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Everi Holdings Inc  (NYSE:EVRI)
Q4 2018 Earnings Conference Call
March 12, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Everi Holdings Inc. Fourth Quarter 2018 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mark Labay, Senior Vice President, Strategic Development and Investor Relations. Please go ahead, sir.

Mark F. Labay -- Senior Vice President of Strategic Development

Thank you, Dori and welcome to the call. Joining me today are Mike Rumbolz, our President and Chief Executive Officer; Randy Taylor, our Chief Financial Officer; Dean Ehrlich, our Games business leader; Darren Simmons, our FinTech business leader; and Harper Ko, our General Counsel and Chief Legal Officer.

Before we begin, I'd like to remind everyone that the safe harbor disclaimer in our public filings covers this call and our webcast. Some of the comments to be made during this call contain forward-looking statements and assumptions that are subject to risks and uncertainties, including, but not limited to, those contained in our SEC filings, all of which are posted within the Investor Relations section of our corporate website. These events could cause actual results to differ materially from those described in our forward-looking statements, and they should not be considered an indication of future performance. We do not intend and assume no obligation to update any forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements which speak only as of today.

In addition, this call may refer to certain non-GAAP measures such as adjusted EBITDA, adjusted EBITDA margin and free cash flow. We reference these non-GAAP measures, because management uses them in part to manage the business and to enhance investor understanding of the underlying trends in our business, and to provide better comparability between periods in different years. We also make certain compensation decisions based in part on our operating performance as measured by adjusted EBITDA. And our credit facility requires us to comply with the consolidated secured leverage ratio that includes performance metrics substantially similar to adjusted EBITDA.

Free cash flow is a measure of performance that we use as an indication of the strength of the company and our ability to generate cash. We present this measure as we believe it provides investors with a better understanding of our opportunities to pay down debt. To assist in understanding the comparability of our reported 2018 revenue and cost revenue amounts, we are reporting non-GAAP adjusted revenue and related measures for the prior years on a period comparable basis, assuming adoption of new revenue recognition rules under 606. Beginning for all periods after January 1, 2018, we are required to net certain amounts as reductions of revenues that had previously been recorded as cost of revenues under ASC 605.

For a reconciliation of these amounts to the as-reported equivalent in our Form 10-K, please refer to our earnings release. For more information regarding these adjustments, please see our form 10-K for the year. For a full reconciliation of our non-GAAP measures to GAAP results, please see our earnings release and related 8-K, both of which have been filed with the SEC and are available on our corporate website within the section captioned investors.

Finally, this call is also being webcast. A link to the webcast has been included within the Investor Relations section of our corporate website and a replay of the call will be archived. With that, I'm pleased to introduce our President and Chief Executive Officer, Mike Rumbolz.

Michael D. Rumbolz -- President and Chief Executive Officer

Well, thank you, Mark, and good afternoon, everyone, and thank you for joining us. Before I begin discussing the fourth quarter and our full year operating results, I want to spend a few moments discussing the acquisition that we announced in our earnings release. At our Analyst Day and on prior calls, we've suggested that we're constantly on the lookout for opportunities for tuck-in acquisitions. When we consider solutions and technology for acquisition, our first question is whether this technology can be integrated into our powerful proprietary FinTech network. In the past, we have proven that we're the best platform for integrating acquired financial technology assets into existing suites of solutions and then selling them on using our existing distribution channels. The assets that we acquired from Atrient will add complementary products and services to our FinTech business. We believe these assets will expand our market position and help us to accelerate growth in revenue and adjusted EBITDA.

In addition, these assets will improve our ability to generate free cash flow, which should result in an additional value for our shareholders. These assets will grow our core FinTech transactional base, improve our guest experience and create operating efficiencies at our customer's properties. We believe the acquisition of the Atrient assets perfectly fit our criteria and creates a new product line under our information services line of business. In our G2E, we demonstrated a shared vision with Atrient of how our existing cash access solutions can be an important tool in driving player loyalty to improve the guest experience. Higher loyalty and marketing is an area in which we've only had limited involvement in the past. But one which we believe has a great opportunity for growth.

Often, loyalty products are a casino patron's first point of interaction when arriving at a casino property and our cash access solutions follow on as the next usual point of contact. By incorporating these products with our existing FinTech product portfolio, we create powerful interactions with the patron. And an opportunity to drive increased transaction volumes for our core services. All of this enhances the value of our products and services to casino patrons, while creating valuable efficiencies for gaming operators. The assets that we acquired include technology that's related to self-service enrolment and loyalty card printing, along with a marketing platform that manages and delivers a casino's marketing programs to its patrons. We also acquired a recurring revenue generating portfolio of customer contracts for over 50 customer accounts, representing over 100 locations that have already been implemented with these solutions.

This customer roster include some of the largest gaming operators in North America and also includes several casino operators that we do not currently service. We will begin to immediately integrate these patron loyalty products into our powerful and award winning suite of FinTech products. We believe this will further enhance our already market-leading position in the gaming industry. Once completed, our existing valuable transactional information can be used by gaming operators together with the patron's loyalty information to better customize their casino promotions As we introduce new products like the Cash Club Digital Wallet, we can also provide a more comprehensive view of a patron's spend, including from the non-gaming locations throughout the casino. This allows for a further refinement and customization of gaming operator's promotion and marketing efforts. This will create significant operating efficiencies for management when considering their marketing budgets. Now the acquired loyalty, enrollment and marketing platform is in the market today. And when it's joined with our scalable platform, including our field service and sales team, we should be able to immediately accelerate the market penetration of these products.

