10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the quarter ended March 31, 2020

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from                          to                          .

Commission file number 001-38357

PLAYAGS, INC.

(Exact name of registrant as specified in its charter)

Nevada	46-3698600
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

5475 S. Decatur Blvd., Ste #100 Las Vegas, NV 89118

(Address of principal executive offices) (Zip Code)

(702) 722-6700 

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value	AGS	New York Stock Exchange

As of May 1, 2020, there were 35,603,870 shares of the Registrant’s common stock, $0.01 par value per share, outstanding.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller reporting company  ☐ Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☒  No ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐  No  ☒

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS
	CONDENSED CONSOLIDATED BALANCE SHEETS AT MARCH 31, 2020 AND DECEMBER 31, 2019	1
	CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS ) INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019	2
	CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AT MARCH 31, 2020 AND 2019	3
	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019	4
	NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	5
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	23
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	39
ITEM 4.	CONTROLS AND PROCEDURES	40
PART II. OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	41
ITEM 1A.	RISK FACTORS	41
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	41
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	41
ITEM 4.	MINE SAFETY DISCLOSURES	41
ITEM 5.	OTHER INFORMATION	41
ITEM 6.	EXHIBITS	41
	SIGNATURES	42

ii

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PLAYAGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share and per share data)

(unaudited)

	March 31, 2020			December 31, 2019
Assets
Current assets
Cash and cash equivalents	$	43,564		$	13,162
Restricted cash		20			20
Accounts receivable, net of allowance of $451 and $723, respectively		39,716			61,224
Inventories		39,015			32,875
Prepaid expenses		4,999			2,983
Deposits and other		5,172			5,332
Total current assets		132,486			115,596
Property and equipment, net		94,043			103,598
Goodwill		283,273			287,049
Intangible assets		219,458			230,451
Deferred tax asset		3,750			4,965
Operating lease assets		11,039			11,543
Other assets		6,659			9,176
Total assets	$	750,708		$	762,378
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	14,260		$	15,598
Accrued liabilities		23,877			34,840
Current maturities of long-term debt		6,071			6,038
Total current liabilities		44,208			56,476
Long-term debt		547,844			518,689
Deferred tax liability - non-current		1,482			1,836
Operating lease liabilities, long-term		10,672			11,284
Other long-term liabilities		33,960			40,309
Total liabilities		638,166			628,594
Commitments and contingencies (Note 13)
Stockholders’ equity
Preferred stock at $0.01 par value; 50,000,000 shares authorized, no shares issued and outstanding		—			—
Common stock at $0.01 par value; 450,000,000 shares authorized at March 31, 2020 and at December 31, 2019; and 35,587,851 and 35,534,558 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively.		356			355
Additional paid-in capital		373,019			371,311
Accumulated deficit		(250,241	)		(235,474	)
Accumulated other comprehensive loss		(10,592	)		(2,408	)
Total stockholders’ equity		112,542			133,784
Total liabilities and stockholders’ equity	$	750,708		$	762,378

The accompanying notes are an integral part of these condensed consolidated financial statements.

1

PLAYAGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(amounts in thousands, except per share data)

 (unaudited)

	Three Months Ended March 31,
	2020			2019
Revenues
Gaming operations	$	42,685		$	52,861
Equipment sales		11,628			20,181
Total revenues		54,313			73,042
Operating expenses
Cost of gaming operations(1)		9,993			9,619
Cost of equipment sales(1)		5,208			9,524
Selling, general and administrative		11,640			14,877
Research and development		8,231			8,125
Write-downs and other charges		55			1,016
Depreciation and amortization		24,369			21,533
Total operating expenses		59,496			64,694
(Loss) income from operations		(5,183	)		8,348
Other expense
Interest expense		8,342			8,874
Interest income		(52	)		(39	)
Other expense		4,339			5,260
(Loss) income before income taxes		(17,812	)		(5,747	)
Income tax benefit (expense)		3,393			5,758
Net (loss) income		(14,419	)		11
Less: Net income attributable to non-controlling interests		-			(93	)
Net (loss) income attributable to PlayAGS, Inc.		(14,419	)		(82	)
Foreign currency translation adjustment		(8,184	)		642
Total comprehensive (loss) income	$	(22,603	)	$	560
Basic and diluted loss per common share:
Basic	$	(0.41	)	$	-
Diluted	$	(0.41	)	$	-
Weighted average common shares outstanding:
Basic		35,543			35,371
Diluted		35,543			35,371

⁽¹⁾ exclusive of depreciation and amortization

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

PLAYAGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(amounts in thousands)

 (unaudited)

	Three Months Ended March 31,
	2020			2019
Common stock
Balance, beginning of period	$	355		$	353
Vesting of restricted stock		1			1
Balance of common stock, end of period		356			354
Additional paid-in capital
Balance, beginning of period		371,311			361,628
Stock option exercises		158			555
Stock-based compensation expense		1,551			1,196
Vesting of restricted stock		(1	)		-
Balance of additional paid-in capital, end of period		373,019			363,379
Accumulated deficit
Balance, beginning of period		(235,474	)		(222,403	)
Net loss attributable to PlayAGS, Inc.		(14,419	)		(82	)
Restricted stock vesting and withholding		(348	)		-
Balance of accumulated deficit, end of period		(250,241	)		(222,485	)
Accumulated other comprehensive loss
Balance, beginning of period		(2,408	)		(3,774	)
Foreign currency translation adjustment		(8,184	)		642
Balance of accumulated other comprehensive loss, end of period		(10,592	)		(3,132	)
Non-controlling interests
Balance, beginning of period		-			-
Net income		-			93
Business acquisitions		-			71
Cash distributions to non-controlling interest owners		-			(57	)
Balance of non-controlling interests, end of period		-			107
Total stockholders' equity	$	112,542		$	138,223

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

PLAYAGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Three Months Ended March 31,
	2020			2019
Cash flows from operating activities
Net (loss) income	$	(14,419	)	$	11
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		24,369			21,533
Accretion of contract rights under development agreements and placement fees		1,859			1,271
Amortization of deferred loan costs and discount		492			468
Stock-based compensation expense		1,551			1,196
(Benefit) provision for bad debts		(299	)		52
Loss on disposition of assets		49			266
Impairment of assets		6			350
Fair value adjustment of contingent consideration		-			400
Benefit for deferred income tax		(101	)		(298	)
Changes in assets and liabilities that relate to operations:
Accounts receivable		20,284			(4,155	)
Inventories		(5,324	)		522
Prepaid expenses		(2,068	)		(1,554	)
Deposits and other		408			318
Other assets, non-current		3,681			5,268
Accounts payable and accrued liabilities		(11,679	)		(13,993	)
Net cash provided by operating activities		18,809			11,655
Cash flows from investing activities
Customer notes receivable		(2,301	)		-
Business acquisitions, net of cash acquired		-			(50,779	)
Purchase of intangible assets		(699	)		(1,231	)
Software development and other expenditures		(3,756	)		(2,669	)
Proceeds from disposition of assets		27			109
Purchases of property and equipment		(6,150	)		(15,105	)
Net cash used in investing activities		(12,879	)		(69,675	)
Cash flows from financing activities
Repayment of first lien credit facilities		(1,347	)		(1,347	)
Payment of financed placement fee obligations		(3,444	)		(971	)
Borrowing on revolver		30,000			-
Payments of previous acquisition obligation		(201	)		(157	)
Payments on finance leases and other obligations		(333	)		(417	)
Repurchase of stock		(348	)		-
Proceeds from stock option exercise		158			556
Distributions to non-controlling interest owners		-			(57	)
Net cash provided by (used in) financing activities		24,485			(2,393	)
Effect of exchange rates on cash and cash equivalents		(13	)		(2	)
Net increase (decrease) in cash and cash equivalents		30,402			(60,415	)
Cash, cash equivalents and restricted cash, beginning of period		13,182			70,804
Cash, cash equivalents and restricted cash, end of period	$	43,584		$	10,389
Supplemental cash flow information:
Non-cash investing and financing activities:
Intangible assets obtained under financed placement fee arrangements	$	-		$	33,129
Leased assets obtained in exchange for new finance lease liabilities	$	254		$	494
Leased assets obtained in exchange for new operating lease liabilities	$	-		$	10,102

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

PLAYAGS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

PlayAGS, Inc. (the "Company," "PlayAGS," "we," "us," or "our") is a leading designer and supplier of gaming products and services for the gaming industry. We operate in legalized gaming markets across the globe and provide state-of-the-art, value-add products in three distinct segments: Electronic Gaming Machines (“EGM”), which includes server-based systems and back-office systems that are used by Class II Native American, Mexico and the Philippines gaming jurisdictions and Class III Native American, commercial and charitable jurisdictions; Table Products (“Table Products”), which includes live felt table games, side-bets and progressives as well as our newly introduced card shuffler, Dex S; and Interactive Games (“Interactive”), which provides social casino games on desktop and mobile devices (our "Interactive Social" reporting unit) as well as a platform for content aggregation used by real-money gaming (“RMG”) and sports-betting partners (our "RMG Interactive" reporting unit). Each segment’s activities include the design, development, acquisition, manufacturing, marketing, distribution, installation and servicing of a distinct product line.

The Company filed a Registration Statement on Form 10 on December 19, 2013, which went effective under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), on December 19, 2013. On January 30, 2018, we completed the initial public offering of 10,250,000 shares of our common stock, at a public offering price of $16.00 per share (the “IPO”).

On February 27, 2018, we sold an additional 1,537,500 shares of common stock, pursuant to the underwriters’ exercise in full of the over-allotment option.

Electronic Gaming Machines

Our EGM segment offers a selection of video slot titles developed for the global marketplace, and EGM cabinets which include the Alora, Orion Portrait, Orion Rise, Orion Upright, ICON, Big Red (“Colossal Diamonds”) and our Orion Slant. In addition to providing complete EGM units, we offer conversion kits that allow existing game titles to be converted to other game titles offered within that operating platform.

Table Products

Our Table Products include both internally developed and acquired proprietary table products, side-bets, progressives, and table technology related to blackjack, poker, baccarat, craps and roulette. We have acquired a number of popular proprietary brands, including In Bet Gaming (“In Bet”), Buster Blackjack, Double Draw Poker and Criss Cross Poker that are based on traditional well-known public domain games such as blackjack and poker; however, these proprietary games provide intriguing betting options that offer more excitement and greater volatility to the player, ultimately enhancing our casino customers’ profitability. In addition, we offer a single deck card shuffler for poker tables, Dex S and recently introduced our second shuffler, the Pax S single-deck pack shuffler, which we plan to launch in 2020.

Interactive

We operate a B2B online gaming platform for content aggregation that we offer to our real-money gaming (“RMG”) online casino customers. This platform aggregates content from several game suppliers and offers online casino operators the convenience to reduce the number of integrations that are needed to supply the online casino. We also operate Business-to-Consumer (“B2C”) social casino games that include online versions of our EGM titles and are accessible to players on multiple mobile platforms. Our B2C social casino games are available on our mobile app, Lucky Play Casino. The app contains numerous AGS game titles available for consumers to play for free or with virtual currency they purchase in the app. 

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain disclosures required by generally accepted accounting principles (“GAAP”) are omitted or condensed in these condensed consolidated financial statements. In the opinion of Management, all adjustments (consisting of only normal recurring adjustments) that are necessary for a fair statement of the Company's financial position, results of operations and cash flows for the interim periods have been made. The interim results reflected in these condensed consolidated financial statements are not necessarily indicative of results to be expected for the full fiscal year. The accompanying condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

5

PLAYAGS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Principles of Consolidation

The accompanying condensed consolidated financial statements include the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires the Company to make decisions based upon estimates, assumptions, and factors considered relevant to the circumstances. Such decisions include the selection of applicable accounting principles and the use of judgment in their application, the results of which impact reported amounts and disclosures. Changes in future economic conditions or other business circumstances may affect the outcomes of the estimates and assumptions. Accordingly, actual results could differ materially from those anticipated.

Revenue Recognition

Leasing of equipment in both our EGM and Table Products segments is accounted for under lease accounting guidance in ASC 842, "Leases" (ASC 842) and is recorded in gaming operations revenue. Our remaining revenue streams are accounted for under ASC 606 "Revenue from contracts with customers" (ASC 606) including equipment sales in our EGM and, to a lesser extent, in our Table Products segments. Revenue earned in our Interactive segment is recorded in gaming operations revenue.

The following table disaggregates our revenues by type within each of our segments (amounts in thousands):

	Three Months Ended March 31,
	2020		2019
EGM
Gaming operations	$	38,885	$	49,500
Equipment sales		11,470		20,155
Total	$	50,355	$	69,655
Table Products
Gaming operations	$	2,324	$	2,130
Equipment sales		158		26
Total	$	2,482	$	2,156
Interactive (gaming operations)
Social gaming revenue	$	822	$	958
Real-money gaming revenue		654		273
Total	$	1,476	$	1,231

Gaming Operations

Gaming operations revenue is earned by providing customers with gaming machines, gaming machine content licenses, table products, back-office equipment and linked progressive systems, which are collectively referred to as gaming equipment, under participation arrangements. The participation arrangements convey the right to use the equipment (i.e., gaming machines and related integral software) for a stated period of time, which typically ranges from one to three years upon which the contract continues on a month-to-month basis thereafter. In some instances, the Company will enter arrangements for longer periods of time; however, many of these arrangements include the ability of the customer to cancel the contract and return the games to the Company, a provision which renders their contracts effectively month-to-month contracts.The Company will also enter into lease contracts with a revenue sharing arrangement whereby the lease payments due from the customer are variable. Our participation arrangements are accounted for as operating leases primarily due to these factors. In some instances, we will offer a free trial period during which no revenue is recognized. If during or at the conclusion of the trial period the customer chooses to enter into a lease for the gaming equipment, we commence revenue recognition according to the terms of the agreement.

6

PLAYAGS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Under participation arrangements, the Company retains ownership of the gaming equipment installed at the customer facilities and receives either revenue based on a percentage of the win per day generated by the gaming equipment or a fixed daily fee. Thus, in our consolidated financial statements the Company records revenue monthly related to these arrangements and the gaming equipment is recorded in property and equipment, net on our balance sheet and depreciated over the expected life of the gaming equipment.

The majority of the Company’s leases require the Company to provide maintenance throughout the entire term of the lease. In some cases, a performance guarantee exists that, if not met, provides the customer with the right to return the gaming machines to the Company. This performance guarantee is considered a cancellation clause, a provision which renders their contracts effectively month-to-month contracts. Accordingly, the Company accounts for these contracts in a similar manner with its other operating leases as described above.

Gaming operations revenue is also earned from the licensing of table product content and is earned and recognized primarily on a fixed monthly rate. Our B2C social casino products earn revenue from the sale of virtual coins or chips, which is recorded when the purchased coins or chips are used by the customer. B2C social casino revenue is presented gross of the platform fees. B2B social casino products earn revenue primarily based on a percentage of the monthly revenue generated by the white label casino apps that we build and operate for our customers. RMG revenue is earned primarily based on a percentage of the revenue produced by the games on our platform as well as monthly platform fees and initial integration fees. RMG revenue is presented net of payments to game and content suppliers.

Equipment Sales

Revenues from contracts with customers are recognized and recorded when the following criteria are met:

• We have a contract that has been approved by both the customer and the Company. Our contracts specify the products being sold and payment terms and are recognized when it is probable that we will collect substantially all of the contracted amount; and

• Control has been transferred and services have been rendered in accordance with the contract terms.

Equipment sales are generated from the sale of gaming machines, table products and licensing rights to the integral game content software that is installed in the related equipment, parts, and other ancillary equipment. Also included within the deliverables are delivery, installation and training, all of which occur within a few days of arriving at the customer location. Equipment sales do not include maintenance beyond a standard warranty period. The recognition of revenue from the sale of gaming devices occurs as the customer obtains control of the product and all other revenue recognition criteria have been satisfied. Our contracts include a fixed transaction price. Amounts are due from customers within 30 to 90 days of the invoice date and to a lesser extent we offer extended payment terms of 12 to 24 months with payments due monthly during the extended payment period.

The Company enters into revenue arrangements that may consist of multiple performance obligations, which are typically multiple distinct products that may be shipped to the customer at different times. For example, sales arrangements may include the sale of gaming machines and table products to be delivered upon the consummation of the contract and additional game content conversion kits that will be delivered at a later date when requested by the customer to replace the game content on the customer’s existing gaming machines. Products are identified as separate performance obligations if they are distinct, which occurs if the customer can benefit from the product on its own and is separately identifiable from other promises in the contract.

Revenue is allocated to the separate performance obligations based on relative standalone selling prices determined at contract inception. Standalone selling prices are primarily determined by prices that we charge for the products when they are sold separately. When a product is not sold separately, we determine the standalone selling price with reference to our standard pricing policies and practices. We elected to exclude from the measurement of the transaction price, sales taxes and all other items of a similar nature, and also elected to account for shipping and handling activities as a fulfillment of our promise to transfer the goods. Accordingly, shipping and handling costs are included in cost of sales.

Revenue allocated to any undelivered performance obligations is recorded as a contract liability. The balance of our contract liabilities was not material as of March 31, 2020 and December 31, 2019.

7

PLAYAGS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of deposits held at major banks and other marketable securities with original maturities of 90 days or less.

Restricted Cash

Restricted cash amounts represent funds held in escrow as collateral for the Company’s surety bonds for various gaming authorities.

Allowance for Doubtful Accounts 

Accounts receivable are stated at face value less an allowance for doubtful accounts. The Company maintains an allowance for doubtful accounts related to accounts receivable and notes receivable, which are non-interest bearing, deemed to have a high risk of collectability. The Company reviews the accounts receivable and notes receivable on a monthly basis to determine if any receivables will potentially be uncollectible. The Company analyzes historical collection trends and changes in the customers’ payment patterns, customer concentration, and credit worthiness when evaluating the adequacy of the allowance for doubtful accounts. A large percentage of receivables are with Native American tribes and the Company has concentrations of credit risk with several tribes. The Company includes any receivable balances that are determined to be uncollectible in the overall allowance for doubtful accounts. Changes in the assumptions or estimates reflecting the collectability of certain accounts could materially affect the allowance for both accounts and notes receivable.

Allowance for Expected Credit Losses 

Management estimates the allowance for expected credit losses balance using relevant available information from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current environmental economic conditions and reasonable and supportable forecast. The allowance for expected credit losses on financial instruments is measured on a collective (pool) basis when similar risk characteristics exist. The financial instruments that do not share risk characteristics, such as receivables related to development agreements, are evaluated on an individual basis. Expected credit losses are estimated over the contractual term of the related financial instruments, adjusted for expected prepayments when appropriate, based on a historical model that includes periodic write-offs, recoveries, and adjustments to the reserve. Historically, the identified portfolio segments have shared low collectability risk with immaterial write-off amounts. The Company made an accounting policy election to present the accrued interest receivable balance within another statement of financial position line item. Accrued interest receivable is reported within respective receivables line items on the consolidated balance sheet. 

The following table excludes receivables related to operating leases and presents all other receivables' gross amortized cost, allowance for credit losses and amortized cost, net of allowance for credit losses by portfolio segment as of March 31, 2020 and December 31, 2019 (in thousands):

		March 31, 2020							December 31, 2019
	Classification	Gross amortized cost		Allowance for credit losses			Amortized cost, net of allowance for credit losses		Gross amortized cost		Allowance for credit losses			Amortized cost, net of allowance for credit losses
Trade receivables:	Accounts Receivable	$	10,756	$	-		$	10,756	$	22,741	$	-		$	22,741
Receivables with extended payment terms:
Originated in 2020	Accounts Receivable	$	3,009	$	-		$	3,009		N/A		N/A			N/A
Originated in 2019	Accounts Receivable		4,073		-			4,073		5,461		-			5,461
Total receivables with extended payment term		$	7,082	$	-		$	7,082	$	5,461	$	-		$	5,461
Sales-type leases receivables:
Originated in 2019	Accounts Receivable	$	1,772	$	(89	)	$	1,683	$	2,206	$	(111	)	$	2,095
Originated in 2017	Accounts Receivable		42		(2	)		40		52		(3	)		49
Total Sales-type leases receivables		$	1,814	$	(91	)	$	1,723	$	2,258	$	(114	)	$	2,144
Development Agreements:
Originated in 2020	Deposits and other	$	2,390	$	-		$	2,390		N/A		N/A			N/A
Originated in 2019	Deposits and other		2,431		-			2,431		2,359		-			2,359
Total Development Agreements		$	4,821	$	-		$	4,821	$	2,359	$	-		$	2,359

Inventories

Inventories consist primarily of parts and supplies that are used to repair and maintain machinery and equipment as well as EGMs in production and finished goods held for sale. Inventories are stated at net realizable value. Cost of inventories is determined using the first-in, first-out (“FIFO”) method for all components of inventory. The Company regularly reviews inventory quantities and updates estimates for the net realizable value of inventories. This process includes examining the carrying values of parts and ancillary equipment in comparison to the current fair market values for such equipment (less costs to sell or dispose). Some of the factors involved in this analysis include the overall levels of the inventories, the current and projected sales levels for such products, the projected markets for such products and the costs required to sell the products, including refurbishment costs. Changes in the assumptions or estimates could materially affect the inventory carrying value. As of March 31, 2020 and December 31, 2019, the value of raw material inventory was $32.7 million and $29.1 million, respectively. As of March 31, 2020 and December 31, 2019, the value of finished goods inventory was $6.3 million and $3.8 million, respectively. There was no work in process material as of March 31, 2020 and December 31, 2019.

Property and Equipment

The cost of gaming equipment, consisting of fixed-base player terminals, file servers and other support equipment as well as other property and equipment, is depreciated over their estimated useful lives, using the straight-line method for financial reporting. The Company capitalizes costs incurred for the refurbishment of used gaming equipment that is typically incurred to refurbish a machine in order to return it to its customer location. The refurbishments extend the life of the gaming equipment beyond the original useful life. Repairs and maintenance costs are expensed as incurred. The Company routinely evaluates the estimated lives used to depreciate assets. The estimated useful lives are as follows:

Gaming equipment (in years)	2 to 6
Other property and equipment (in years)	3 to 6

The Company reviews its property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. The Company groups long-lived assets for impairment analysis at the lowest level for which identifiable cash flows can be measured independently of the cash flows of other assets and liabilities. This is typically at the individual gaming machine level or at the cabinet product line level. Impairment testing is performed and losses are estimated when indicators of impairment are present and the estimated undiscounted cash flows are not sufficient to recover the assets’ carrying amount.

When the estimated undiscounted cash flows are not sufficient to recover the asset’s carrying amount, an impairment loss is measured to the extent the fair value of the asset is less than its carrying amount.

The Company measures recoverability of assets to be held and used by comparing the carrying amount of an asset to future cash flows expected to be generated by the asset. The Company’s policy is to impair, when necessary, excess or obsolete gaming machines on hand that it does not expect to be used. Impairment is based upon several factors, including estimated forecast of gaming machine demand for placement into casinos. While the Company believes that the estimates and assumptions used in evaluating the carrying amount of these assets are reasonable, different assumptions could affect either the carrying amount or the estimated useful lives of the assets, which could have a significant impact on the results of operations and financial condition.

8

PLAYAGS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Intangible Assets

The Company reviews its identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment losses are recognized for identifiable intangibles, other than goodwill, when indicators of impairment are present and the estimated undiscounted cash flows are not sufficient to recover the assets’ carrying amount.

When the estimated undiscounted cash flows are not sufficient to recover the intangible asset’s carrying amount, an impairment loss is measured to the extent the fair value of the asset is less than its carrying amount.

Certain trade names have an indefinite useful life and the Company tests these trade names for possible impairment at least annually, on October 1, or whenever events or changes in circumstances indicate that the carrying value may be impaired. We perform a qualitative assessment to determine if it is more likely than not that the fair value of the asset is less than its carrying amount. If we believe, as a result of our qualitative assessment, that it is more likely than not that the fair value of the asset is less than its carrying amount, the quantitative impairment test is required.

Costs of Capitalized Computer Software

Internally developed gaming software represents the Company’s internal costs to develop gaming titles to utilize on the Company’s gaming machines. Internally developed gaming software is stated at cost and amortized over the estimated useful lives of the software, using the straight-line method. Software development costs are capitalized once technological feasibility has been established and are amortized when the software is placed into service. The computer software we develop reaches technological feasibility when a working model of the computer software is available. Any subsequent software maintenance costs, such as bug fixes and subsequent testing, are expensed as incurred. Discontinued software development costs are expensed when the determination to discontinue is made. Software development costs are amortized over the expected life of the title or group of titles, if applicable, to amortization expense.

On a quarterly basis, or more frequently if circumstances warrant, the Company compares the net book value of its internally developed computer software to the net realizable value on a title or group of title basis. The net realizable value is determined based upon certain assumptions, including the expected future revenues and net cash flows of the gaming titles or group of gaming titles utilizing that software, if applicable.

Goodwill

The excess of the purchase price of an acquired business over the estimated fair value of the assets acquired and the liabilities assumed is recorded as goodwill. The Company tests for possible impairment of goodwill at least annually, on October 1, or when circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. The Company has the option to begin with a qualitative assessment, commonly referred to as “Step 0”, to determine whether it is more likely than not that the reporting unit’s fair value of goodwill is less than its carrying value. This qualitative assessment may include, but is not limited to, reviewing factors such as the general economic environment, industry and market conditions, changes in key assumptions used since the most recently performed valuation and overall financial performance of the reporting units. If the Company determines that it is more likely than not that a reporting unit’s fair value is less than its carrying value, the Company performs a quantitative goodwill impairment analysis, and depending upon the results of that measurement, the recorded goodwill may be written down and charged to income from operations when the carrying amount of the reporting unit exceeds the fair value of the reporting unit. 

