AGS Reports Record Second Quarter 2023 Results

LAS VEGAS, NV – PlayAGS has reported operating results for the second quarter ended June 30, 2023. 

“Our record-setting second quarter financial performance clearly demonstrates the strength of our products, team members, and strategy, which is creating significant momentum within all three segments of our business,” said David Lopez, AGS President and Chief Executive Officer. “The unique combination of a growing portfolio of high-performing products and an exceptionally talented team has me excited about what lies ahead for our company in 2023 and beyond.” 

“During the second quarter, we delivered on our commitment to further de-lever our balance sheet through a combination of Adjusted EBITDA growth and free cash flow generation,” said Kimo Akiona, AGS Chief Financial Officer. “Supported by our record-setting financial performance through the first six months of the year, the sustained operating momentum we continue to observe across all three business segments, and our confidence in our ability to leverage our capital deployment discipline and improving working capital efficiency to consistently generate free cash flow, we now expect to exit 2023 with net leverage in the range of 3.25 times to 3.50 times.” 

Second Quarter 2023 Financial Results

• Total revenue increased 17% year-over-year to a record $89.8 million compared to $76.6 million in Q2 2022. All three operating segments delivered year-over-year revenue growth in Q2 2023, with the EGM and Table Products segments establishing new quarterly revenue records of $82.7 million and $4.4 million, respectively. Total revenue improved 8% over the then record $83.2 million achieved in Q1 2023, representing the company’s tenth consecutive quarter of sequential growth.
• Gaming operations, or recurring revenue, reached a record $61.0 million, up 8% versus the prior year and 4% sequentially. Domestic EGM recurring revenue grew to a record $49.3 million, representing a year-over-year increase of 7% and 3% ahead of the previous record of $47.7 million set in Q1 2023. International EGM recurring revenue advanced 18% year-over-year and increased sequentially for the twelfth consecutive quarter. Table Products and Interactive recurring revenue increased 11% and 6% year-over-year, respectively. Recurring revenue accounted for nearly 70% of the company’s consolidated Q2 2023 revenue mix.
• Equipment sales revenue advanced 45% year-over-year to a record $28.9 million, topping the previous record of $26.9 million, established in Q3 2019, by more than 7%. EGM sales revenue increased by over 40% versus the prior year to $28.3 million, while Table Products sales revenue surpassed $500 thousand for the first time. Equipment sales revenue increased approximately 18% relative to the $24.5 million delivered in Q1 2023, supported by quarterly sequential Table Products and EGM sales revenue growth of 36% and 17%, respectively.
• Net income totaled $851 thousand compared to $1.5 million in Q2 2022, as the recent move higher in market-level interest rates increased the company’s interest expense by approximately $6 million relative to the level incurred in the prior year period. A more than 50% year-over-year increase in income from operations offset a significant portion of the prevailing interest rate environment’s impact on the company’s reported net income.
• Total Adjusted EBITDA (non-GAAP) increased 16% year-over-year to a record $39.6 million, driven by EGM and Table Products Adjusted EBITDA growth of 17% and 12%, respectively. Q2 2023 Total Adjusted EBITDA surpassed the $36.5 million delivered in Q1 2023 by 8%, with all three operating segments achieving quarterly sequential growth, and exceeded the prior quarterly record of $37.3 million, set in Q4 2022, by 6%.
• Total Adjusted EBITDA margin (non-GAAP) was 44.1% compared to 44.6% in Q2 2022 and 43.9% in Q1 2023. Operating leverage realized on outsized EGM equipment sales revenue growth, further increases in higher-margin gaming operations revenue and continued improvement in EGM equipment sales gross margin combined to push the company’s Total Adjusted EBITDA margin back above the 44.0% level. 