I'm extremely excited about prospects for additional revenue growth from this acquisition. I'm even more excited about the future value of these products as we integrate them with our other offerings. We utilized existing cash flow from our balance sheet -- excuse me, cash on our balance sheet to pay for the initial consideration for the assets that were acquired. And we expect to use cash balances on hand for future payments. We believe this acquisition is immediately additive to our adjusted EBITDA and we've included the initial expected benefits from these operations into our 2019 guidance. Now, I'd like to turn to the discussion of our quarterly and full year results.

This afternoon, we reported our 10th consecutive quarter of year over year revenue and adjusted EBITDA growth and our fourth consecutive quarter of profitability. Our fourth quarter revenue increased 14% to $119.5 million. Adjusted EBITDA rose 6% to a fourth quarter record of $54.6 million and our net income for the quarter was $4.2 million or $0.06 per diluted share. FinTech revenue and adjusted EBITDA both set new records for the fourth quarter and games revenue was our highest quarterly total, since we acquired that business. For the full year, revenue rose an impressive 14% to $469.5 million and adjusted EBITDA rose 8% to $230.4 million. The strong growth that was experienced in revenue for both the fourth quarter and the full year is entirely organic in nature and it reflects the tremendous success that we're achieving as a result of the investments that we've made in improving and expanding our product portfolio over the last several years.

These results further strengthen my belief that we will continue to achieve growth in 2019 and beyond. Additionally, in 2018, our free cash flow almost doubled to $24.8 million. The guidance for 2019 presented in the release today, combined with our forecast for 2020 provided at our Analyst Day, has us on track to continue this trend and we expect to almost double free cash flow each year for at least the next couple of years. Even considering the cash that we've used for the acquisition that we announced earlier, we remain on track to achieve the leverage reduction targets that we outlined at our Analyst Day. Now for some of the fourth quarter highlights from our individual business segments. In our games business, adjusted EBITDA of $29.6 million reflects our continued progress in generating growth across the majority of our key performance indicators. The 1,177 games sold were the third consecutive quarterly record per unit sales.

Now, that's notable for us as the fourth quarter is not typically one of our strongest quarters per unit sales. I believe this is the testament to how strongly the new game content and cabinets that we have introduced are resonating with our (ph) customers. Sales of games on our E43 remains strong as this cabinet again accounted for approximately 37% of our total unit sales. Our industry leading mechanical reel games, also continued to exhibit strong performance with unit sales of these games accounting for approximately 30% of the total quarterly sales. For the full year, we sold 4,513 units, a year-over-year increase of nearly 24%, as we achieved a second consecutive year of unit sales growth in excess of 20%.

In the fourth quarter, gaming operations revenue was up almost 12% compared to the prior year quarter. Our installed base of approximately 14,000 units at quarter end was up over 700 units year-over-year, but down slightly from our third quarter. Now, as we've discussed previously, this sequential decline was due in part to a reduction in the Class II footprint related to a customer in California, who converted large portion of our units into Class II unit sales.

Our year end premium unit count was at a record level of 2,859 games, which is up 327 units year-over-year. Wide Area Progressive games, which are a component of our premium unit installed base, also hit a record at quarter end of 604 units. Our focus on premium units and the expansion of our WAP units in particular drove a very healthy increase in our daily win per unit in the quarter and throughout the year. In the quarter, this metric improved almost 7% or by $1.82 year-over-year. For the full year, our average daily win per unit increased by $1.95 with our average 2018 unit count of approximately 14,000 units that equates to approximately $10 million of incremental revenue for 2018 that came just from improved game performance. Considering our strong margins in the gaming operations area, it should be evident why we are extremely focused on this portion of our business and the value that it generates.

Now, while it's a newer part of our game segment, our interactive business continues to impress with its operating accomplishments, while at the same time managing to perform in line with our financial expectations. Our new remote game server or RGS was recently approved in New Jersey for online real money gaming. The RGS along with our first six game titles will soon be live on two separate i-gaming platforms. This RGS has already been successfully utilized in our B2C social casino offerings of both super jackpot slots and high rolling Vegas.

The implementation of the RGS in a real money environment accelerates our B2B revenue opportunity. We gain tremendous operating efficiencies and increase the speed to market by enabling our interactive team to more quickly take our high performing game content from our land-based portfolio and deliver the same great game features and play mechanics in a digital or interactive offering. We remain on track to achieve the goals that we presented at Analyst Day for our interactive business with an expectation of positive adjusted EBITDA this year and positive free cash flow in 2020.

Okay, turning now to our FinTech business. The 2018 fourth quarter was a record eighth consecutive quarter, in which we generated year-over-year revenue and adjusted EBITDA growth. Transaction volumes and dollars processed continue to increase and the combination of the functionality of our integrated product set and our competitive positioning continues to lead the industry.

For the full year, FinTech adjusted EBITDA was up nearly 7% to $103.6 million. The healthy level of growth throughout 2018 in our FinTech business remains broad based. Net wins in the competitive bidding processes, new casino openings, renewal of existing customer accounts and our introduction of new products and product extensions all contributed to that growth.

Same store transactions and total dollars processed have now grown for 17 consecutive quarters. The positive momentum in gross gaming revenue and the health of the macro economy have been strong drivers for this success, and we're also receiving contributions to our growth from our new cash access products and product extensions such as Quick Ticket and our introduction of American Express. We also had high levels of equipment sales in 2018 due primarily to increases in unit sales of our fully integrated kiosks. And while new casino openings and competitive wins resulted in new sale opportunities in 2018, we believe that we are witnessing the beginning stages of a larger refresh in kiosks from our existing customers as well.

