PlayAGS, Inc. - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - May 3, 2018

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EX-99.2 - EXHIBIT 99.2 - PlayAGS, Inc.q118agsearningrelease.htm
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Exhibit 99.1


- AGS ANNOUNCES FIRST QUARTER RESULTS


•
Record Quarterly Revenue of $64.9 Million Grew 36% Year-Over-Year
•
Record Adjusted EBITDA of $34.5 Million Grew 39% Year-Over-Year
•
Record Recurring Revenue of $49.6 Million Grew 23% Year-Over-Year
•
EGM Units Sold of 838 grew 85% Year-Over-Year
•
Net Loss of $9.5 Million Improved 23% Year-Over-Year, which includes $8.0 million initial non-cash stock based compensation expense


LAS VEGAS, Nevada, May 3, 2018 - PlayAGS, Inc. (NYSE: AGS) ("AGS", "us", "we" or the "Company") today reported operating results for its first quarter 2018 and quarter ended March 31, 2018.

"The first quarter of 2018 was absolutely tremendous for AGS - we achieved records in every key category, including revenue, adjusted EBITDA, average selling price, and recurring revenue.  We reported the most EGM sales revenue in our company’s history with 838 units sold, driven largely by the continued success of the Orion Portrait cabinet, while our Tables and Interactive segments both reported their strongest EBITDA quarters to date,” said David Lopez, President and CEO of AGS.  “With industry-leading game performance and the recent introduction of the new Orion Slant, AGS shows no signs of slowing down and we are confident that 2018 will be our best year yet."

Summary of the quarter ended March 31, 2018 and 2017
(In thousands, except per-share and unit data)
 
Three Months Ended March 31,
 
2018
 
2017
 
% Change
Revenues
 
 
 
 
 
EGM
$
61,258

 
$
45,012

 
36.1
 %
Table Products
1,670

 
632

 
164.2
 %
Interactive
1,928

 
2,130

 
(9.5
)%
Total revenue
$
64,856

 
$
47,774

 
35.8
 %
Operating income
$
2,238

 
$
2,183

 
2.5
 %
Net loss
$
(9,538
)
 
$
(12,386
)
 
23.0
 %
Loss per share
$
(0.30
)
 
$
(0.53
)
 
43.4
 %
 
 
 
 
 
 
Adjusted EBITDA
 
 
 
 
 
EGM
$
34,304

 
$
25,199

 
36.1
 %
Table Products
186

 
$
(177
)
 
205.1
 %
Interactive
9

 
(117
)
 
107.7
 %
Total adjusted EBITDA(1)
$
34,499

 
$
24,905

 
38.5
 %
 
 
 
 
 
 
EGM Units Sold
838

 
453

 
85.0
 %
EGM total installed base, end of period
24,033

 
21,204

 
13.3
 %
(1) Adjusted EBITDA is a non-GAAP measure, see non-GAAP reconciliation below.

1



First Quarter Financial Highlights

•
Total revenue increased 36% to $64.9 million, a company record, driven by continued growth of our EGMs in the Class III marketplace, led by demand for our newer premium Orion Portrait cabinet.
•
Recurring revenue grew to $49.6 million or 23% year-over-year, primarily attributable to the contribution of EGMs purchased from Rocket Gaming and Table Products purchased from In Bet in the Fall of 2017, as well as our yield optimization efforts and the popularity of the Orion Portrait cabinet.
•
EGM equipment sales increased 107% to $15.2 million, another company record, due to the sale of 838 units, approximately 60% of which were Orion Portrait cabinet.
•
Adjusted EBITDA increased to $34.5 million, or 39%, driven by an increase in revenue, and partially offset by increased adjusted operating expenses of $3.8 million primarily due to increased headcount in our R&D studios including our new studio in Sydney, Australia.
•
Total adjusted EBITDA margin increased to 53% in the first quarter 2018 compared to 52% driven by several different factors, most notably due to the operating leverage from the assets purchased from Rocket Gaming.
•
SG&A expenses increased $6.5 million in the first quarter of 2018 primarily due to an initial non-cash charge of $6.2 million in stock based compensation recorded in connection with the IPO, as well as increased costs due to higher headcount.
•
R&D expenses increased $3.3 million in the first quarter of 2018 driven by an initial non-cash charge of $1.6 million in stock based compensation recorded in connection with the IPO, as well as increased headcount, and the development of our new Orion Slant cabinet and DEX S card shuffler.
•
Net loss also improved to $9.5 million from $12.4 million, which included non-cash stock based compensation in the current quarter of $8.2 million versus no non-cash stock based compensation in the prior year.