EGM Quarterly Results 

Domestic Gaming Operations

• Domestic EGM gaming operations, or recurring revenue, increased 7% year-over-year to a record $49.3 million, exceeding the previous record of $47.7 million, established in Q1 2023, by approximately 3%. A nearly 40% year-over-year increase in their higher-yielding premium EGM installed base, further deployment of their first-ever high-denomination game content and chart-topping Spectra UR43 gaming cabinet, continuous installed base optimization efforts, and a stable gaming macroeconomic backdrop drove their improved quarterly recurring revenue performance versus the prior year. Domestic EGM recurring revenue established a new record for the third consecutive quarter and topped $45 million for the fifth quarter in a row. Recurring revenue accounted for over 60% of the total domestic EGM revenue generated in Q2 2023.
• The domestic EGM installed base expanded to 16,422 units at the end of Q2 2023, representing an increase of 395 units versus the prior year. Outsized premium EGM footprint growth and deployment of their high-performing Spectra UR43 cabinet supported their year-over-year domestic EGM installed base expansion. The domestic EGM installed base increased by over 60 units versus the prior sequential quarter, marking the fifth consecutive quarter in which they were able to achieve quarterly sequential installed base growth. Continued penetration of the higher-yielding premium game market segment and further expansion of their Spectra UR43 gaming cabinet footprint paced their sequential domestic EGM installed base growth in Q2 2023.  
• Their installed base of high-performing premium EGM units increased by nearly 40% year-over-year, accounting for over 16% of our domestic EGM installed base at the end of Q2 2023 compared to approximately 12% at the end of Q2 2022. Their premium EGM installed base increased by approximately 8% on a quarterly sequential basis, marking their fourteenth consecutive quarter of premium unit growth. Our premium EGM product offerings continue to deliver superior per unit economics, strengthening their reported domestic EGM RPD metrics and enhancing the returns they are able to achieve on their machine-related growth capital investments.  
• Domestic EGM RPD increased 3% year-over-year to a record $33.48, exceeding $30 for the ninth consecutive quarter. Outsized premium unit growth, further capital efficient installed base optimization, deployment of their high-performing Spectra UR43 cabinet and a stable gaming macroeconomic environment paced their improved Q2 2023 domestic EGM RPD performance. Domestic EGM RPD increased approximately 2% relative to the $32.82 achieved in Q1 2023, reflecting the continued benefit from the implementation of their company-specific yield optimization tools and historically normal seasonality in market-level gross gaming revenue (GGR) trends. 

International Gaming Operations

• International EGM gaming operations, or recurring revenue, totaled $5.1 million, up nearly 20% versus the $4.3 million delivered in Q2 2022. The outsized year-over-year International EGM recurring revenue growth rate reflects the continued strong performance of established AGS franchise game themes throughout the Mexico casino market, a consistent and broad-based recovery in prevailing local macroeconomic conditions in Mexico, further successful implementation of their global installed base optimization initiatives, and favorable foreign exchange fluctuations. International EGM recurring revenue improved approximately 8% over the $4.7 million delivered in Q1 2023, representing the twelfth consecutive quarterly sequential increase.
• The international EGM installed base totaled 6,120 units at June 30, 2023, down approximately 130 units versus the prior sequential quarter. The company intends to leverage its global fleet optimization initiatives to capital efficiently stabilize its international EGM installed base over the remainder of 2023.
• International EGM RPD increased 33% year-over-year to $8.90, topping the $8 level for the second consecutive quarter and eclipsing the $8.22 achieved in Q2 2019 by more than 8%. The company estimates International EGM RPD grew by approximately 19% year-over-year on a constant-currency basis. International EGM RPD increased approximately 7% over the $8.29 achieved in Q1 2023, improving sequentially for the twelfth consecutive quarter.