Entering 2019, we estimate that nearly 70% of the kiosks that we've sold to customers are now more than three years old. Because these units are responsible for the most critical self service functions on the gaming floor and consistently perform extremely high volumes of transactions, we believe our customers will continue to upgrade and refresh these devices over the next few years to ensure optimal performance. This also fuels our belief in additional growth opportunities and equipment sales in 2019.

In addition to that, we also expect sales from new equipment categories such as cage dispensing units, cash recyclers and our newly acquired player loyalty kiosks. These should further expand our overall sales volumes. Our other information service -- excuse me, information services and other revenue category includes revenues that are generated from the maintenance of kiosks that are deployed in the field, as well as revenues from our compliance products and our industry leading gaming centric credit bureau, Central Credit.

In the fourth quarter, our information services and other revenue increased 9.4%, driven by increases in kiosk maintenance and related revenue as well as compliance products revenue. In 2019, we have an excellent growth opportunity from incremental maintenance revenues that should track with our increased unit sales volume.

Additionally, by introducing our compliance products into new markets such as Canada and delivering new product extensions like Jackpot Express, we should further enhance our FinTech revenue growth opportunity. I'd like to turn to guidance. This afternoon, we provided our outlook for 2019 adjusted EBITDA of $252 million to $255 million. This range reflects both an increase from our previous midpoint in the estimate provided at our September Analyst Day and includes our estimate of initial adjusted EBITDA benefits associated with the Atrient asset acquisition for the remaining nine months of 2019. I'm going to spend a few moments speaking to some of the qualitative factors included in this guidance. And Randy, then will add some of -- some more of the financial and modeling metrics later in his prepared remarks.

But first, let's focus on the game side of our business. The product development plan that we began executing three years ago, together with the investments that we've made to bring this plan from concept to customer's floors, has driven continued growth in our games business. Clearly, our organic growth in unit sales of over 20% in each of the last two years far exceeds the overall industry sales growth record.

Our record setting growth has been fueled by improvements in our hardware platform and the introduction of new cabinets like the E43 together with strong performance from core products like our mechanical reel games.

Within gaming operations, we've experienced a tremendous level of organic growth in our proprietary installed base over the last two years. Our proprietary unit count has increased almost 1,500 units over this time period. This has been a major catalyst for our growth and its value is magnified when combined with our consistent trend throughout 2018 of mid to high single digit growth in daily win per unit. Both the growth in the number of proprietary installed base units and the daily win per unit are at the high end of the industry's reported growth numbers over this time period.

We've also been successfully executing on our stated goal of growing our premium products segment. This growth was a clear driver for our success in 2018, and we believe that we are well-positioned to continue that growth trend into 2019 as we continue to benefit from new products, such as our introduction and expansion of Wide Area Progressive games and branded game themes in our installed base.

We expect this trend will continue as new game themes designed for our new form factors come into the market. Some of the games that you've heard us talk about on prior calls are just now entering our installed base and are only beginning to hit their performance stride. So let me give you some examples. Our Renegade 3600 offering has been in casinos now for a little more than four months and it continues to perform at very high levels. Renegades first premium participation game, Diamond Blaze is now in 20 casinos and we continue to expand to new locations and new jurisdictions. This game has been extremely well received by patrons, and we're just as excited about the follow up titles for this product, including Smoking Hot Stuff, Extra Jackpots and Snoop Dogg presents The Joker's Wild, which are expected to be released in the second half of 2019. Let me move to some of our other products, Smoking Hot Stuff, Wicked Wheel is a new video slot that utilizes the giant 55-inch top monitor on our E 5527 to present a prize wheel that offers a progressive jackpot and bonus features to the players. This product launched in the fourth quarter and we have seen outstanding performance to date as we've ramped up our installations over the first few months of 2019.

We're now up to about 100 installations at casinos across the country and performance continues to be among the best on the casino floor. Also, the first installation of games on our Empire Arena platform launched in the first quarter of 2019 with the Discovery Shark Week theme.

The games are delivered in either a linked bank or a pod of Empire 5527 cabinets and include bonus features that engage players across the entire bank.

We're currently in 11 casinos with this product, and while it is early in the performance of this to date, we have been strong, tracking to meet or exceed our best performing games in the portfolio. Now those last two game themes both reside on our newest premium form factor, the E 5527. The outstanding performance of these games demonstrates the success of our current hardware and game design approach. This progress is not going unnoticed by the industry either. In February, The EILERS-FANTINI Central Game Performance Database gave the E 57 (ph) -- E 5527 recognition as the number two rated cabinet in the large top box segment.

As these installations ramp up in the coming months, we expect to see continuing performance improvement. And in FinTech. To maintain our FinTech leadership position, we've continued to invest in developing and acquiring solutions that further separate Everi from its competitors. Our core platform is still the key to the success of our product development strategy. This platform includes our proprietary financial network, which is used by more than 800 casinos and is connected to our equipment, which acts as the access point for patrons and operators to use our broad range of services. By connecting these locations and our touch points together, we have formed a single powerful network that is trusted by our customers and their patrons. Through our network, we safely and reliably provide our gaming customers and their patrons with access to a variety of external payment processing services and other valuable information services. The flexibility of our design also allows Everi to continue to add new types of products and services focused on improving guest experiences and creating more operator efficiencies. In 2019, our business investments will focus on assisting customers in identifying more effective ways to market and promote their operations to their guests and to build player loyalty.

