Q4 2023 PlayAGS Inc Earnings Call
Participants
Brad Boyer; Investor Relations; PlayAGS Inc
David Lopez; President, Chief Executive Officer; PlayAGS Inc
Kimo Akiona; Chief Financial Officer; PlayAGS Inc
Barry Jonas; Analyst; Truist Securities
David Katz; Analyst; Jefferies
Jeffrey Stantial; Analyst; Stifel
Jordan Bender; Anlayst; Citizens JMP Securities
Presentation
Operator
Hello, everyone. Thank you for attending today's PlayAGS fourth-quarter and full-year 2023 earnings call. My name is Sierra, and I'll be your moderator for today. (Operator Instructions)
I would like to pass the conference over to our host, Brad Boyer, Senior Vice President of Investor Relations.
Brad Boyer
Thank you, operator, and good afternoon, everyone. Welcome to the PlayAGS Incorporated fourth-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 fourth quarter and 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 our Q4 and full-year 2023 financial performance and offer perspective on our current financial 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 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 our actual results to differ materially from our forward-looking statements, please refer to the earnings press release we issued today as well as the risks described in our annual report on Form 10-K, 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. 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 would like to turn the call over to our CEO, David Lopez.
David Lopez
Thanks, Brad, and good afternoon, everyone. The fourth 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 fifth consecutive quarter of double-digit adjusted EBITDA growth. Strength in the quarter was broad-based with all three operating segments, setting new quarterly records for revenue and adjusted EBITDA. The quality and consistency of 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, I would like to highlight a few notable achievements for the fourth quarter. First, global EGM sales increased 36% year over year to a record 1,519 units, surpassing the 30% growth level for the third 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.
Second, our interactive revenue grew by over 30% versus the prior year to $3.4 million, with strong flow-through of increasing interactive adjusted EBITDA by nearly 160% year over year to a record 1.3 million.
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.
Third, table product sales and recurring revenue reached new records in the quarter, producing an approximately 20% increase in adjusted EBITDA to a record 2.8 million and pushing full year adjusted EBITDA to approximately 10 million. I think it is important to remind everyone, our cable segment was doing less than 1 million of annual EBITDA in 2018 with a 60% growth CAGR over the past five years, reflecting the incredible work from our entire table's team.
Fourth, free cash flow increased more than 45% year over year to 11 million, topping the 10 million for the third 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 in 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 3.8 times 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 sights.
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 has never been better.
Lastly, the consistency and quality of our execution continues to steadily improve, as evidenced by our recent string of record operating performance. Collectively, I believe the three Ps of people, product and process positioned us to not only improve upon our record 2023 results in the current year, but also set us up for compelling multiyear growth trajectory within our EGM segment, the expanded scale and scope of our game content and cabinets, the portfolio focused go-to-market strategy and driven sales team have us well positioned on both sides of the business. For the first time in the Company's history, we've had two high performing candidates, Spectra 43 and Spectra 49 with deep game libraries targeting the most in-demand product segment. Additionally, as we progress into the back half of 2024, we remain on schedule to make our initial push into the mechanical real and jumbo segments with our met real cabinet 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 foster sales is simple. First, further leveraging our focused and targeted sales strategy and the recent strength of our product performance to broaden our customer base, and second, utilize the added diversity and quality of our product offerings to increase the average order size within our activated customers. I'm confident the successful execution of our strategy will not only lead to ship share gains in 2024, but it will also set us on a path to becoming a top five supplier of choice for many years to come.
On the recurring revenue side of our domestic spot business, the outlook is equally as compelling. We have demonstrated over the past several quarters. Our unique mix driven growth catalysts, 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 and 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 five 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 Xtreme progressive continued to be well received as evidenced by the 5% sequential growth in our BSX. installed base achieved in the fourth quarter. Additionally, customer adoption of our efficient and effective access software 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 first quarter. All told, I believe the unwavering strength of our three growth pillars, BSX. packs 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 multi-year growth trajectory.