EGM Equipment Sales

• AGS sold 1,259 EGM units globally in Q2 2023, representing an increase of approximately 35% compared to the 934 units sold in Q2 2022 and approximately 7% ahead of the 1,181 units sold in Q2 2019. The sales momentum building as a result of the continued strong performance of the chart-topping Spectra UR43 cabinet; a strategic focus on broadening their customer account penetration, particularly with larger multi-site corporate operators; the ability to leverage a deeper and more diverse suite of gaming content and cabinet variety to increase average order size; continued outsized penetration of the Historical Horse Racing (HHR) market, supported by the strength of our game performance; and relatively consistent core North American replacement unit demand contributed to our improved EGM unit sales performance versus the prior year. EGM unit sales increased by over 10% relative to the 1,121 units sold in Q1 2023 and have now grown sequentially in nine of the past ten quarters.   
• The average sales price (ASP) in Q2 2023 was $20,700 versus $19,703 in Q2 2022, topping $20,000 for the first time in the company’s history. Their record-setting ASP performance reflects the premium pricing we have been able to command on their high-performing Spectra UR43 cabinet and continued implementation of our price integrity initiatives across the balance of our EGM equipment portfolio. 
• The company sold units into 29 U.S. states, four Canadian provinces and one international jurisdiction outside of North America throughout Q2 2023, as they continue to successfully implement strategic initiatives intended to broaden their customer account penetration, particularly with larger corporate buyers. To that end, they sold units to a record 149 unique customers in Q2 2023, representing an increase of more than 65% versus the prior year and nearly 60% higher than the number sold to in Q2 2019. 

Product Highlights 

• Their high-performing Spectra UR43 gaming cabinet remains at the top of the charts, achieving the number one ranking in the “Portrait Upright” category of the July 2023 Eilers-Fantini Cabinet Performance Report for the seventh consecutive month. The strong initial performance of the cabinet’s two launch titles, Shamrock Fortunes and Long Bao Bao, continues to broaden its appeal with tribal and commercial operators alike, with each theme delivering reported performance of over 1.75 times house average, per Eilers. Spectra UR43 accounted for over 750 of the total units sold in Q2 2023, pushing their total footprint to more than 1,650 units at quarter end. Supported by the sustained strength in Spectra’ UR43’s launch title performance and the deep portfolio of over 30 titles under development to support the cabinet during its first year of commercialization, they expect demand for the cabinet to remain strong over the coming quarters. 
• Orion Curve Premium reached a notable milestone in Q2 2023, as our installed base surpassed 1,500 units in just under two years’ time. Demand for Curve Premium remains relatively robust, as evidenced by the quarterly sequential installed base growth of 13% delivered in Q2 2023. Their extensive Curve Premium game theme pipeline, featuring a number of popular AGS brands and proven game mechanics, the expanded breadth of their product configuration and merchandising offerings, and strategic targeting of latent customers should allow them to broaden Curve Premium’s market penetration as they progress throughout the remainder of 2023.  
• The company’s initial high-denomination game themes, Mega Diamond and Gold Inferno, continue to establish themselves in the market, with strong reported game performance above 1.25 times house average landing each title in the top 25 of the “High Denom, Video Reel” category of the July 2023 Eilers-Fantini Game Performance Report. In addition to providing the company’s account executives with the means to sell into a new segment of their customers’ slot floors, the games also serve as another tool to support the company’s installed base optimization initiatives and to strategically broaden its online RMG content offering into a category with high player appeal. 

Table Products Quarterly Results 

• Gaming operations, or recurring revenue, increased 11% year-over-year to a record $3.9 million, accounting for nearly 90% of total segment revenue. Further penetration of the single-deck specialty game card shuffler market with PAX S, an over 8% year-over-year increase in revenue generated by the company’s industry-leading table game progressive product portfolio, and activation of additional AGS Arsenal site license contracts contributed to the improved recurring revenue performance versus the prior year. Gaming operations revenue advanced 4% versus the $3.7 million produced in Q1 2023. 
• Equipment sales revenue reached a record $528 thousand, exceeding the previous record of $410 thousand, set in Q3 2019, by nearly 30% and up by more than 35% compared to the $388 thousand delivered in Q1 2023. Growing customer adoption of the PAX S single-deck card shuffler paced the company’s record equipment sales revenue performance in the quarter. 
• The table products installed base totaled 5,257 units at the end of Q2 2023, up by more than 450 units, or approximately 10%, versus the prior year. The full-scale commercial launch of PAX S, a near doubling of the Bonus Spin Xtreme (BSX) progressive footprint and further adoption of the company’s all-inclusive AGS Arsenal site license offering contributed to year-over-year installed base growth in all Table Product categories, including progressives, shufflers, side bets, and premium games. The table products installed base declined by a modest 21 units on a quarterly sequential basis. 
• The average monthly lease price (ALP) was relatively consistent versus the prior year at $241. The ALP increased approximately 3% sequentially, supported by outsized growth of premium-priced PAX S units within the installed base.  
• The PAX S specialty game card shuffler footprint grew to over 265 units at the end of Q2 2023, with units live in more than 50 unique casinos across 18 states and provinces. The PAX S footprint expanded by more than 60 units, or approximately 30%, sequentially in Q2 2023, supported by initial installs into WA, IN and SK. With PAX S approved in all major North American markets and supported by the overwhelmingly positive customer feedback received on the product to date, the company believes it remains in the very early stages of realizing PAX’s true growth potential.
• The table game progressive installed base surpassed 1,800 units at quarter end, representing an increase of approximately 5% versus the prior year. The company’s diverse table game progressive product portfolio continues to consistently generate over $2 million of high-margin, recurring revenue per quarter, serving as a key contributor to the record Table Products recurring revenue performance achieved in Q2 2023. 
• Table Products Adjusted EBITDA increased 12% year-over-year to $2.3 million. Adjusted EBITDA margin was 51.6% compared to 57.5% in Q2 2022, reflecting a higher allocation of field service expense to the segment to better align with the current complexion of the installed base and a greater mix of equipment sales revenue.  

