EX-99.1 2 ex991.htm EXHIBIT 99.1 Exhibit


Exhibit 99.1


- AGS ANNOUNCES FOURTH QUARTER AND FULL YEAR RESULTS


•
Fourth Quarter Revenue of $57.7 Million Grew 35% Year-Over-Year
•
Record Annual Revenue of $212.0 Million Grew 27% Year-Over-Year
•
Record Annual Adjusted EBITDA of $106.8 Million Grew 25% Year-Over-Year
•
Annual Net Loss of $45.1 Million Improved 45% Year-Over-Year


LAS VEGAS, Nevada, March 14, 2018 - PlayAGS, Inc. (NYSE: AGS) (“AGS”, "us", "we" or the “Company”) today reported operating results for its fourth quarter 2017 and fiscal year ended December 31, 2017.

"Record revenue of $57.7 million in the fourth quarter punctuated a transformative year for AGS. With 27% growth on the top line, 10% recurring revenue growth, and 25% growth in Adjusted EBITDA in fiscal 2017, our results reflected AGS’s continued dedication to best-in-class execution against its growth initiatives to penetrate new jurisdictions and launch high-performing, in-demand products into the market,” said David Lopez, President and CEO of AGS. “Entering the new fiscal year, we believe we are well positioned for meaningful growth as we benefit from continued momentum of our Orion Portrait and Icon cabinets, entry into new domestic and international jurisdictions, and promising new product launches like the Orion Slant, STAX table progressive system, and the Dex S card shuffler.”


Summary of the quarter and year ended December 31, 2017 and 2016
(In thousands, except per-share and unit data)
 
Three Months Ended December 31,
 
Year Ended December 31,
 
2017
 
2016
 
% Change
 
2017
 
2016
 
% Change
Revenues
 
 
 
 
 
 
 
 
 
 
 
EGM
54,184

 
40,254

 
34.6
%
 
199,931

 
156,407

 
27.8
%
Table Products
1,623

 
669

 
142.6
%
 
4,065

 
2,674

 
52.0
%
Interactive
1,854

 
1,822

 
1.8
%
 
7,959

 
7,725

 
3.0
%
Total revenue
57,661

 
42,745

 
34.9
%
 
211,955

 
166,806

 
27.1
%
Operating income / (loss)
861

 
(1,403
)
 
161.4
%
 
14,502

 
(17,064
)
 
185.0
%
Net loss
(8,520
)
 
(20,234
)
 
57.9
%
 
(45,106
)
 
(81,374
)
 
44.6
%
Loss per share
(0.37
)
 
(0.87
)
 
57.5
%
 
(1.94
)
 
(3.51
)
 
44.7
%
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
 
 
 
 
 
 
 
 
 
 
EGM
26,335

 
23,025

 
14.4
%
 
107,785

 
91,729

 
17.5
%
Table Products
193

 
(268
)
 
172.0
%
 
(528
)
 
(1,663
)
 
68.3
%
Interactive
(79
)
 
(656
)
 
88.0
%
 
(416
)
 
(4,727
)
 
91.2
%
Total adjusted EBITDA(1)
26,449

 
22,101

 
19.7
%
 
106,841

 
85,339

 
25.2
%
 
 
 
 
 
 
 
 
 
 
 
 
EGM Units Sold
697

 
260

 
168.1
%
 
2,565

 
465

 
451.6
%
EGM total installed base, end of period
23,805

 
20,851

 
14.2
%
 
23,805

 
20,851

 
14.2
%
(1) Adjusted EBITDA is a non-GAAP measure, see non-GAAP reconciliation below.

Fourth Quarter Financial Highlights

•
Total revenue increased 35% to $57.7 million driven by continued growth of our EGMs in the Class III marketplace.
•
At $45.2 million, total recurring revenue grew approximately 20% quarter-over-quarter, primarily attributable to yield optimization efforts and the popularity of our new premium cabinet, Orion Portrait.

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•
EGM equipment sales increased 151% to $12.4 million due to the sale of 697 units.
•
Total adjusted EBITDA margin decreased to 46% in the fourth quarter 2017 compared to 52% due to sales mix and the timing of G2E, which took place in the fourth quarter 2017 and in the third quarter for 2016.
•
SG&A increased $4.2 million in the fourth quarter of 2017 due to the timing of the annual Global Gaming Expo ("G2E") trade show as well as well as increased costs due to higher headcount.
•
R&D increased $3.0 million in the fourth quarter of 2017 driven by increased headcount costs and the development of our new Orion Portrait and Orion Slant cabinets as well as our newly established game development studio in Sydney, Australia.
•
At $26.4 million, adjusted EBITDA increased 20% driven by increases in revenue, and offset by increased adjusted operating expenses of $4.8 million primarily due to increased headcount.
•
Net loss significantly improved to $8.5 million from $20.2 million.