Acquisition Accounting

The Company applies the provisions of ASC 805, “Business Combinations” (ASC 805), in accounting for business acquisitions. It requires us to recognize separately from goodwill the fair value of assets acquired and liabilities assumed on the acquisition date. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. Significant estimates and assumptions are required to value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable. These estimates are inherently uncertain and subject to refinement and typically include the calculation of an appropriate discount rate and projection of the cash flows associated with each acquired asset. As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.

9

PLAYAGS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Fair Value of Financial Instruments

The Company applies the provisions of ASC 820, “Fair Value Measurements” (ASC 820) to its financial assets and liabilities. Fair value is defined as a market-based measurement intended to estimate the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs when measuring fair value. These inputs are categorized as follows:

• Level 1 - quoted prices in an active market for identical assets or liabilities;

• Level 2 - quoted prices in an active market for similar assets or liabilities, inputs other than quoted prices that are observable for similar assets or liabilities, inputs derived principally from or corroborated by observable market data by correlation or other means; and

• Level 3 - valuation methodology with unobservable inputs that are significant to the fair value measurement.

The carrying values of the Company’s cash and cash equivalents, restricted cash, receivables and accounts payable approximate fair value because of the short term maturities of these instruments. The fair value of our long-term debt is based on the quoted market prices for similar issues (Level 2 inputs). The following table presents the estimated fair value of our long-term debt as of March 31, 2020 and December 31, 2019 (in thousands):

	March 31, 2020				December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term Debt	$	562,423	$	433,475	$	533,727	$	534,578

Accounting for Income Taxes

We conduct business globally and are subject to income taxes in U.S. federal, state, local, and foreign jurisdictions. Determination of the appropriate amount and classification of income taxes depends on several factors, including estimates of the timing and probability of realization of deferred income taxes, reserves for uncertain income tax positions and income tax payment timing.

We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. Taxes on income of our foreign subsidiaries are provided at the tax rates applicable to the tax jurisdictions in which they are located. Future tax benefits are recognized to the extent that realization of those benefits is considered more likely than not and a valuation allowance is established for deferred tax assets which do not meet this threshold.

The recoverability of certain deferred tax assets is based in part on estimates of future income and the timing of temporary differences, and the failure to fully realize such deferred tax assets could result in a higher tax provision in future periods.

We apply the accounting guidance to our uncertain tax positions and under the guidance, we may recognize a tax benefit from an uncertain position only if it is more likely than not that the position will be sustained upon examination by taxing authorities based on the technical merits of the issue. The amount recognized in the financial statements is the largest benefit that we believe has greater than a 50% likelihood of being realized upon settlement.

We are required to make significant judgments when evaluating our uncertain tax positions and the related tax benefits. We believe our assumptions are reasonable; however, there is no guarantee that the final outcome of the related matters will not differ from the amounts reflected in our income tax provisions and accruals. We adjust our liability for uncertain tax positions based on changes in facts and circumstances such as the closing of a tax audit or changes in estimates. Our income tax provision may be impacted to the extent that the final outcome of these tax positions is different than the amounts recorded.

In response to the COVID-19 outbreak, President Donald Trump signed H.R. 748, the “Coronavirus Aid, Relief, and Economic Security ACT (the “CARES Act”).  While we are still assessing the impact of the CARES Act, we do not expect this to have a material impact on our condensed consolidated financial statements.

10

PLAYAGS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Contingencies

The Company assesses its exposures to loss contingencies including claims and legal proceedings and accrues a liability if a potential loss is considered probable and the amount can be estimated. Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, if the actual loss from a contingency differs from Management’s estimate, there could be a material impact on the results of operations or financial position. Operating expenses, including legal fees, associated with contingencies are expensed when incurred.

Foreign Currency Translation

The financial statements of the Company’s foreign subsidiaries are translated into U.S. dollars at the period end rate of exchange for asset and liability accounts and the weighted average rate of exchange for income statement accounts. The effects of these translations are recorded as a component of other accumulated comprehensive loss in stockholders’ equity.

Liquidity and Financing

Due to the business disruption caused by the rapid nationwide spread of the novel coronavirus and the actions by state and tribal governments and businesses to contain the virus, the Company’s customers have closed their operations and their respective markets have been significantly and adversely impacted. As a result of the temporary closures of our casino customers, there has been a decrease in the amount of money spent by consumers on our revenue shared installed base and the amount of daily fees of our participation EGMs and no expansion of existing casinos or development of new casinos. Specifically, gaming operations revenue and equipment sales have decreased compared to the prior year period as a result of the temporary closures of our casino customers. Similarly, our EGM and Table Product segment operating results have been disrupted because each segment’s activities including design, development, acquisition, manufacturing, marketing, distribution, installation and servicing of its products lines have been temporarily halted or significantly reduced.  In addition, each segment’s revenue from leasing, licensing and selling products has been adversely impacted due to the temporary closures of our casino customers. As a result, the Company has taken several actions to adapt to the severity of the crisis. Among other things, the Company implemented short-term furloughs with retained benefits, company-wide salary reductions, and an approximate 10% reduction of the workforce. Our non-employee directors have also agreed to reduce their fees by 50%. In addition to these actions, the Company is considering further reductions to payroll and related expenses through additional employee furloughs and may pursue one or more of these alternatives depending on the length of the casino closures in markets and jurisdictions where it earns its revenue in order to conserve liquidity. 

As of March 31, 2020, the Company had $43.6 million in cash and cash equivalents. Under the First Lien Credit Agreement (defined below in Note 6), the Company was required to comply with certain financial covenants at the end of each calendar quarter, including to maintain a maximum net first lien leverage ratio of 6.0 to 1.0. On May 1, 2020, the Company entered into an amendment to the First Lien Credit Agreement ("Amendment No. 4") that implemented a financial covenant relief period (the “Financial Covenant Relief Period”) through December 31, 2020 and implemented a revised calculation of EBITDA commencing on the first day after the expiration of the Financial Covenant Relief Period and ending on the first day of the fourth fiscal quarter after the expiration of the Financial Covenant Relief Period.  As a result of Amendment No. 4, and based on the Company's projected operating results for the next twelve months, the Company expects that it will be in compliance with its debt covenants under the First Lien Credit Agreement for at least the next twelve months. Amendment No. 4 also provided for additional financing of $95.0 million of which the Company received $83.5 million after original issue discount and related fees, which is described in Note 6. The incremental term loans are subject to an interest rate of LIBOR plus 13% and the agreement also provides that any refinancing of the term loans through the issuance of certain debt or any repricing amendment resulting in a lower yield occurring at any time during the first two years after May 1, 2020 will be accompanied by a Make-Whole Premium as defined in the agreement that includes a premium or fee as well as the required payment of any unpaid interest that would have been paid through May 1, 2022. For six months following this two year period a prepayment of the loans will be accompanied by a 1.00% payment premium or fee. Other than described above, the incremental term loans continue to have the same terms as provided under the existing credit agreement. As a result of the additional financing, coupled with existing cash balances, Management believes that the Company has sufficient liquidity to fund its operating requirements and meet its obligations as they become due for at least the next twelve months.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), which provides updated guidance on how an entity should measure credit losses on financial instruments. The new guidance replaced the current incurred loss measurement methodology with a lifetime expected loss measurement methodology. Subsequently, in November 2018 the FASB issued ASU No. 2018-19, which clarified that receivables arising from operating leases are not within the scope of Subtopic 326-20, but should rather be accounted for in accordance with ASC 842. In May 2019, the FASB issued ASU No. 2019-05 providing targeted transition relief to all reporting entities within the scope of Topic 326. The new standard and related amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. This guidance is expected to be applied using a modified retrospective approach for the cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective and using a prospective approach for debt securities for which any other-than-temporary impairment had been recognized before the effective date. Early adoption is permitted for fiscal years beginning after December 15, 2018. The Company adopted ASC 326 using the modified retrospective approach for all applicable financial assets measured at amortized cost. The Company elected the practical expedient to exclude accrued interest from tabular disclosure and not to estimate an allowance for credit losses on accrued interest. Results for reporting beginning after January 1, 2020 are presented under ASC 326 while prior amounts continue to be reported in accordance with previously applicable GAAP. The standard did not materially impact our consolidated net earnings and had no impact on cash flows.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force) which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The new standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period. The Company adopted the standard prospectively to all implementation costs incurred after January 1, 2020. The standard did not materially impact our consolidated net earnings and had no impact on cash flows. 

 We do not expect that any other recently issued accounting guidance will have a significant effect on our financial statements.

11

PLAYAGS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

NOTE 2. ACQUISITIONS

In Bet Gaming II

During the quarter ended September 30, 2019, the Company acquired certain intangible assets related to table game intellectual property from In Bet Gaming, Inc ("In Bet II"). The acquisition was accounted for as an acquisition of a business and the assets acquired were measured based on our estimates of their fair values at the acquisition date. We attribute the goodwill recognized to our ability to commercialize the products over our distribution and sales network, opportunities for synergies, and other strategic benefits. The consideration of $4.0 million was allocated primarily to tax deductible goodwill for $1.2 million and intangible assets of $2.8 million, which will be amortized over a weighted average period of approximately 9.3 years.

12

PLAYAGS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

NOTE 3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in thousands):

	March 31, 2020			December 31, 2019
Gaming equipment	$	169,771		$	175,837
Other property and equipment		23,375			23,210
Less: Accumulated depreciation		(99,103	)		(95,449	)
Property and equipment, net	$	94,043		$	103,598

Gaming equipment and other property and equipment are depreciated over the respective useful lives of the assets ranging from two to six years. Depreciation expense was $10.9 million and $10.6 million for the three months ended March 31, 2020 and 2019, respectively. 

13

PLAYAGS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

NOTE 4. GOODWILL AND INTANGIBLES

Changes in the carrying amount of goodwill are as follows (in thousands):

	Gross Carrying Amount
	EGM			Table Products		Interactive(1)		Total
Balance at December 31, 2019	$	279,228		$	7,821	$	-	$	287,049
Foreign currency adjustments		(3,776	)		-		-		(3,776	)
Impairment		-			-		-		-
Balance at March 31, 2020	$	275,452		$	7,821	$	-	$	283,273

⁽¹⁾ Accumulated goodwill impairment charges for the Interactive segment as of March 31, 2020 were $8.4 million.

During the first quarter of 2020, our EGM and Table Products reporting units' operating results were significantly lower than expectations, driven by the rapid nationwide spread of the novel coronavirus and the actions taken by state and tribal governments and businesses, including the closure of casinos, in an attempt to contain the virus. Many of our customers have temporarily closed their operations and the markets that we serve have been significantly and adversely impacted, which was considered to be a triggering event. These closures have resulted in a reduction of gaming operations revenues particularly related to our leased EGMs and table products as we have ceased to bill our customers from the date that they closed. The closures have also impacted equipment sales revenue due to a decline in our customer demand to purchase our EGMs and other products during the closures.  Accordingly, we performed a quantitative assessment, or “Step 1” analysis, as of March 31, 2020 to analyze whether this triggering event resulted in an impairment of associated goodwill in these two reporting units.  There is no balance of goodwill in the Company’s other reporting unit.

Based on our quantitative analysis, the fair value was 34% greater than the carrying value for the EGM reporting unit and 21% greater for the Table Products reporting unit. As of October 1, 2019 (the date of the Company’s annual impairment assessment), the fair values of the EGM reporting unit and the Table Products reporting unit were 50% and 111% greater than their respective carrying values. We estimated the fair value of both reporting units using the discounted cash flow method. The most significant factor in the assessment was the projected cash flows adjusted for the estimated adverse impact of COVID-19 on the Company’s operations.  Our projected cash flows for the current year are dependent on our assumptions for when our casino customers will reopen. The current year projected cash flows and those for future years are also impacted by our estimate of when the operations of our casino customers will return to pre-COVID-19 levels. Given the ongoing impacts of COVID-19 across our business, the long-range cash flow projections that we use to assess the fair value of our businesses and assets for purposes of impairment testing are subject to greater uncertainty than normal. If our projections do not align with our actual results in future quarters, we will update the projected cash flows, which may result in an impairment of goodwill. Other factors included in the discounted cash flow calculation were the discount rate of 10% for EGM and 14% for Table Products and the long-term growth rate of 3% for both reporting units. As of October 1, 2019, the discount rates utilized in the discounted cash flow projections were 10% and 14% for the EGM and Table Products reporting units, respectively.

Intangible assets consist of the following (in thousands):

		March 31, 2020							December 31, 2019
	Useful Life	Gross		Accumulated			Net Carrying		Gross		Accumulated			Net Carrying
	(years)	Value		Amortization			Value		Value		Amortization			Value
Indefinite lived trade names	Indefinite	$	12,126	$	-		$	12,126	$	12,126	$	-		$	12,126
Trade and brand names	5 - 7		14,870		(13,766	)		1,104		14,870		(13,209	)		1,661
Customer relationships	5 - 12		216,258		(123,702	)		92,556		219,788		(120,384	)		99,404
Contract rights under development and placement fees	1 - 7		48,878		(10,747	)		38,131		48,180		(8,888	)		39,292
Gaming software and technology platforms	1 - 7		165,298		(101,062	)		64,236		162,391		(96,193	)		66,198
Intellectual property	10 - 12		19,345		(8,040	)		11,305		19,345		(7,575	)		11,770
		$	476,775	$	(257,317	)	$	219,458	$	476,700	$	(246,249	)	$	230,451

Intangible assets are amortized over their respective estimated useful lives ranging from one to twelve years. Amortization expense related to intangible assets was $13.4 million and $10.9 million for the three months ended March 31, 2020 and 2019, respectively. 

14

PLAYAGS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Management reviews intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. There were no impairments recorded for the period ended March 31, 2020. We recorded impairments related to internally developed gaming titles of $0.4 million for the period ended March 31, 2019 as it was determined by Management that the gaming titles would no longer be used.

The Company enters into development agreements and placement fee agreements with certain customers to secure floor space under lease agreements for its gaming machines. Amounts paid in connection with the development agreements are repaid to the Company in accordance with the terms of the agreement, whereas placements fees are not reimbursed. For development agreements in the form of a loan, interest income is recognized on the repayment of the notes based on the stated rate or, if not stated explicitly in the development agreement, on an imputed interest rate. If the stated interest rate is deemed to be other than a market rate or zero, a discount is recorded on the note receivable as a result of the difference between the stated and market rate and a corresponding intangible asset is recorded. The intangible asset is recognized in the financial statements as a contract right under development agreement and amortized as a reduction in revenue over the term of the agreement. Placement fees can be in the form of cash paid upfront or free lease periods and are accreted over the life of the contract and the expense is recorded as a reduction of revenue. We recorded a reduction of gaming operations revenue from the accretion of contract rights under development agreements and placement fees of $1.9 million and $1.3 million for the three months ended March 31, 2020 and 2019, respectively. 

NOTE 5. ACCRUED LIABILITIES

Accrued liabilities consist of the following (in thousands):

	March 31, 2020		December 31, 2019
Salary and payroll tax accrual	$	3,926	$	8,691
Taxes payable		3,246		4,151
Current portion of operating lease liability		2,185		2,175
License fee obligation		1,000		1,000
Placement fees payable		6,314		8,346
Accrued other		7,206		10,477
Total accrued liabilities	$	23,877	$	34,840

15

PLAYAGS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

NOTE 6. LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

	March 31, 2020			December 31, 2019
First Lien Credit Facilities:
Term loans, interest at LIBOR or base rate plus 3.50% (5.10% at March 31, 2020), net of unamortized discount and deferred loan costs of $8.5 million and $9.0 million at March 31, 2020 and December 31, 2019, respectively.	$	522,135		$	522,989
Revolving credit facility, interest at LIBOR or base rate plus 3.50% (4.50% at March 31, 2020)		30,000			-
Finance leases		1,780			1,737
Total debt		553,915			524,727
Less: Current portion		(6,071	)		(6,038	)
Long-term debt	$	547,844		$	518,689

First Lien Credit Facilities

On June 6, 2017 (the “Closing Date”), AP Gaming I, LLC (the “Borrower”), a wholly owned indirect subsidiary of the Company, entered into a first lien credit agreement (“the First Lien Credit Agreement”), providing for $450.0 million in term loans and a $30.0 million revolving credit facility. The proceeds of the term loans were used primarily to repay the Company's then existing term loans, other indebtedness, to pay for the fees and expenses incurred in connection with the foregoing and otherwise for general corporate purposes. The full amount of the revolving credit facility was drawn on March 19, 2020 as a precautionary measure in order to increase the Company’s cash position and facilitate financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 outbreak. The proceeds from the borrowings under the revolving credit facility are currently being held on the Company’s consolidated balance sheet. The term loans will mature on February 15, 2024, and the revolving credit facility will mature on June 6, 2022. The term loans require scheduled quarterly payments in amounts equal to 0.25% of the original aggregate principal amount of the term loans, with the balance due at maturity.  Borrowings under the term loans and revolving credit facility bear interest at a rate equal to, at the Borrower’s option, either LIBOR or the base rate, subject to an interest rate floor plus an applicable margin rate. In addition, on a quarterly basis, the Borrower is required to pay each lender under the revolving credit facility a commitment fee in respect of any unused commitments thereunder at a rate of 0.50% per annum.

On December 6, 2017, the Borrower entered into incremental facilities for $65.0 million in term loans (the “December Incremental Term Loans”).  The net proceeds of the December Incremental Term Loans were used to finance the acquisition of electronic gaming machines and related assets operated by Rocket Gaming Systems (“Rocket”) and to pay fees and expenses in connection therewith and for general corporate purposes. 

An additional $1.0 million in loan costs were incurred related to the issuance of the December Incremental Term Loans. Given the composition of the lender group, the transaction was accounted for as a debt modification and, as such, $0.9 million in third-party costs were expensed and included in the loss on extinguishment and modification of debt. The remaining amount was capitalized and will be amortized over the term of the agreement.

On February 8, 2018, the Borrower completed the repricing of its existing $513.0 million term loans under its 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 remained at 100 basis points.

On February 8, 2018, in connection with the repricing of the Term Loans, third-party costs of $1.2 million were expensed and included in the loss and modification of debt. Existing debt issuance costs of $0.4 million were written-off and also included in the loss on extinguishment and modification of debt.

On October 5, 2018, the Borrower entered into an Incremental Assumption and Amendment Agreement No. 2 (the “Incremental Agreement No. 2”) with certain of the Borrower’s subsidiaries, the lenders party thereto from time to time and the Administrative Agent. The Incremental Agreement No. 2 amended and restated that certain First Lien Credit Agreement, dated as of June 6, 2017, as amended on December 6, 2017 and as amended and restated on February 8, 2018 (the “Existing Credit Agreement”), among the Borrower, the lenders party thereto, the Administrative Agent and other parties named therein (the “Amended and Restated Credit Agreement”), to (a) reduce the applicable interest rate margin for the Term B Loans (as repriced, the “Repriced Term B Loans”) under the Credit Agreement by 0.75% (which shall increase by an additional 0.25% if at any time the Borrower receives a corporate credit rating of at least B1 from Moody’s, regardless of any future rating) and (b) provide for the incurrence by the Borrower of incremental term loans in an aggregate principal amount of $30.0 million (the “Incremental Term Loans” and together with the Repriced Term B Loans, the “Term B Loans”).

On October 5, 2018, in connection with the repricing of the Term Loans, third-party costs of $1.5 million were expensed and included in the loss on extinguishment and modification of debt.

On August 30, 2019, the Borrower entered into Amendment No. 3 (the "Repricing Amendment") to the credit agreement. The Repricing Amendment reduced the interest rate margin on the revolving credit facility to the same interest rate margin as the term loans issued under the credit agreement.

On May 1, 2020, the Borrower entered into Amendment No. 4 to the First Lien Credit Agreement that provided for covenant relief (as described in Note 1) as well as $95.0 million in incremental term loans of which the net proceeds received by the Company were $83.5 million after original issue discount and related fees. The incremental term loans are subject to an interest rate of LIBOR plus 13% and the agreement also provides that any refinancing of the term loans through the issuance of certain debt or any repricing amendment resulting in a lower yield occurring at any time during the first two years after May 1, 2020 will be accompanied by a Make-Whole Premium as defined in the agreement that includes a premium or fee as well as the required payment of any unpaid interest that would have been paid through May 1, 2022. For six months following this two year period, a prepayment of the loans will be accompanied by a 1.00% payment premium or fee. Other than described above, the incremental term loans continue to have the same terms as provided under the Existing Credit Agreement.

As of March 31, 2020, we were in compliance with the required covenants of our debt instruments.  See Note 1 “Liquidity and Financing” for a description of a change to our financial covenants for future periods.

Finance Leases

The Company has entered into leases for vehicles and equipment that are accounted for as finance leases.

16

PLAYAGS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

NOTE 7. STOCKHOLDERS’ EQUITY

Our amended and restated articles of incorporation provide that our authorized capital stock will consist of 450,000,000 shares of common stock, par value $0.01 per share, and 50,000,000 shares of preferred stock, par value $0.01 per share. As of March 31, 2020, we have 35,587,851 shares of common stock and zero shares of preferred stock outstanding.

Common Stock

Voting Rights. The holders of our common stock are entitled to one vote per share on all matters submitted for action by the stockholders, and do not have cumulative voting rights with respect to the election of our directors. 

Dividend and Distribution Rights

All shares of our common stock are entitled to share equally in any dividends and distributions our board of directors may declare from legally available sources, subject to the terms of any outstanding preferred stock.

Share repurchase program

During 2019, the board of directors approved a share repurchase program that will permit the Company to repurchase up to $50.0 million of the Company’s shares of common stock through August 11, 2021.

NOTE 8. WRITE-DOWNS AND OTHER CHARGES

The Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income include various transactions, such as loss on disposal or impairment of long-lived assets and fair value adjustments to contingent consideration that have been classified as write-downs and other charges. During the three months ended March 31, 2020, the Company recognized $0.1 million in write-downs and other charges primarily related to the disposal of long-lived assets. During the three months ended March 31, 2019, the Company recognized $1.0 million in write-downs and other charges driven by losses from the disposal of assets of $0.3 million, a fair value adjustment to contingent consideration of $0.4 million (the Company used level 3 observable inputs in conducting the impairment test) and the impairment to intangible assets of $0.4 million related to game titles (the Company used level 3 of observable inputs in conducting the impairment tests).

17

PLAYAGS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

NOTE 9. BASIC AND DILUTED (LOSS) INCOME PER SHARE

The Company computes net (loss) income per share in accordance with accounting guidance that requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the Condensed Consolidated Statement of Operations and Comprehensive (Loss) Income. Basic EPS is computed by dividing net (loss) income for the period by the weighted average number of shares outstanding during the period. Basic EPS includes common stock weighted for average number of shares issued during the period. Diluted EPS is computed by dividing net (loss) income for the period by the weighted average number of common shares outstanding during the period, increased by potentially dilutive common shares that were outstanding during the period. Diluted EPS excludes all potential dilutive shares if their effect is anti-dilutive. Potentially dilutive common shares include stock options and restricted stock (see Note 11).

There were no potentially dilutive securities for the three months ended March 31, 2020.

Excluded from the calculation of diluted EPS for the three months ended March 31, 2020 were 695,204 restricted shares and 130,362 stock options, as such securities were anti-dilutive. Excluded from the calculation of diluted EPS for the three months ended March 31, 2019 were 419,600 restricted shares and 895,113 stock options, as such securities were anti-dilutive.

NOTE 10. BENEFIT PLANS

The Company has established a 401(k) plan (the “401(k) Plan”) for its employees. The 401(k) Plan allows employees to contribute a portion of their earnings, and the Company may match a percentage of the contributions on a discretionary basis. The expense associated with the 401(k) Plan for the three months ended March 31, 2020 and 2019, was $0.4 million. In April 2020, the Company temporarily suspended 401(k) matching contributions.

On April 28, 2014, the board of directors of the Company approved the 2014 Long-Term Incentive Plan (“LTIP”). Under the LTIP, the Company is authorized to grant nonqualified stock options, rights to purchase shares of common stock, restricted stock, restricted stock units and other awards to be settled in, or based upon, shares of common stock to persons who are directors and employees of and consultants to the Company or any of its subsidiaries on the date of the grant. The LTIP will terminate ten years after approval by the board. Subject to adjustments in connection with certain changes in capitalization, the maximum number of shares of common stock that may be delivered pursuant to awards under the LTIP is 2,253,735 after giving effect to the 1.5543 - for - 1 stock split consummated on January 30, 2018 in connection with our initial public offering.  As of March 31, 2020, approximately 423,268 shares remain available for issuance; however, the Company will not issue additional awards under this plan.

On January 16, 2018, our board adopted and our stockholders approved the 2018 Omnibus Incentive Plan (the “Omnibus Incentive Plan”) pursuant to which equity-based and cash incentives may be granted to participating employees, directors and consultants. The Omnibus Incentive Plan provides for an aggregate of 1,607,389 shares of our common stock. As of March 31, 2020, 479,830 shares remain available for issuance.

18

PLAYAGS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

NOTE 11. STOCK-BASED COMPENSATION

Stock Options

The Company has granted stock awards to eligible participants under its incentive plans. The stock awards include options to purchase the Company’s common stock. These stock options include a combination of service and market conditions, as further described below. 

For the three months ended March 31, 2020, the Company recognized $0.1 million in stock-based compensation for stock options and $1.4 million for restricted stock awards. For the three months ended March 31, 2019, the Company recognized $0.2 million in stock-based compensation for stock options and $0.9 million for restricted stock awards. We recognize stock-based compensation on a straight-line basis over the vesting period for time based awards and we recognize the expense for awards with market conditions over the service period derived from the related valuation.

