AGS Reports Fourth Quarter And Full Year 2019 Results

LAS VEGAS, March 4, 2020 /PRNewswire/ -- AGS (NYSE: AGS) ("AGS", "us", "we", or the "Company") today reported operating results for its fourth quarter and full year ended December 31, 2019.

AGS President and Chief Executive Officer David Lopez said, "Fourth quarter Adjusted EBITDA growth of 18% year-over-year was driven by strong EGM and Table Products performance, with continued demand for titles on Orion Portrait, as well as our Super 4 Progressive for table games. 2020 is one of — if not the most — significant product launch years in AGS' history, with the Orion Rise, the Orion Curve, the Starwall, and the Pax S card shuffler all debuting on casino floors this year. We feel confident that this lineup of new products, along with brand extensions and innovative offerings on our current portfolio, will provide meaningful long-term growth opportunities for AGS."

Fourth Quarter 2019 Financial Highlights

• Total revenue increased 8% to $77.8 million, driven by EGM sales and increased gaming operations, or recurring revenue, from our EGM and Table Products segments.
• Recurring revenue increased 5% to $51.6 million, driven by an increase in our domestic EGM and Table Products installed base.(3)
• EGM sold units increased 11% to 1,283 compared to 1,159 in the prior year, led by sales of OrionPortrait and the recently introduced Orion Upright.
• Net income of $1.4 million increased year-over-year from a net loss of $10.3 million due to an increase in operating income. The prior year also included a non-cash, pre-tax impairment of goodwill of $4.8 million and $2.0 million of debt modification-related expenses, both of which were not present in the current year.
• Total Adjusted EBITDA (non-GAAP)(1) increased 18% to a quarterly record of $37.3 million, driven by increased contributions from our EGM and Table Products segments, in addition to reduced operating expenses in our Interactive segment.
• Total Adjusted EBITDA margin (non-GAAP)(1) increased to 48% in the fourth quarter of 2019 compared to 44% in the prior year, driven by several different factors, most notably due to increased contributions from all three of our segments and reduced operating costs.

EGM Quarterly Highlights

Domestic Gaming Operations

• Domestic gaming operations revenue increased $2.1 million, or 5%, driven by the acquisition of Integrity Gaming Corp. ("Integrity") in February 2019.
• Domestic EGM revenue per day ("RPD") decreased 5% to $24.97 compared to $26.41 in the prior year period driven by incremental units in Oklahoma that yield lower RPD than our domestic average.
• Domestic non-Oklahoma RPD increased 7% to $35.63 compared to $33.35 in the prior year period driven by improved performance in markets such as Washington, Florida, and the Midwest.(4)
• Oklahoma RPD decreased 12% to $18.15 compared to $20.70 in the prior year driven by the decrease in product performance that was discussed in previous quarterly results and the impact of EGMs purchased from Integrity. Oklahoma RPD was flat sequentially signaling stabilization as a result of some of our efforts to improve performance.
• Domestic EGM installed base grew by 2,072 units year-over-year, driven by the acquisition of 2,500 EGMs from Integrity, and offset by a sale of 327 previously leased, lower-yielding Oklahoma units to a distributor.(5) The prior year installed base included 280 VLT units that were purchased in an end-of-lease buyout.(6)

International Gaming Operations

• International gaming operations revenue was relatively flat year-over-year.
• International RPD decreased by $0.42, or 5%, driven primarily by placements into new markets and properties in Mexico that have lower yields than our average international RPD.

Equipment Sales

• EGM equipment sales revenue increased 13%, to $26.1 million, driven by increased EGM unit sales as well as the sale of 327 previously leased, lower-yielding Oklahoma units to a distributor as part of our ongoing strategic management of our installed base. The 327 units were not included in our sold unit count or domestic average sales price ("ASP") for the current period.
• EGM sales of 1,283 units included 1,173 domestic units, of which more than 50% were sold into early-entry markets such as Canada, Arkansas, Nevada, and Washington.
• Domestic ASP for EGMs decreased to $17,833 due primarily to a large sale to a single customer in the quarter. When normalized for the impact of the large sale, we estimate that ASP was $18,250.

Segment Highlights

• The new Orion Upright footprint(7) grew to more than 630 units and accounted for 24% of sales in the quarter with placements in several early-entry markets such as Arizona, Canada, New Mexico, Michigan, and Oregon as well as ramping markets such as Florida and California. Placements were driven by our proven legacy games such as Golden Winsand new games such as Imperial Luck.
• The Orion Portrait footprint(7) increased to more than 9,000 units, up 79% year-over-year and accounted for 57% of sales in the quarter.
• Placed 670 Orion Portraits with our hit title Rakin' Bacon! in the quarter.