Full Year Financial Highlights

•
Total revenue increased 27% to $212.0 million due to the continued growth of our EGM segment driven by the introduction of new products and our continued expansion into the Class III marketplace.
•
At $170.3 million, total recurring revenue grew approximately 10%, primarily attributable to yield optimization efforts and the popularity of our new premium cabinet, Orion Portrait.
•
EGM equipment sales increased 250% to $41.6 million driven by an increase of 2,100 sold EGMs for a total of 2,565.
•
Total adjusted EBITDA margin was 50% for 2017 compared to 51%, which is attributable primarily to the large increase in EGM equipment sales revenue.
•
SG&A decreased $2.1 million in 2017 primarily due to decreased user acquisition fees from our Interactive segment in efforts to optimize marketing spend.
•
R&D increased $4.4 million in 2017 driven by increased headcount costs and the development of our new Orion Portrait and Orion Slant cabinets as well as our newly established game development studio in Sydney, Australia.
•
At $106.8 million, adjusted EBITDA increased 25% driven by the increases in revenue described above, and offset by increased adjusted operating expenses of $4.1 million primarily due to increased headcount.
•
Net loss significantly improved to $45.1 million from $81.4 million.

Full Year Business Highlights

•
EGM average selling price increased nearly 10% to $16,329.
•
Domestic EGM revenue per day increased $1.03 to $25.77 driven by our yield optimization efforts as well as the introduction of our new, high performing products.
•
Nearly $4.4 million of 2017’s recurring revenue came from our yield optimization efforts. As of year end, we have optimized nearly 2,300 units, of which 70% were optimized in 2017.
•
Table Products increased 900 units, or 60%, to 2,400 units driven by both organic growth and the purchase of In Bet assets.
•
Our ICON cabinet footprint grew nearly 300% to over 4,700 total units in the field.
•
Introduced to the market in Q1 of 2017, our Orion Portrait cabinet ended the year with over 1,900 total units in the field.

Balance Sheet Review

Capital expenditures increased $16.8 million to $57.5 million in 2017, compared to $40.7 million. The increase was driven primarily by the purchase of property and equipment of $15.7 million and software development costs of $1.1 million to fuel growth initiatives. As of December 31, 2017, AGS had $19.2 million in cash and cash equivalents compared to $18.0 million at December 31, 2016. Total net debt as of December 31, 2017, was approximately $649 million. As a result of the IPO, the exercise in full of the underwriters’ overallotment option and the settlement of our HoldCo PIK notes subsequent to year end, our pro forma total net debt decreased by $171 million to $478 million.
    
Recent Developments

Initial Public Offering

On January 26, 2018, we completed the initial public offering of our common stock, in which it issued and sold 10,250,000 shares of common stock at a public offering price of $16.00 per share. We received net proceeds of $149.1 million from the initial public offering, after deducting underwriting discounts and commissions and offering expenses payable.


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On February 27, 2018 we sold an additional 1,537,500 shares of common stock at a public offering price of $16.00 per share pursuant to the underwriters’ exercise in full of the over-allotment option and we received net proceeds of $23.0 million from the exercise of the over-allotment option, after deducting underwriting discounts and commissions.
Repayment of Senior Secured PIK Notes
    
On January 30, 2018, we used the net proceeds of the initial public offering and cash on hand to redeem in full the 11.25% senior secured PIK notes due 2024 (the “Notes”). On the redemption date, the aggregate principal amount of the Notes outstanding was $152.6 million and the amount of accrued and unpaid interest was $1.4 million. In connection with the redemption, we repaid all of the outstanding obligations in respect of principal, interest and fees under the Notes.
    
Term Loan Repricing

On February 7, 2018 we completed the repricing of our existing $513 million term loans under our First Lien Credit Agreement (the "Term Loans"). The Term Loans were repriced from 550 basis points to 425 basis points over LIBOR. The LIBOR floor remains at 100 basis points. As a result of the repricing, we expect to realize annual cash interest savings of approximately $6.4 million.

2018 Outlook

We expect to generate total adjusted EBITDA of $124 - $130 million in 2018, representing growth of approximately 16%-22% compared to the prior year period.

AGS expects 2018 capital expenditures to be in the range of $55 - $60 million, compared to $57.5 million in 2017, reflecting an expectation for a continued increase in our installed base in both existing and new markets as well as our ongoing yield optimization initiative.

Comparison of Fiscal 2018 Guidance to Fiscal 2017 and Fiscal 2016 Results
 
Year ended December 31,
(in $mm)
2018 Guidance
 
2017
 
2016
Adjusted EBITDA (1)
$124 - $130
 
$
107

 
$
85

Capex
$55 - $60
 
$
57

 
$
41

(1) A reconciliation of this measure to net income, which is its most comparable GAAP measure, can be found on page 8 of this press release.