The amount of unrecognized compensation expense associated with stock options was $0.7 million and for restricted stock was $10.3 million at March 31, 2020 which is expected to be recognized over a 1.8 and 2.6 yearly weighted average period, respectively.

The Company calculates the grant date fair value of stock options that vest over a service period using the Black Scholes model. For stock options that contain a market condition related to the return on investment that the Company’s stockholders achieve, the options are valued using a lattice-based option valuation model. The assumptions used in these calculations are the expected dividend yield, expected volatility, risk-free interest rate and expected term (in years). Expected volatilities are based on implied volatilities from comparable companies. The expected time to liquidity is based on Management’s estimate. The risk-free rate is based on the U.S. Treasury yield curve for a term equivalent to the estimated time to liquidity. There were no options granted during the three months ended March 31, 2020.

Stock option awards represent options to purchase common stock and are granted pursuant to the Company’s incentive plans, and include options that the Company primarily classifies as Tranche A or time based, Tranche B and Tranche C.

Tranche A or time based options are eligible to vest in equal installments of 20% or 25% on each of the first five or four anniversaries of the date of the grant, subject to continued employment with the Company or its subsidiaries. In the event of a termination of employment without cause or as a result of death or disability, any such time based options which would have vested on the next applicable vesting date shall become vested, and the remaining unvested time based options shall be forfeited. In addition, upon a Change in Control (as defined in the incentive plans), subject to continued employment through the date of the Change in Control, all outstanding unvested time based options shall immediately vest. An IPO does not qualify as a Change in Control as it relates to the vesting of stock options.

All other option awards are eligible to vest upon the satisfaction of certain performance conditions (collectively, “Performance Options”). These performance conditions included the achievement of investor returns or common stock trading prices. These performance conditions were achieved in October of 2018 for all Performance Options that have been granted and there are currently 595,621 Performance Options exercisable and outstanding.

19

PLAYAGS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

A summary of the changes in stock options outstanding during the three months ended March 31, 2020, is as follows:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contract Term (years)		Aggregate Intrinsic Value (in thousands)
Options outstanding as of December 31, 2019		1,382,986		$	9.10		5.45	$	4,793
Granted		-			-		-		-
Exercised		(15,544	)	$	10.15
Canceled or forfeited		(4,274	)	$	10.15
Options outstanding as of March 31, 2020		1,363,168		$	9.08		5.04	$	-
Options exercisable as of March 31, 2020		1,233,857		$	8.54		4.80	$	-

Restricted Stock

Restricted stock awards are typically eligible to vest in equal installments of 25% on each of the first four anniversaries of the date of the grant, subject to continued employment with the Company or its subsidiaries. In the event of a termination of employment without cause upon or within 12 months following a change in control or as a result of death or disability, any such unvested time based restricted stock awards shall become vested.

Certain restricted stock awards are eligible to vest upon the satisfaction of certain conditions (collectively, “Performance Awards”). Vesting occurs on the first day that the average price per share of our common stock for the prior 60 consecutive trading days exceeds certain stock prices.

A summary of the changes in restricted stock outstanding during the three months ended March 31, 2020, is as follows:

	Shares Outstanding			Grant Date Fair Value (per share)
Restricted Stock Outstanding as of December 31, 2019		712,496		$	23.66
Granted		38,941		$	10.45
Vested		(75,565	)	$	23.84
Canceled or forfeited		(23,199	)	$	24.74
Restricted stock outstanding as of March 31, 2020		652,673		$	22.82

20

PLAYAGS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

NOTE 12. INCOME TAXES

The Company's effective income tax rate for the three months ended  March 31, 2020, was a benefit of 19.0%. This effective rate approximates the federal statutory rate of 21.0% due to offsetting changes in our valuation allowance on deferred tax assets and lapse in applicable statute of limitations for certain uncertain tax positions. The Company's effective income tax rate for the three months ended  March 31, 2019, was a benefit of 100.2%. The difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three months ended  March 31, 2019, is primarily due to changes in our valuation allowance on deferred tax assets and lapse in the applicable statute of limitations for certain uncertain tax positions. 

The Company entered into an indemnification agreement with the prior owners of Cadillac Jack (acquired in May of 2015) whereby the prior owners have agreed to indemnify the Company for changes in tax positions by taxing authorities for periods prior to the acquisition. As of March 31, 2020, an indemnification receivable of $0.6 million has been recorded in other assets in the financial statements. This amount includes the indemnification of the original pre-acquisition tax positions along with any related accrued interest and penalties and is offset by a corresponding liability for unrecognized tax benefits in other long-term liabilities. When the related unrecognized tax benefits are favorably resolved, a corresponding charge to relieve the associated indemnification receivable would be recognized in our Consolidated Statements of Operations and Comprehensive (Loss) Income.

During the three months ended March 31, 2020, the Company recognized a $3.2 million reduction in the indemnification receivable and related charges in our Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income primarily due to lapse in the applicable statute of limitations on indemnified tax positions. During the three months ended March 31, 2019, the Company recognized a $5.5 million reduction in the indemnification receivable and related charges in our Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income primarily due to lapse in the applicable statute of limitations on indemnified tax positions.

NOTE 13. COMMITMENTS AND CONTINGENCIES

The Company is subject to federal, state and Native American laws and regulations that affect both its general commercial relationships with its customers, as well as the products and services provided to them. Periodically, the Company reviews the status of each significant matter and assesses the potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be estimated, the Company accrues a liability for the estimated loss. If a potential loss from any claim or legal proceeding is considered reasonably possible, the Company discloses an estimate of the possible loss or range of possible loss, or a statement that such an estimate cannot be made. Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, accruals are based only on the best information available at the time. As additional information becomes available, the Company reassesses the potential liability related to their pending claims and litigation and may revise their estimates. Such revisions in the estimates of the potential liabilities could have a material impact on the results of operations and financial condition.

During the three months ended September 30, 2019, the Company recorded a $1.6 million loss reserve, for which insurance coverage has been triggered. In accordance with GAAP, the offsetting insurance recovery will be recognized when it is realized or realizable in a future period.

21

PLAYAGS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

NOTE 14. OPERATING SEGMENTS

We report our business segment results by segment in accordance with the “management approach.” The Management approach designates the internal reporting used by our chief operating decision maker (“CODM”), who is our Chief Executive Officer (the “CEO”), for making decisions and assessing performance of our reportable segments.

See Note 1 for a detailed discussion of our three segments. Each segment’s activities include the design, development, acquisition, manufacturing, marketing, distribution, installation and servicing of its product lines. We evaluate the performance of our operating segments based on revenues and segment adjusted EBITDA, which is defined in the paragraph below.

Segment revenues include leasing, licensing, or selling of products within each reportable segment. Segment adjusted EBITDA includes the revenues and operating expenses from each segment adjusted for depreciation, amortization, write-downs and other charges, accretion of placement fees, non-cash stock based compensation expense, as well as other costs such as certain acquisitions and integration related costs including restructuring and severance charges; initial public offering and secondary offerings costs; legal and litigation expenses including settlement payments; new jurisdictions and regulatory licensing costs; non-cash charges on capitalized installation and delivery; contract cancellation fees; and other adjustments primarily composed of professional fees incurred by the Company for projects, corporate and public filing compliance and other costs deemed to be non-recurring in nature. Revenues in each segment are attributable to third parties and segment operating expenses are directly associated with the product lines included in each segment such as research and development, product approval costs, product-related litigation expenses, sales commissions and other directly-allocable sales expenses. Cost of gaming operations and cost of equipment sales primarily include the cost of products sold, service, manufacturing overhead, shipping and installation.

Segment adjusted EBITDA excludes other income and expense, income taxes and certain expenses that are managed outside of the operating segments.

The following provides financial information concerning our reportable segments for the three months ended March 31, 2020 and 2019 (amounts in thousands):   

	Three Months Ended March 31,
	2020			2019
Revenues by segment
EGM	$	50,355		$	69,655
Table Products		2,482			2,156
Interactive		1,476			1,231
Total Revenues		54,313			73,042
Adjusted EBITDA by segment
EGM		23,372			36,722
Table Products		898			478
Interactive		231			(935	)
Subtotal		24,501			36,265
Write-downs and other:
Loss on disposal of long lived assets		49			266
Impairment of long lived assets		6			350
Fair value adjustments to contingent consideration and other items		-			400
Depreciation and amortization		24,369			21,533
Accretion of placement fees(1)		1,859			1,271
Non-cash stock-based compensation expense		1,551			1,196
Acquisitions and integration related costs including restructuring and severance		452			2,069
Initial public offering costs and secondary offering		-			279
Non-cash charge on capitalized installation and delivery		696			648
Other adjustments		702			(95	)
Interest expense		8,342			8,874
Interest (income)		(52	)		(39	)
Other expense		4,339			5,260
(Loss) income before income taxes	$	(17,812	)	$	(5,747	)

⁽¹⁾ Non-cash item related to the accretion of contract rights under development agreements and placement fees.

The Company’s CODM does not receive a report with a measure of total assets or capital expenditures for each reportable segment as this information is not used for the evaluation of segment performance. The CODM assesses the performance of each segment based on adjusted EBITDA and not based on assets or capital expenditures due to the fact that two of the Company’s reportable segments, Table Products and Interactive, are not capital intensive. Any capital expenditure information is provided to the CODM on a consolidated basis. Therefore, the Company has not provided asset and capital expenditure information by reportable segment.

22

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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 elsewhere in this Quarterly Report on Form 10-Q as well as those discussed under “Item 1. Business” and “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year-ended December 31, 2019 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. We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks, uncertainties and other factors, many of which are outside of our control, which could cause our actual results, performance or achievements to differ materially from any results, performance or achievements expressed or implied by such forward-looking statements. Given the risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. These forward-looking statements are made only as of the date of this Quarterly Report. We do not undertake and specifically decline any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect future events or developments unless required by federal securities law. New factors emerge from time to time, and it is not possible for us to predict all such factors.

Unless the context indicates otherwise, or unless specifically stated otherwise, references to the “Company”, “PlayAGS”, “AGS”, “we”, “our” and “us” refer to PlayAGS, Inc. and its consolidated subsidiaries.

Overview

We are a leading designer and supplier of EGMs and other products and services for the gaming industry. We operate our business in three distinct segments: EGMs, Table Products and Interactive. Each segment's activities include the design, development, acquisition, manufacturing, marketing, distribution, installation and servicing of a distinct product line. Founded in 2005, we historically focused on supplying EGMs, including slot machines, video bingo machines, and other electronic gaming devices, to the Native American gaming market. Since 2014, we have expanded our product line-up to include: (i) Class III EGMs for commercial and Native American casinos permitted to operate Class III EGMs, (ii) table game products and (iii) interactive products, all of which we believe provide us with growth opportunities as we expand in markets where we currently have limited or no presence. For the period ended March 31, 2020, 79% of our total revenue was generated through recurring contracted lease agreements whereby we place EGMs and table game products at our customers’ gaming facilities under either a revenue sharing agreement (we receive a percentage of the revenues that these products generate) or fee-per-day agreement (we receive a daily or monthly fixed fee per EGM or table game product), or recurring revenue from our Interactive gaming operations.

EGM Segment

EGMs constitute our largest segment, representing 93% of our revenue for three months ended March 31, 2020. We have a library of proprietary game titles that we deliver on several state-of-the-art EGM cabinets. These include our premium lease only cabinets Orion Starwall (slated to launch in the Spring of 2020), Orion Rise and Big Red. Also, our core cabinets that are available for sale and lease include the Orion Portrait, Orion Curve, Orion Slant, Orion Upright and ICON.

We design all of our cabinets with the intention of capturing the attention of players on casino floors while aiming to maximize operator profits. We offer our customers the option of either leasing or purchasing our EGMs and associated gaming systems. Currently, we derive a substantial portion all of our revenues from EGMs installed under revenue sharing or fee-per-day lease agreements, also known as “participation” agreements, and we refer to such revenue generation as our “participation model”. 

23

Table Products

In addition to our existing portfolio of EGMs, we also offer our customers more than 40 unique table product offerings, including live felt table games, side bet offerings, progressives, card shufflers, signage, and other ancillary table game equipment. Our table products are designed to enhance the table games section of the casino floor (commonly known as “the pit”). Over the past 10 years, there has been a trend of introducing side bets on blackjack tables to increase the game’s overall hold. Our table products segment offers a full suite of side bets and specialty table games that capitalize on this trend, and we believe that this segment will serve as an important growth engine for the Company, including by generating further cross-selling opportunities with our EGM offerings. As of March 31, 2020, we had an installed base of 3,897 table products domestically and internationally and we believe we are presently a leading supplier of table products to the gaming industry based on number of products placed.

Our Table Products segment focuses on high margin recurring revenue generated by leases. Nearly all of the revenue we generate in this segment is recurring.

Interactive

We operate a B2B online gaming platform for content aggregation that we offer to our real-money gaming (“RMG”) online casino customers. Our B2B platform, the AxSys Games Marketplace, aggregates content from several game suppliers and offers online casino operators the convenience to reduce the number of integrations that are needed to supply the online casino. By integrating with us, online casino operators have access to a significant amount of content from numerous game suppliers. We operate the AxSys Games Marketplace in regulated, legal online gaming jurisdictions such as the UK, parts of Europe, and New Jersey.
 
We also operate Business-to-Consumer (“B2C”) social casino games that include online versions of our popular EGM titles and are accessible to players worldwide on multiple mobile platforms, which we believe establishes brand recognition. Our B2C social casino games operate on a free-to-play model, whereby game players may collect virtual currency or other virtual consumable goods (collectively referred to as “virtual goods” or “virtual currency”) free of charge or the player may purchase additional virtual goods. Our B2C social casino games are available on our mobile app, Lucky Play Casino. The app contains numerous AGS game titles available for consumers to play for free or with virtual currency they purchase in the app.

24

Key Drivers of Our Business

Our revenues are impacted by the following key factors:

• the amount of money spent by consumers on our domestic revenue share installed base;

• the amount of the daily fee and selling price of our participation electronic gaming machines;

• our revenue share percentage with customers;

• the capital budgets of our customers;

• the level of replacement of existing electronic gaming machines in existing casinos;

• expansion of existing casinos;

• development of new casinos;

• opening or closure of new gaming jurisdictions both in the United States and internationally;

• our ability to obtain and maintain gaming licenses in various jurisdictions;

• the relative competitiveness and popularity of our electronic gaming machines compared to competitive products offered in the same facilities; and

• general macro-economic factors, including levels of and changes to consumer disposable income and personal consumption spending.

The factors above have been significantly affected by COVID-19 and the related closure of nearly all of our casino customer locations. When our customers are allowed to reopen, the amount of money that will be spent by consumers and other related impacts to our business are unknown at this time. 

Our expenses are impacted by the following key factors:

• fluctuations in the cost of labor relating to productivity;

• overtime and training;

• fluctuations in the price of components for gaming equipment;

• fluctuations in energy prices;

• changes in the cost of obtaining and maintaining gaming licenses;

• fluctuations in the level of maintenance expense required on gaming equipment; and 

• tariff increases.

Variations in our selling, general and administrative expenses, and research and development expenses are primarily due to changes in employment and salaries and related fringe benefits.

Acquisitions and Divestitures

We have made several strategic acquisitions over the past two years. 

In Bet Gaming II.
During the quarter ended September 30, 2019, we acquired certain intangible assets related to table game intellectual property from In Bet Gaming, Inc (“In Bet II”). The acquisition was accounted for as an acquisition of a business and the assets acquired were measured based on our estimates of their fair values at the acquisition date. We attribute the goodwill recognized to our ability to commercialize the products over our distribution and sales network, opportunities for synergies, and other strategic benefits. The consideration of $4.0 million was allocated primarily to tax deductible goodwill for $1.2 million and intangible assets of $2.8 million.
 
Integrity.
During the quarter ended March 31, 2019, we acquired all of the equity of Integrity Gaming Corp. (“Integrity”), a regional slot route operator with over 2,500 gaming machines in operation across over 33 casinos in Oklahoma and Texas. The acquisition was accounted for as an acquisition of a business and the assets acquired and liabilities assumed were measured based on our estimates of their fair values at the acquisition date. We attribute the goodwill recognized to our ability to utilize Integrity’s installed base to maximize revenue of the combined product portfolio and the synergies we can obtain through the reduction in our combined service and overhead costs.The total consideration for this acquisition was $52.6 million. The consideration was allocated primarily to non-tax deductible goodwill for $11.4 million, property and equipment of $12.7 million and intangible assets of $30.6 million.

25

Results of Operations

Three Months Ended March 31, 2020 compared to the Three Months Ended March 31, 2019

The following tables set forth certain selected condensed consolidated financial data for the three months ended March 31, 2020 and 2019 (in thousands): 

	Three Months Ended March 31,						$			%
	2020			2019			Change			Change
Consolidated Statements of Operations:
Revenues
Gaming operations	$	42,685		$	52,861		$	(10,176	)		(19.3	)%
Equipment sales		11,628			20,181			(8,553	)		(42.4	)%
Total revenues		54,313			73,042			(18,729	)		(25.6	)%
Operating expenses
Cost of gaming operations		9,993			9,619			374			3.9	%
Cost of equipment sales		5,208			9,524			(4,316	)		(45.3	)%
Selling, general and administrative		11,640			14,877			(3,237	)		(21.8	)%
Research and development		8,231			8,125			106			1.3	%
Write-downs and other charges		55			1,016			(961	)		(94.6	)%
Depreciation and amortization		24,369			21,533			2,836			13.2	%
Total operating expenses		59,496			64,694			(5,198	)		(8.0	)%
(Loss) income from operations		(5,183	)		8,348			(13,531	)		(162.1	)%
Other expense (income)
Interest expense		8,342			8,874			(532	)		(6.0	)%
Interest income		(52	)		(39	)		(13	)		33.3	%
Other expense		4,339			5,260			(921	)		(17.5	)%
(Loss) income before income taxes		(17,812	)		(5,747	)		(12,065	)		209.9	%
Income tax (expense) benefit		3,393			5,758			(2,365	)		(41.1	)%
Net (loss) income		(14,419	)		11			(14,430	)		N/A
Less: Net income attributable to non-controlling interests		-			(93	)		93			(100.0	)%
Net (loss) income attributable to PlayAGS, Inc.	$	(14,419	)	$	(82	)	$	(14,337	)		N/A

Revenues 

Gaming Operations.

Gaming operations revenue decreased $10.2 million primarily due to a decrease in our EGM segment. EGM RPD decreased by 20.0% compared to the prior year due to the temporary casino closures that began in March 2020 caused by COVID-19. Additional decreases in gaming operations revenue are due to a decrease in our EGM installed base year over year due to sales of over 700 previously leased, lower yielding units to distributors (395 of which were sold in the current quarter) and the sale of 150 units of previously leased VLT EGMs. The decrease in our EGM segment was partially offset by an increase in Table Products gaming operations revenue that is attributable to the increase in the Table Products installed base to 3,897 units, and a $0.2 million increase in our Interactive segment primarily related to an increase in our RMG revenues.

Equipment Sales.

The decrease in equipment sales was primarily due to a decrease of 560 EGMs sold year over year. We sold 464 EGM units during the three months ended March 31, 2020, compared to 1,024 EGM units in the prior year period. To a lesser extent the decrease in equipment sales revenue was also due to a 6.3% decrease in the domestic average sales price compared to the prior year period. EGM equipment sales revenue also includes revenue from the sale of 395 previously leased, lower yielding units to a distributor in the current year period, which units are not included in our sold unit count or domestic average sales price.

Operating Expenses

Cost of gaming operations. The increase in costs of gaming operations was the result of an increase of $0.9 million in overhead that was treated as a period cost in the current period as our manufacturing facility was not fully utilized due to COVID-19. Additionally our service costs have increased year over year due to additional headcount. These increases were partially offset by decreases in costs that related to reduced activity in the quarter for repairs and maintenance, royalties and other revenue-related costs. As a percentage of gaming operations revenue, costs of gaming operations was 23.4% for the three months ended March 31, 2020 compared to 18.2% for the prior year period.

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Cost of Equipment Sales. The decrease in cost of equipment sales is attributable to the 464 EGM units sold during the three months ended March 31, 2020 compared to 1,024 units sold in prior year period. As a percentage of equipment sales revenue, costs of equipment sales was 44.8% for the three months ended March 31, 2020 compared to 47.2% for the prior year period.

Selling, general and administrative. The decrease in selling, general and administrative expenses is primarily due to a $2.2 million decrease in professional fees.  In the prior year, professional fees incurred were primarily related to the purchase of Integrity.  Salary and benefit costs also decreased by $0.9 million.

Research and development. The increase in research and development expenses is primarily due to increased professional fees, development costs and stock-based compensation expense.

Write-downs and other charges. The Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income include various transactions, such as loss on disposal or impairment of long-lived assets and fair value adjustments to contingent consideration that have been classified as write-downs and other charges. During the three months ended March 31, 2020, the Company recognized $0.1 million in write-downs and other charges primarily related to the disposal of long-lived assets. During the three months ended March 31, 2019, the Company recognized $1.0 million in write-downs and other charges driven by losses from the disposal of assets of $0.3 million, a fair value adjustment to contingent consideration of $0.4 million (the Company used level 3 observable inputs in conducting the impairment test) and the impairment to intangible assets of $0.4 million related to game titles (the Company used level 3 of observable inputs in conducting the impairment tests).

Due to the changing nature of our write-downs and other charges, we describe the composition of the balances as opposed to providing a year over year comparison.

Depreciation and amortization. The increase was predominantly due to a $0.3 million increase in depreciation expense driven by purchases of property and equipment and an increase in amortization expense of $2.5 million related to intangible assets purchased in the Integrity and In Bet II acquisitions as well as additional software assets placed into service.

Other Expense, net

Interest expense. The decrease in interest expense is predominantly attributable to a decrease in variable interest rate applicable to the loans under the first lien credit facilities year over year, offset by additional interest from financed placement fees and an increase of $30.0 million in debt outstanding on our revolving credit facility.

Other expense. The decrease is predominantly attributed to the write-off of indemnification receivables of $5.5 million in the prior year period compared to $3.2 million in the current year as the related liability for uncertain tax positions was also written-off due to the lapse in the statute of limitations. See Item 1. “Financial Statements” Note 12 for a detailed description of the indemnification receivable. The remaining change was due to the effect of foreign currency fluctuation on trade payables and receivables denominated in foreign currencies.

Income Taxes.

The Company's effective income tax rate for the three months ended March 31, 2020, was a benefit of 19.0%. This effective rate approximates the federal statutory rate of 21.0% due to offsetting changes in our valuation allowance on deferred tax assets and lapse in applicable statute of limitations for certain uncertain tax positions. The Company's effective income tax rate for the three months ended March 31, 2019, was a benefit of 100.2%. The difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three months ended March 31, 2019, was primarily due to changes in our valuation allowance on deferred tax assets and lapse in applicable statute of limitations for certain uncertain tax positions.

.

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Segment Operating Results

We report our business segment results by segment in accordance with the “management approach.” The Management approach designates the internal reporting used by our chief operating decision maker, who is our Chief Executive Officer, for making decisions and assessing performance of our reportable segments.

See Item 1. “Financial Statements” Note 1 for a detailed discussion of our three segments. Each segment’s activities include the design, development, acquisition, manufacturing, marketing, distribution, installation and servicing of its product lines. We evaluate the performance of our operating segments based on revenues and segment adjusted EBITDA.

Segment revenues include leasing, licensing or selling of products within each reportable segment. We measure segment performance in terms of revenue, segment-specific adjusted EBITDA and unit placements. We believe that unit placements are an important gauge of segment performance for EGM’s and Table Products because it measures historical market placements of leased and sold units and provides insight into potential markets for next-generation products and service. We do not present a sold unit cumulative installed base as previously sold units may no longer be in use by our customers or may have been replaced by other models or products. 

Adjusted Expenses

We have provided (i) adjusted cost of gaming operations, (ii) adjusted selling, general and administrative costs and (iii) adjusted research and development cost (collectively, the “Adjusted Expenses”) in this Form 10-Q because we believe such measure provides investors with additional information to measure our performance.

We believe that the presentation of each of the Adjusted Expenses is appropriate to provide additional information to investors about certain non-cash items that vary greatly and are difficult to predict. These Adjusted Expenses take into account non-cash stock compensation expense, acquisitions and integration related costs including restructuring and severance, initial and secondary public offering costs, legal and litigation expenses including settlement payments, new jurisdictions and regulatory licensing costs, non-cash charges on capitalized installation and delivery, non-cash charges and loss on disposition of assets and other adjustments. Further, we believe each of the Adjusted Expenses provides a meaningful measure of our expenses 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.

Each of the Adjusted Expenses is not a presentation made in accordance with GAAP. Our use of the term Adjusted Expenses may vary from others in our industry. Each of the Adjusted Expenses should not be considered as an alternative to our operating expenses under GAAP. Each of the Adjusted Expenses 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 Adjusted Expenses 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 cost of gaming operations, cost of equipment sales, selling, general and administrative costs and research and development costs and use each of the Adjusted Expenses only supplementarily.

The tables below present each of the Adjusted Expenses and include a reconciliation to the nearest GAAP measure.