We will also assist them by providing our customers with products that enable them to operate more efficiently. We also continue to focus on the next generation of payment solutions for the gaming industry. We've talked in the past about our CashClub e-wallet solution. This product continues to test well with a number of casino operators, and we're making significant progress, demonstrating the power of this solution to allow guests to seamlessly move value across the entire casino financial ecosystem.

CashClub is built directly into our core platform, which connects patrons with physical and virtual locations throughout the gaming establishment. And this includes sports wagering in the live sports book or through a mobile application and can even leverage our existing infrastructure of patron touch points. We will continue to enhance this product and help our customers best determine how to bring this product to market. The important takeaway here is that we are focused on innovations that enable Everi to remain the provider of choice for our customers, both current and in the future.

Now, before turning the call over to Randy, I want to highlight the progress that we're achieving in growing free cash flow. We recognize the importance this metric has for the investment community and for our ability to repay our debts. Our free cash flow in 2018 almost doubled to $24.8 million, and in 2019, we're expecting this measure to almost double again. As our financial results have grown and improved, we've been managing our capital investments diligently. In fact, our capital expenditures in 2018 finished under the initial guidance range that we provided for the year while still enabling us to achieve our projected adjusted EBITDA. I believe that we now have the best balance we have ever had between investing in new product development and the amounts we spend for CapEx related to equipment in our installed base. The improvements in game content are enabling us to achieve greater returns from our existing assets versus the need to spend more on new capital equipment to drive comparable results. As our business has stabilized and grown, we find ourselves in an even better position to be more vigilant in ensuring that we maximize the returns on our investments and achieve the growth and free cash flow goals that we have set. This focus will help us achieve our goal of reducing leverage both this year and next. We're starting 2019 with a great foundation and the new products in both of our business lines are those that are needed for us to achieve our projected growth.

In 2019, we have expectations for increases in unit sales, as well as an increase in gaming operations revenue that will be driven by a higher year end installed base and continued growth in daily win per unit. We will look for additional growth in cash access service revenue driven by stable and growing macro economy. We also expect increasing sales of our integrated kiosks and other FinTech equipment together with growth in our information services and other revenue category. We expect that new product segments such as Interactive and our newly acquired patron loyalty services will also help us deliver growth in revenue, adjusted EBITDA and free cash flow. Now, while these goals are ambitious, I will tell you that I have never been more confident in the ability of our team to execute with the products and solutions that we currently have to meet and possibly exceed these expectations.

And with that, I'd like to turn the call over to Randy.

Randy L. Taylor -- Executive Vice President & Chief Financial Officer

Thank you, Mike, and good afternoon, everyone. I want to remind you that the following discussion of our results is based on the comparable revenues and cost of revenues as reported in our press release. The fourth quarter 2018 total revenues were $119.5 million, comprised of $67 million from games and $52.5 million from FinTech. Games revenue increased approximately 18% year-over-year and FinTech revenue increased approximately 8.5% year-over-year. Adjusted EBITDA for the fourth quarter 2018 increased by $3.3 million or 6.4% to $54.6 million. Adjusted EBITDA for the game segment was $29.6 million compared to $27.2 million a year ago, while adjusted EBITDA for the FinTech segment was $25 million compared to $24.1 million last year. As I review the performance of our games and FinTech segments, I will also include information on our outlook for 2019. In our Games segment, gaming operations revenue increased $4.4 million or almost 12% year-over-year to $41.5 million. This includes $4.5 million in revenue from our New York lottery operations and $700,000 from our interactive business, which is up about $500,000 over the prior year period. Year-over-year, our installed base increased 703 units to 13,999 units and daily win per unit increased 6.8% or $1.82. 2019, we continue to expect our installed base to grow as compared to the unit count at the end of 2018. We do expect to see a decline in the first quarter a few 100 units before the ending unit count returns to its cadence of quarterly growth. However, this first quarter decline is not expected to have an impact on our full year views on gaming operations revenues or games adjusted EBITDA, expect the growth we achieve in the installed base, combined with the improved daily win per unit performance, will keep us on track to achieve our guidance for 2019.

The decline in our installed base during the first quarter of 2019 is primarily being driven by two factors. First, we made the decision to reduce our lease footprint by almost 400 units in (ph) a large multi property customer in Oklahoma. With this customer, we have large concentrations of units across their locations. These units are becoming aged and have a relatively low daily win per unit. To improve the yield, we would need to spend capital to upgrade these units.

We do not believe the increase in the daily yield to justify the amount of capital spend that would be required. Therefore, we elected to reduce our installed base with this customer. We will deploy our capital dollars where we can expect to see higher returns. Second, we are expecting a larger than normal conversion of units from leased to sale in the first quarter. This conversion process is a normal occurrence every quarter and is under the control of our customers.

As our game performance improves, our customer's capital availability changes. Customers may at times elect to buy a portion of the units we have installed in their facility. The trade-off here is we recognize a one-time unit sale in the quarter but at the cost of losing the recurring revenue unit in future periods.

The performance of our games is at a level where for a limited number of our customers it may be an attractive opportunity to own the games outright. We believe this is a good problem to have. One customer, particular with a large lease footprint from all manufacturers, has made the decision to reduce their lease footprint. For us that means reducing our lease game's footprint at this customer and converting most of those units into sales. Excluding these factors, we still expect the installed base to grow in the first quarter, but not enough to offset these removals and conversions. As Mike mentioned, we expect to see continued growth in our premium portion of the install base, primarily as a result of the success of our most recent premium content. Most importantly, we still expect the first quarter gaming operations revenue to grow compared to the 2018 first quarter, as a growth in data win per unit should more than offset the loss of units.