Table Products Quarterly Highlights

• Total Table Products revenue increased 29% to $2.8 million, driven by an increase of 604 recurring units and increased equipment sales compared to the prior year.
• Record Table Products recurring revenue increased $0.5 million, or 25%, driven by the continued growth of our progressive and premium offerings as well as growth of the recently introduced Dex S card shuffler.
• Installed base of table game progressives reached more than 1,300 units, up 38% year-over-year, driving a 7% increase in average monthly lease price due to increased placements of our Royal 9 Baccarat Progressive, Blackjack Match Progressive, and Super 4 Blackjack games.
• Revenue from our premium offerings increased 19% to $0.4 million due to increased placements of Criss Cross Poker.
• Equipment sales revenue increased driven by sales of our table signage and to a lesser extent the recently launched Dex S card shuffler.
• Adjusted EBITDA increased $0.7 million, or 290%, driven by increased revenue and relatively flat operating expenses compared to the prior year.
• Installed more than 100 progressive units in the quarter, with key installs in Arizona and Ontario.

Interactive Quarterly Highlights

• The increase in Interactive Adjusted EBITDA is primarily due to an increase in real-money gaming ("RMG") revenue and decreased operating costs.
• RMG revenue increased $0.4 million driven by the continued launch of our proven land-based EGM content in the European RMG market as well as our recent launch into the New Jersey RMG market.
• Our RMG platform is now live in New Jersey with four operators, three of which went live in the fourth quarter: Golden Nugget, Resorts Digital Gaming, and Mohegan Sun.
• Total revenue remained relatively flat while Interactive Adjusted EBITDA increased $0.5 million compared to the prior year as a result of strategically optimizing our user acquisition costs and restructuring within our social business.

Balance Sheet Review

As of December 31, 2019, we had $13.2 million in cash and cash equivalents compared to $70.7 million at December 31, 2018. Total net debt, which is the principal amount of debt outstanding less cash and cash equivalents as of December 31, 2019, was approximately $520.6 million compared to $468.1 million at December 31, 2018. Net debt as of December 31, 2019 increased by $52.5 million compared to December 31, 2018, primarily driven by the acquisition of Integrity. Our Total Net Debt Leverage Ratio increased from 3.4 times at December 31, 2018, to 3.6 times at December 31, 2019, see Total Net Debt Leverage Ratio Reconciliation below.(8) Capital expenditures decreased $4.6 million to $17.4 million in the fourth quarter, compared to $22.0 million in the prior year period due to a reduction in domestic EGM units placed on lease compared to the prior year period.

Full year free cash flow(8) of $16.9 million remained flat compared to the prior year period due to an increase in cash from operations of $4.9 million and offset by an increase in capital expenditures of $4.9 million driven by the development of new products and increased placement fee arrangements, see Free Cash Flow Reconciliation below. 

Approximately $48.7 million remained available under the $50 million share repurchase program as of December 31, 2019 and there were no open market purchases of common stock in the fourth quarter. 

2020 Outlook

We expect to generate total adjusted EBITDA of $148 - $153 million in 2020, representing growth of approximately 1% - 5% compared to the prior year period. We expect 2020 capital expenditures to be in the range of $67 - $71 million.

The Company's full-year 2020 Adjusted EBITDA guidance does not take into consideration potential regulatory risk related to a property in Texas, as identified in our Risk Factors on page 13 of our latest 10-K, issued today.  Additionally, the Company's guidance does not contemplate any potential impact related to the COVID-19 virus.

Conference Call and Webcast

On March 4, 2020, at 5 p.m. EST, AGS leadership will host a conference call to present the fourth quarter and full year 2019 results. Listeners may access a live webcast of the conference call, along with accompanying slides, at AGS' Investor Relations website at http://investors.playags.com/. A replay of the webcast will be available on the website following the live event. To listen by telephone, the U.S./Canada toll-free call-in number is +1 (844) 746-0637 and the call-in number for participants outside the U.S./Canada is +1 (412) 317-5261. The conference ID/confirmation code is "AGS Q4 2019 Earnings Call".

Company Overview

AGS is a global company focused on creating a diverse mix of entertaining gaming experiences for every kind of player. Our roots are firmly planted in the Class II tribal gaming market, but our customer-centric culture and remarkable growth have helped us branch out to become one of the most all-inclusive commercial gaming suppliers in the world. Powered by high-performing Class II and Class III slot products, an expansive table products portfolio, highly rated social casino and real-money gaming solutions for players and operators, and best-in-class service, we offer an unmatched value proposition for our casino partners. Learn more at playags.com.