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Electronic Gaming Machines

Three Months Ended March 31, 2020 compared to the Three Months Ended March 31, 2019

	Three Months Ended March 31,				$			%
(amounts in thousands, except unit data)	2020		2019		Change			Change
EGM segment revenues:
Gaming operations	$	38,885	$	49,500	$	(10,615	)		(21.4	)%
Equipment sales		11,470		20,155		(8,685	)		(43.1	)%
Total EGM revenues		50,355		69,655		(19,300	)		(27.7	)%
EGM segment expenses and adjusted expenses:
Cost of gaming operations(1)		9,276		8,634		642			7.4	%
Less: Adjustments(2)		1,163		494		669			135.4	%
Adjusted cost of gaming operations		8,113		8,140		(27	)		(0.3	)%
Cost of equipment sales		5,132		9,506		(4,374	)		(46.0	)%
Selling, general and administrative		10,626		13,205		(2,579	)		(19.5	)%
Less: Adjustments(3)		1,128		2,715		(1,587	)		(58.5	)%
Adjusted cost of selling, general and administrative		9,498		10,490		(992	)		(9.5	)%
Research and development		6,918		6,605		313			4.7	%
Less: Adjustments(4)		819		444		375			84.5	%
Adjusted cost of research and development		6,099		6,161		(62	)		(1.0	)%
Accretion of placement fees		1,859		1,271		588			46.3	%
Net income attributable to non-controlling interest		-		93		(93	)		(100.0	)%
EGM adjusted EBITDA	$	23,372	$	36,722	$	(13,350	)		(36.4	)%
EGM unit information:
VLT		512		667		(155	)		(23.2	)%
Class II		12,291		12,191		100			0.8	%
Class III		5,000		5,940		(940	)		(15.8	)%
Domestic installed base, end of period		17,803		18,798		(995	)		(5.3	)%
International installed base, end of period		8,286		8,510		(224	)		(2.6	)%
Total installed base, end of period		26,089		27,308		(1,219	)		(4.5	)%
Installed base - Oklahoma		9,745		10,193		(448	)		(4.4	)%
Installed base - non-Oklahoma		8,058		8,605		(547	)		(6.4	)%
Domestic installed base, end of period		17,803		18,798		(995	)		(5.3	)%
Domestic revenue per day	$	21.08	$	26.42	$	(5.34	)		(20.2	)%
International revenue per day	$	6.89	$	8.68	$	(1.79	)		(20.6	)%
Total revenue per day	$	16.57	$	20.73	$	(4.16	)		(20.1	)%
Domestic EGM units Sold		426		1,024		(598	)		(58.4	)%
Total EGM units Sold		464		1,024		(560	)		(54.7	)%
Domestic average sales price	$	17,564	$	18,738	$	(1,174	)		(6.3	)%

⁽¹⁾ Exclusive of depreciation and amortization.

⁽²⁾ Adjustments to cost of gaming operation include non-cash stock compensation expense, non-cash charges on capitalized installation and delivery and other adjustments.

⁽³⁾ Adjustments to selling, general and administrative expense include non-cash stock compensation expense, acquisitions and integration related costs including restructuring and severance, initial public offering costs and secondary offering costs, legal and litigation expenses including settlement payments and other adjustments.

⁽⁴⁾ Adjustments to research and development costs include non-cash stock compensation expense and acquisitions and integration related costs including restructuring and severance.

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Gaming Operations Revenue

Gaming operations revenue decreased primarily due to a decrease in RPD of 20.0% compared to the prior year due to the temporary casino closures that began in March 2020 caused by the COVID-19 outbreak. Additional decreases in gaming operations revenue are due to a decrease in our EGM installed base year over year due to sales of  over 700 previously leased, lower yielding units to distributors (395 of which were sold in the current period) and the sale of 150 units of previously leased VLT EGMs.

Equipment Sales 

The decrease in equipment sales was primarily due to a decrease of 560 EGMs sold compared year over year. We sold 464 EGM units during the three months ended March 31, 2020, compared to 1,024 EGM units in the prior year period. To a lesser extent the decrease in equipment sales revenue was also due to a 6.3% decrease in the domestic average sales price compared to the prior year period. EGM equipment sales revenue also includes revenue from the sale of 395 previously leased, lower yielding units to a distributor in the current year period, which units are not included in our sold unit count or domestic average sales price.

EGM Adjusted EBITDA 

EGM adjusted EBITDA includes revenues and operating expenses from the EGM segment adjusted for depreciation, amortization, write-downs and other charges, accretion of placement fees, as well as other costs. See Item 1. “Financial Statements” Note 14 for further explanation of adjustments. The decrease in EGM adjusted EBITDA is attributable to the decrease in revenue described above offset by the related decrease in cost of equipment sales, and to a lesser extent a decrease in selling, general and administrative expenses driven by the decrease in salaries and benefit costs. EGM adjusted EBITDA margin was 46.4% and 52.7% for the three months ended March 31, 2020 and 2019, respectively. 

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Table Products

Three Months Ended March 31, 2020 compared to Three Months Ended March 31, 2019

	Three Months Ended March 31,				$			%
(amounts in thousands, except unit data)	2020		2019		Change			Change
Table Products segment revenues:
Gaming operations	$	2,324	$	2,130	$	194			9.1	%
Equipment sales		158		26		132			507.7	%
Total Table Products revenues		2,482		2,156		326			15.1	%
Table Products segment expenses and adjusted expenses:
Cost of gaming operations(1)		292		595		(303	)		(50.9	)%
Less: Adjustments(2)		167		84		83			98.8	%
Adjusted cost of gaming operations		125		511		(386	)		(75.5	)%
Cost of equipment sales		76		18		58			322.2	%
Selling, general and administrative		564		539		25			4.6	%
Less: Adjustments(3)		43		23		20			87.0	%
Adjusted cost of selling, general and administrative		521		516		5			1.0	%
Research and development		882		656		226			34.5	%
Less: Adjustments(4)		20		23		(3	)		(13.0	)%
Adjusted cost of research and development		862		633		229			36.2	%
Table Products adjusted EBITDA	$	898	$	478	$	420			87.9	%
Table Products unit information:
Table products installed base, end of period		3,897		3,285		612			18.6	%
Average monthly lease price	$	197	$	217	$	(20	)		(9.2	)%

⁽¹⁾ Exclusive of depreciation and amortization.

⁽²⁾ Adjustments to cost of gaming operation include non-cash stock compensation expense and non-cash charges on capitalized installation and delivery.

⁽³⁾ Adjustments to selling, general and administrative expense include non-cash stock compensation expense, acquisitions and integration related costs including restructuring and severance, initial public offering costs and secondary offering costs, legal and litigation expenses including settlement payments and other adjustments.

⁽⁴⁾ Adjustments to research and development costs include non-cash stock compensation expense and acquisitions and integration related costs including restructuring and severance.

Gaming Operations Revenue  

The increase in Table Products gaming operations revenue is attributable to the increase in the Table Products installed base to 3,897 units compared to 3,285 units in the prior year period offset by a decrease in average monthly lease price as we suspended billing our customers when they closed due to COVID-19 in the current year period. The success of our progressives such as Super 4, Black Jack Match, Royal 9 as well as the success of the Dex S, are the primary drivers of the increase in the Table Products revenue and installed base compared to the prior year period. 

Equipment Sales 

The increase in equipment sales is due to the initial sales of our shuffler, Dex S, and sales of our table signage.

Tables Products Adjusted EBITDA

Table Products adjusted EBITDA includes the revenues and operating expenses from the Table Products segment adjusted for depreciation, amortization, write-downs and other charges, as well as other costs. See Item 1. “Financial Statements” Note 14 for further explanation of adjustments. The increase in Table Products adjusted EBITDA is attributable to the increases in revenue described above and to decreased adjusted cost of gaming operations primarily due to conversions of progressive games from third party hardware to our new STAX progressive.  Research and development costs increased year over year related to development of new products that are expected to be released in the current year. 

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Interactive

Three Months Ended March 31, 2020 compared to Three Months Ended March 31, 2019

	Three Months Ended March 31,					$			%
(amounts in thousands)	2020		2019			Change			Change
Interactive segment revenue:
Social gaming revenue	$	822	$	958		$	(136	)		(14.2	)%
Real-money gaming revenue		654		273		$	381			139.6	%
Total Interactive revenue		1,476		1,231			245			19.9	%
Interactive segment expenses and adjusted expenses:
Cost of gaming operations(1)		425		390			35			9.0	%
Selling, general and administrative		450		1,133			(683	)		(60.3	)%
Less: Adjustments(2)		47		188			(141	)		(75.0	)%
Adjusted cost of selling, general and administrative		403		945			(542	)		(57.4	)%
Research and development		431		864			(433	)		(50.1	)%
Less: Adjustments(3)		14		33			(19	)		(57.6	)%
Adjusted cost of research and development		417		831			(414	)		(49.8	)%
Interactive adjusted EBITDA	$	231	$	(935	)	$	1,166			(124.7	)%

⁽¹⁾ Exclusive of depreciation and amortization.

⁽²⁾ Adjustments to selling, general and administrative expense include non-cash stock compensation expense, acquisitions and integration related costs including restructuring and severance, legal and litigation expenses including settlement payments and other adjustments.

⁽³⁾ Adjustments to research and development costs include non-cash stock compensation expense and acquisitions and integration related costs including restructuring and severance.

Gaming Operations Revenue 

These increase in gaming operations revenue is attributable to an increase of $0.4 million in RMG revenue in the current period primarily due to our land-based content on the AGS iGaming platform launched in late 2019.  This increase was offset by a decrease in B2C Social revenues, which is consistent with our decreased investment in B2C Social.

Interactive Adjusted EBITDA 

Interactive adjusted EBITDA includes the revenues and operating expenses from the Interactive segment adjusted for depreciation, amortization, write-downs and other charges, as well as other costs. See Item 1. “Financial Statements” Note 14 for further explanation of adjustments. The increase in Interactive adjusted EBITDA is primarily attributable to a decrease in operating costs including salary and benefit related expenses and professional fees as well as the increase in revenues described above. 

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We have provided total adjusted EBITDA in this Form 10-Q because we believe such measure provides investors with additional information to measure our performance.    

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 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) income, income from operations, EGM adjusted EBITDA, Table Products adjusted EBITDA or Interactive adjusted EBITDA and use Total adjusted EBITDA only supplementally.

The following tables reconcile net loss attributable to PlayAGS, Inc. to total adjusted EBITDA (amounts in thousands):

Three Months Ended March 31, 2020 compared to the Three Months Ended March 31, 2019

	Three Months Ended March 31,						$			%
	2020			2019			Change			Change
Net (loss) income attributable to PlayAGS, Inc.	$	(14,419	)	$	(82	)	$	(14,337	)		N/A
Income tax (benefit) expense		(3,393	)		(5,758	)		2,365			(41.1	)%
Depreciation and amortization		24,369			21,533			2,836			13.2	%
Other expense		4,339			5,260			(921	)		(17.5	)%
Interest income		(52	)		(39	)		(13	)		33.3	%
Interest expense		8,342			8,874			(532	)		(6.0	)%
Write-downs and other(1)		55			1,016			(961	)		(94.6	)%
Other adjustments(2)		702			277			425			153.4	%
Other non-cash charges(3)		2,555			1,919			636			33.1	%
Acquisitions and integration related costs including restructuring and severance(4)		452			2,069			(1,617	)		(78.2	)%
Non-cash stock-based compensation		1,551			1,196			355			29.7	%
Total Adjusted EBITDA	$	24,501		$	36,265		$	(11,764	)		(32.4	)%

⁽¹⁾ Write-downs and other include items related to loss on disposal or impairment of long-lived assets and fair value adjustments to contingent consideration.

⁽²⁾ 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 as well as costs incurred related to initial public offering, net of costs capitalized to equity and the cost of related secondary offerings.

⁽³⁾ 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.

⁽⁴⁾ Acquisitions and integration related costs primarily relate to costs incurred after the purchase of businesses, such as the purchase of Integrity, to integrate operations and obtain costs synergies. Restructuring and severance costs primarily relate to costs incurred through the restructuring of the Company’s operations from time to time and other employee severance costs recognized in the periods presented.

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LIQUIDITY AND CAPITAL RESOURCES

We expect that primary ongoing liquidity requirements for the three months ended March 31, 2020 will be for operating capital expenditures, working capital, debt servicing, game development and other customer acquisition activities. We expect to finance these liquidity requirements through a combination of cash on hand, additional financing, and cash flows from operating activities.

Part of our overall strategy includes consideration of expansion opportunities, underserved markets and acquisition and other strategic opportunities that may arise periodically. We may require additional funds in order to execute on such strategic growth, and may incur additional debt or issue additional equity to finance any such transactions. We cannot assure you that we will be able to obtain such debt or issue any such additional equity on acceptable terms or at all.

Due to the business disruption caused by the rapid nationwide spread of the novel coronavirus and the actions by state and tribal governments and businesses to contain the virus, the Company’s customers have closed their operations and their respective markets have been significantly adversely impacted. As a result of the temporary closures of our casino customers, there has been a decrease in the amount of money spent by consumers on our revenue shared installed base and the amount of daily fees of our participation EGMs and no expansion of existing casinos or development of new casinos. Specifically, gaming operations revenue and equipment sales have decreased compared to the prior year period as a result of the temporary closures of our casino customers. Similarly, our EGM and Table Product segment operating results have been disrupted because each segment’s activities including design, development, acquisition, manufacturing, marketing, distribution, installation and servicing of its products lines have been temporarily halted or significantly reduced.  In addition, each segment’s revenue from leasing, licensing and selling products has been adversely impacted due to the temporary closures of our casino customers. As a result, the Company has taken several actions to adapt to the severity of the crisis. Among other things, the Company implemented short-term furloughs with retained benefits, company-wide salary reductions, and an approximate 10% reduction of the workforce. Our non-employee directors have also agreed to reduce their fees by 50%. In addition to these actions, the Company is considering further reductions to payroll and related expenses through additional employee furloughs and may pursue one or more of these alternatives depending on the length of the casino closures in markets and jurisdictions where we earn our revenue in order to conserve liquidity. 

As of March 31, 2020, we had $43.6. million in cash and cash equivalents. As of March 31, 2020, we were in compliance with the required covenants of our debt instruments, including the maximum net first lien leverage ratio, which was 3.9 to 1.0 out of a maximum of 6.0 to 1.0. On May 1, 2020, the Company  entered into an amendment to the First Lien Credit Agreement (the "Amendment No. 4") that implemented a financial covenant relief period (the “Financial Covenant Relief Period”) through December 31, 2020 and implemented a revised calculation of EBITDA commencing on the first day after the expiration of the Financial Covenant Relief Period and ending on the first day of the fourth fiscal quarter after the expiration of the Financial Covenant Relief Period.  As a result of this Amendment No. 4, and based on the Company's projected operating results for the next twelve months, the Company expects that it will be in compliance with its debt covenants under the First Lien Credit Agreement for at least the next twelve months. Amendment No. 4 also provided for additional financing of $95.0 million, of which the Company received $83.5 million after original issue discount and related fees, which is described in Item 1. "Financial Statements" Note 6. The incremental term loans are subject to an interest rate of LIBOR plus 13% and the agreement also provides that any refinancing of the term loans through the issuance of certain debt or any repricing amendment resulting in a lower yield occurring at any time during the first two years after May 1, 2020 will be accompanied by a Make-Whole Premium as defined in the agreement that includes a premium or fee as well as the required payment of any unpaid interest that would have been paid through May 1, 2022. For six months following this two year period a prepayment of the loans will be accompanied by a 1.00% payment premium or fee. Other than described above, the incremental term loans continue to have the same terms as provided under the existing credit agreement. As a result of the additional financing along with the $43.6 million of cash and cash equivalents on hand as of March 31, 2020, Management believes that the Company has sufficient liquidity to fund its operating requirements and meet its obligations as they become due for at least the next twelve months.

Indebtedness

First Lien Credit Facilities

On June 6, 2017 (the “Closing Date”), AP Gaming I, LLC (the “Borrower”), a wholly owned indirect subsidiary of the Company, entered into a first lien credit agreement (“the First Lien Credit Agreement”), providing for $450.0 million in term loans and a $30.0 million revolving credit facility. The proceeds of the term loans were used primarily to repay the Company's then existing term loans, other indebtedness, to pay for the fees and expenses incurred in connection with the foregoing and otherwise for general corporate purposes.The full amount of the revolving credit facility was drawn on March 19, 2020 as a precautionary measure in order to increase the Company’s cash position and facilitate financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 outbreak. The proceeds from the borrowings under the revolving credit facility are currently being held on the Company’s consolidated balance sheet. The term loans will mature on February 15, 2024, and the revolving credit facility will mature on June 6, 2022. The term loans require scheduled quarterly payments in amounts equal to 0.25% of the original aggregate principal amount of the term loans, with the balance due at maturity.  Borrowings under the term loans and revolving credit facility bear interest at a rate equal to, at the Borrower’s option, either LIBOR or the base rate, subject to an interest rate floor plus an applicable margin rate. In addition, on a quarterly basis, the Borrower is required to pay each lender under the revolving credit facility a commitment fee in respect of any unused commitments thereunder at a rate of 0.50% per annum.

On December 6, 2017, the Borrower entered into incremental facilities for $65.0 million in term loans (the “December Incremental Term Loans”).  The net proceeds of the December Incremental Term Loans were used to finance the acquisition of electronic gaming machines and related assets operated by Rocket Gaming Systems (“Rocket”) and to pay fees and expenses in connection therewith and for general corporate purposes. 

An additional $1.0 million in loan costs were incurred related to the issuance of the December Incremental Term Loans. Given the composition of the lender group, the transaction was accounted for as a debt modification and, as such, $0.9 million in third-party costs were expensed and included in the loss on extinguishment and modification of debt. The remaining amount was capitalized and will be amortized over the term of the agreement.

On February 8, 2018, the Borrower completed the repricing of its existing $513.0 million term loans under its 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 remained at 100 basis points.

On February 8, 2018, in connection with the repricing of the Term Loans, third-party costs of $1.2 million were expensed and included in the loss and modification of debt. Existing debt issuance costs of $0.4 million were written-off and also included in the loss on extinguishment and modification of debt.

On October 5, 2018, the Borrower entered into an Incremental Assumption and Amendment Agreement No. 2 (the “Incremental Agreement No. 2”) with certain of the Borrower’s subsidiaries, the lenders party thereto from time to time and the Administrative Agent. The Incremental Agreement No. 2 amended and restated that certain First Lien Credit Agreement, dated as of June 6, 2017, as amended on December 6, 2017 and as amended and restated on February 8, 2018 (the “Existing Credit Agreement”), among the Borrower, the lenders party thereto, the Administrative Agent and other parties named therein (the “Amended and Restated Credit Agreement”), to (a) reduce the applicable interest rate margin for the Term B Loans (as repriced, the “Repriced Term B Loans”) under the Credit Agreement by 0.75% (which shall increase by an additional 0.25% if at any time the Borrower receives a corporate credit rating of at least B1 from Moody’s, regardless of any future rating) and (b) provide for the incurrence by the Borrower of incremental term loans in an aggregate principal amount of $30.0 million (the “Incremental Term Loans” and together with the Repriced Term B Loans, the “Term B Loans”).

On October 5, 2018, in connection with the repricing of the Term Loans, third-party costs of $1.5 million were expensed and included in the loss on extinguishment and modification of debt.

On August 30, 2019, the Borrower entered into Amendment No. 3 (the "Repricing Amendment") to the credit agreement. The Repricing Amendment reduced the interest rate margin on the revolving credit facility to the same interest rate margin as the term loans issued under the credit agreement.

On May 1, 2020, the Borrower entered into Amendment No. 4 to the First Lien Credit Agreement that provided for covenant relief (as described in Note 1) as well as $95.0 million in incremental term loans of which the net proceeds received by the Company were $83.5 million after original issue discount and related fees. The incremental term loans are subject to an interest rate of LIBOR plus 13% and the agreement also provides that any refinancing of the term loans through the issuance of certain debt or any repricing amendment resulting in a lower yield occurring at any time during the first two years after May 1, 2020 will be accompanied by a Make-Whole Premium as defined in the agreement that includes a premium or fee as well as the required payment of any unpaid interest that would have been paid through May 1, 2022. For six months following this two year period, a prepayment of the loans will be accompanied by a 1.00% payment premium or fee. Other than described above, the incremental term loans continue to have the same terms as provided under the Existing Credit Agreement.

As of March 31, 2020, we were in compliance with the required covenants of our debt instruments. See Item 1. “Notes to Condensed Consolidated Financial Statements”, Note 1 “Liquidity and Financing” for a description of a change to our financial covenants for future periods.

34

Equipment Long Term Note Payable and Finance Leases

The Company has entered into a financing agreement to purchase certain gaming devices, systems and related equipment and has entered into leases for vehicles and equipment that are accounted for as finance leases.

The following table summarizes our historical cash flows (in thousands):

	Three Months Ended March 31,
	2020			2019
Cash Flow Information:
Net cash provided by operating activities	$	18,809		$	11,655
Net cash used in investing activities		(12,879	)		(69,675	)
Net cash provided by (used in) financing activities		24,485			(2,393	)
Effect of exchange rates on cash and cash equivalents		(13	)		(2	)
Net increase (decrease) in cash and cash equivalents	$	30,402		$	(60,415	)

Operating activities

Net cash provided by operating activities for the three months ended March 31, 2020, was $18.8 million compared to net cash provided by operating activities of $11.7 million in the prior year period, representing an increase of $7.2 million. This increase is primarily due to collection of accounts receivables in the current period, offset by a decrease in net income.

Investing activities

Net cash used in investing activities for the three months ended March 31, 2020, was $12.9 million compared to $69.7 million used in investing activities in the prior year period, representing a decrease in cash used of $56.8 million. The decrease was primarily due to the acquisition of Integrity, net of cash acquired, of $50.8 million in the prior year period and an $8.9 million decrease in purchases of property and equipment compared to the prior year period, offset by a $2.3 million increase in customer note receivable and a $1.1 million increase in software development and other compared to the prior year period.

Financing activities

Net cash provided by financing activities for the three months ended March 31, 2020, was $24.5 million compared to net cash used of $2.4 million for the three months ended March 31, 2019, representing an increase in cash of $26.9 primarily attributable to the borrowing on revolver of $30.0 million, offset by a $2.5 million increase in payments of placement fees compared to the prior year period.  

35

OFF-BALANCE SHEET ARRANGEMENTS

We do not maintain any off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

36

CRITICAL ACCOUNTING POLICIES

A description of our critical accounting policies can be found in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2019. There were no material changes to our policies during the three months ended March 31, 2020.

37

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

See related disclosure at Item 1. “Notes to Condensed Consolidated Financial Statements”, Note 1 “Description of the Business and Summary of Significant Accounting Policies.”

38

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rates. Our primary exposure to market risk is interest rate risk associated with our long-term debt, which accrues interest at variable rates. Certain of our debt instruments accrue interest at LIBOR or the base rate, at our election, subject to an interest rate floor plus an applicable margin rate. In the normal course of business, we are exposed to fluctuations in interest rates as we seek debt and equity capital to sustain our operations. All of our interest rate sensitive financial instruments are held for purposes other than trading purposes. As of March 31, 2020, less than 1% of our debt were fixed-rate instruments. Assuming a constant outstanding balance for our variable-rate long term debt, a hypothetical 1% decrease in interest rates would decrease interest expense $3.2 million given our LIBOR floor on related debt, while a hypothetical 1% increase in interest rates would increase interest expense approximately $5.6 million. 

Foreign currency risk. We are exposed to foreign currency exchange rate risk that is inherent to our foreign operations. We currently transact business in Mexico and to a lesser extent in the United Kingdom using the local currency. Our settlement of inter-company trade balances requires the exchange of currencies, which results in the recognition of foreign currency fluctuations. We expect that certain operations will continue to be denominated in foreign currencies. As such, we expect our cash flows and earnings to continue to be exposed to the risks that may arise from fluctuations in foreign currency exchange rates.

39

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, Management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act) as of March 31, 2020. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure information is recorded, processed, summarized and reported within the periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to our Management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Our Management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error and mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by Management override of controls.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions or because the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

Changes in Internal Controls

No change in our internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f) occurred as of the end of the fiscal quarter covered by this report, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

40

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

We are party to various claims and legal actions that arise in the ordinary course of business. We do not believe the outcome of such disputes or legal actions will have a material adverse effect on our financial condition, results of operations, liquidity or capital resources.

ITEM 1A. RISK FACTORS.

"Item 1A. Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2019 (the "Annual Report") includes a discussion of our risk factors. The risks described in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results. The Company is supplementing its risk factors described in the Annual Report and the following risk factor should be read in conjunction with the other risk factors disclosed in the Annual Report.

The global COVID-19 pandemic has had and is continuing to have a significant adverse impact and in the future could have a material adverse impact on our operations and financial performance, as well as on the operations and financial performance of many of the customers and suppliers in the gaming industry that we serve. We are unable to predict the extent to which the pandemic and related impacts will continue to adversely impact our business operations, financial performance, results of operations, financial position and the achievement of our business objectives.