Conference Call and Webcast

Today, at 4:00 p.m. EST, management will host a conference call to present the fourth quarter 2017 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 Q4 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,”

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“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.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share and per share data)

 
December 31,
 
2017
 
2016
Assets
Current assets
 
 
 
Cash and cash equivalents
$
19,242

 
$
17,977

Restricted cash
100

 
100

Accounts receivable, net of allowance of $1,462 and $1,972 respectively
32,776

 
24,035

Inventories
24,455

 
10,729

Prepaid expenses
2,675

 
2,609

Deposits and other
3,460

 
3,052

Total current assets
82,708

 
58,502

Property and equipment, net
77,982

 
67,926

Goodwill
278,337

 
251,024

Deferred tax asset
1,115

 
9

Intangible assets
232,287

 
232,877

Other assets
24,813

 
23,754

Total assets
$
697,242

 
$
634,092

 
 
 
 
Liabilities and Stockholders’ Equity
Current liabilities
 
 
 
Accounts payable
$
11,407

 
$
8,790

Accrued liabilities
24,954

 
17,702

Current maturities of long-term debt
7,359

 
6,537

Total current liabilities
43,720

 
33,029

Long-term debt
644,158

 
547,238

Deferred tax liability - noncurrent
1,016

 
6,957

Other long-term liabilities
36,283

 
30,440

Total liabilities
725,177

 
617,664

Commitments and contingencies (Note 14)
 
 
 
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; 46,629,155 shares authorized; 23,208,076 Shares issued and outstanding at December 31, 2017 and 2016.
149

 
149

Additional paid-in capital
177,276

 
177,276

Accumulated deficit
(201,557
)
 
(156,451
)
Accumulated other comprehensive (loss) income
(3,803
)
 
(4,546
)
Total stockholders’ equity
(27,935
)
 
16,428

Total liabilities and stockholders’ equity
$
697,242

 
$
634,092



5



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

 
Three months ended December 31,
 
Year ended December 31,
 
2017
 
2016
 
2017
 
2016
Revenues
 
 
 
 
 
 
 
Gaming operations (1)
$
45,212

 
$
37,764

 
$
170,252

 
$
154,857

Equipment sales
12,449

 
4,981

 
41,703

 
11,949

Total revenues
57,661

 
42,745

 
211,955

 
166,806

Operating expenses
 
 
 
 
 
 
 
Cost of gaming operations(2)
9,948

 
7,109

 
31,742

 
26,736

Cost of equipment sales(2)
5,521

 
1,993

 
19,847

 
6,237

Selling, general and administrative
13,647

 
9,454

 
44,015

 
46,108

Research and development
7,803

 
4,829

 
25,715

 
21,346

Write downs and other charges
1,830

 
1,109

 
4,485

 
3,262

Depreciation and amortization
18,051

 
19,654

 
71,649

 
80,181

Total operating expenses
56,800

 
44,148

 
197,453

 
183,870

Loss from operations
861

 
(1,403
)
 
14,502

 
(17,064
)
Other expense (income)
 
 
 
 
 
 
 
Interest expense
13,131

 
15,812

 
55,511

 
59,963

Interest income
(28
)
 
(6
)
 
(108
)
 
(57
)
Loss on extinguishment and modification of debt
903

 
—

 
9,032

 
—

Other expense (income)
1,867

 
1,090

 
(2,938
)
 
7,404

Loss before income taxes
(15,012
)
 
(18,299
)
 
(46,995
)
 
(84,374
)
Income tax benefit (expense)
6,492

 
(1,935
)
 
1,889

 
3,000

Net loss
(8,520
)
 
(20,234
)
 
(45,106
)
 
(81,374
)
Foreign currency translation adjustment
36

 
(598
)
 
743

 
(2,735
)
Total comprehensive loss
$
(8,484
)
 
$
(20,832
)
 
$
(44,363
)
 
$
(84,109
)
 
 
 
 
 
 
 
 
Basic and diluted loss per common share:
 
 
 
 
 
 
 
Basic
$
(0.37
)
 
$
(0.87
)
 
$
(1.94
)
 
$
(3.51
)
Diluted
$
(0.37
)
 
$
(0.87
)
 
$
(1.94
)
 
$
(3.51
)
Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
23,208

 
23,208

 
23,208

 
23,208

Diluted
23,208

 
23,208

 
23,208

 
23,208

(1) includes revenues from our EGM, Table Products and Interactive segments
(2) exclusive of depreciation and amortization


6



PLAYAGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
 
Year ended December 31,
 
2017
 
2016
Cash flows from operating activities
 
 
 