Interactive Quarterly Results 

• Interactive revenue totaled $2.8 million, representing an increase of 6% year-over-year and 9% versus Q1 2023. RMG revenue accounted for over 80% of Q2 2023 segment-level revenue, with the balance derived from the Company’s B2C social casino platform.
• RMG revenue increased 10% year-over-year and 12% sequentially to a record $2.3 million, eclipsing $2.0 million for the fifth consecutive quarter. Initial returns realized on tactical investments into the company’s technical and commercial teams initiated in the second half of 2022 drove the improved Q2 2023 RMG revenue performance. Revenues earned from North American-facing customers accounted for nearly 90% of Q2 2023 RMG revenue mix.
• The Interactive segment delivered positive Adjusted EBITDA for the fourteenth consecutive quarter, as the company remains committed to profitably scaling its RMG business. Although strategic investments intended to improve the cadence of the company’s brick-and-mortar game content releases into the North American RMG channel, expand its content offering into new game genres, including instant win and table games, and strengthen its customer account management capabilities led to a decline in Adjusted EBITDA versus the prior year, early returns on these investments paced a more than doubling of Adjusted EBITDA on a quarterly sequential basis as compared to the $220 thousand delivered in Q1 2023.
• The company’s RMG game content catalog, consisting of over 40 proven AGS land-based titles, was live in nearly all of the most prominent regulated North American online jurisdictions and with over 60 i-gaming operators globally as of June 30, 2023. PA, MI and NJ represented the highest revenue generating end markets in Q2 2023.
• The company plans to unveil several potentially impactful upgrades to its RMG offering during Q3 2023, including the introduction of its first games developed on its fully redesigned RMG platform, which features a complete overhaul of its user interface (UI) and user experience (UE) attributes.

Liquidity and Capital Expenditures

As of June 30, 2023, the company had an available cash balance of $34.8 million and $40.0 million of availability under its undrawn revolving credit facility, resulting in total available liquidity of approximately $75 million.

The total principal amount of debt outstanding, as of June 30, 2023, was $568.9 million compared to $571.4 million at December 31, 2022. Total net debt, which is the principal amount of debt outstanding less cash and cash equivalents, was approximately $534.1 million as of June 30, 2023, conveying a total net debt leverage ratio of 3.6 times compared to 3.8 times as of December 31, 2022.

Second quarter 2023 capital expenditures totaled $15.6 million, bringing year-to-date capital expenditures to $29.3 million. Gaming equipment-related investments into the company’s EGM and Table Product installed bases accounted for approximately 60% of capital expenditures incurred in both the second quarter and year-to-date periods. The company continues to expect full year 2023 capital expenditures, inclusive of anticipated capitalized R&D expenditures, to land in the range of $65 million to $70 million.

2023 Net Leverage Target

The company expects to exit 2023 with net leverage in the range of 3.25 times to 3.50 times.