The COVID-19 pandemic has negatively impacted the global economy, with particular impact to the gaming industry, disrupted global supply chains, lowered equity market valuations, created significant volatility and disruption in the financial markets, and increased unemployment levels. In addition, the pandemic has resulted in temporary closures of many businesses, including those of our casino customers, and resulted in the institution of physical distancing and sheltering in place requirements in many states and communities. As a result of the temporary closures of our casino customers, there has been a decrease in the amount of money spent by consumers on our revenue shared installed base and the amount of daily fees of our participation EGMs and no expansion of existing casinos or development of new casinos. Furthermore, general macro-economic factors have resulted in a decline in levels of consumer disposable incomes and personal consumption spending.  Consequently, demand for our products and services has been and may continue to be significantly impacted, which has adversely affected our revenue and profitability and could continue to do so in the future. Specifically, gaming operations revenue and equipment sales have decreased compared to the prior year period as a result of the temporary closures of our casino customers. Similarly, our EGM and Table Product segment operating results have been disrupted because each segment’s activities including design, development, acquisition, manufacturing, marketing, distribution, installation and servicing of its products lines have been temporarily halted or significantly reduced.  In addition, each segment’s revenue from leasing, licensing and selling products has been adversely impacted due to the temporary closures of our casino customers. Furthermore, the pandemic has impaired and could continue to impair our ability to maintain sufficient liquidity, particularly if casinos and other gaming businesses remain closed or, when they reopen, physical distancing and other COVID-19-protective measures prevent them from opening at full capacity, the impact on the global economy worsens and further impacts the disposable income available to our casino customers’ patrons, or customers continue to delay making payments to us under existing obligations. Furthermore, because of changing economic and market conditions affecting the gaming industry, our ability to achieve our business objectives have been impacted and may continue to be impacted in the future. Our business operations have been disrupted because our workforce has been unable to work effectively due to illness, quarantines, government actions, and other restrictions imposed in connection with the pandemic and our business operations may continue to be impacted in the future. As a result, the Company has taken several actions to adapt to the severity of the crisis. Among other things, the Company has implemented short-term furloughs with retained benefits, company-wide salary reductions, and an approximate 10% reduction of the workforce.  We have borrowed funds under existing credit facilities and incremental term loans, and may seek additional funding, to the extent available, under new federal programs such as the CARES Act. The extent to which the COVID-19 pandemic will further impact our business, results of operations, and financial condition, as well as our capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic.

The COVID-19 pandemic may also exacerbate the risks disclosed in our Annual Report, including, but not limited to: our ability to comply with the terms of our indebtedness, our ability to generate revenues, earn profits and maintain adequate liquidity, our ability to service existing and attract new customers, maintain our overall competitiveness in the market, the potential for significant fluctuations in demand for our services, overall trends in the gaming industry impacting our business, as well as potential volatility in our stock price.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS.

(a). Exhibits.

Exhibit Number	Exhibit Description
10.1	Amendment Agreement No. 3, dated as of August 30, 2019 by and among AP Gaming Holdings, LLC, AP Gaming I, LLC, Jefferies Finance LLC and each of the Revolving Facility Lenders party hereto (incorporated by reference to Exhibit 10.1 to PlayAGS, Inc.'s Current Re port on Form 8-K filed on September 4, 2019).
10.2	Incremental Assumption and Amendment Agreement No. 4, dated as of May 1, 2020, by and among AP Gaming Holdings, LLC, AP Gaming I, LLC, each subsidiary loan party listed on the signature pages thereof, Jefferies Finance LLC and the lenders party thereto (incorporated by reference to Exhibit 10.1 to PlayAGS, Inc.'s Current Report on Form 8-K filed on May 1, 2020).
*31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*32	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.IN	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

* Filed herewith. 

41

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		PlayAGS, Inc.
Date:	May 7, 2020	By:	/s/ KIMO AKIONA
		Name:	Kimo Akiona
		Title:	Chief Financial Officer, Chief Accounting Officer and Treasurer (Principal Financial and Accounting Officer)

42

EX-31.1

Exhibit 31.1

Certification of Principal Executive Officer

of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a)

I, David Lopez, certify that:

1.     I have reviewed this Quarterly Report on Form 10-Q of PlayAGS, INC.;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)   Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.     The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 7, 2020

/s/ DAVID LOPEZ

David Lopez
President and Chief Executive Officer
(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification of Principal Financial Officer

of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a)

I, Kimo Akiona, certify that:

1.     I have reviewed this Quarterly Report on Form 10-Q of PlayAGS, INC.;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)   Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.     The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 7, 2020

/s/ KIMO AKIONA

Kimo Akiona    

Chief Financial Officer, Chief Accounting Officer and Treasurer
(Principal Financial and Accounting Officer)

EX-32

Exhibit 32

Certification of Principal Executive Officer and Principal Financial Officer

Pursuant to 18 U.S.C. Section 1350

In connection with the Quarterly Report on Form 10-Q of PlayAGS, INC. (the "Company") for the quarter ended March 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), David Lopez, as President and Chief Executive Officer of the Company, and Kimo Akiona, as Chief Financial Officer, Chief Accounting Officer and Treasurer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

1.     The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

2.     The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 7, 2020

/s/ DAVID LOPEZ

David Lopez

President and Chief Executive Officer

(Principal Executive Officer)

Date: May 7, 2020

/s/ KIMO AKIONA

Kimo Akiona

Chief Financial Officer, Chief Accounting Officer and Treasurer
(Principal Financial and Accounting Officer)

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to PlayAGS, Inc. and will be retained by PlayAGS, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Note 6 - Long-term Debt (Details Textual) - USD ($) $ in Thousands	May 01, 2020	Oct. 05, 2018	Feb. 08, 2018	Dec. 06, 2017	Jun. 06, 2017	Mar. 31, 2020	Dec. 31, 2019
Long-term Debt, Total						$ 553,915	$ 524,727
AP Gaming I, LLC [Member] | The First Lien Credit Agreement [Member] | Subsequent Event [Member]
Debt Instrument, Face Amount	$ 95,000
AP Gaming I, LLC [Member] | The First Lien Credit Agreement [Member] | Revolving Credit Facility [Member]
Line of Credit Facility, Maximum Borrowing Capacity					$ 30,000
Line of Credit Facility, Annual Commitment Fee, Percentage					0.50%
AP Gaming I, LLC [Member] | The First Lien Credit Agreement [Member] | Term Loan [Member]
Debt Instrument, Face Amount		$ 30,000		$ 65,000	$ 450,000
Debt Instrument, Quarterly Payment, Percentage of Original Principle Amount					0.25%
Debt Issuance Costs, Gross				1,000
Gain (Loss) on Extinguishment of Debt, Total		$ (1,500)		$ (900)
Long-term Debt, Total			$ 513,000
Gains (Losses) on Restructuring of Debt			(1,200)
Write off of Deferred Debt Issuance Cost			$ 400
Debt Instrument, Conditional Increase in Basis Spread on Variable Rate		0.75%
Debt Instrument, Additional Increase in Basis Spread on Variable Rate		0.25%
AP Gaming I, LLC [Member] | The First Lien Credit Agreement [Member] | Term Loan [Member] | Subsequent Event [Member]
Debt Instrument, Face Amount	95,000
Proceeds from Debt, Net of Issuance Costs	$ 83,500
Debt Instrument, Refinancing, Payment Premium or Fee, Percentage	1.00%
AP Gaming I, LLC [Member] | The First Lien Credit Agreement [Member] | Term Loan [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate			4.25%		5.50%
Debt Instrument, Basis Floor on Variable Rate			1.00%
AP Gaming I, LLC [Member] | The First Lien Credit Agreement [Member] | Term Loan [Member] | London Interbank Offered Rate (LIBOR) [Member] | Subsequent Event [Member]
Debt Instrument, Basis Spread on Variable Rate	13.00%

XML

Note 8 - Write-downs and Other Charges (Details Textual) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Other Cost and Expense, Operating, Total	$ 55	$ 1,016
Gain (Loss) on Disposition of Assets, Total	$ (49)	(266)
Business Combination, Contingent Consideration Arrangements, Change in Amount of Contingent Consideration, Asset		400
Development Agreements [Member]
Impairment of Intangible Assets, Finite-lived		$ 400

XML

Note 11 - Stock-based Compensation - Stock Option Activity (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2020	Dec. 31, 2019
Options outstanding, number of options (in shares)	1,382,986
Options outstanding, weighted average exercise price (in dollars per share)	$ 9.10
Options outstanding, weighted average remaining contract term (Year)	5 years 14 days	5 years 164 days
Options outstanding, aggregate intrinsic value		$ 4,793
Granted, number of options (in shares)
Granted, weighted average exercise price (in dollars per share)
Exercised, number of options (in shares)	(15,544)
Exercised, weighted average exercise price (in dollars per share)	$ 10.15
Canceled or forfeited, number of options (in shares)	(4,274)
Canceled or forfeited, weighted average exercise price (in dollars per share)	$ 10.15
Options outstanding, number of options (in shares)	1,363,168	1,382,986
Options outstanding, weighted average exercise price (in dollars per share)	$ 9.08	$ 9.10
Options exercisable, number of options (in shares)	1,233,857
Options exercisable, weighted average exercise price (in dollars per share)	$ 8.54
Options exercisable, weighted average remaining contract term (Year)	4 years 292 days
Options exercisable, aggregate intrinsic value

XML

Note 14 - Operating Segments (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	Three Months Ended March 31,
	2020			2019
Revenues by segment
EGM	$	50,355		$	69,655
Table Products		2,482			2,156
Interactive		1,476			1,231
Total Revenues		54,313			73,042
Adjusted EBITDA by segment
EGM		23,372			36,722
Table Products		898			478
Interactive		231			(935	)
Subtotal		24,501			36,265
Write-downs and other:
Loss on disposal of long lived assets		49			266
Impairment of long lived assets		6			350
Fair value adjustments to contingent consideration and other items		-			400
Depreciation and amortization		24,369			21,533
Accretion of placement fees(1)		1,859			1,271
Non-cash stock-based compensation expense		1,551			1,196
Acquisitions and integration related costs including restructuring and severance		452			2,069
Initial public offering costs and secondary offering		-			279
Non-cash charge on capitalized installation and delivery		696			648
Other adjustments		702			(95	)
Interest expense		8,342			8,874
Interest (income)		(52	)		(39	)
Other expense		4,339			5,260
(Loss) income before income taxes	$	(17,812	)	$	(5,747	)

XML

Note 4 - Goodwill and Intangibles (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Goodwill [Table Text Block]

	Gross Carrying Amount
	EGM			Table Products		Interactive(1)		Total
Balance at December 31, 2019	$	279,228		$	7,821	$	-	$	287,049
Foreign currency adjustments		(3,776	)		-		-		(3,776	)
Impairment		-			-		-		-
Balance at March 31, 2020	$	275,452		$	7,821	$	-	$	283,273

Schedule of Intangible Assets and Goodwill [Table Text Block]

		March 31, 2020							December 31, 2019
	Useful Life	Gross		Accumulated			Net Carrying		Gross		Accumulated			Net Carrying
	(years)	Value		Amortization			Value		Value		Amortization			Value
Indefinite lived trade names	Indefinite	$	12,126	$	-		$	12,126	$	12,126	$	-		$	12,126
Trade and brand names	5 - 7		14,870		(13,766	)		1,104		14,870		(13,209	)		1,661
Customer relationships	5 - 12		216,258		(123,702	)		92,556		219,788		(120,384	)		99,404
Contract rights under development and placement fees	1 - 7		48,878		(10,747	)		38,131		48,180		(8,888	)		39,292
Gaming software and technology platforms	1 - 7		165,298		(101,062	)		64,236		162,391		(96,193	)		66,198
Intellectual property	10 - 12		19,345		(8,040	)		11,305		19,345		(7,575	)		11,770
		$	476,775	$	(257,317	)	$	219,458	$	476,700	$	(246,249	)	$	230,451

XML

Note 14 - Operating Segments

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

NOTE

14.

OPERATING SEGMENTS

We report our business segment results by segment in accordance with the “management approach.” The Management approach designates the internal reporting used by our chief operating decision maker (“CODM”), who is our Chief Executive Officer (the “CEO”), for making decisions and assessing performance of our reportable segments.

See Note

1

for a detailed discussion of our

three

segments. Each segment’s activities include the design, development, acquisition, manufacturing, marketing, distribution, installation and servicing of its product lines. We evaluate the performance of our operating segments based on revenues and segment adjusted EBITDA, which is defined in the paragraph below.

Segment revenues include leasing, licensing, or selling of products within each reportable segment. Segment adjusted EBITDA includes the revenues and operating expenses from each segment adjusted for depreciation, amortization, write-downs and other charges, accretion of placement fees, non-cash stock based compensation expense, as well as other costs such as certain acquisitions and integration related costs including restructuring and severance charges; initial public offering and secondary offerings costs; legal and litigation expenses including settlement payments; new jurisdictions and regulatory licensing costs; non-cash charges on capitalized installation and delivery; contract cancellation fees; and other adjustments primarily composed of professional fees incurred by the Company for projects, corporate and public filing compliance and other costs deemed to be non-recurring in nature. Revenues in each segment are attributable to

third

parties and segment operating expenses are directly associated with the product lines included in each segment such as research and development, product approval costs, product-related litigation expenses, sales commissions and other directly-allocable sales expenses. Cost of gaming operations and cost of equipment sales primarily include the cost of products sold, service, manufacturing overhead, shipping and installation.

Segment adjusted EBITDA excludes other income and expense, income taxes and certain expenses that are managed outside of the operating segments.

The following provides financial information concerning our reportable segments for the 

three

months ended

March 31, 2020

 and 

2019

(amounts in thousands):   

	Three Months Ended March 31,
	2020			2019
Revenues by segment
EGM	$	50,355		$	69,655
Table Products		2,482			2,156
Interactive		1,476			1,231
Total Revenues		54,313			73,042
Adjusted EBITDA by segment
EGM		23,372			36,722
Table Products		898			478
Interactive		231			(935	)
Subtotal		24,501			36,265
Write-downs and other:
Loss on disposal of long lived assets		49			266
Impairment of long lived assets		6			350
Fair value adjustments to contingent consideration and other items		-			400
Depreciation and amortization		24,369			21,533
Accretion of placement fees(1)		1,859			1,271
Non-cash stock-based compensation expense		1,551			1,196
Acquisitions and integration related costs including restructuring and severance		452			2,069
Initial public offering costs and secondary offering		-			279
Non-cash charge on capitalized installation and delivery		696			648
Other adjustments		702			(95	)
Interest expense		8,342			8,874
Interest (income)		(52	)		(39	)
Other expense		4,339			5,260
(Loss) income before income taxes	$	(17,812	)	$	(5,747	)

(

1

)

Non-cash item related to the accretion of contract rights under development agreements and placement fees.

The Company’s CODM does

not

receive a report with a measure of total assets or capital expenditures for each reportable segment as this information is

not

used for the evaluation of segment performance. The CODM assesses the performance of each segment based on adjusted EBITDA and

not

based on assets or capital expenditures due to the fact that

two

of the Company’s reportable segments, Table Products and Interactive, are

not

capital intensive. Any capital expenditure information is provided to the CODM on a consolidated basis. Therefore, the Company has

not

provided asset and capital expenditure information by reportable segment.

XML

Note 1 - Description of the Business and Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Business Description and Accounting Policies [Text Block]

NOTE

1.

DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

PlayAGS, Inc. (the "Company," "PlayAGS," "we," "us," or "our") is a leading designer and supplier of gaming products and services for the gaming industry. We operate in legalized gaming markets across the globe and provide state-of-the-art, value-add products in

three

distinct segments: Electronic Gaming Machines (“EGM”), which includes server-based systems and back-office systems that are used by Class II Native American, Mexico and the Philippines gaming jurisdictions and Class III Native American, commercial and charitable jurisdictions; Table Products (“Table Products”), which includes live felt table games, side-bets and progressives as well as our newly introduced card shuffler,

Dex S

; and Interactive Games (“Interactive”), which provides social casino games on desktop and mobile devices (our "Interactive Social" reporting unit) as well as a platform for content aggregation used by real-money gaming (“RMG”) and sports-betting partners (our "RMG Interactive" reporting unit). Each segment’s activities include the design, development, acquisition, manufacturing, marketing, distribution, installation and servicing of a distinct product line.

The Company filed a Registration Statement on Form

10

on

December 19, 2013,

which went effective under the Securities Exchange Act of

1934,

as amended (the “Exchange Act”), on

December 19, 2013.

On

January 30, 2018,

we completed the initial public offering of

10,250,000

shares of our common stock, at a public offering price of

$16.00

per share (the “IPO”).

On

February 27, 2018,

we sold an additional

1,537,500

shares of common stock, pursuant to the underwriters’ exercise in full of the over-allotment option.

Electronic Gaming Machines

Our EGM segment offers a selection of video slot titles developed for the global marketplace, and EGM cabinets which include the 

Alora

, 

Orion Portrait, Orion Rise, Orion Upright, ICON, Big Red (“Colossal Diamonds”) 

and our 

Orion Slant

. In addition to providing complete EGM units, we offer conversion kits that allow existing game titles to be converted to other game titles offered within that operating platform.

Table Products

Our Table Products include both internally developed and acquired proprietary table products, side-bets, progressives, and table technology related to blackjack, poker, baccarat, craps and roulette. We have acquired a number of popular proprietary brands, including In Bet Gaming (“In Bet”), 

Buster Blackjack, Double Draw

 

Poker

 and 

Criss Cross Poker

 that are based on traditional well-known public domain games such as blackjack and poker; however, these proprietary games provide intriguing betting options that offer more excitement and greater volatility to the player, ultimately enhancing our casino customers’ profitability. In addition, we offer a single deck card shuffler for poker tables, 

Dex S 

and recently introduced our

second

shuffler, the 

Pax S 

single-deck pack shuffler, which we plan to launch in

2020.

Interactive

We operate a

B2B

online gaming platform for content aggregation that we offer to our real-money gaming (“RMG”) online casino customers. This platform aggregates content from several game suppliers and offers online casino operators the convenience to reduce the number of integrations that are needed to supply the online casino. We also operate Business-to-Consumer (

“B2C”

) social casino games that include online versions of our EGM titles and are accessible to players on multiple mobile platforms. Our

B2C

social casino games are available on our mobile app, Lucky Play Casino. The app contains numerous AGS game titles available for consumers to play for free or with virtual currency they purchase in the app. 

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain disclosures required by generally accepted accounting principles (“GAAP”) are omitted or condensed in these condensed consolidated financial statements. In the opinion of Management, all adjustments (consisting of only normal recurring adjustments) that are necessary for a fair statement of the Company's financial position, results of operations and cash flows for the interim periods have been made. The interim results reflected in these condensed consolidated financial statements are

not

necessarily indicative of results to be expected for the full fiscal year. The accompanying condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 

10

-K for the year ended

December 31, 2019

.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires the Company to make decisions based upon estimates, assumptions, and factors considered relevant to the circumstances. Such decisions include the selection of applicable accounting principles and the use of judgment in their application, the results of which impact reported amounts and disclosures. Changes in future economic conditions or other business circumstances

may

affect the outcomes of the estimates and assumptions. Accordingly, actual results could differ materially from those anticipated.

Revenue Recognition

Leasing of equipment in both our EGM and Table Products segments is accounted for under lease accounting guidance in ASC

842,

"Leases" (ASC

842

) and is recorded in gaming operations revenue. Our remaining revenue streams are accounted for under ASC

606

"Revenue from contracts with customers" (ASC

606

) including equipment sales in our EGM and, to a lesser extent, in our Table Products segments. Revenue earned in our Interactive segment is recorded in gaming operations revenue.

The following table disaggregates our revenues by type within each of our segments (amounts in thousands):

	Three Months Ended March 31,
	2020		2019
EGM
Gaming operations	$	38,885	$	49,500
Equipment sales		11,470		20,155
Total	$	50,355	$	69,655
Table Products
Gaming operations	$	2,324	$	2,130
Equipment sales		158		26
Total	$	2,482	$	2,156
Interactive (gaming operations)
Social gaming revenue	$	822	$	958
Real-money gaming revenue		654		273
Total	$	1,476	$	1,231

Gaming Operations

Gaming operations revenue is earned by providing customers with gaming machines, gaming machine content licenses, table products, back-office equipment and linked progressive systems, which are collectively referred to as gaming equipment, under participation arrangements. The participation arrangements convey the right to use the equipment (i.e., gaming machines and related integral software) for a stated period of time, which typically ranges from

one

to

three

years upon which the contract continues on a month-to-month basis thereafter. In some instances, the Company will enter arrangements for longer periods of time; however, many of these arrangements include the ability of the customer to cancel the contract and return the games to the Company, a provision which renders their contracts effectively month-to-month contracts.The Company will also enter into lease contracts with a revenue sharing arrangement whereby the lease payments due from the customer are variable. Our participation arrangements are accounted for as operating leases primarily due to these factors. In some instances, we will offer a free trial period during which

no

revenue is recognized. If during or at the conclusion of the trial period the customer chooses to enter into a lease for the gaming equipment, we commence revenue recognition according to the terms of the agreement.

Under participation arrangements, the Company retains ownership of the gaming equipment installed at the customer facilities and receives either revenue based on a percentage of the win per day generated by the gaming equipment or a fixed daily fee. Thus, in our consolidated financial statements the Company records revenue monthly related to these arrangements and the gaming equipment is recorded in property and equipment, net on our balance sheet and depreciated over the expected life of the gaming equipment.

The majority of the Company’s leases require the Company to provide maintenance throughout the entire term of the lease. In some cases, a performance guarantee exists that, if

not

met, provides the customer with the right to return the gaming machines to the Company. This performance guarantee is considered a cancellation clause, a provision which renders their contracts effectively month-to-month contracts. Accordingly, the Company accounts for these contracts in a similar manner with its other operating leases as described above.

Gaming operations revenue is also earned from the licensing of table product content and is earned and recognized primarily on a fixed monthly rate. Our

B2C

social casino products earn revenue from the sale of virtual coins or chips, which is recorded when the purchased coins or chips are used by the customer.

B2C

social casino revenue is presented gross of the platform fees.

B2B

social casino products earn revenue primarily based on a percentage of the monthly revenue generated by the white label casino apps that we build and operate for our customers. RMG revenue is earned primarily based on a percentage of the revenue produced by the games on our platform as well as monthly platform fees and initial integration fees. RMG revenue is presented net of payments to game and content suppliers.

Equipment Sales

Revenues from contracts with customers are recognized and recorded when the following criteria are met:

• We have a contract that has been approved by both the customer and the Company. Our contracts specify the products being sold and payment terms and are recognized when it is probable that we will collect substantially all of the contracted amount; and

• Control has been transferred and services have been rendered in accordance with the contract terms.

Equipment sales are generated from the sale of gaming machines, table products and licensing rights to the integral game content software that is installed in the related equipment, parts, and other ancillary equipment. Also included within the deliverables are delivery, installation and training, all of which occur within a few days of arriving at the customer location. Equipment sales do

not

include maintenance beyond a standard warranty period. The recognition of revenue from the sale of gaming devices occurs as the customer obtains control of the product and all other revenue recognition criteria have been satisfied. Our contracts include a fixed transaction price. Amounts are due from customers within

30

to

90

days of the invoice date and to a lesser extent we offer extended payment terms of

12

to

24

months with payments due monthly during the extended payment period.

The Company enters into revenue arrangements that

may

consist of multiple performance obligations, which are typically multiple distinct products that

may

be shipped to the customer at different times. For example, sales arrangements

may

include the sale of gaming machines and table products to be delivered upon the consummation of the contract and additional game content conversion kits that will be delivered at a later date when requested by the customer to replace the game content on the customer’s existing gaming machines. Products are identified as separate performance obligations if they are distinct, which occurs if the customer can benefit from the product on its own and is separately identifiable from other promises in the contract.

Revenue is allocated to the separate performance obligations based on relative standalone selling prices determined at contract inception. Standalone selling prices are primarily determined by prices that we charge for the products when they are sold separately. When a product is

not

sold separately, we determine the standalone selling price with reference to our standard pricing policies and practices. We elected to exclude from the measurement of the transaction price, sales taxes and all other items of a similar nature, and also elected to account for shipping and handling activities as a fulfillment of our promise to transfer the goods. Accordingly, shipping and handling costs are included in cost of sales.

Revenue allocated to any undelivered performance obligations is recorded as a contract liability. The balance of our contract liabilities was

not

material as of 

March 31, 2020

 and

December 31, 2019

.

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of deposits held at major banks and other marketable securities with original maturities of

90

 days or less.

Restricted Cash

Restricted cash amounts represent funds held in escrow as collateral for the Company’s surety bonds for various gaming authorities.

Allowance for Doubtful Accounts 

Accounts receivable are stated at face value less an allowance for doubtful accounts. The Company maintains an allowance for doubtful accounts related to accounts receivable and notes receivable, which are non-interest bearing, deemed to have a high risk of collectability. The Company reviews the accounts receivable and notes receivable on a monthly basis to determine if any receivables will potentially be uncollectible. The Company analyzes historical collection trends and changes in the customers’ payment patterns, customer concentration, and credit worthiness when evaluating the adequacy of the allowance for doubtful accounts. A large percentage of receivables are with Native American tribes and the Company has concentrations of credit risk with several tribes. The Company includes any receivable balances that are determined to be uncollectible in the overall allowance for doubtful accounts. Changes in the assumptions or estimates reflecting the collectability of certain accounts could materially affect the allowance for both accounts and notes receivable.

Allowance for Expected Credit Losses 

Management 

estimates the allowance for expected credit losses balance using relevant available information from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current environmental economic conditions and reasonable and supportable forecast. The allowance for expected credit losses on financial instruments is measured on a collective (pool) basis when similar risk characteristics exist. The financial instruments that do

not

share risk characteristics, such as receivables related to development agreements, are evaluated on an individual basis. Expected credit losses are estimated over the contractual term of the related financial instruments, adjusted for expected prepayments when appropriate, based on a historical model that includes periodic write-offs, recoveries, and adjustments to the reserve. Historically, the identified portfolio segments have shared low collectability risk with immaterial write-off amounts. The Company made an accounting policy election to present the accrued interest receivable balance within another statement of financial position line item. Accrued interest receivable is reported within respective receivables line items on the consolidated balance sheet. 