With the expected premium unit growth and the benefits we are generating from refreshing the legacy install base, our daily win per unit should increase year-over-year in each quarter during 2019. Although our gaming operations revenue growth may be driven more by the increase in daily win per unit than the increase in installed base, we still expect to grow our installed base sequentially throughout the year following Q1. We continue to believe that the incremental growth in our daily win per unit and the increase in our installed base unit count will enable us to meet or exceed our overall revenue growth targets.

Revenues from electronic game sales were $23.5 million for the fourth quarter of 2018, up 34% year-over-year. We sold a record 1,177 units at an ASP of 18,875 compared to 926 units in the fourth quarter of last year at an ASP of 17,611. Our ASP for the quarter was bolstered by a healthy level of terrific (ph) unit sales to locations in British Columbia. For 2019, we expect double-digit growth in unit sales and ASP in the $17,000 range. While most analysts appear to have forecasted some level of overall industry growth for 2019 unit sales, we believe our growth will significantly exceed the average industry growth rate for the year. When comparing to more than 20% organic growth, that we achieved the last two years and our expectation for 2019, it is clear that we are growing our ship share and floor share faster than most other manufacturers.

Rounding out the Games segment, we expect interactive revenue will grow in 2019 as compared to 2018. We expect this business will be adjusted EBITDA positive and cash flow neutral for the year. Adjusted EBITDA margin for the Games segment was 44.2% in -- in fourth quarter of 2018, compared to 48.1% in the fourth quarter of 2017. The decline in the adjusted EBITDA margin primarily relates to higher SG&A and R&D expenses, which includes the increase in marketing and payroll costs associated with our interactive operations.

For our FinTech segment, the fourth quarter mark the 17th consecutive quarter of same-store growth in both transactions and dollars processed. Revenues on a comparable basis increased 8.5% for cash access services and 7% for equipment sales revenue while information services and other revenue rose 9% year-over-year. For 2019, we expect to see continued growth, including increased cash access services revenue and higher revenue from the sale and service of fully integrated kiosks and compliance products. Excluding the impact of the acquisition, we expect FinTech adjusted EDITDA will grow in the mid to high single digits, compared to 2018. These assumptions reflect our expectation that the gaming industry and US economy continues to perform in line with recent performance.

Adjusted EBITDA margin for the FinTech segment was 47.6% in the 2018 fourth quarter compared to 49.8% for the fourth quarter of 2017 with the decline resulting primarily from increased SG&A cost, and increased sales of fully integrated kiosk, which have a lower overall gross margin than cash access revenue. Moving to the balance sheet, the outstanding principal on our long term debt was $1.18 billion and we had no amounts outstanding under our revolving credit facility as of December 31, 2018.

The weighted average interest rate on our total outstanding debt obligations at December 31, 2018 was approximately 6.2%. During the fourth quarter, we made $2 million in required repayments on our term loan. And in April 2019, we expect to make approximately $9 million in additional repayments for our annual excess cash flow payment on our term loan.

Our consolidated secured leverage ratio at quarter end was 3.3 times adjusted EBITDA, compared to a maximum senior leverage of 4.75 times. As of December 31, the outstanding balance of ATM cash utilized by us from our bulk cash providers was approximately $224.7 million. For 2019, we expect interest expense of between $86 million and $88 million, which includes interest on bulk cash of approximately $8.5 million and $3.6 million in non-cash amortization of capitalized debt issuance costs.

In the fourth quarter, placement fees totaled $5.2 million and other capital expenditures totaled $24.5 million. Excluding placement fees, Games segment CapEx was $18.7 million and FinTech segment CapEx was $5.8 million.

Games segment capital expenditures related to game and platform design was approximately $6.5 million, gaming equipment CapEx was approximately $11.4 million. This amount includes equipment upgrades, replacement for existing installed base units and new units placed on trial.

For the full year, our total capital expenditures and placement fees were $123.6 million, which is below our full year guidance range of $125 million to $130 million. Placement fees were $20.6 million, Games capital expenditures were $87.5 million and FinTech capital expenditures were $15.6 million. As we look to provide 2019 CapEx and placement fee guidance, I have to point out that we are only in the early stages of evaluating the transition and integration costs for the recent acquisition. As such, our capital forecast does not include any CapEx related to the acquisition and we currently do not expect any material CapEx spend for this acquisition. We will provide more details around CapEx for this business next quarter. Excluding the CapEx related to the Atrient acquisition, we expect the 2019 CapEx and placement fees will be lower than in 2018.

Consolidated capital expenditures for 2019 are expected to be approximately $118 million to $122 million with game CapEx of $85 million to $88 million and FinTech CapEx of between $16 million and $17 million. Games segment placement fees are expected to be approximately $17 million, which includes a slight increase for certain new unit placements during the year. Let me provide a little more color on the 2019 CapEx total -- Games CapEx total. We expect approximately $49 million to $51 million will be related to customer equipment and $29 million to $30 million will be related to capitalized development costs.

As a reminder, the quarterly $5.6 million placement fee obligation related to the player station agreement signed in 2017, will only impact quarterly placement fees through the third quarter of this year. Following that the related placements will remain in our installed base for at least another 4.5 years without additional placement fees. This afternoon, we provided our outlook for 2019 adjusted EBITDA of $252 million to $255 million with the low end of the range representing increase from the midpoint forecast from our September Analyst Day and includes the estimated adjusted EBITDA contribution from the acquisition over the remaining nine months of 2019.