First Quarter Business Highlights

•
Domestic EGM installed base increased by over 2,500 units year-over-year driven by the purchase of approximately 1,500 EGMs from Rocket Gaming in December 2017 and the popularity of our ICON and Orion Portrait cabinets.
•
Domestic EGM revenue per day increased 3% to $26.72 driven by our yield optimization efforts as well as the growing footprint of our latest high-performing products in both current and new markets.
•
EGM units sold increased to 838 in the current quarter compared to 453 in the prior year led by sales of the Orion Portrait cabinet.
•
EGM average selling price (ASP) increased over 13% to $17,758, a quarterly company record, driven by record sales of the Orion Portrait cabinet.
•
On a trailing twelve months basis, nearly $5.6 million of our recurring revenue came from our yield optimization efforts.
•
Table Products increased 940 units, or 56%, to 2,631 units driven by both organic growth - most notably in Buster Blackjack and Bonus Spin progressive units - and the purchase of approximately 500 In Bet assets in the third quarter of 2017.
•
Our ICON cabinet footprint grew 172% to over 5,400 total units in the field.
•
Introduced to the market in Q1 of 2017, our Orion Portrait cabinet ended Q1 2018 with a footprint of over 2,800 total units, up 49% from year end.

Balance Sheet Review

Capital expenditures increased $0.6 million to $15.0 million in the first quarter, compared to $14.4 million in the prior year period. As of March 31, 2018, AGS had $25.8 million in cash and cash equivalents compared to $19.2 million at December 31, 2017. Total net debt, which is the principal amount of debt outstanding less cash and cash equivalents, as of March 31, 2018, was approximately $487.7 million compared to $648.7 million at December 31, 2017. This substantial reduction was driven by the IPO, the exercise in full of the underwriters’ overallotment option and the settlement of our HoldCo PIK notes during the first quarter.

2018 Outlook

Based on our year-to-date progress and due to our current momentum, we now expect our adjusted EBITDA in 2018 to be between $126 and $131 million. This is an upward revision to the guidance we previously released and is based on greater visibility that we now have for Orion Portrait and other products throughout the year. We maintain our capital expenditures range of $55 to $60 million.


2



Conference Call and Webcast

Today, at 5:00 p.m. ET, management will host a conference call to present the first quarter 2018 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 US/Canada toll-free dial-in number is +1 (866) 777-2509 and the dial-in number for participants outside the US/Canada is +1 (412) 317-5413. The conference ID/confirmation code is AGS Q1 2018 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 Native American 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 solutions for players and operators, and best-in-class service, we offer an unmatched value proposition for our casino partners. Learn more about us at www.playags.com.

Forward-looking Statements

This release contains “forward-looking statements.” Forward-looking statements include any statements that address future results or occurrences. In some cases you can identify forward-looking statements by terminology such as “may,” “might,” “will,” “would,” “should,” “could” or the negatives thereof. Generally, the words “anticipate,” “believe,” “continue,” “expect,” “intend,” “estimate,” “project,” “plan” and similar expressions identify forward-looking statements. In particular, statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance contained in this Annual Report on Form 10-K in Item 1. “Business,” Item 1A. “Risk Factors” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are forward-looking statements. These forward-looking statements include statements that are not historical facts, including statements concerning our possible or assumed future actions and business strategies.



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PLAYAGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share and per share data)
(unaudited)

 
March 31,
 
December 31,
 
2018
 
2017
Assets
Current assets
 
 
 
Cash and cash equivalents
$
25,821

 
$
19,242

Restricted cash
78

 
100

Accounts receivable, net of allowance of $1,284 and $1,462, respectively
38,766

 
32,776

Inventories
29,006

 
24,455

Prepaid expenses
4,516

 
2,675

Deposits and other
3,435

 
3,460

Total current assets
101,622

 
82,708

Property and equipment, net
80,509

 
77,982

Goodwill
279,941

 
278,337

Intangible assets
222,557

 
232,287

Deferred tax asset
3,734

 
1,115

Other assets
13,674

 
24,813

Total assets
$
702,037

 
$
697,242

 
 
 
 
Liabilities and Stockholders’ Equity
Current liabilities
 
 
 