The following table excludes receivables related to operating leases and presents all other receivables' gross amortized cost, allowance for credit losses and amortized cost, net of allowance for credit losses by portfolio segment as of

March 31, 2020

and

December 31, 2019 (

in thousands):

		March 31, 2020							December 31, 2019
	Classification	Gross amortized cost		Allowance for credit losses			Amortized cost, net of allowance for credit losses		Gross amortized cost		Allowance for credit losses			Amortized cost, net of allowance for credit losses
Trade receivables:	Accounts Receivable	$	10,756	$	-		$	10,756	$	22,741	$	-		$	22,741
Receivables with extended payment terms:
Originated in 2020	Accounts Receivable	$	3,009	$	-		$	3,009		N/A		N/A			N/A
Originated in 2019	Accounts Receivable		4,073		-			4,073		5,461		-			5,461
Total receivables with extended payment term		$	7,082	$	-		$	7,082	$	5,461	$	-		$	5,461
Sales-type leases receivables:
Originated in 2019	Accounts Receivable	$	1,772	$	(89	)	$	1,683	$	2,206	$	(111	)	$	2,095
Originated in 2017	Accounts Receivable		42		(2	)		40		52		(3	)		49
Total Sales-type leases receivables		$	1,814	$	(91	)	$	1,723	$	2,258	$	(114	)	$	2,144
Development Agreements:
Originated in 2020	Deposits and other	$	2,390	$	-		$	2,390		N/A		N/A			N/A
Originated in 2019	Deposits and other		2,431		-			2,431		2,359		-			2,359
Total Development Agreements		$	4,821	$	-		$	4,821	$	2,359	$	-		$	2,359

Inventories

Inventories consist primarily of parts and supplies that are used to repair and maintain machinery and equipment as well as EGMs in production and finished goods held for sale. Inventories are stated at net realizable value. Cost of inventories is determined using the

first

-in,

first

-out (“FIFO”) method for all components of inventory. The Company regularly reviews inventory quantities and updates estimates for the net realizable value of inventories. This process includes examining the carrying values of parts and ancillary equipment in comparison to the current fair market values for such equipment (less costs to sell or dispose). Some of the factors involved in this analysis include the overall levels of the inventories, the current and projected sales levels for such products, the projected markets for such products and the costs required to sell the products, including refurbishment costs. Changes in the assumptions or estimates could materially affect the inventory carrying value. As of 

March 31, 2020

 and

December 31, 2019

, the value of raw material inventory was

$32.7

 million and

$29.1

million, respectively. As of 

March 31, 2020

 and

December 31, 2019

, the value of finished goods inventory was

$6.3

 million and

$3.8

 million, respectively. There was

no

work in process material as of 

March 31, 2020

 and

December 31, 2019

.

Property and Equipment

The cost of gaming equipment, consisting of fixed-base player terminals, file servers and other support equipment as well as other property and equipment, is depreciated over their estimated useful lives, using the straight-line method for financial reporting. The Company capitalizes costs incurred for the refurbishment of used gaming equipment that is typically incurred to refurbish a machine in order to return it to its customer location. The refurbishments extend the life of the gaming equipment beyond the original useful life. Repairs and maintenance costs are expensed as incurred. The Company routinely evaluates the estimated lives used to depreciate assets. The estimated useful lives are as follows:

Gaming equipment (in years)	2 to 6
Other property and equipment (in years)	3 to 6

The Company reviews its property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group

may

not

be recoverable. The Company groups long-lived assets for impairment analysis at the lowest level for which identifiable cash flows can be measured independently of the cash flows of other assets and liabilities. This is typically at the individual gaming machine level or at the cabinet product line level. Impairment testing is performed and losses are estimated when indicators of impairment are present and the estimated undiscounted cash flows are

not

sufficient to recover the assets’ carrying amount.

When the estimated undiscounted cash flows are

not

sufficient to recover the asset’s carrying amount, an impairment loss is measured to the extent the fair value of the asset is less than its carrying amount.

The Company measures recoverability of assets to be held and used by comparing the carrying amount of an asset to future cash flows expected to be generated by the asset. The Company’s policy is to impair, when necessary, excess or obsolete gaming machines on hand that it does

not

expect to be used. Impairment is based upon several factors, including estimated forecast of gaming machine demand for placement into casinos. While the Company believes that the estimates and assumptions used in evaluating the carrying amount of these assets are reasonable, different assumptions could affect either the carrying amount or the estimated useful lives of the assets, which could have a significant impact on the results of operations and financial condition.

Intangible Assets

The Company reviews its identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset

may

not

be recoverable. Impairment losses are recognized for identifiable intangibles, other than goodwill, when indicators of impairment are present and the estimated undiscounted cash flows are

not

sufficient to recover the assets’ carrying amount.

When the estimated undiscounted cash flows are

not

sufficient to recover the intangible asset’s carrying amount, an impairment loss is measured to the extent the fair value of the asset is less than its carrying amount.

Certain trade names have an indefinite useful life and the Company tests these trade names for possible impairment at least annually, on

October 1,

or whenever events or changes in circumstances indicate that the carrying value

may

be impaired. We perform a qualitative assessment to determine if it is more likely than

not

that the fair value of the asset is less than its carrying amount. If we believe, as a result of our qualitative assessment, that it is more likely than

not

that the fair value of the asset is less than its carrying amount, the quantitative impairment test is required.

Costs of Capitalized Computer Software

Internally developed gaming software represents the Company’s internal costs to develop gaming titles to utilize on the Company’s gaming machines. Internally developed gaming software is stated at cost and amortized over the estimated useful lives of the software, using the straight-line method. Software development costs are capitalized once technological feasibility has been established and are amortized when the software is placed into service. The computer software we develop reaches technological feasibility when a working model of the computer software is available. Any subsequent software maintenance costs, such as bug fixes and subsequent testing, are expensed as incurred. Discontinued software development costs are expensed when the determination to discontinue is made. Software development costs are amortized over the expected life of the title or group of titles, if applicable, to amortization expense.

On a quarterly basis, or more frequently if circumstances warrant, the Company compares the net book value of its internally developed computer software to the net realizable value on a title or group of title basis. The net realizable value is determined based upon certain assumptions, including the expected future revenues and net cash flows of the gaming titles or group of gaming titles utilizing that software, if applicable.

Goodwill

The excess of the purchase price of an acquired business over the estimated fair value of the assets acquired and the liabilities assumed is recorded as goodwill. The Company tests for possible impairment of goodwill at least annually, on

October 1,

or when circumstances change that would more likely than

not

reduce the fair value of a reporting unit below its carrying value. The Company has the option to begin with a qualitative assessment, commonly referred to as “Step

0”,

to determine whether it is more likely than

not

that the reporting unit’s fair value of goodwill is less than its carrying value. This qualitative assessment

may

include, but is

not

limited to, reviewing factors such as the general economic environment, industry and market conditions, changes in key assumptions used since the most recently performed valuation and overall financial performance of the reporting units. If the Company determines that it is more likely than

not

that a reporting unit’s fair value is less than its carrying value, the Company performs a quantitative goodwill impairment analysis, and depending upon the results of that measurement, the recorded goodwill

may

be written down and charged to income from operations when the carrying amount of the reporting unit exceeds the fair value of the reporting unit. 

Acquisition Accounting

The Company applies the provisions of ASC

805,

“

Business Combinations”

(ASC

805

), in accounting for business acquisitions. It requires us to recognize separately from goodwill the fair value of assets acquired and liabilities assumed on the acquisition date. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. Significant estimates and assumptions are required to value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable. These estimates are inherently uncertain and subject to refinement and typically include the calculation of an appropriate discount rate and projection of the cash flows associated with each acquired asset. As a result, during the measurement period, which

may

be up to

one

year from the acquisition date, we

may

record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.

Fair Value of Financial Instruments

The Company applies the provisions of ASC

820,

“

Fair Value Measurements

” (ASC

820

) to its financial assets and liabilities. Fair value is defined as a market-based measurement intended to estimate the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. ASC

820

also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs when measuring fair value. These inputs are categorized as follows:

• Level 1 - quoted prices in an active market for identical assets or liabilities;

• Level 2 - quoted prices in an active market for similar assets or liabilities, inputs other than quoted prices that are observable for similar assets or liabilities, inputs derived principally from or corroborated by observable market data by correlation or other means; and

• Level 3 - valuation methodology with unobservable inputs that are significant to the fair value measurement.

The carrying values of the Company’s cash and cash equivalents, restricted cash, receivables and accounts payable approximate fair value because of the short term maturities of these instruments. The fair value of our long-term debt is based on the quoted market prices for similar issues (Level

2

inputs). The following table presents the estimated fair value of our long-term debt as of 

March 31, 2020

 and 

December 31, 2019

 (in thousands):

	March 31, 2020				December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term Debt	$	562,423	$	433,475	$	533,727	$	534,578

Accounting for Income Taxes

We conduct business globally and are subject to income taxes in U.S. federal, state, local, and foreign jurisdictions. Determination of the appropriate amount and classification of income taxes depends on several factors, including estimates of the timing and probability of realization of deferred income taxes, reserves for uncertain income tax positions and income tax payment timing.

We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. Taxes on income of our foreign subsidiaries are provided at the tax rates applicable to the tax jurisdictions in which they are located. Future tax benefits are recognized to the extent that realization of those benefits is considered more likely than

not

and a valuation allowance is established for deferred tax assets which do

not

meet this threshold.

The recoverability of certain deferred tax assets is based in part on estimates of future income and the timing of temporary differences, and the failure to fully realize such deferred tax assets could result in a higher tax provision in future periods.

We apply the accounting guidance to our uncertain tax positions and under the guidance, we

may

recognize a tax benefit from an uncertain position only if it is more likely than

not

that the position will be sustained upon examination by taxing authorities based on the technical merits of the issue. The amount recognized in the financial statements is the largest benefit that we believe has greater than a

50%

likelihood of being realized upon settlement.

We are required to make significant judgments when evaluating our uncertain tax positions and the related tax benefits. We believe our assumptions are reasonable; however, there is

no

guarantee that the final outcome of the related matters will

not

differ from the amounts reflected in our income tax provisions and accruals. We adjust our liability for uncertain tax positions based on changes in facts and circumstances such as the closing of a tax audit or changes in estimates. Our income tax provision

may

be impacted to the extent that the final outcome of these tax positions is different than the amounts recorded.

In response to the COVID-

19

outbreak, President Donald Trump signed H.R.

748,

the “Coronavirus Aid, Relief, and Economic Security ACT (the “CARES Act”).  While we are still assessing the impact of the CARES Act, we do

not

expect this to have a material impact on our condensed consolidated financial statements.

Contingencies

The Company assesses its exposures to loss contingencies including claims and legal proceedings and accrues a liability if a potential loss is considered probable and the amount can be estimated. Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, if the actual loss from a contingency differs from Management’s estimate, there could be a material impact on the results of operations or financial position. Operating expenses, including legal fees, associated with contingencies are expensed when incurred.

Foreign Currency Translation

The financial statements of the Company’s foreign subsidiaries are translated into U.S. dollars at the period end rate of exchange for asset and liability accounts and the weighted average rate of exchange for income statement accounts. The effects of these translations are recorded as a component of other accumulated comprehensive loss in stockholders’ equity.

Liquidity and Financing

Due to the business disruption caused by the rapid nationwide spread of the novel coronavirus and the actions by state and tribal governments and businesses to contain the virus, the Company’s customers have closed their operations and their respective markets have been significantly and adversely impacted. As a result of the temporary closures of our casino customers, there has been a decrease in the amount of money spent by consumers on our revenue shared installed base and the amount of daily fees of our participation EGMs and

no

expansion of existing casinos or development of new casinos. Specifically, gaming operations revenue and equipment sales have decreased compared to the prior year period as a result of the temporary closures of our casino customers. Similarly, our EGM and Table Product segment operating results have been disrupted because each segment’s activities including design, development, acquisition, manufacturing, marketing, distribution, installation and servicing of its products lines have been temporarily halted or significantly reduced.  In addition, each segment’s revenue from leasing, licensing and selling products has been adversely impacted due to the temporary closures of our casino customers. As a result, the Company has taken several actions to adapt to the severity of the crisis. Among other things, the Company implemented short-term furloughs with retained benefits, company-wide salary reductions, and an approximate

10%

reduction of the workforce. Our non-employee directors have also agreed to reduce their fees by

50%.

 In addition to these actions, the Company is considering further reductions to payroll and related expenses through additional employee furloughs and

may

pursue

one

or more of these alternatives depending on the length of the casino closures in markets and jurisdictions where it earns its revenue in order to conserve liquidity. 

As of

March 31, 2020,

the Company had

$43.6

million in cash and cash equivalents. Under the First Lien Credit Agreement (defined below in Note

6

), the Company was required to comply with certain financial covenants at the end of each calendar quarter, including to maintain a maximum net

first

lien leverage ratio of

6.0

to

1.0.

On

May 1, 2020,

the Company entered into an amendment to the First Lien Credit Agreement ("Amendment

No.

4"

) that implemented a financial covenant relief period (the “Financial Covenant Relief Period”) through

December 31, 2020

and implemented a revised calculation of EBITDA commencing on the

first

day after the expiration of the Financial Covenant Relief Period and ending on the

first

day of the

fourth

fiscal quarter after the expiration of the Financial Covenant Relief Period.  As a result of Amendment

No.

4,

and based on the Company's projected operating results for the next

twelve

months, the Company expects that it will be in compliance with its debt covenants under the First Lien Credit Agreement for at least the next

twelve

months. Amendment

No.

4

also provided for additional financing of

$95.0

million of which the Company received

$83.5

million after original issue discount and related fees, which is described in Note

6.

The incremental term loans are subject to an interest rate of LIBOR plus

13%

and the agreement also provides that any refinancing of the term loans through the issuance of certain debt or any repricing amendment resulting in a lower yield occurring at any time during the

first

two

years after

May 1, 2020

will be accompanied by a Make-Whole Premium as defined in the agreement that includes a premium or fee as well as the required payment of any unpaid interest that would have been paid through

May 1, 2022.

For

six

months following this

two

year period a prepayment of the loans will be accompanied by a 

1.00%

 payment premium or fee. Other than described above, the incremental term loans continue to have the same terms as provided under the existing credit agreement. As a result of the additional financing, coupled with existing cash balances, Management believes that the Company has sufficient liquidity to fund its operating requirements and meet its obligations as they become due for at least the next

twelve

 months.

Recently Issued Accounting Pronouncements

In

June 2016,

the FASB issued ASU

No.

2016

-

13,

Financial Instruments - Credit Losses (Topic

326

),

 which provides updated guidance on how an entity should measure credit losses on financial instruments. The new guidance replaced the current incurred loss measurement methodology with a lifetime expected loss measurement methodology. Subsequently, in

November 2018

the FASB issued ASU

No.

2018

-

19,

which clarified that receivables arising from operating leases are

not

within the scope of Subtopic

326

-

20,

but should rather be accounted for in accordance with ASC

842.

In

May 2019,

the FASB issued ASU

No.

2019

-

05

providing targeted transition relief to all reporting entities within the scope of Topic

326.

The new standard and related amendments are effective for fiscal years beginning after

December 15, 2019,

including interim periods within those fiscal years. This guidance is expected to be applied using a modified retrospective approach for the cumulative-effect adjustment to retained earnings as of the beginning of the

first

reporting period in which the guidance is effective and using a prospective approach for debt securities for which any other-than-temporary impairment had been recognized before the effective date. Early adoption is permitted for fiscal years beginning after

December 15, 2018.

The Company adopted ASC 

326

using the modified retrospective approach for all applicable financial assets measured at amortized cost. The Company elected the practical expedient to exclude accrued interest from tabular disclosure and

not

to estimate an allowance for credit losses on accrued interest. Results for reporting beginning after

January 1, 2020

are presented under ASC

326

while prior amounts continue to be reported in accordance with previously applicable GAAP. The standard did

not

materially impact our consolidated net earnings and had

no

impact on cash flows.

In

August 2018,

the FASB issued ASU

No.

2018

-

15,

Intangibles—Goodwill and Other—Internal-Use Software (Subtopic

350

-

40

): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force)

 which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The new standard is effective for fiscal years beginning after

December 15, 2019,

including interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period. The Company adopted the standard prospectively to all implementation costs incurred after

January 1, 2020.

The standard did

not

materially impact our consolidated net earnings and had

no

impact on cash flows. 

 We do

not

expect that any other recently issued accounting guidance will have a significant effect on our financial statements.

XML

Note 1 - Description of the Business and Summary of Significant Accounting Policies - Allowance for Expected Credit Losses (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Trade Accounts Receivable [Member]
Gross amortized cost	$ 10,756,000	$ 22,741,000
Allowance for credit losses
Amortized cost, net of allowance for credit losses	10,756,000	22,741,000
Account Receivables with Extended Payment Term Originated in 2020 [Member]
Gross amortized cost	3,009,000
Allowance for credit losses
Amortized cost, net of allowance for credit losses	3,009,000
Account Receivables with Extended Payment Term Originated in 2019 [Member]
Gross amortized cost	4,073,000	5,461,000
Allowance for credit losses
Amortized cost, net of allowance for credit losses	4,073	5,461
Account Receivables with Extended Payment Term [Member]
Gross amortized cost	7,082,000	5,461,000
Allowance for credit losses
Amortized cost, net of allowance for credit losses	7,082,000	5,461,000
Sales-type Leases Receivables Classified as Accounts Receivable Originated in 2019 [Member]
Gross amortized cost	1,772,000	2,206,000
Allowance for credit losses	(89,000)	(111,000)
Amortized cost, net of allowance for credit losses	1,683,000	2,095,000
Sales-type Leases Receivables Classified as Accounts Receivable Originated in 2017 [Member]
Gross amortized cost	42,000	52,000
Allowance for credit losses	(2,000)	(3,000)
Amortized cost, net of allowance for credit losses	40,000	49,000
Sales-type Leases Receivables Classified as Accounts Receivable [Member]
Gross amortized cost	1,814,000	2,258,000
Allowance for credit losses	(91,000)	(114,000)
Amortized cost, net of allowance for credit losses	1,723,000	2,144,000
Deposits and Other Originated in 2020 [Member]
Gross amortized cost	2,390,000
Allowance for credit losses
Amortized cost, net of allowance for credit losses	2,390,000
Development Agreements Classified as Deposits and Other Originated in 2019 [Member]
Gross amortized cost	2,431,000	2,359,000
Allowance for credit losses
Amortized cost, net of allowance for credit losses	2,431,000	2,359,000
Development Agreements Classified as Deposits and Other [Member]
Gross amortized cost	4,821,000	2,359,000
Allowance for credit losses
Amortized cost, net of allowance for credit losses	$ 4,821,000	$ 2,359,000

XML

Note 3 - Property and Equipment (Details Textual) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Depreciation, Total	$ 10.9	$ 10.6
Minimum [Member]
Property, Plant and Equipment, Useful Life (Year)	2 years
Maximum [Member]
Property, Plant and Equipment, Useful Life (Year)	6 years

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Accounts receivable, allowance	$ 451	$ 723
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	50,000,000	50,000,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	450,000,000	450,000,000
Common stock, shares issued (in shares)	35,587,851	35,534,558
Common stock, shares outstanding (in shares)	35,587,851	35,534,558

XML

Note 4 - Goodwill and Intangibles - Intangible Assets (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Dec. 31, 2019
Indefinite lived trade names	$ 12,126	$ 12,126
Finite lived, accumulated amortization	(257,317)	(246,249)
Intangible assets, gross value	476,775	476,700
Intangible assets, net carrying value	$ 219,458	230,451
Minimum [Member]
Intangible assets, useful life (Year)	1 year
Maximum [Member]
Intangible assets, useful life (Year)	12 years
Trade Names [Member]
Finite lived, gross value	$ 14,870	14,870
Finite lived, accumulated amortization	(13,766)	(13,209)
Finite lived, net carrying value	$ 1,104	1,661
Trade Names [Member] | Minimum [Member]
Intangible assets, useful life (Year)	5 years
Trade Names [Member] | Maximum [Member]
Intangible assets, useful life (Year)	7 years
Customer Relationships [Member]
Finite lived, gross value	$ 216,258	219,788
Finite lived, accumulated amortization	(123,702)	(120,384)
Finite lived, net carrying value	$ 92,556	99,404
Customer Relationships [Member] | Minimum [Member]
Intangible assets, useful life (Year)	5 years
Customer Relationships [Member] | Maximum [Member]
Intangible assets, useful life (Year)	12 years
Contractual Rights [Member]
Finite lived, gross value	$ 48,878	48,180
Finite lived, accumulated amortization	(10,747)	(8,888)
Finite lived, net carrying value	$ 38,131	39,292
Contractual Rights [Member] | Minimum [Member]
Intangible assets, useful life (Year)	1 year
Contractual Rights [Member] | Maximum [Member]
Intangible assets, useful life (Year)	7 years
Computer Software, Intangible Asset [Member]
Finite lived, gross value	$ 165,298	162,391
Finite lived, accumulated amortization	(101,062)	(96,193)
Finite lived, net carrying value	$ 64,236	66,198
Computer Software, Intangible Asset [Member] | Minimum [Member]
Intangible assets, useful life (Year)	1 year
Computer Software, Intangible Asset [Member] | Maximum [Member]
Intangible assets, useful life (Year)	7 years
Intellectual Property [Member]
Finite lived, gross value	$ 19,345	19,345
Finite lived, accumulated amortization	(8,040)	(7,575)
Finite lived, net carrying value	$ 11,305	$ 11,770
Intellectual Property [Member] | Minimum [Member]
Intangible assets, useful life (Year)	10 years
Intellectual Property [Member] | Maximum [Member]
Intangible assets, useful life (Year)	12 years

XML

Note 10 - Benefit Plans

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Compensation and Employee Benefit Plans [Text Block]

NOTE

10.

BENEFIT PLANS

The Company has established a

401

(k) plan (the

“401

(k) Plan”) for its employees. The

401

(k) Plan allows employees to contribute a portion of their earnings, and the Company

may

match a percentage of the contributions on a discretionary basis. The expense associated with the

401

(k) Plan for the

three

months ended

March 31, 2020

and

2019

, was 

$

0.4

million. In

April 2020,

the Company temporarily suspended 

401

(k) matching contributions.

On

April 

28,

2014,

the board of directors of the Company approved the

2014

Long-Term Incentive Plan (“LTIP”). Under the LTIP, the Company is authorized to grant nonqualified stock options, rights to purchase shares of common stock, restricted stock, restricted stock units and other awards to be settled in, or based upon, shares of common stock to persons who are directors and employees of and consultants to the Company or any of its subsidiaries on the date of the grant. The LTIP will terminate

ten

years after approval by the board. Subject to adjustments in connection with certain changes in capitalization, the maximum number of shares of common stock that

may

be delivered pursuant to awards under the LTIP is

2,253,735

after giving effect to the 

1.5543

 - for -

1

stock split consummated on

January 30, 2018

in connection with our initial public offering.  As of

March 31, 2020

, approximately

423,268

 shares remain available for issuance; however, the Company will

not

issue additional awards under this plan.

On

January 16, 2018,

our board adopted and our stockholders approved the

2018

Omnibus Incentive Plan (the “Omnibus Incentive Plan”) pursuant to which equity-based and cash incentives

may

be granted to participating employees, directors and consultants. The Omnibus Incentive Plan provides for an aggregate of 

1,607,389

shares of our common stock. As of

March 31, 2020

,

479,830

shares remain available for issuance.

XML

Note 6 - Long-term Debt

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Long-term Debt [Text Block]

NOTE

6.

LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

	March 31, 2020			December 31, 2019
First Lien Credit Facilities:
Term loans, interest at LIBOR or base rate plus 3.50% (5.10% at March 31, 2020), net of unamortized discount and deferred loan costs of $8.5 million and $9.0 million at March 31, 2020 and December 31, 2019, respectively.	$	522,135		$	522,989
Revolving credit facility, interest at LIBOR or base rate plus 3.50% (4.50% at March 31, 2020)		30,000			-
Finance leases		1,780			1,737
Total debt		553,915			524,727
Less: Current portion		(6,071	)		(6,038	)
Long-term debt	$	547,844		$	518,689

First Lien Credit Facilities

On

June 6, 2017 (

the “Closing Date”), AP Gaming I, LLC (the “Borrower”), a wholly owned indirect subsidiary of the Company, entered into a

first

lien credit agreement (“the First Lien Credit Agreement”), providing for

$450.0

million in term loans and a

$30.0

million revolving credit facility. The proceeds of the term loans were used primarily to repay the Company's then existing term loans, other indebtedness, to pay for the fees and expenses incurred in connection with the foregoing and otherwise for general corporate purposes. The full amount of the revolving credit facility was drawn on

March 19, 2020 

as a precautionary measure in order to increase the Company’s cash position and facilitate financial flexibility in light of current uncertainty in the global markets resulting from the COVID-

19

outbreak. The proceeds from the borrowings under the revolving credit facility are currently being held on the Company’s consolidated balance sheet. The term loans will mature on

February 15, 2024,

and the revolving credit facility will mature on

June 6, 2022.

The term loans require scheduled quarterly payments in amounts equal to 

0.25%

 of the original aggregate principal amount of the term loans, with the balance due at maturity.  Borrowings under the term loans and revolving credit facility bear interest at a rate equal to, at the Borrower’s option, either LIBOR or the base rate, subject to an interest rate floor plus an applicable margin rate. In addition, on a quarterly basis, the Borrower is required to pay each lender under the revolving credit facility a commitment fee in respect of any unused commitments thereunder at a rate of 

0.50%

 per annum.

On

December 6, 2017,

the Borrower entered into incremental facilities for

$65.0

million in term loans (the

“December

Incremental Term Loans”).  The net proceeds of the

December

Incremental Term Loans were used to finance the acquisition of electronic gaming machines and related assets operated by Rocket Gaming Systems (“Rocket”) and to pay fees and expenses in connection therewith and for general corporate purposes. 