This year, we also expect to again remain profitable in each of the quarters in the full year, therefore, you should be modeling fully diluted shares outstanding at approximately 75 million shares in your quarterly and annual models. We would expect fully diluted shares to increase slightly if our stock price increases. Expect total depreciation and amortization expense in 2019 to be approximately $132 million to $136 million. This includes an initial estimate from our acquisition, but because we have not yet completed our full purchase accounting analysis, that amount could change. Again, we will provide a further update in the first quarter call.

We expect to record an income tax benefit of between $3 million and $5 million, and we expect cash tax payments of approximately $1 million. Finally, we expect free cash flow to grow in 2019. As Mike had mentioned, we believe free cash flow will almost double as compared to 2018. With that, I will now turn the call back to the operator for questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) And at this time, we will take our first question from John Davis at Raymond James. Please go ahead.

John Davis -- Raymond James -- Analyst

Good afternoon, guys. Just want to touch on the Atrient acquisition and Randy, just to clarify, so the entire increase in the guidance is due to this acquisition. Is there anything from a higher kind of core performance in 2018 or is the upside entirely the deal?

Randy L. Taylor -- Executive Vice President & Chief Financial Officer

I think what we said, John, is it's a little bit -- it's both and make (ph) obviously, we're just in the initial stages of looking at this acquisition. So we factored in some improvement over the Analyst Day as well as this acquisition. But it's really not broken out. So it's in total. So there is a little upside from the operations themselves.

John Davis -- Raymond James -- Analyst

Okay. Any idea, you guys outlined potential synergy opportunities, specifically on the revenue side or, you know, even at a high level, a kind of a bracketed growth range for what -- what Atrient is currently growing and maybe what your expectations are for growth going forward?

Randy L. Taylor -- Executive Vice President & Chief Financial Officer

We haven't at this point in time, John. I mean, look, we just closed it, a few days ago, and so, we have not provided any of that. We do think there's -- there's ability on both the revenue and the costs. But I really don't have anything that I can provide you at this time.

John Davis -- Raymond James -- Analyst

Okay. And then just quickly on the ASP, obviously, the game sales was, I think significantly better both than what I expected, I think most people. But the ASP was also better. You talked about that being tournament (ph). Any idea what ASP would have been up, I think, it was up 7% ex tournament (ph). Just trying to get an idea from a core trend perspective, what we should expect going forward?

Randy L. Taylor -- Executive Vice President & Chief Financial Officer

Yeah, like I said in the call, I mean, I'm looking to get at that $17,000 number, whether it'll be, could have been little higher than $17,000 even, but it'll be in that $17,000 range. I think, we had a nice pick up from those units in -- up into British Columbia. So again, I wouldn't be looking at a -- an $18,000 number. I'd be looking one at $17,000.

John Davis -- Raymond James -- Analyst

Okay. And last one for me is just want to touch on, what gives you confidence in the inflection and the installed base in the second quarter. I thought, we maybe -- would see it flat. You called out, 400 units that's coming out. What kind of visibility do you have that gives you confidence that you will see that -- in that inflection after the first quarter and we'll start growing sequentially from there?

Randy L. Taylor -- Executive Vice President & Chief Financial Officer

Look, as I -- we continue to look at this -- the new products that are coming out, John, I think, Mike walked through some of the successes we're having on some of the bigger form factors and how well they are performing. So we've got a nice pipeline right now of product that's going to go out. I can't tell you that for certain, how much it will grow. But I think, we feel very comfortable that once we get through kind of this, this take out of these units that we should grow -- grow throughout the rest of the year. But I'm really more focused just on -- on the revenue growth in total. And I think, if we can get the win per day per unit to continue to increase -- we're going to meet our targets

John Davis -- Raymond James -- Analyst

All right. Thanks guys.

Michael D. Rumbolz -- President and Chief Executive Officer

Thanks, John.

Operator

And we will take our next question from Barry Jonas with SunTrust. Please go ahead.

Barry Jonas -- SunTrust -- Analyst

Hey, guys, thanks for all the detail on the opening remarks, maybe just a few follow ups, starting with Atrient. Can you give any details around the earn out and -- are there any key employees coming over that you've locked up? Thanks.

Michael D. Rumbolz -- President and Chief Executive Officer

Well, we have some key employees that we have, in fact, locked up. They'll be remaining with the operations for the next couple of years. And then by that point in time, it'll be a decision between them and us as to whether they want to continue, whether we need their background to continue. But certainly throughout all of the integration and the development of the new products, they'll be with us. And your -- other point.

Barry Jonas -- SunTrust -- Analyst

Just any details in terms of hitting the earn out?

Michael D. Rumbolz -- President and Chief Executive Officer

Yes.

Randy L. Taylor -- Executive Vice President & Chief Financial Officer

Our expectation is, is that if they perform as we expect them to, that they should hit that earn out. So we've got -- so we've got goal set for them. I think they're very comfortable they can meet those and we would expect them to be there, because they do have a great pipeline that we can go after. As we talked about, this is going to be able to -- again go through our distribution channel as well. So we think that we can -- we can really push that.

Barry Jonas -- SunTrust -- Analyst

Got it, and then, look, it's nice to see hopefully an accretive acquisition, just curious if you can broadly talk about the M&A environment you're seeing out there right now.