Finally, I'm greatly encouraged by the increasingly consistent and efficient execution with our interactive segments where our run rate of annualized revenue and adjusted EBITDA is now topping 13,000,005 million, respectively. Although Interactive is in the early innings of an outsize multiyear growth cycle, I think it is important to highlight the February 2020 for Eilers industry survey ranked us as the sixth largest provider of slot content to North America Online market with a reported market share of approximately 5%. Additionally, we produced the fourth best overall slot performance in the report with a reported index of 1.6 times site average with our capital gains team performing at the second best slot overall, looking ahead, I believe the quality of our interactive team and the great number of strategic growth objectives and 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, I 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 as a true reflection of the quality products you have developed, the successful strategies you have orchestrated and the efficient execution of your plan 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.
Kimo Akiona
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, fourth quarter global unit shipments increased 36% year over year to a record 1,519 units, representing our third 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 and 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. Fourth 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, we 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 cabinet and further execution of our price integrity strategy.
Shifting to game ops. The positive underlying trends within our domestic EGM gaming operations business continued in the fourth quarter with RPD topping $30 for the 11th consecutive quarter. While our domestic EGM installed base increased sequentially for the seventh consecutive quarter, continued growth in our higher-yielding premium games footprint. Further optimization of our core unit installed base supported by deployment of our spectrum cabinet and increasingly diverse game content library and relatively stable market level.
Ggr trends. Ggr trends pushed domestic RPD to a fourth 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 Q. one GG. are expected to be down 1% to 2% versus the prior year as a result of the heavily discussed weather disturbances in January as we reflect on the outlook for our gaming our 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 mixed driven initiatives should allow us to once again deliver domestic RPD that outperforms relative to the market level of GGR forecast.
I provided while also keeping our domestic EGM installed base on a moderate long-term growth trajectory.
Turning to our international EGM business, the continued strong performance of our established AGS franchise game teams throughout the Mexico casino market. Further execution of our global installed base optimization initiatives, a stable macroeconomic backdrop and favorable foreign exchange fluctuations contributed to a 16% year-over-year increase in Q4 gaming operations revenue international RPD increased over 15% versus the prior year or approximately 4% on a constant currency basis to a fourth quarter record of 86.
Looking ahead, to 2024. We expect our international installed base to remain relatively consistent with year end 2023 levels. While our ongoing optimization efforts and stable market level trends should contribute to 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 $4.8 million 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 million. Equipment sales revenue also established a new high watermark in 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 packs, interest and demand, a favorable customer response to the enhanced features and functionality recently added to our bonus been extreme progressive targeted jurisdictional expansion opportunities and a compelling pipeline of Arsenal activations should keep our Table Products lease revenue stream on a trajectory of consistent and predictable growth similar to the one demonstrated in 2023. That said, I 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 3.4 million, an accelerating cadence of new game launches, including the introduction of the Company's first online first game theme, double Shamrock, improving efficacy of our more tactical and targeted business development activities within our B-to-C operating partners, the continued strong performance of franchise brands, including capital gains in the online channel and the activation of more than 10 new B-to-C operator partners globally paced our record-setting performance in the quarter. The outsized revenue growth once again flowed through to segment level EBITDA, which more than doubled year over year to a record 1.3 million.
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 three operating segments with consistent sequential growth anticipated as we progress throughout the year. Additionally, as demonstrated over the past several quarters, we expect to flow through a significant portion of the incremental revenues generated throughout the year, contributing to considerable adjusted EBITDA margin expansion and adjusted EBITDA growth within the segment.
Turning to margins. Quarter adjusted EBITDA margin surpassed 45%, 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 44.5% to 45.5%, representing a modest lift over 2023 at the midpoint.
Our margin outlook incorporates the revenue growth expectations articulated in my segment-level remarks, which should allow us to realize operating leverage on our corporate SG&A expenditures. With respect to R&D, we expect to reinvest behind growth to ensure we are arming the business with the products and resources necessary to remain on an upward sloping multiyear growth trajectory. As a result, we anticipate 2020 for expense R&D remaining relatively consistent on a percentage of revenue basis at approximately 12%. Finally, we expect to execute upon the sale of approximately 1 million of used Orion family cabinets to a distributor in Q1. These sales, which will not be reflected in our reported KPI.s for the quarter are likely to push first 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 fourth quarter, capital expenditures totaled $15 million, bringing the full year capital spend to just under $62 million.