An additional

$1.0

million in loan costs were incurred related to the issuance of the

December

Incremental Term Loans. Given the composition of the lender group, the transaction was accounted for as a debt modification and, as such,

$0.9

million in

third

-party costs were expensed and included in the loss on extinguishment and modification of debt. The remaining amount was capitalized and will be amortized over the term of the agreement.

On

February 8, 2018,

the Borrower completed the repricing of its existing

$513.0

million term loans under its 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 remained at

100

basis points.

On

February 8, 2018,

in connection with the repricing of the Term Loans,

third

-party costs of

$1.2

million were expensed and included in the loss and modification of debt. Existing debt issuance costs of

$0.4

 million were written-off and also included in the loss on extinguishment and modification of debt.

On

October 5, 2018,

the Borrower entered into an Incremental Assumption and Amendment Agreement

No.

2

(the “Incremental Agreement

No.

2”

) with certain of the Borrower’s subsidiaries, the lenders party thereto from time to time and the Administrative Agent. The Incremental Agreement

No.

2

amended and restated that certain First Lien Credit Agreement, dated as of

June 6, 2017,

as amended on

December 6, 2017

and as amended and restated on

February 8, 2018 (

the “Existing Credit Agreement”), among the Borrower, the lenders party thereto, the Administrative Agent and other parties named therein (the “Amended and Restated Credit Agreement”), to (a) reduce the applicable interest rate margin for the Term B Loans (as repriced, the “Repriced Term B Loans”) under the Credit Agreement by

0.75%

(which shall increase by an additional

0.25%

if at any time the Borrower receives a corporate credit rating of at least

B1

from Moody’s, regardless of any future rating) and (b) provide for the incurrence by the Borrower of incremental term loans in an aggregate principal amount of

$30.0

million (the “Incremental Term Loans” and together with the Repriced Term B Loans, the “Term B Loans”).

On

October 5, 2018,

in connection with the repricing of the Term Loans,

third

-party costs of

$1.5

million were expensed and included in the loss on extinguishment and modification of debt.

On

August 30, 2019,

the Borrower entered into Amendment

No.

3

(the "Repricing Amendment") to the credit agreement. The Repricing Amendment reduced the interest rate margin on the revolving credit facility to the same interest rate margin as the term loans issued under the credit agreement.

On

May 1, 2020,

the Borrower entered into Amendment

No.

4

to the First Lien Credit Agreement that provided for covenant relief (as described in Note

1

) as well as

$95.0

million in incremental term loans of which the net proceeds received by the Company were

$83.5

million after original issue discount and related fees. The incremental term loans are subject to an interest rate of LIBOR plus

13%

and the agreement also provides that any refinancing of the term loans through the issuance of certain debt or any repricing amendment resulting in a lower yield occurring at any time during the

first

two

years after

May 1, 2020

will be accompanied by a Make-Whole Premium as defined in the agreement that includes a premium or fee as well as the required payment of any unpaid interest that would have been paid through

May 1, 2022.

For

six

months following this

two

year period, a prepayment of the loans will be accompanied by a 

1.00%

 payment premium or fee. Other than described above, the incremental term loans continue to have the same terms as provided under the Existing Credit Agreement.

As of

March 31, 2020

, we were in compliance with the required covenants of our debt instruments.  See Note

1

“Liquidity and Financing” for a description of a change to our financial covenants for future periods.

Finance Leases

The Company has entered into leases for vehicles and equipment that are accounted for as finance leases.

16

Table of Contents

PLAYAGS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

XML

Note 14 - Operating Segments - Financial Information by Segment (Details) - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2020	Mar. 31, 2019
Revenue		$ 54,313	$ 73,042
Adjusted EBITDA		24,501	36,265
Loss on disposition of assets		49	266
Impairment of long lived assets		6	350
Fair value adjustments to contingent consideration and other items			400
Depreciation and amortization		24,369	21,533
Accretion of placement fees(1)	[1]	1,859	1,271
Non-cash stock-based compensation expense		1,551	1,196
Acquisitions and integration related costs including restructuring and severance		452	2,069
Initial public offering costs and secondary offering			279
Non-cash charge on capitalized installation and delivery		696	648
Other adjustments		702	(95)
Interest expense		8,342	8,874
Interest income		(52)	(39)
Other expense		4,339	5,260
(Loss) income before income taxes		(17,812)	(5,747)
Electronic Gaming Machines, EGM [Member]
Revenue		50,355	69,655
Adjusted EBITDA		23,372	36,722
Table Products [Member]
Revenue		2,482	2,156
Adjusted EBITDA		898	478
Interactive (Gaming Operations) [Member]
Revenue		1,476	1,231
Adjusted EBITDA		$ 231	$ (935)

[1] Non-cash item related to the accretion of contract rights under development agreements and placement fees.

XML

Note 11 - Stock-based Compensation - Restricted Stock Activity (Details) - Restricted Stock [Member]	3 Months Ended
	Mar. 31, 2020 $ / shares shares
Outstanding, shares (in shares) | shares	712,496
Outstanding, grant date fair value (in dollars per share) | $ / shares	$ 23.66
Granted, shares (in shares) | shares	38,941
Granted, grant date fair value (in dollars per share) | $ / shares	$ 10.45
Vested, shares (in shares) | shares	(75,565)
Vested, grant date fair value (in dollars per share) | $ / shares	$ 23.84
Canceled or forfeited, shares (in shares) | shares	(23,199)
Canceled or forfeited, grant date fair value (in dollars per share) | $ / shares	$ 24.74
Outstanding, shares (in shares) | shares	652,673
Outstanding, grant date fair value (in dollars per share) | $ / shares	$ 22.82

XML

Note 4 - Goodwill and Intangibles - Changes in Goodwill (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2020 USD ($)
Goodwill, balance	$ 287,049
Foreign currency adjustments	(3,776)
Impairment
Goodwill, balance	283,273
EGM [Member]
Goodwill, balance	279,228
Foreign currency adjustments	(3,776)
Impairment
Goodwill, balance	275,452
Table Products [Member]
Goodwill, balance	7,821
Foreign currency adjustments
Impairment
Goodwill, balance	7,821
Interactive (Gaming Operations) [Member]
Goodwill, balance		[1]
Foreign currency adjustments		[1]
Impairment		[1]
Goodwill, balance		[1]

[1] Accumulated goodwill impairment charges for the Interactive segment as of March 31, 2020 were $8.4 million.

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2020	Mar. 31, 2019
Cash flows from operating activities
Net (loss) income		$ (14,419)	$ 11
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		24,369	21,533
Accretion of contract rights under development agreements and placement fees	[1]	1,859	1,271
Amortization of deferred loan costs and discount		492	468
Stock-based compensation expense		1,551	1,196
(Benefit) provision for bad debts		(299)	52
Loss on disposition of assets		49	266
Impairment of assets		6	350
Fair value adjustment of contingent consideration			400
Benefit for deferred income tax		(101)	(298)
Changes in assets and liabilities that relate to operations:
Accounts receivable		20,284	(4,155)
Inventories		(5,324)	522
Prepaid expenses		(2,068)	(1,554)
Deposits and other		408	318
Other assets, non-current		3,681	5,268
Accounts payable and accrued liabilities		(11,679)	(13,993)
Net cash provided by operating activities		18,809	11,655
Cash flows from investing activities
Customer notes receivable		(2,301)
Business acquisitions, net of cash acquired			(50,779)
Purchase of intangible assets		(699)	(1,231)
Software development and other expenditures		(3,756)	(2,669)
Proceeds from disposition of assets		27	109
Purchases of property and equipment		(6,150)	(15,105)
Net cash used in investing activities		(12,879)	(69,675)
Cash flows from financing activities
Repayment of first lien credit facilities		(1,347)	(1,347)
Payment of financed placement fee obligations		(3,444)	(971)
Borrowing on revolver		30,000
Payments of previous acquisition obligation		(201)	(157)
Payments on finance leases and other obligations		(333)	(417)
Repurchase of stock		(348)
Proceeds from stock option exercise		158	556
Distributions to non-controlling interest owners			(57)
Net cash provided by (used in) financing activities		24,485	(2,393)
Effect of exchange rates on cash and cash equivalents		(13)	(2)
Net increase (decrease) in cash and cash equivalents		30,402	(60,415)
Cash, cash equivalents and restricted cash, beginning of period		13,182	70,804
Cash, cash equivalents and restricted cash, end of period		43,584	10,389
Non-cash investing and financing activities:
Intangible assets obtained under financed placement fee arrangements			33,129
Leased assets obtained in exchange for new finance lease liabilities		254	494
Leased assets obtained in exchange for new operating lease liabilities			$ 10,102

[1] Non-cash item related to the accretion of contract rights under development agreements and placement fees.

XML

Note 1 - Description of the Business and Summary of Significant Accounting Policies - Disaggregation of Revenues (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Total revenues	$ 54,313	$ 73,042
Gaming Operations [Member]
Total revenues	42,685	52,861
Equipment Sales [Member]
Total revenues	11,628	20,181
EGM [Member]
Total revenues	50,355	69,655
EGM [Member] | Gaming Operations [Member]
Total revenues	38,885	49,500
EGM [Member] | Equipment Sales [Member]
Total revenues	11,470	20,155
Table Products [Member]
Total revenues	2,482	2,156
Table Products [Member] | Gaming Operations [Member]
Total revenues	2,324	2,130
Table Products [Member] | Equipment Sales [Member]
Total revenues	158	26
Interactive (Gaming Operations) [Member]
Total revenues	1,476	1,231
Interactive (Gaming Operations) [Member] | Social [Member]
Total revenues	822	958
Interactive (Gaming Operations) [Member] | RMG [Member]
Total revenues	$ 654	$ 273

XML

Note 2 - Acquisitions (Details Textual) - In Bet [Member] $ in Millions	3 Months Ended
	Sep. 30, 2019 USD ($)
Business Combination, Consideration Transferred, Total	$ 4.0
Business Acquisition, Goodwill, Expected Tax Deductible Amount	1.2
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill, Total	$ 2.8
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life (Year)	9 years 109 days

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Current assets
Cash and cash equivalents	$ 43,564	$ 13,162
Restricted cash	20	20
Accounts receivable, net of allowance of $451 and $723, respectively	39,716	61,224
Inventories	39,015	32,875
Prepaid expenses	4,999	2,983
Deposits and other	5,172	5,332
Total current assets	132,486	115,596
Property and equipment, net	94,043	103,598
Goodwill	283,273	287,049
Intangible assets	219,458	230,451
Deferred tax asset	3,750	4,965
Operating lease assets	11,039	11,543
Other assets	6,659	9,176
Total assets	750,708	762,378
Current liabilities
Accounts payable	14,260	15,598
Accrued liabilities	23,877	34,840
Current maturities of long-term debt	6,071	6,038
Total current liabilities	44,208	56,476
Long-term debt	547,844	518,689
Deferred tax liability - non-current	1,482	1,836
Operating lease liabilities, long-term	10,672	11,284
Other long-term liabilities	33,960	40,309
Total liabilities	638,166	628,594
Commitments and contingencies (Note 13)
Stockholders’ equity
Preferred stock at $0.01 par value; 50,000,000 shares authorized, no shares issued and outstanding
Common stock at $0.01 par value; 450,000,000 shares authorized at March 31, 2020 and at December 31, 2019; and 35,587,851 and 35,534,558 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively.	356	355
Additional paid-in capital	373,019	371,311
Accumulated deficit	(250,241)	(235,474)
Accumulated other comprehensive loss	(10,592)	(2,408)
Total stockholders’ equity	112,542	133,784
Total liabilities and stockholders’ equity	$ 750,708	$ 762,378

XML

Note 11 - Stock-based Compensation

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

NOTE

11.

STOCK-BASED COMPENSATION

Stock Options

The Company has granted stock awards to eligible participants under its incentive plans. The stock awards include options to purchase the Company’s common stock. These stock options include a combination of service and market conditions, as further described below. 

For the

three

months ended

March 31, 2020

, the Company recognized

$0.1

 million in stock-based compensation for stock options and

$1.4

 million for restricted stock awards. For the

three

months ended 

March 31, 2019

, the Company recognized 

$0.2

million in stock-based compensation for stock options and 

$0.9

million for restricted stock awards. We recognize stock-based compensation on a straight-line basis over the vesting period for time based awards and we recognize the expense for awards with market conditions over the service period derived from the related valuation.

The amount of unrecognized compensation expense associated with stock options was

$0.7

 million and for restricted stock was

$10.3

 million at 

March 31, 2020

 which is expected to be recognized over a

1.8

and

2.6

yearly weighted average period, respectively.

The Company calculates the grant date fair value of stock options that vest over a service period using the Black Scholes model. For stock options that contain a market condition related to the return on investment that the Company’s stockholders achieve, the options are valued using a lattice-based option valuation model. The assumptions used in these calculations are the expected dividend yield, expected volatility, risk-free interest rate and expected term (in years). Expected volatilities are based on implied volatilities from comparable companies. The expected time to liquidity is based on Management’s estimate. The risk-free rate is based on the U.S. Treasury yield curve for a term equivalent to the estimated time to liquidity. There were

no

 options granted during the

three

months ended

March 31, 2020

.

Stock option awards represent options to purchase common stock and are granted pursuant to the Company’s incentive plans, and include options that the Company primarily classifies as Tranche A or time based, Tranche B and Tranche C.

Tranche A or time based options are eligible to vest in equal installments of

20%

or

25%

on each of the

first

five

or

four

anniversaries of the date of the grant, subject to continued employment with the Company or its subsidiaries. In the event of a termination of employment without cause or as a result of death or disability, any such time based options which would have vested on the next applicable vesting date shall become vested, and the remaining unvested time based options shall be forfeited. In addition, upon a Change in Control (as defined in the incentive plans), subject to continued employment through the date of the Change in Control, all outstanding unvested time based options shall immediately vest. An IPO does

not

qualify as a Change in Control as it relates to the vesting of stock options.

All other option awards are eligible to vest upon the satisfaction of certain performance conditions (collectively, “Performance Options”). These performance conditions included the achievement of investor returns or common stock trading prices. These performance conditions were achieved in

October

of

2018

for all Performance Options that have been granted and there are currently

595,621

Performance Options exercisable and outstanding.

A summary of the changes in stock options outstanding during the

three

months ended

March 31, 2020

, is as follows:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contract Term (years)		Aggregate Intrinsic Value (in thousands)
Options outstanding as of December 31, 2019		1,382,986		$	9.10		5.45	$	4,793
Granted		-			-		-		-
Exercised		(15,544	)	$	10.15
Canceled or forfeited		(4,274	)	$	10.15
Options outstanding as of March 31, 2020		1,363,168		$	9.08		5.04	$	-
Options exercisable as of March 31, 2020		1,233,857		$	8.54		4.80	$	-

Restricted Stock

Restricted stock awards are typically eligible to vest in equal installments of

25%

on each of the

first

four

anniversaries of the date of the grant, subject to continued employment with the Company or its subsidiaries. In the event of a termination of employment without cause upon or within

12

months following a change in control or as a result of death or disability, any such unvested time based restricted stock awards shall become vested.

Certain restricted stock awards are eligible to vest upon the satisfaction of certain conditions (collectively, “Performance Awards”). Vesting occurs on the

first

day that the average price per share of our common stock for the prior 

60

 consecutive trading days exceeds certain stock prices.

A summary of the changes in restricted stock outstanding during the

three

months ended

March 31, 2020

, is as follows:

	Shares Outstanding			Grant Date Fair Value (per share)
Restricted Stock Outstanding as of December 31, 2019		712,496		$	23.66
Granted		38,941		$	10.45
Vested		(75,565	)	$	23.84
Canceled or forfeited		(23,199	)	$	24.74
Restricted stock outstanding as of March 31, 2020		652,673		$	22.82

XML

Note 7 - Stockholders' Equity

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

NOTE

7.

STOCKHOLDERS’ EQUITY

Our amended and restated articles of incorporation provide that our authorized capital stock will consist of

450,000,000

shares of common stock, par value

$0.01

per share, and

50,000,000

shares of preferred stock, par value

$0.01

per share. As of

March 31, 2020,

we have

35,587,851

shares of common stock and

zero

shares of preferred stock outstanding.

Common Stock

Voting Rights.

The holders of our common stock are entitled to

one

vote per share on all matters submitted for action by the stockholders, and do

not

have cumulative voting rights with respect to the election of our directors. 

Dividend and Distribution Rights

All shares of our common stock are entitled to share equally in any dividends and distributions our board of directors

may

declare from legally available sources, subject to the terms of any outstanding preferred stock.

Share repurchase program

During

2019,

the board of directors approved a share repurchase program that will permit the Company to repurchase up to

$50.0

million of the Company’s shares of common stock through

August 11, 2021.

XML

Note 12 - Income Taxes (Details Textual) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Effective Income Tax Rate Reconciliation, Percent, Total	19.00%	100.20%
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent	21.00%	21.00%
Business Combination, Indemnification Assets, Amount as of Acquisition Date	$ 0.6
Business Combination, Indemnification Assets, Change in Amount	$ (3.2)	$ (5.5)

XML

Note 11 - Stock-based Compensation (Details Textual) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Share-based Payment Arrangement, Expense	$ 1,551	$ 1,196
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Net of Forfeitures, Total (in shares)	0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance (in shares)	1,363,168		1,382,986
Share-based Payment Arrangement, Option [Member]
Share-based Payment Arrangement, Expense	$ 100	200
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total	$ 700
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition (Year)	1 year 292 days
Share-based Payment Arrangement, Option [Member] | Share-based Payment Arrangement, Tranche A [Member] | Minimum [Member] | Long-term Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage	20.00%
Share-based Payment Arrangement, Option [Member] | Share-based Payment Arrangement, Tranche A [Member] | Maximum [Member] | Long-term Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period (Year)	5 years
Restricted Stock [Member]
Share-based Payment Arrangement, Expense	$ 1,400	$ 900
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total	$ 10,300
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition (Year)	2 years 219 days
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period (Year)	4 years
Restricted Stock [Member] | On Each of First Four Anniversaries of Date of Grant [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage	25.00%
Performance Shares [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance (in shares)	595,621
Performance Shares [Member] | Share-based Payment Arrangement, Tranche A [Member] | Minimum [Member] | Long-term Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage	25.00%
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period (Year)	4 years

XML

Note 5 - Accrued Liabilities - Accrued Liabilities (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Total accrued liabilities	$ 23,877	$ 34,840
Accrued Liabilities [Member]
Salary and payroll tax accrual	3,926	8,691
Taxes payable	3,246	4,151
Current portion of operating lease liability	2,185	2,175
License fee obligation	1,000	1,000
Placement fees payable	6,314	8,346
Accrued other	$ 7,206	$ 10,477

XML

Note 7 - Stockholders' Equity (Details Textual) - USD ($) $ / shares in Units, $ in Millions	Mar. 31, 2020	Dec. 31, 2019
Common Stock, Shares Authorized (in shares)	450,000,000	450,000,000
Common Stock, Par or Stated Value Per Share (in dollars per share)	$ 0.01	$ 0.01
Preferred Stock, Shares Authorized (in shares)	50,000,000	50,000,000
Preferred Stock, Par or Stated Value Per Share (in dollars per share)	$ 0.01	$ 0.01
Common Stock, Shares, Outstanding, Ending Balance (in shares)	35,587,851	35,534,558
Preferred Stock, Shares Outstanding, Ending Balance (in shares)	0	0
Stock Repurchase Program, Authorized Amount		$ 50

XML

Note 5 - Accrued Liabilities (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Accounts Payable and Accrued Liabilities [Table Text Block]

	March 31, 2020		December 31, 2019
Salary and payroll tax accrual	$	3,926	$	8,691
Taxes payable		3,246		4,151
Current portion of operating lease liability		2,185		2,175
License fee obligation		1,000		1,000
Placement fees payable		6,314		8,346
Accrued other		7,206		10,477
Total accrued liabilities	$	23,877	$	34,840

XML

Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

Principles of Consolidation

The accompanying condensed consolidated financial statements include the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

The preparation of financial statements in conformity with GAAP requires the Company to make decisions based upon estimates, assumptions, and factors considered relevant to the circumstances. Such decisions include the selection of applicable accounting principles and the use of judgment in their application, the results of which impact reported amounts and disclosures. Changes in future economic conditions or other business circumstances

may

affect the outcomes of the estimates and assumptions. Accordingly, actual results could differ materially from those anticipated.

Revenue [Policy Text Block]

Revenue Recognition

Leasing of equipment in both our EGM and Table Products segments is accounted for under lease accounting guidance in ASC

842,

"Leases" (ASC

842

) and is recorded in gaming operations revenue. Our remaining revenue streams are accounted for under ASC

606

"Revenue from contracts with customers" (ASC

606

) including equipment sales in our EGM and, to a lesser extent, in our Table Products segments. Revenue earned in our Interactive segment is recorded in gaming operations revenue.

The following table disaggregates our revenues by type within each of our segments (amounts in thousands):

	Three Months Ended March 31,
	2020		2019
EGM
Gaming operations	$	38,885	$	49,500
Equipment sales		11,470		20,155
Total	$	50,355	$	69,655
Table Products
Gaming operations	$	2,324	$	2,130
Equipment sales		158		26
Total	$	2,482	$	2,156
Interactive (gaming operations)
Social gaming revenue	$	822	$	958
Real-money gaming revenue		654		273
Total	$	1,476	$	1,231

Gaming Operations

Gaming operations revenue is earned by providing customers with gaming machines, gaming machine content licenses, table products, back-office equipment and linked progressive systems, which are collectively referred to as gaming equipment, under participation arrangements. The participation arrangements convey the right to use the equipment (i.e., gaming machines and related integral software) for a stated period of time, which typically ranges from

one

to

three

years upon which the contract continues on a month-to-month basis thereafter. In some instances, the Company will enter arrangements for longer periods of time; however, many of these arrangements include the ability of the customer to cancel the contract and return the games to the Company, a provision which renders their contracts effectively month-to-month contracts.The Company will also enter into lease contracts with a revenue sharing arrangement whereby the lease payments due from the customer are variable. Our participation arrangements are accounted for as operating leases primarily due to these factors. In some instances, we will offer a free trial period during which

no

revenue is recognized. If during or at the conclusion of the trial period the customer chooses to enter into a lease for the gaming equipment, we commence revenue recognition according to the terms of the agreement.

Under participation arrangements, the Company retains ownership of the gaming equipment installed at the customer facilities and receives either revenue based on a percentage of the win per day generated by the gaming equipment or a fixed daily fee. Thus, in our consolidated financial statements the Company records revenue monthly related to these arrangements and the gaming equipment is recorded in property and equipment, net on our balance sheet and depreciated over the expected life of the gaming equipment.

The majority of the Company’s leases require the Company to provide maintenance throughout the entire term of the lease. In some cases, a performance guarantee exists that, if

not

met, provides the customer with the right to return the gaming machines to the Company. This performance guarantee is considered a cancellation clause, a provision which renders their contracts effectively month-to-month contracts. Accordingly, the Company accounts for these contracts in a similar manner with its other operating leases as described above.

Gaming operations revenue is also earned from the licensing of table product content and is earned and recognized primarily on a fixed monthly rate. Our

B2C

social casino products earn revenue from the sale of virtual coins or chips, which is recorded when the purchased coins or chips are used by the customer.

B2C

social casino revenue is presented gross of the platform fees.

B2B

social casino products earn revenue primarily based on a percentage of the monthly revenue generated by the white label casino apps that we build and operate for our customers. RMG revenue is earned primarily based on a percentage of the revenue produced by the games on our platform as well as monthly platform fees and initial integration fees. RMG revenue is presented net of payments to game and content suppliers.

Equipment Sales

Revenues from contracts with customers are recognized and recorded when the following criteria are met:

• We have a contract that has been approved by both the customer and the Company. Our contracts specify the products being sold and payment terms and are recognized when it is probable that we will collect substantially all of the contracted amount; and

• Control has been transferred and services have been rendered in accordance with the contract terms.

Equipment sales are generated from the sale of gaming machines, table products and licensing rights to the integral game content software that is installed in the related equipment, parts, and other ancillary equipment. Also included within the deliverables are delivery, installation and training, all of which occur within a few days of arriving at the customer location. Equipment sales do

not

include maintenance beyond a standard warranty period. The recognition of revenue from the sale of gaming devices occurs as the customer obtains control of the product and all other revenue recognition criteria have been satisfied. Our contracts include a fixed transaction price. Amounts are due from customers within

30

to

90

days of the invoice date and to a lesser extent we offer extended payment terms of

12

to

24

months with payments due monthly during the extended payment period.

The Company enters into revenue arrangements that

may

consist of multiple performance obligations, which are typically multiple distinct products that

may

be shipped to the customer at different times. For example, sales arrangements

may

include the sale of gaming machines and table products to be delivered upon the consummation of the contract and additional game content conversion kits that will be delivered at a later date when requested by the customer to replace the game content on the customer’s existing gaming machines. Products are identified as separate performance obligations if they are distinct, which occurs if the customer can benefit from the product on its own and is separately identifiable from other promises in the contract.

Revenue is allocated to the separate performance obligations based on relative standalone selling prices determined at contract inception. Standalone selling prices are primarily determined by prices that we charge for the products when they are sold separately. When a product is

not

sold separately, we determine the standalone selling price with reference to our standard pricing policies and practices. We elected to exclude from the measurement of the transaction price, sales taxes and all other items of a similar nature, and also elected to account for shipping and handling activities as a fulfillment of our promise to transfer the goods. Accordingly, shipping and handling costs are included in cost of sales.