Net loss
$
(45,106
)
 
$
(81,374
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
71,649

 
80,181

Accretion of contract rights under development agreements and placement fees
4,680

 
4,702

Amortization of deferred loan costs and discount
2,976

 
3,542

Payment-in-kind interest capitalized
15,935

 
15,396

Payment-in-kind interest payments
(2,698
)
 
—

Write off of deferred loan cost and discount
3,294

 
—

Provision (benefit) for bad debts
651

 
2,290

Imputed interest income
—

 
—

Loss on disposition of assets
3,901

 
1,149

Impairment of assets
584

 
4,749

(Benefit) provision of deferred income tax
(7,062
)
 
(7,998
)
Changes in assets and liabilities that relate to operations:
 
 
 
Accounts receivable
(8,348
)
 
(3,191
)
Inventories
(1,636
)
 
307

Prepaid expenses
(599
)
 
2,021

Deposits and other
(374
)
 
(315
)
Other assets, non-current
(2,290
)
 
467

Accounts payable and accrued liabilities
8,451

 
12,567

Net cash provided by (used in) operating activities
44,008

 
34,493

Cash flows from investing activities
 
 
 
Business acquisitions, net of cash acquired
(63,850
)
 
—

Collection of notes receivable
—

 
—

Purchase of intangible assets
(1,226
)
 
(1,311
)
Software development and other expenditures
(7,664
)
 
(6,526
)
Proceeds from disposition of assets
514

 
87

Purchases of property and equipment
(48,585
)
 
(32,879
)
Net cash used in investing activities
(120,811
)
 
(40,629
)
Cash flows from financing activities
 
 
 
Borrowings under the revolving facility
—

 
—

Repayments under the revolving facility
—

 
—

Proceeds from issuance of first lien credit facilities
448,725

 
—

Proceeds from incremental term loans
65,000

 
—

Repayment of senior secured credit facilities
(410,655
)
 
—

Payments on first lien credit facilities
(2,413
)
 
(6,987
)
Deferred offering costs paid
(653
)
 
—

Payment of previous acquisition obligation
—

 
(1,125
)
Payment of financed obligations
(128
)
 
 
Payment of financed placement fee obligations
(3,807
)
 
(3,516
)
Repayment of seller notes
(12,401
)
 
—

Payments on equipment long term note payable and capital leases
(2,372
)
 
—

Repurchase of shares issued to management
—

 
(50
)
Proceeds from issuance of common stock
—

 
—

Proceeds from employees in advance of common stock issuance
25

 
75

Payment of deferred loan costs
(3,267
)
 
—

Net cash provided by financing activities
78,054

 
(11,603
)
Effect of exchange rates on cash and cash equivalents
14

 
(6
)
Increase (decrease) in cash and cash equivalents
1,265

 
(17,745
)
Cash and cash equivalents, beginning of period
17,977

 
35,722

Cash and cash equivalents, end of period
$
19,242

 
$
17,977

Supplemental cash flow information:
 
 
 
Cash paid during the period for interest
$
35,890

 
$
40,060

Cash paid during the period for taxes
$
1,157

 
$
1,247

Non-cash investing and financing activities:
 
 
 
Non-cash consideration given in business acquisitions
$
2,600

 
$
—

Financed placement fees
$
—

 
$
—

Financed purchase property and equipment
$
368

 
$
2,662

Financed purchase of intangible asset
$
4,866

 
$
—


7



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 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 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 December 31,
 
Year ended December 31,
 
2017
 
2016
 
2017
 
2016
Net loss
(8,520
)
 
(20,234
)
 
(45,106
)
 
(81,374
)
Income tax (benefit) expense
(6,492
)
 
1,935

 
(1,889
)
 
(3,000
)
Depreciation and amortization
18,051

 
19,654

 
71,649

 
80,181

Other expense (income)
1,867

 
1,090

 
(2,938
)
 
7,404

Interest income
(28
)
 
(6
)
 
(108
)
 
(57
)
Interest expense
13,131

 
15,812

 
55,511

 
59,963

Write downs and other(1)
1,830

 
1,109

 
4,485

 
3,262

Loss on extinguishment and modification of debt(2)
903

 
—

 
9,032

 
—

Other adjustments(3)
823

 
159

 
2,890

 
1,809

Other non-cash charges(4)
2,332

 
1,777

 
7,794

 
8,860

New jurisdiction and regulatory licensing costs(5)
758

 
358

 
2,062

 
1,315

Legal & litigation expenses including settlement payments(6)
(243
)
 
70

 
523

 
1,565

Acquisition & integration related costs(7)
2,037

 
377

 
2,936

 
5,411

Adjusted EBITDA
26,449

 
22,101

 
106,841

 
85,339


(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

8



(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



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

9