Turning to 2024, we expect full year capital expenditures inclusive of anticipated capitalized R & D to land in the range of 65 to 70 million. Cash interest in the quarter was approximately $14 million, increasing the full year cash interest expense to just under 54 million.
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 million of our total debt outstanding. Combine the repricing and repayment are expected to reduce our annualized cash interest expense by approximately $3 million at current market level rates, fourth quarter free cash flow, defined as net operating cash flow plus proceeds from payments on customer notes receivable less CapEx reached $11 million, surpassing the $10 million level for the third consecutive quarter and pushing the full year 2023 free cash flow to approximately $27 million.
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 full year free cash flow by 25% or more with material levels of positive free cash flow generation projected in all four quarters.
Finally, net leverage fell to 3.2 times at year end compared to 3.8 times at the start of the year and below the low end of our targeted 3.25 times to 3.5 times range, supported by the relative resiliency observed across the broader North American Gaming complex 2024 to date, both with respect to gross gaming revenue trends and customer purchasing demand, the growing appeal and strong performance of AGS is deeper and more diverse suite of VGM. cabinets in game content, the anticipated continued outsized growth in interactive revenues, an 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 2.7 times to three times.
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.
Question and Answer Session
Operator
(Operator Instructions) Barry Jonas, Truist.
Barry Jonas
Great. Thank you guys, what do you see as the implications for AGS from the IGT every deal, I guess both in the short term and the long term? Thanks.
David Lopez
Hey, Barry, thanks. I think I think history has instructed us here a little bit on this. And if we look back and 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 three following that, that consolidation period, some of the non-big four suppliers, it nearly tripled or actually about tripled their ship share from that period going up to about on 2017, 2018. So we think that this will create a little bit of air pocket here for some smooth sailing and have given us an opportunity to sort of step up. And in this case, from a 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, you know, R&D invest in our sales and product management teams and obviously great people across the organization, not just in those those three areas and sort of stick to the plan, which is putting out great content, leveraging it not just in the casinos in the online space, but also eventually we have a very big opportunity to go abroad with it. And we haven't really gone past on Mexico and a bit of Latin America to do so. So we like we like it for us. And, you know, I think it's probably good for 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 gains and some innovations. So that's and I feel about it.
Barry Jonas
That's great. Really appreciate your thoughts there. And then just a follow up. I think there's probably some Asia 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.
David Lopez
So I think the health of the market Q1 is stable on I think, you know, Baring, everything we see looks was 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 we're focused on is our growth drivers and a little bit of what we said in the prepared remarks, which is, you know, this sort of the first time where we've had two cabinets there, right in the hotspot of what's going on with Spectra 43 inspector 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's been fantastic. I don't think for I'm sure that we have never had a situation where we had this many core games. And on top of that now we have another premium gain that's come out of the gates and the performance is, from a premium perspective, the best performance we've ever had in our organization. So on, yes, market stable and AGS, I think better than stable. We're looking pretty good with our product line and the pipeline.
Barry Jonas
Perfect. Thanks so much.
David Lopez
Thanks, Barry.
Operator
David Katz, Jefferies.
David Katz
Hi, afternoon, everyone. Thanks for including me. And 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, et cetera, isn't as important as we think it is? Or are you just making Game Show and games driving profits driving cash flow and the share does what it does.
David Lopez
Yes, Dave, that's a great. That's a great question. And I on price, we have really gotten this one before, but that's a question I like it behind us, 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 you know, creating value on generating free cash flow, improving margins and all the things that you mentioned, right? We've been demonstrating, you know, EBITDA growth, revenue growth, free cash flow improvement, which has been a huge focus of ours. I think that we don't obsess with ship share, right, because of ship share wobbles one quarter versus another quarter. And it's not like you know, maybe something that you guys would deem?