Michael D. Rumbolz -- President and Chief Executive Officer

In what respect? Barry. I mean, with respect to manufacturing or FinTech. I mean, in the FinTech space, we continue to look at -- at all kinds of companies that have come up with either products or service solutions that could be valuable. But we could also develop our own. So that continues to be a somewhat target rich environment, a little less so I think on the games manufacturing and games development side, only in that while there are a lot of game studios that are one-offs and there are a few smaller manufacturing companies that also have development units in them. Right now, I don't think, we've seen any real push or consolidation of the smaller players. Is that what you are drawing?

Barry Jonas -- SunTrust -- Analyst

Yeah, that's perfect. And then just last one for me. You know, I think you made clear, you expect to exceed some of the forecasts for the replacement cycle on the games side in North America. Just curious, if any comments you could add on the competitive dynamic around pricing. I'm curious, how competitive it has been or you see it going this year? Thanks.

Dean A. Ehrlich -- Executive Vice President and Games Business Leader

Barry, this is Dean. I mean, that's -- it's very tough to comment on that. It really does depend on the form factors going head-to-head with one another. Portrait single screen pricing is definitely different than 3-reel mechanical pricing, but we're not going to have anything specific on that.

Barry Jonas -- SunTrust -- Analyst

Okay, fair enough. Thanks, guys.

Michael D. Rumbolz -- President and Chief Executive Officer

Thanks, Barry.

Randy L. Taylor -- Executive Vice President & Chief Financial Officer

Thanks, Barry.

Operator

(Operator Instructions) At this time, we will take our next question from George Sutton with Craig-Hallum. Please go ahead.

George Frederick Sutton -- Craig-Hallum Capital Group -- Analyst

Thank you. Just to continue with Dean. Mike mentioned Smoking Hot Stuff and Snoop Dogg as some of the stronger offerings right now. We are hearing consistently about Lightning Zap and we're hearing a lot of enthusiasm about the upcoming Snoop Dogg. I'm sorry, South Park. I wondered, if you could address that to some more specificity.

Dean A. Ehrlich -- Executive Vice President and Games Business Leader

What we tell you is that, we got a lot of different products coming out in the next couple of quarters. I mean, if you take a look on the premium stuff, because that's what you mentioned, continued follow up on our 5527/Arena with the ball coming out in Q2. If you look at Renegade, you mentioned Joker's Wild. But even before them, we got another version of Smoking Hot Stuff coming out.

And the thing that no one has really talked about is our mechanical wheel on top of our 3-reel mechanical, which we just launched, and Penn and Teller, that there's plenty of themes coming behind that.

South Park will be released late summer, that'll be on our E43 platform, along with Little Shop of Horrors and others. But there -- we haven't even talked about DCX, which is our new hardware form factor, also coming out at the end of Q2 -- Q3 with Mask and Karate Kid. So just to sum it up, plenty of theme bandwidth on the premium side that when Mike and Randy talk about not only the products that have launched and the level of success that we had, but look at the line up coming up behind it that I had mentioned, and that's why we feel very confident in what's been presented in front of you.

George Frederick Sutton -- Craig-Hallum Capital Group -- Analyst

So flipping over to kiosks, Mike, you mentioned that on average, most of the kiosks out there are greater than three years old. Can you give us a sense of what is the average life? What sort of turnover should we expect?

Michael D. Rumbolz -- President and Chief Executive Officer

Well the life -- I mean, it's not really as predictable as you might like because the kiosk, depending on the location within a given casino, might have one Kiosk, may have almost twice the volume as another kiosk or certainly 50% greater than another kiosk. And the number of transactions and the way it's been treated by customers to a degree is going to determine whether or not it should be replaced by the casino. In addition, we've come out with -- with a new kiosk form that also has additional functionality and features in it that as casinos look to, should we replace one of these, because it's -- it's getting a little long in the tooth. They certainly can, I think will be interested in looking at the new features and functionality and the new look and feel of the newer kiosks that we have.

But let me turn it over to Darren, for a second and see if he had got a little more color for you.

Darren D. A. Simmons -- Executive Vice President and FinTech Business Leader

Sure. I mean, we've got kiosk that had been out in the market for 8 years to 10 years and then, others that are looking at doing a refresh cycle in 4 years to 5 years and again to Mike's point is really a function of the location and really the -- of the volume of business that the operator has. So I think, we're in that sort of cycle right now where a lot of the larger operators that do high volume are sort of 4 year to 5 year sort of time frame and that's sort of the cycle we're looking at over the next couple of years. So we think that's certainly an opportunity for us.

George Frederick Sutton -- Craig-Hallum Capital Group -- Analyst

Got you. One more question for Darren, if I could. Relative to the acquisition, I am going to ask -- the question have been asked, but I am going to ask in a different way, if you look at the percentage of the customer wallet, if you will, in the FinTech space that you now can touch that you weren't touching before this acquisition. And then also, how does this impact your overall FinTech pitch?

Darren D. A. Simmons -- Executive Vice President and FinTech Business Leader

Well, I think, if you look at our core foundation, we look at this loyalty platform as really a fabric that can weave that together, and I think, it -- as Mike mentioned in the -- sort of the opening comments is, it really is going to help us provide a greater view and sort of we're trying to achieve that 360 degree view of patron behavior and activity. And as we've shown at G2E there are absolute opportunities in -- and we have a number of customers who have talked to us since G2E about how we can leverage the financial services platform that we provide to be able to generate loyalty opportunities, and so I think that's how we're looking at this, to be able to leverage the loyalty platform that Atrient has with financial services and combine those two to provide again a more attractive ecosystem of products and services that are integrate to drive behavior, customer behavior, drive revenue and create operational efficiencies for the casino.