Accounts payable
$
11,506

 
$
11,407

Accrued liabilities
16,411

 
24,954

Current maturities of long-term debt
7,055

 
7,359

Total current liabilities
34,972

 
43,720

Long-term debt
493,865

 
644,158

Deferred tax liability - noncurrent
—

 
1,016

Other long-term liabilities
26,734

 
36,283

Total liabilities
555,571

 
725,177

Commitments and contingencies
 
 
 
Stockholders’ equity
 
 
 
Preferred stock at $0.01 par value; 100,000 shares authorized, no shares issued and outstanding
—

 
—

Common stock at $0.01 par value; 450,000,000 shares authorized at March 31, 2018 and 46,629,155 at December 31, 2017; and 35,212,917 and 23,208,076 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively.
352

 
149

Additional paid-in capital
358,075

 
177,276

Accumulated deficit
(211,095
)
 
(201,557
)
Accumulated other comprehensive loss
(866
)
 
(3,803
)
Total stockholders’ equity
146,466

 
(27,935
)
Total liabilities and stockholders’ equity
$
702,037

 
$
697,242



4



PLAYAGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(amounts in thousands, except per share data)
(unaudited)
 

 
Three months ended March 31,
 
2018
 
2017
Revenues
 
 
 
Gaming operations
$
49,632

 
$
40,433

Equipment sales
15,224

 
7,341

Total revenues
64,856

 
47,774

Operating expenses
 
 
 
Cost of gaming operations(1)
8,858

 
7,471

Cost of equipment sales(1)
7,399

 
3,852

Selling, general and administrative
16,777

 
10,281

Research and development
8,625

 
5,304

Write downs and other charges
1,610

 
232

Depreciation and amortization
19,349

 
18,451

Total operating expenses
62,618

 
45,591

Income from operations
2,238

 
2,183

Other (income) expense
 
 
 
Interest expense
10,424

 
15,160

Interest income
(52
)
 
(15
)
Loss on extinguishment and modification of debt
4,608

 
—

Other (income) expense
9,232

 
(2,809
)
Loss before income taxes
(21,974
)
 
(10,153
)
Income tax benefit (expense)
12,436

 
(2,233
)
Net loss
(9,538
)
 
(12,386
)
Foreign currency translation adjustment
2,937

 
875

Total comprehensive loss
$
(6,601
)
 
$
(11,511
)
 
 
 
 
Basic and diluted loss per common share:
 
 
 
Basic
$
(0.30
)
 
$
(0.53
)
Diluted
$
(0.30
)
 
$
(0.53
)
Weighted average common shares outstanding:
 
 
 
Basic
31,735

 
23,208

Diluted
31,735

 
23,208

(1) exclusive of depreciation and amortization



5



PLAYAGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
(unaudited)
 
Three months ended March 31,
 
2018
 
2017
Cash flows from operating activities
 
 
 
Net loss
$
(9,538
)
 
$
(12,386
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
19,349

 
18,451

Accretion of contract rights under development agreements and placement fees
1,084

 
1,149

Amortization of deferred loan costs and discount
451

 
939

Payment-in-kind interest capitalized
—

 
112

Payment-in-kind interest payments
(37,624
)
 
—

Write off of deferred loan cost and discount
3,410

 
—

Stock based compensation expense
8,153

 
—

(Benefit) provision for bad debts
(142
)
 
595

Loss on disposition of assets
340

 
577

Impairment of assets
570

 
285

Fair value adjustment of contingent consideration
700

 
—

(Benefit) provision for deferred income tax
(3,551
)
 
1,350

Changes in assets and liabilities that relate to operations:
 
 
 
Accounts receivable
(4,820
)
 
637

Inventories
(2,462
)
 
2,315

Prepaid expenses
(1,826
)
 
(1,062
)
Deposits and other
118

 
(90
)
Other assets, non-current
11,618

 
(1,089
)
Accounts payable and accrued liabilities
(18,646
)
 
(4,564
)
Net cash provided by (used in) operating activities
(32,816
)
 
7,219

Cash flows from investing activities
 
 
 
Purchase of intangible assets
(568
)
 
(358
)
Software development and other expenditures
(2,490
)
 
(2,210
)
Proceeds from disposition of assets
21

 
—

Purchases of property and equipment
(11,931
)
 
(11,861
)
Net cash used in investing activities
(14,968
)
 
(14,429
)
Cash flows from financing activities
 
 
 
Repayment of PIK notes
(115,000
)
 
—

Repayment of senior secured credit facilities
(1,288
)
 