David Katz
Fantastic. We're still looking on our financials, right? And on 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 on long term, yes, ship share.
Could come. I should just follow that nicely. Should sort of tuck in and draft that very closely over time.
Brad Boyer
Yes, David, I would just add this is Brad, because another thing about the ship share metric that 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, and we're not fully penetrated at this point.
We're making some strides here in the back half of this year getting into macro and jumbo, but there still are some other categories that we're not in so I think when you 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 and naturally the fall, I mean, at the ship share gives us a reason to call you guys that naturally the follow up is And with respect to valuation, and I know management teams shouldn't necessarily be overly focused on it. And but yes, on yours, you could be better on and has some headroom. How do you think about the possibilities of trying to get a bit more recognition to that end, and you know, are you and the Board sort of focus on it and think about taking some action.
And I'll tell you speaking of recognition, I think one of the things that we took very seriously was this latest $15 million payment in our document. I know it might you may be on the surface. And it doesn't seem like a move where we're trying to say, hey, we want to see some multiple expansion, but the feedback that we got from investors was fantastic on, you know, there's always this question of share buybacks. Just keep your powder dry or, you know, pay down some debt. And you know, 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, our we did do a bit of a pre-release on Q4. And then that debt paydown, we saw some considerable movement in stock. So as far as like doing it the old-fashioned way, um, you know, I think sticking taken the plan here and continue to delever is a huge move, right? And I think that as we cross that next leverage barrier of 3.0 times and we'll get some of that recognition there.
David but there's also I think that, you know, from an 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, and we get that 2.9, we know there's a whole shareholder base, maybe we can speak to again on so that's what I'm excited about talking to more investors. And I'm excited to get out there, you know, 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.
David Katz
I'll agree with that. Thanks. Appreciate it.
David Lopez
Thanks, David.
Operator
Jeffrey Stantial, Stifel.
Jeffrey Stantial
Have a great afternoon, everyone. Thanks for taking our questions. Maybe starting off here on the EGM business. David, back at GT., we seem to recall you noted that the testing data, the initial testing data for the 49 C was actually tracking better than the initial data for the UR. 43. Now that you have some admittedly preliminary unit 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 mass patients had think broadly? Thanks.
David Lopez
Yes, sorry, I apologize. We have a little bit delay here and I jumped the gun on your on.
Yes, I think broadly 49 c. is doing a fantastic job upright. Spectra 43 has been out a while now. And you know, maybe a comparison there might be a tad unfair, but both the cruises, both cabinets are really kicking by. And we've got a again, I refer to core content. We've got some great core content out there and on and we keep expanding upon our strongest brands like Reik 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 and what we work on. And we're in a very nice position right now that we've established a couple of brands. We continue to play off those brands and on every brand extension of Reagan, Vacon has been pretty much more successful than previous version of we've been able to knock the cover off the ball with that. So we're seeing a lot of success with 49 C and I think that we'll continue to see that. But off by now, don't don't count out Spectra 43 is still trucking along.
Jeffrey Stantial
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 and on this as well, in your answer to Barry's First question, can you just expand on this a bit more you entering new markets selling more into existing markets? And if it's the former, can you just shed some light on which markets you're planning to expand and do things?
Kimo Akiona
Yes. I mean, you know, if you think about the way our business has been 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 and 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 we're excited.
I mean, it's a big whitespace for us just in that area without even talking longer term about Australia or let's call it Australasia or some of those markets and have David wants to add.
David Lopez
Yes, I think you nailed it. And I was actually going to tack on that very bit at the end, which is is this 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 on, you know, for the past probably year plus, is that 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 one 83 on a three, if I'm off, I'm off by a few, but but that's the number that's way up from what we used to sell. We used to be sub 100 and our 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 out working aiming a little bit more in Latin America and then we know that our next step and you know, hasn't been talked about yet, but our next step into the international market just opens up that much more whitespace. I think there's a lot of room to grow here in the future.