George Frederick Sutton -- Craig-Hallum Capital Group -- Analyst

Super, thanks, guys.

Michael D. Rumbolz -- President and Chief Executive Officer

Thanks, George.

Darren D. A. Simmons -- Executive Vice President and FinTech Business Leader

Thanks, George.

Operator

And we will take our next question from David Katz with Jefferies. Please go ahead.

David Katz -- Jefferies -- Analyst

Hi, good day, everyone.

Randy L. Taylor -- Executive Vice President & Chief Financial Officer

Hi, David.

David Katz -- Jefferies -- Analyst

How are you? So I wanted to just touch on the CapEx guidance, right, Randy and if I capture correctly is $118 million to $122 million and you may have gone through this, so I'll apologize, but can you just walk us through the different components that you laid out on a year-over-year basis? I think, we probably all had a number of discussions about the expectation that CapEx would be going down this year, and it appears to be very modestly so. I just wanted to line that up.

Randy L. Taylor -- Executive Vice President & Chief Financial Officer

David, I think the biggest item remember, we still have three payments left this year on the placement fees, so that's $5.6 million a quarter. So that's another $16 million. So this year was really just one was dropping off. And, we -- so we still have that $17 million. So I never really expected '19 to be down dramatically.

But we are, we're definitely watching the spend on the games side. And the FinTech side is probably, $1 million more than you've seen it in the past as we continue to look at the e-wallet and some of the other products. But we -- really there's not a lot different between '18 and '19, though, a slight pullback on the games side.

And then really the reduction in the placement fee of about 5 plus million dollars because we won't pay the fourth quarter, we'll be done with that. So then when you go to 2020, you really have a $16 million pick up in free cash flow or in cap -- reduced capital expenditure. Does that make sense?

David Katz -- Jefferies -- Analyst

Yes, and so with respect to the acquired business, if we were to just want to look at that on a prospective free cash flow basis. I guess, I'm trying to get to whether that is a cash flow accretive business walking in the door or if that's something that you aspire to, so we -- I guess want to know that the CapEx is on -- on that specific aspect of the business is possible.

Randy L. Taylor -- Executive Vice President & Chief Financial Officer

Yeah, again, I -- it's early because we're looking through everything they have. I would say, our expectation is, we should be neutral to slightly cash flow positive and maybe better than that, but I don't expect it to be anything worse than neutral and hopefully, positive in cash flow as we work through the year. But you got to kind of get in there and make sure some of the things that do or do not have to be purchased at this point in time. But that's our expectation.

David Katz -- Jefferies -- Analyst

Got it. Thank you very much.

Randy L. Taylor -- Executive Vice President & Chief Financial Officer

Thanks, David.

Dean A. Ehrlich -- Executive Vice President and Games Business Leader

Thanks, David.

Operator

And we will take our next question from Brian McGill at Telsey. Please go ahead.

Brian Thomas McGill -- Telsey Advisory Group -- Analyst

Yeah, thank you. Good afternoon. I just want to go through on maybe the dynamic, a little bit more on the commercial and Native American buyers. Do you think that we should expect commercial buyers to maybe see an increase in activity as the year goes on? It seems like there's been a little bit of a low lately with them and obviously benefit quite a bit from Native American buyers. But could we see pent up demand and maybe that drive an -- some additional upside as the year goes on?

Michael D. Rumbolz -- President and Chief Executive Officer

I think, as always, Brian that you have their buying cycle is in earlier part of the calendar year. So I would say in the commercial side, we will find out. I could tell you this. I don't think, it's going to be any less than what it was in prior year. But I don't think, it's going to be exorbitantly greater. And on the Native American side, I think, they're a little bit more spread out depending on when their fiscal years begin and end. I expect it to kind of be the same. I mean, there hasn't been really anything message that is more elaborate '19 versus 2018 from my purview. The good news is, it's not going the other direction down. So at least from --

Brian Thomas McGill -- Telsey Advisory Group -- Analyst

(Multiple Speakers) placement, they will probably, yeah, but it's just a question of what the magnitude was -- is going to be.

Michael D. Rumbolz -- President and Chief Executive Officer

Right, exactly.

Brian Thomas McGill -- Telsey Advisory Group -- Analyst

All right, very good. Thank you.

Randy L. Taylor -- Executive Vice President & Chief Financial Officer

Thanks, Brian.

Operator

Thank you for your questions. If there are no further questions in the queue at this time, I would like to turn things back to Randy Taylor for closing remarks.

Randy L. Taylor -- Executive Vice President & Chief Financial Officer

Thank you, everyone for joining us on the call today. We look forward to discussing further progress of our business in -- for the first quarter results in May. Thank you.

Michael D. Rumbolz -- President and Chief Executive Officer

Thanks all.

Operator

And this does conclude today's call. Thank you for your participation, you may now disconnect.

Duration: 61 minutes

Call participants:

Mark F. Labay -- Senior Vice President of Strategic Development

Michael D. Rumbolz -- President and Chief Executive Officer

Randy L. Taylor -- Executive Vice President & Chief Financial Officer

John Davis -- Raymond James -- Analyst

Barry Jonas -- SunTrust -- Analyst

Dean A. Ehrlich -- Executive Vice President and Games Business Leader

George Frederick Sutton -- Craig-Hallum Capital Group -- Analyst

Darren D. A. Simmons -- Executive Vice President and FinTech Business Leader

David Katz -- Jefferies -- Analyst

Brian Thomas McGill -- Telsey Advisory Group -- Analyst

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