(1,833
)
Payment of financed placement fee obligations
(879
)
 
(1,320
)
Payments on equipment long term note payable and capital leases
(678
)
 
—

Proceeds from issuance of common stock
176,341

 
—

Initial public offering cost
(4,160
)
 
—

Proceeds from employees in advance of common stock issuance
—

 
25

Net cash used in financing activities
54,336

 
(3,128
)
Effect of exchange rates on cash and cash equivalents
5

 
3

Decrease in cash and cash equivalents
6,557

 
(10,335
)
Cash, cash equivalents and restricted cash, beginning of period
19,342

 
18,077

Cash, cash equivalents and restricted cash, end of period
$
25,899

 
$
7,742

 
 
 
 
Supplemental cash flow information:
 
 
 
Cash paid during the period for interest
$
8,412

 
$
9,655

Cash paid during the period for taxes
$
101

 
$
273


6



Non-GAAP Financial Measures
    
This press release and accompanying schedules provide certain information regarding adjusted EBITDA which is considered a non-GAAP financial measures 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 or expenses that are deducted in calculating net income and to deduct certain gains that are included in calculating net income. However, these charges and 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 following table presents a reconciliation of total adjusted EBITDA to net loss, which is the most comparable GAAP measure:

Total Adjusted EBITDA Reconciliation    
 
Three months ended March 31,
 
$
 
%
 
2018
 
2017
 
Change
 
Change
Net loss
$
(9,538
)
 
$
(12,386
)
 
$
2,848

 
23.0
 %
Income tax expense (benefit)
(12,436
)
 
2,233

 
(14,669
)
 
(656.9
)%
Depreciation and amortization
19,349

 
18,451

 
898

 
4.9
 %
Other (income) expense
9,232

 
(2,809
)
 
12,041

 
(428.7
)%
Interest income
(52
)
 
(15
)
 
(37
)
 
(246.7
)%
Interest expense
10,424

 
15,160

 
(4,736
)
 
(31.2
)%
Write downs and other(1)
1,610

 
232

 
1,378

 
594.0
 %
Loss on extinguishment and modification of debt(2)
4,608

 
—

 
4,608

 
100.0
 %
Other adjustments(3)
396

 
647

 
(251
)
 
(38.8
)%
Other non-cash charges(4)
1,574

 
2,111

 
(537
)
 
(25.4
)%
New jurisdiction and regulatory licensing costs(5)
—

 
235

 
(235
)
 
(100.0
)%
Legal & litigation expenses including settlement payments(6)
—

 
399

 
(399
)
 
(100.0
)%
Acquisition & integration related costs(7)
1,179

 
647

 
532

 
82.2
 %
Non-cash stock based compensation(8)
8,153

 
—

 
8,153

 
100.0
 %
Total Adjusted EBITDA
$
34,499

 
$
24,905

 
$
9,594

 
38.5
 %

(1) Write downs and other includes items related to loss on disposal or impairment of long lived assets, fair value adjustments to contingent consideration and acquisition costs
(2) Loss on extinguishment and modification of debt primarily relates to the refinancing of long-term debt, in which deferred loan costs and discounts related to old senior secured credit facilities were written off
(3) Other adjustments are primarily composed of professional fees incurred for projects, corporate and public filing compliance, contract cancellation fees and other transaction costs deemed to be non-operating in nature
(4) Other non-cash charges are costs related to non-cash charges and losses on the disposition of assets, non-cash charges on capitalized installation and delivery, which primarily includes the costs to acquire contracts that are expensed over the estimated life of each contract and non-cash charges related to accretion of contract rights under development agreements

7



(5) New jurisdiction and regulatory license costs relates primarily to one-time non-operating costs incurred to obtain new licenses and develop products for new jurisdictions
(6) Legal & litigation expenses include of payments to law firms and settlements for matters that are outside the normal course of business
(7) Acquisition and integration costs include restructuring and severance and are related to costs incurred after the purchase of businesses, such as the acquisitions of Rocket, In Bet, Cadillac Jack and RocketPlay, to integrate operations
(8) Non-cash stock based compensation includes non-cash compensation expense related to grants of options, restricted stock, and other equity awards








For information contact:
Julia Boguslawski, Chief Marketing Officer & EVP of Investor Relations
PlayAGS, Inc.
702-724-1125
jboguslawski@playags.com

Or

Steven Kopjo, Director of SEC Reporting & Investor Relations
PlayAGS, Inc.
702-724-1155
skopjo@playags.com

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