AGS Media & Investor Contacts:

Julia Boguslawski, Chief Marketing Officer and Executive Vice President of Investor Relations
jboguslawski@playags.com

Steven Kopjo, Director of Investor Relations
skopjo@playags.com 

©2020 PlayAGS, Inc. Products referenced herein are sold by AGS LLC or other subsidiaries of PlayAGS, Inc. Solely for convenience, marks, trademarks and trade names referred to in this press release appear without the ® and  TM and SM  symbols, but such references are not intended to indicate, in any way, that PlayAGS, Inc. will not assert, to the fullest extent under applicable law, its rights or the rights of the applicable licensor to these marks, trademarks and trade names.

Forward-Looking Statement

This release contains, and oral statements made from time to time by our representatives may contain, forward-looking statements based on management's current expectations and projections, which are intended to qualify for the safe harbor of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding the proposed public offering and other statements identified by words such as "believe," "will," "may," "might," "likely," "expect," "anticipates," "intends," "plans," "seeks," "estimates," "believes," "continues," "projects" and similar references to future periods, or by the inclusion of forecasts or projections. All forward-looking statements are based on current expectations and projections of future events.

These forward-looking statements reflect the current views, models, and assumptions of AGS, and are subject to various risks and uncertainties that cannot be predicted or qualified and could cause actual results in AGS's performance to differ materially from those expressed or implied by such forward looking statements. These risks and uncertainties include, but are not limited to, the ability of AGS to maintain strategic alliances, unit placements or installations, grow revenue, garner new market share, secure new licenses in new jurisdictions, successfully develop or place proprietary product, comply with regulations, have its games approved by relevant jurisdictions and other factors set forth under the section entitled "Risk Factors" its annual report on Form 10-K filed with the Securities and Exchange Commission, as such factors may be updated from time to time in our periodic filings with the Securities and Exchange Commission. All forward-looking statements made herein are expressly qualified in their entirety by these cautionary statements and there can be no assurance that the actual results, events or developments referenced herein will occur or be realized. Readers are cautioned that all forward-looking statements speak only to the facts and circumstances present as of the date of this press release. AGS expressly disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures

To provide investors with additional information in connection with our results as determined by generally accepted accounting principles in the United States ("GAAP"), we disclose the following non-GAAP financial measures: total Adjusted EBITDA, total Adjusted EBITDA margin, total net debt leverage ratio, adjusted total net debt leverage ratio, and Free Cash Flow. These measures are not financial measures calculated in accordance with GAAP and should not be considered as a substitute for net income, operating income, cash flows, or any other measure calculated in accordance with GAAP, and may not be comparable to similarly titled measures reported by other companies.

Total Adjusted EBITDA

This press release and accompanying schedules provide certain information regarding Adjusted EBITDA, which is considered a non-GAAP financial measure under the rules of the Securities and Exchange Commission.

We believe that the presentation of total Adjusted EBITDA is appropriate to provide additional information to investors about certain material non-cash items that we do not expect to continue at the same level in the future, as well as other items we do not consider indicative of our ongoing operating performance. Further, we believe total Adjusted EBITDA provides a meaningful measure of operating profitability because we use it for evaluating our business performance, making budgeting decisions, and comparing our performance against that of other peer companies using similar measures. It also provides management and investors with additional information to estimate our value.

Total Adjusted EBITDA is not a presentation made in accordance with GAAP. Our use of the term total Adjusted EBITDA may vary from others in our industry. Total Adjusted EBITDA should not be considered as an alternative to operating income or net income. Total Adjusted EBITDA has important limitations as an analytical tool, and you should not consider it in isolation or as a substitute for the analysis of our results as reported under GAAP.

Our definition of total Adjusted EBITDA allows us to add back certain non-cash charges that are deducted in calculating net income and to deduct certain gains that are included in calculating net income. However, these expenses and gains vary greatly, and are difficult to predict. They can represent the effect of long-term strategies as opposed to short-term results. In addition, in the case of charges or expenses, these items can represent the reduction of cash that could be used for other corporate purposes. Due to these limitations, we rely primarily on our GAAP results, such as net loss, (loss) income from operations, EGM Adjusted EBITDA, Table Products Adjusted EBITDA or Interactive Adjusted EBITDA and use Total Adjusted EBITDA only supplementally.

The total Adjusted EBITDA discussion above is also applicable to its margin measure, which is calculated as total Adjusted EBITDA as a percentage of Total Revenue.

The following table presents a reconciliation of total Adjusted EBITDA to net loss, which is the most comparable GAAP measure:

Total Net Debt Leverage Ratio Reconciliation

The following table presents a reconciliation of total net debt and total net debt leverage ratio and adjusted total net debt leverage ratio: