- there's a few ways to look at it, right. If you put it on the hopper, we look at the domestic RPD and then we look at our blended RPD and then we start looking at Mexico RPD. But at the end of the day, if you look at domestic and you just keep the Philippines out of it and maybe Mexico out of it, for now, Integrity, obviously, creates a drag, right. Because it's much lower from an RPD perspective. But then you've got VLTs being removed. VLT removals drive us the other way. You've got new installs in some jurisdictions that might pull us actually down a little bit considering Oklahoma tight market and then new products and other jurisdictions forcing us back up and, once again, one that is a positive indicator. Speaking Rock being out, that was a lower RPD. And that would be something that drives us up again. And so overall, for the year, we think we can pull around some modest RPD growth of maybe 1% or 2% on what we exited 2018 with.

[Operator:]

Our next question comes from David Katz of Jefferies.

[David Katz:]

I think from a full year perspective based on what you've guided, we have our numbers in approximately the right place. The question is, when I look at the quarterly breakdown from '18, you know what I see is around 25% of the earnings in the first quarter, 27% in Q2. Can you talk more about the cadence of the year for 2019 as you're thinking it through? And whether -- I think you've indicated the fourth quarter is usually the strongest because of G2E. A little cadence help would be welcomed.

[David Lopez:]

Yes. So I just think that, in general, we talked a little bit earlier about EBITDA margins, right. And how EBITDA margins will be a little bit smoother. I think, generally speaking, you might be looking at a little bit smooth of a year. If you look at 2018, I'm pretty sure, what, 2018, our best quarter was Q2, if I'm correct, on an adjusted EBITDA basis. And then it might -- Q1 was the second best and then Q3. So honestly that seasonality was really, really dramatic. I think that you'll see things look a little bit more smooth throughout the year, and some of that is driven by the fact that our acquisition of the real-money gaming business, the impact in Q1 sort of draws it down, and Q2 were sort of like a little bit more neutral and then we have some other things coming into play and then it starts to go positive in the second half of the year. So it's very interesting, in 2019, it's going to change our sort of normal cadence and texture of our EBITDA production. And so I'd refer to it right now, without breaking it down by quarter, as to just be a little bit smoother than we've seen in the past. And somewhat or mostly affected by that online business and the release of shufflers and somethings as well like the Upright cabinet in second half of the year.

[David Katz:]

So can I be just a bit more direct about it? Is there a bit more of a tipping towards the earnings to the back half of the year within that improved smoothness?

[David Lopez:]

I think a smidge towards the back end of the year is fair to say, yes.

[Operator:]

Our last question comes from Chad Beynon of Macquarie.

[Chad Beynon:]

Just following up on the seasonality questions that have been asked. Anything that you could point out just in terms of newer expansion opportunities for EGMs in 2019? I believe there's a few expansions in Oklahoma, obviously the Win opening. I'm not sure if placements will come in the first or second quarter. But just any more color there. And could you just remind us, you are licensed in Massachusetts, is that right?

[Kimo Akiona:]

Yes. Yes, we are.

[Julia Boguslawski:]

Yes. So Chad, for 2019, you asked kind of our expansions and some new openings and there are several I think we talked about some good recurring revenue opportunities with some units this year, and some of those are driven by some of these expansions. So you have Golden Mesa, which I think will probably happen around Q3, Harrah's NorCal, probably Seminole's NorCal, Border Casino, which is part of WinStar expansion. We've got Meg-Star, which I believe is in Northern Oklahoma. And so there is some other things possible, Choctaw expansion, Valley View in California. There seems to be a lot of good expansion opportunity that will help drive our recurring revenue units in '19.

[Chad Beynon:]

Okay. That's great. And then on the CapEx guidance, is there anything in there with the change in placement fees? And what's the update on the placement fee partnership economics, and if there's anything to talk about today?

[David Lopez:]

So placement fee is sort of going to a different category, and Kimo can explain that a little bit more, but that sort of falls into the financing category there. He can walk you through that as need be. As far as like our -- I guess, our biggest partner and all, Chickasaw, we've been working diligently to deal with that. It's -- as we said, it expires sort of at the end of the year 2019. We've had plenty of time. But we've gotten focused on it because we know that it's a focus for our investors. And at this point, we've got a contract. Terms and conditions are locked and loaded. Everything has agreed to. We have paper. Everyone's got paper in front of them, and we're just waiting for a very high-ranking official to come back into the country from, I think, the U.K. And as soon as that's ready, we lock and load and we sign. And so that will be happening in the near future here. Anything, Kimo, you want to add to that? I'm not going to go deeper on that...

[Kimo Akiona:]

Chad, I was going to say, so for us related to the agreement David just mentioned, the Chickasaw arrangement, because of the way we pay for that arrangement, you'll see our placement fees, remember, in the financing section. So we don't consider that -- we don't call that out as CapEx. And our expectation is that it will remain the same with the renewal.

[Operator:]

This concludes our question-and-answer session. The conference has now also concluded. Thank you for attending today's presentation. You may now disconnect.