Jeffrey Stantial
Great. Very helpful. Thanks, Dave, and thanks, Steve. I'll pass it on. Thanks.
Operator
Chad Beynon, Macquarie.
Hey, guys, this is Aaron on for Chad. Thanks for taking our questions. So wanted to touch on interactive for a bit obviously great interactive result this quarter. The business seems to be on a nice trajectory with regard 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?
Yes, things. So obviously, we'll get over time, we'll get into more on customers I think that there's probably some I'm pretty straightforward. The drivers of growth. One is more games and it's at that time for all of you know, if we look back a couple of years ago, we definitely had customers that said, your stuff is awesome.
David Lopez
Can we just get more games?
And we've talked about in the past that 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, our 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, you know, we are exploring partnerships and omnichannel and sort of just and you know, you got to look at online much like you look at the brick and mortar business to figure out where else you can go, whether it's geographies of type or types of online gaming or obviously in social and weren't real money gaming right now. But there's a lot of opportunity out there to drive this. And we don't just have to depend on new states opening up on. I think that we have a lot of meat on the bone. And in particular, if you look at our performance, again, I we mentioned so many times the tides of rain ringing the bell here. But on Eilers, once again, our performance from a multiple perspective, it in the prepared remarks is phenomenal. So I think that we've got we've got ourselves in good position. Again, they run our playbook and on interactive and to grow the business.
Great. Thanks for the color on that. And then just turning to margins. You talked about 2020 for R&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? Thank you.
David Lopez
Yes. I mean, if you look at our message it's been pretty consistent, right? Like we've always felt that it's at the heart of our success is our creative team and our R&D team. So 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 front of us next year, and we feel that the 12% level is right now based on based on our experience, I think that's still allow us obviously, right. And it allows for continued investment and that being that revenue is obviously going to be growing as well. So 4% levels, right? And we feel comfortable about that that there won't be, but call it like a stair step require call it in the short term.
Right, great.
Thank you very much.
Yes, thanks, Darren.
Operator
Jordan Bender, JMP Securities.
Jordan Bender
Great. Good afternoon, everyone. On EBITDA margins for 24 kind of imply about a 40 basis points and I assume there's a positive impact still still coming from Spectra. But can you maybe talk about how mechanical real and jumbo will impact that sequential margin growth, I guess compared to more of the organic margin expansion?
Yes, so on, we haven't really talked much about you know what what we're projecting here in particular for 2024 because this is a bit of back half activity. You know, we know that Mac real 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 on when when the situation is right for us. And so we know that we can optimize with this product down the road. We know that we'll see growth with the product on it, like I said, in jurisdictions where we're very strong. Obviously, we have expectations of getting in the market on in Class three and sort of the strong macro market. And but jumbo and Mac real, you know, as far as 2024 goes, I'll sort of turn it over to Brad if you have any additional commentary. But we're not really we're not really leading ourselves very far on this one just for this year. But we have obviously, long term, we got a nice 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 Mac real and of course, jumbo and Brad has nothing to add to that because I think we're going to go and already when they came out, you've given several of the inputs just on free cash flow for the year.
But on this post, if you want to call an investment period for the Company, we have 17% free cash free cash flow conversion last year. How should we think about that rate kind of moving forward into 24 and beyond? Thank you.
Yes.
Kimo Akiona
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 we're dead set on improving free cash flow conversion rate. I think in the prepared remarks, we talked I said, we're going to we expect to get a free cash flow growth of about 25%.
Right. And I think that would obviously imply that there is sequential improvement year over year at free cash flow conversion.
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 our product in the field, whether it's on lease or sale, we've been able to increase the returns on that investment.
Right.
So going forward, we're very confident that our free cash flow conversion rate will continue to improve year on year.
Great.
Jordan Bender
Thank you very much.
David Lopez
Thanks, Jordan.
Operator
Thank you. There are no additional questions in queue. (Operator Instructions)There are no further questions. With that, we will conclude today's conference call. Thank you all for your participation. You may now disconnect your lines.