Revenue allocated to any undelivered performance obligations is recorded as a contract liability. The balance of our contract liabilities was

not

material as of 

March 31, 2020

 and

December 31, 2019

.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of deposits held at major banks and other marketable securities with original maturities of

90

 days or less.

Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, Policy [Policy Text Block]

Restricted Cash

Restricted cash amounts represent funds held in escrow as collateral for the Company’s surety bonds for various gaming authorities.

Receivables, Trade and Other Accounts Receivable, Allowance for Doubtful Accounts, Policy [Policy Text Block]

Allowance for Doubtful Accounts 

Accounts receivable are stated at face value less an allowance for doubtful accounts. The Company maintains an allowance for doubtful accounts related to accounts receivable and notes receivable, which are non-interest bearing, deemed to have a high risk of collectability. The Company reviews the accounts receivable and notes receivable on a monthly basis to determine if any receivables will potentially be uncollectible. The Company analyzes historical collection trends and changes in the customers’ payment patterns, customer concentration, and credit worthiness when evaluating the adequacy of the allowance for doubtful accounts. A large percentage of receivables are with Native American tribes and the Company has concentrations of credit risk with several tribes. The Company includes any receivable balances that are determined to be uncollectible in the overall allowance for doubtful accounts. Changes in the assumptions or estimates reflecting the collectability of certain accounts could materially affect the allowance for both accounts and notes receivable.

Allowance for Expected Credit Losses 

Management 

estimates the allowance for expected credit losses balance using relevant available information from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current environmental economic conditions and reasonable and supportable forecast. The allowance for expected credit losses on financial instruments is measured on a collective (pool) basis when similar risk characteristics exist. The financial instruments that do

not

share risk characteristics, such as receivables related to development agreements, are evaluated on an individual basis. Expected credit losses are estimated over the contractual term of the related financial instruments, adjusted for expected prepayments when appropriate, based on a historical model that includes periodic write-offs, recoveries, and adjustments to the reserve. Historically, the identified portfolio segments have shared low collectability risk with immaterial write-off amounts. The Company made an accounting policy election to present the accrued interest receivable balance within another statement of financial position line item. Accrued interest receivable is reported within respective receivables line items on the consolidated balance sheet. 

The following table excludes receivables related to operating leases and presents all other receivables' gross amortized cost, allowance for credit losses and amortized cost, net of allowance for credit losses by portfolio segment as of

March 31, 2020

and

December 31, 2019 (

in thousands):

		March 31, 2020							December 31, 2019
	Classification	Gross amortized cost		Allowance for credit losses			Amortized cost, net of allowance for credit losses		Gross amortized cost		Allowance for credit losses			Amortized cost, net of allowance for credit losses
Trade receivables:	Accounts Receivable	$	10,756	$	-		$	10,756	$	22,741	$	-		$	22,741
Receivables with extended payment terms:
Originated in 2020	Accounts Receivable	$	3,009	$	-		$	3,009		N/A		N/A			N/A
Originated in 2019	Accounts Receivable		4,073		-			4,073		5,461		-			5,461
Total receivables with extended payment term		$	7,082	$	-		$	7,082	$	5,461	$	-		$	5,461
Sales-type leases receivables:
Originated in 2019	Accounts Receivable	$	1,772	$	(89	)	$	1,683	$	2,206	$	(111	)	$	2,095
Originated in 2017	Accounts Receivable		42		(2	)		40		52		(3	)		49
Total Sales-type leases receivables		$	1,814	$	(91	)	$	1,723	$	2,258	$	(114	)	$	2,144
Development Agreements:
Originated in 2020	Deposits and other	$	2,390	$	-		$	2,390		N/A		N/A			N/A
Originated in 2019	Deposits and other		2,431		-			2,431		2,359		-			2,359
Total Development Agreements		$	4,821	$	-		$	4,821	$	2,359	$	-		$	2,359

Inventory, Policy [Policy Text Block]

Inventories

Inventories consist primarily of parts and supplies that are used to repair and maintain machinery and equipment as well as EGMs in production and finished goods held for sale. Inventories are stated at net realizable value. Cost of inventories is determined using the

first

-in,

first

-out (“FIFO”) method for all components of inventory. The Company regularly reviews inventory quantities and updates estimates for the net realizable value of inventories. This process includes examining the carrying values of parts and ancillary equipment in comparison to the current fair market values for such equipment (less costs to sell or dispose). Some of the factors involved in this analysis include the overall levels of the inventories, the current and projected sales levels for such products, the projected markets for such products and the costs required to sell the products, including refurbishment costs. Changes in the assumptions or estimates could materially affect the inventory carrying value. As of 

March 31, 2020

 and

December 31, 2019

, the value of raw material inventory was

$32.7

 million and

$29.1

million, respectively. As of 

March 31, 2020

 and

December 31, 2019

, the value of finished goods inventory was

$6.3

 million and

$3.8

 million, respectively. There was

no

work in process material as of 

March 31, 2020

 and

December 31, 2019

.

Property, Plant and Equipment, Policy [Policy Text Block]

Property and Equipment

The cost of gaming equipment, consisting of fixed-base player terminals, file servers and other support equipment as well as other property and equipment, is depreciated over their estimated useful lives, using the straight-line method for financial reporting. The Company capitalizes costs incurred for the refurbishment of used gaming equipment that is typically incurred to refurbish a machine in order to return it to its customer location. The refurbishments extend the life of the gaming equipment beyond the original useful life. Repairs and maintenance costs are expensed as incurred. The Company routinely evaluates the estimated lives used to depreciate assets. The estimated useful lives are as follows:

Gaming equipment (in years)	2 to 6
Other property and equipment (in years)	3 to 6

The Company reviews its property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group

may

not

be recoverable. The Company groups long-lived assets for impairment analysis at the lowest level for which identifiable cash flows can be measured independently of the cash flows of other assets and liabilities. This is typically at the individual gaming machine level or at the cabinet product line level. Impairment testing is performed and losses are estimated when indicators of impairment are present and the estimated undiscounted cash flows are

not

sufficient to recover the assets’ carrying amount.

When the estimated undiscounted cash flows are

not

sufficient to recover the asset’s carrying amount, an impairment loss is measured to the extent the fair value of the asset is less than its carrying amount.

The Company measures recoverability of assets to be held and used by comparing the carrying amount of an asset to future cash flows expected to be generated by the asset. The Company’s policy is to impair, when necessary, excess or obsolete gaming machines on hand that it does

not

expect to be used. Impairment is based upon several factors, including estimated forecast of gaming machine demand for placement into casinos. While the Company believes that the estimates and assumptions used in evaluating the carrying amount of these assets are reasonable, different assumptions could affect either the carrying amount or the estimated useful lives of the assets, which could have a significant impact on the results of operations and financial condition.

Goodwill and Intangible Assets, Intangible Assets, Policy [Policy Text Block]

Intangible Assets

The Company reviews its identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset

may

not

be recoverable. Impairment losses are recognized for identifiable intangibles, other than goodwill, when indicators of impairment are present and the estimated undiscounted cash flows are

not

sufficient to recover the assets’ carrying amount.

When the estimated undiscounted cash flows are

not

sufficient to recover the intangible asset’s carrying amount, an impairment loss is measured to the extent the fair value of the asset is less than its carrying amount.

Certain trade names have an indefinite useful life and the Company tests these trade names for possible impairment at least annually, on

October 1,

or whenever events or changes in circumstances indicate that the carrying value

may

be impaired. We perform a qualitative assessment to determine if it is more likely than

not

that the fair value of the asset is less than its carrying amount. If we believe, as a result of our qualitative assessment, that it is more likely than

not

that the fair value of the asset is less than its carrying amount, the quantitative impairment test is required.

Software to be Sold, Leased, or Otherwise Marketed, Policy [Policy Text Block]

Costs of Capitalized Computer Software

Internally developed gaming software represents the Company’s internal costs to develop gaming titles to utilize on the Company’s gaming machines. Internally developed gaming software is stated at cost and amortized over the estimated useful lives of the software, using the straight-line method. Software development costs are capitalized once technological feasibility has been established and are amortized when the software is placed into service. The computer software we develop reaches technological feasibility when a working model of the computer software is available. Any subsequent software maintenance costs, such as bug fixes and subsequent testing, are expensed as incurred. Discontinued software development costs are expensed when the determination to discontinue is made. Software development costs are amortized over the expected life of the title or group of titles, if applicable, to amortization expense.

On a quarterly basis, or more frequently if circumstances warrant, the Company compares the net book value of its internally developed computer software to the net realizable value on a title or group of title basis. The net realizable value is determined based upon certain assumptions, including the expected future revenues and net cash flows of the gaming titles or group of gaming titles utilizing that software, if applicable.

Goodwill and Intangible Assets, Goodwill, Policy [Policy Text Block]

Goodwill

The excess of the purchase price of an acquired business over the estimated fair value of the assets acquired and the liabilities assumed is recorded as goodwill. The Company tests for possible impairment of goodwill at least annually, on

October 1,

or when circumstances change that would more likely than

not

reduce the fair value of a reporting unit below its carrying value. The Company has the option to begin with a qualitative assessment, commonly referred to as “Step

0”,

to determine whether it is more likely than

not

that the reporting unit’s fair value of goodwill is less than its carrying value. This qualitative assessment

may

include, but is

not

limited to, reviewing factors such as the general economic environment, industry and market conditions, changes in key assumptions used since the most recently performed valuation and overall financial performance of the reporting units. If the Company determines that it is more likely than

not

that a reporting unit’s fair value is less than its carrying value, the Company performs a quantitative goodwill impairment analysis, and depending upon the results of that measurement, the recorded goodwill

may

be written down and charged to income from operations when the carrying amount of the reporting unit exceeds the fair value of the reporting unit. 

Business Combinations Policy [Policy Text Block]

Acquisition Accounting

The Company applies the provisions of ASC

805,

“

Business Combinations”

(ASC

805

), in accounting for business acquisitions. It requires us to recognize separately from goodwill the fair value of assets acquired and liabilities assumed on the acquisition date. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. Significant estimates and assumptions are required to value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable. These estimates are inherently uncertain and subject to refinement and typically include the calculation of an appropriate discount rate and projection of the cash flows associated with each acquired asset. As a result, during the measurement period, which

may

be up to

one

year from the acquisition date, we

may

record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Fair Value of Financial Instruments

The Company applies the provisions of ASC

820,

“

Fair Value Measurements

” (ASC

820

) to its financial assets and liabilities. Fair value is defined as a market-based measurement intended to estimate the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. ASC

820

also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs when measuring fair value. These inputs are categorized as follows:

• Level 1 - quoted prices in an active market for identical assets or liabilities;

• Level 2 - quoted prices in an active market for similar assets or liabilities, inputs other than quoted prices that are observable for similar assets or liabilities, inputs derived principally from or corroborated by observable market data by correlation or other means; and

• Level 3 - valuation methodology with unobservable inputs that are significant to the fair value measurement.

The carrying values of the Company’s cash and cash equivalents, restricted cash, receivables and accounts payable approximate fair value because of the short term maturities of these instruments. The fair value of our long-term debt is based on the quoted market prices for similar issues (Level

2

inputs). The following table presents the estimated fair value of our long-term debt as of 

March 31, 2020

 and 

December 31, 2019

 (in thousands):

	March 31, 2020				December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term Debt	$	562,423	$	433,475	$	533,727	$	534,578

Income Tax, Policy [Policy Text Block]

Accounting for Income Taxes

We conduct business globally and are subject to income taxes in U.S. federal, state, local, and foreign jurisdictions. Determination of the appropriate amount and classification of income taxes depends on several factors, including estimates of the timing and probability of realization of deferred income taxes, reserves for uncertain income tax positions and income tax payment timing.

We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. Taxes on income of our foreign subsidiaries are provided at the tax rates applicable to the tax jurisdictions in which they are located. Future tax benefits are recognized to the extent that realization of those benefits is considered more likely than

not

and a valuation allowance is established for deferred tax assets which do

not

meet this threshold.

The recoverability of certain deferred tax assets is based in part on estimates of future income and the timing of temporary differences, and the failure to fully realize such deferred tax assets could result in a higher tax provision in future periods.

We apply the accounting guidance to our uncertain tax positions and under the guidance, we

may

recognize a tax benefit from an uncertain position only if it is more likely than

not

that the position will be sustained upon examination by taxing authorities based on the technical merits of the issue. The amount recognized in the financial statements is the largest benefit that we believe has greater than a

50%

likelihood of being realized upon settlement.

We are required to make significant judgments when evaluating our uncertain tax positions and the related tax benefits. We believe our assumptions are reasonable; however, there is

no

guarantee that the final outcome of the related matters will

not

differ from the amounts reflected in our income tax provisions and accruals. We adjust our liability for uncertain tax positions based on changes in facts and circumstances such as the closing of a tax audit or changes in estimates. Our income tax provision

may

be impacted to the extent that the final outcome of these tax positions is different than the amounts recorded.

In response to the COVID-

19

outbreak, President Donald Trump signed H.R.

748,

the “Coronavirus Aid, Relief, and Economic Security ACT (the “CARES Act”).  While we are still assessing the impact of the CARES Act, we do

not

expect this to have a material impact on our condensed consolidated financial statements.

Commitments and Contingencies, Policy [Policy Text Block]

Contingencies

The Company assesses its exposures to loss contingencies including claims and legal proceedings and accrues a liability if a potential loss is considered probable and the amount can be estimated. Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, if the actual loss from a contingency differs from Management’s estimate, there could be a material impact on the results of operations or financial position. Operating expenses, including legal fees, associated with contingencies are expensed when incurred.

Foreign Currency Transactions and Translations Policy [Policy Text Block]

Foreign Currency Translation

The financial statements of the Company’s foreign subsidiaries are translated into U.S. dollars at the period end rate of exchange for asset and liability accounts and the weighted average rate of exchange for income statement accounts. The effects of these translations are recorded as a component of other accumulated comprehensive loss in stockholders’ equity.

Liquidity and Financing [Policy Text Block]

Liquidity and Financing

Due to the business disruption caused by the rapid nationwide spread of the novel coronavirus and the actions by state and tribal governments and businesses to contain the virus, the Company’s customers have closed their operations and their respective markets have been significantly and adversely impacted. As a result of the temporary closures of our casino customers, there has been a decrease in the amount of money spent by consumers on our revenue shared installed base and the amount of daily fees of our participation EGMs and

no

expansion of existing casinos or development of new casinos. Specifically, gaming operations revenue and equipment sales have decreased compared to the prior year period as a result of the temporary closures of our casino customers. Similarly, our EGM and Table Product segment operating results have been disrupted because each segment’s activities including design, development, acquisition, manufacturing, marketing, distribution, installation and servicing of its products lines have been temporarily halted or significantly reduced.  In addition, each segment’s revenue from leasing, licensing and selling products has been adversely impacted due to the temporary closures of our casino customers. As a result, the Company has taken several actions to adapt to the severity of the crisis. Among other things, the Company implemented short-term furloughs with retained benefits, company-wide salary reductions, and an approximate

10%

reduction of the workforce. Our non-employee directors have also agreed to reduce their fees by

50%.

 In addition to these actions, the Company is considering further reductions to payroll and related expenses through additional employee furloughs and

may

pursue

one

or more of these alternatives depending on the length of the casino closures in markets and jurisdictions where it earns its revenue in order to conserve liquidity. 

As of

March 31, 2020,

the Company had

$43.6

million in cash and cash equivalents. Under the First Lien Credit Agreement (defined below in Note

6

), the Company was required to comply with certain financial covenants at the end of each calendar quarter, including to maintain a maximum net

first

lien leverage ratio of

6.0

to

1.0.

On

May 1, 2020,

the Company entered into an amendment to the First Lien Credit Agreement ("Amendment

No.

4"

) that implemented a financial covenant relief period (the “Financial Covenant Relief Period”) through

December 31, 2020

and implemented a revised calculation of EBITDA commencing on the

first

day after the expiration of the Financial Covenant Relief Period and ending on the

first

day of the

fourth

fiscal quarter after the expiration of the Financial Covenant Relief Period.  As a result of Amendment

No.

4,

and based on the Company's projected operating results for the next

twelve

months, the Company expects that it will be in compliance with its debt covenants under the First Lien Credit Agreement for at least the next

twelve

months. Amendment

No.

4

also provided for additional financing of

$95.0

million of which the Company received

$83.5

million after original issue discount and related fees, which is described in Note

6.

The incremental term loans are subject to an interest rate of LIBOR plus

13%

and the agreement also provides that any refinancing of the term loans through the issuance of certain debt or any repricing amendment resulting in a lower yield occurring at any time during the

first

two

years after

May 1, 2020

will be accompanied by a Make-Whole Premium as defined in the agreement that includes a premium or fee as well as the required payment of any unpaid interest that would have been paid through

May 1, 2022.

For

six

months following this

two

year period a prepayment of the loans will be accompanied by a 

1.00%

 payment premium or fee. Other than described above, the incremental term loans continue to have the same terms as provided under the existing credit agreement. As a result of the additional financing, coupled with existing cash balances, Management believes that the Company has sufficient liquidity to fund its operating requirements and meet its obligations as they become due for at least the next

twelve

 months.

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Issued Accounting Pronouncements

In

June 2016,

the FASB issued ASU

No.

2016

-

13,

Financial Instruments - Credit Losses (Topic

326

),

 which provides updated guidance on how an entity should measure credit losses on financial instruments. The new guidance replaced the current incurred loss measurement methodology with a lifetime expected loss measurement methodology. Subsequently, in

November 2018

the FASB issued ASU

No.

2018

-

19,

which clarified that receivables arising from operating leases are

not

within the scope of Subtopic

326

-

20,

but should rather be accounted for in accordance with ASC

842.

In

May 2019,

the FASB issued ASU

No.

2019

-

05

providing targeted transition relief to all reporting entities within the scope of Topic

326.

The new standard and related amendments are effective for fiscal years beginning after

December 15, 2019,

including interim periods within those fiscal years. This guidance is expected to be applied using a modified retrospective approach for the cumulative-effect adjustment to retained earnings as of the beginning of the

first

reporting period in which the guidance is effective and using a prospective approach for debt securities for which any other-than-temporary impairment had been recognized before the effective date. Early adoption is permitted for fiscal years beginning after

December 15, 2018.

The Company adopted ASC 

326

using the modified retrospective approach for all applicable financial assets measured at amortized cost. The Company elected the practical expedient to exclude accrued interest from tabular disclosure and

not

to estimate an allowance for credit losses on accrued interest. Results for reporting beginning after

January 1, 2020

are presented under ASC

326

while prior amounts continue to be reported in accordance with previously applicable GAAP. The standard did

not

materially impact our consolidated net earnings and had

no

impact on cash flows.

In

August 2018,

the FASB issued ASU

No.

2018

-

15,

Intangibles—Goodwill and Other—Internal-Use Software (Subtopic

350

-

40

): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force)

 which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The new standard is effective for fiscal years beginning after

December 15, 2019,

including interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period. The Company adopted the standard prospectively to all implementation costs incurred after

January 1, 2020.

The standard did

not

materially impact our consolidated net earnings and had

no

impact on cash flows. 

 We do

not

expect that any other recently issued accounting guidance will have a significant effect on our financial statements.

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Note 1 - Description of the Business and Summary of Significant Accounting Policies (Details Textual) $ / shares in Units, $ in Thousands						3 Months Ended
	May 01, 2020 USD ($)	Feb. 27, 2018 shares	Feb. 08, 2018	Jan. 30, 2018 $ / shares shares	Jun. 06, 2017 USD ($)	Mar. 31, 2020 USD ($)	Dec. 31, 2019 USD ($)	Oct. 05, 2018 USD ($)	Dec. 06, 2017 USD ($)
Number of Reportable Segments						3
Stock Issued During Period, Shares, New Issues (in shares) | shares		1,537,500
Inventory, Raw Materials, Gross, Total						$ 32,700	$ 29,100
Inventory, Finished Goods, Gross, Total						6,300	3,800
Inventory, Work in Process, Gross						0	0
Cash and Cash Equivalents, at Carrying Value, Ending Balance						$ 43,564	$ 13,162
The First Lien Credit Agreement [Member] | AP Gaming I, LLC [Member]
Debt Instrument, Covenant, Maximum Leverage Ration						6
The First Lien Credit Agreement [Member] | AP Gaming I, LLC [Member] | Term Loan [Member]
Debt Instrument, Face Amount					$ 450,000			$ 30,000	$ 65,000
The First Lien Credit Agreement [Member] | AP Gaming I, LLC [Member] | Term Loan [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate			4.25%		5.50%
The First Lien Credit Agreement [Member] | AP Gaming I, LLC [Member] | Subsequent Event [Member]
Debt Instrument, Face Amount	$ 95,000
The First Lien Credit Agreement [Member] | AP Gaming I, LLC [Member] | Subsequent Event [Member] | Term Loan [Member]
Debt Instrument, Face Amount	95,000
Proceeds from Debt, Net of Issuance Costs	$ 83,500
Debt Instrument, Refinancing, Payment Premium or Fee, Percentage	1.00%
The First Lien Credit Agreement [Member] | AP Gaming I, LLC [Member] | Subsequent Event [Member] | Term Loan [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate	13.00%
Gaming Operations [Member] | Minimum [Member]
Lessor, Operating Lease, Term of Contract (Year)						1 year
Gaming Operations [Member] | Maximum [Member]
Lessor, Operating Lease, Term of Contract (Year)						3 years
IPO [Member]
Stock Issued During Period, Shares, New Issues (in shares) | shares				10,250,000
Shares Issued, Price Per Share (in dollars per share) | $ / shares				$ 16

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Note 13 - Commitments and Contingencies

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

NOTE

13.

COMMITMENTS AND CONTINGENCIES

The Company is subject to federal, state and Native American laws and regulations that affect both its general commercial relationships with its customers, as well as the products and services provided to them. Periodically, the Company reviews the status of each significant matter and assesses the potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be estimated, the Company accrues a liability for the estimated loss. If a potential loss from any claim or legal proceeding is considered reasonably possible, the Company discloses an estimate of the possible loss or range of possible loss, or a statement that such an estimate cannot be made. Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, accruals are based only on the best information available at the time. As additional information becomes available, the Company reassesses the potential liability related to their pending claims and litigation and

may

revise their estimates. Such revisions in the estimates of the potential liabilities could have a material impact on the results of operations and financial condition.

During the

three

months ended

September 30, 2019,

the Company recorded a

$1.6

million loss reserve, for which insurance coverage has been triggered. In accordance with GAAP, the offsetting insurance recovery will be recognized when it is realized or realizable in a future period.

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Note 9 - Basic and Diluted Loss Per Share

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Earnings Per Share [Text Block]

NOTE

9.

BASIC AND DILUTED (LOSS) INCOME PER SHARE

The Company computes net (loss) income per share in accordance with accounting guidance that requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the Condensed Consolidated Statement of Operations and Comprehensive (Loss) Income. Basic EPS is computed by dividing net (loss) income for the period by the weighted average number of shares outstanding during the period. Basic EPS includes common stock weighted for average number of shares issued during the period. Diluted EPS is computed by dividing net (loss) income for the period by the weighted average number of common shares outstanding during the period, increased by potentially dilutive common shares that were outstanding during the period. Diluted EPS excludes all potential dilutive shares if their effect is anti-dilutive. Potentially dilutive common shares include stock options and restricted stock (see Note

11

).

There were

no

potentially dilutive securities for the

three

months ended

March 31, 2020

.

Excluded from the calculation of diluted EPS for the

three

months ended 

March 31, 2020

 were

695,204

restricted shares and

130,362

stock options, as such securities were anti-dilutive. Excluded from the calculation of diluted EPS for the 

three

months ended

March 31, 2019

 were 

419,600

restricted shares and

895,113

stock options, as such securities were anti-dilutive.

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Note 5 - Accrued Liabilities

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Accounts Payable and Accrued Liabilities Disclosure [Text Block]

NOTE

5.

ACCRUED LIABILITIES

Accrued liabilities consist of the following (in thousands):

	March 31, 2020		December 31, 2019
Salary and payroll tax accrual	$	3,926	$	8,691
Taxes payable		3,246		4,151
Current portion of operating lease liability		2,185		2,175
License fee obligation		1,000		1,000
Placement fees payable		6,314		8,346
Accrued other		7,206		10,477
Total accrued liabilities	$	23,877	$	34,840

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Note 2 - Acquisitions

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Business Combination Disclosure [Text Block]

NOTE

2.

ACQUISITIONS

In Bet Gaming II

During the quarter ended

September 30, 2019,

the Company acquired certain intangible assets related to table game intellectual property from In Bet Gaming, Inc ("In Bet II"). The acquisition was accounted for as an acquisition of a business and the assets acquired were measured based on our estimates of their fair values at the acquisition date. We attribute the goodwill recognized to our ability to commercialize the products over our distribution and sales network, opportunities for synergies, and other strategic benefits. The consideration of

$4.0

million was allocated primarily to tax deductible goodwill for

$1.2

 million and intangible assets of

$2.8

 million, which will be amortized over a weighted average period of approximately

9.3

 years.

XML

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income (Unaudited) - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2020	Mar. 31, 2019
Revenues
Total revenues		$ 54,313	$ 73,042
Operating expenses
Selling, general and administrative		11,640	14,877
Research and development		8,231	8,125
Write-downs and other charges		55	1,016
Depreciation and amortization		24,369	21,533
Total operating expenses		59,496	64,694
(Loss) income from operations		(5,183)	8,348
Other expense
Interest expense		8,342	8,874
Interest income		(52)	(39)
Other expense		4,339	5,260
(Loss) income before income taxes		(17,812)	(5,747)
Income tax benefit (expense)		3,393	5,758
Net (loss) income		(14,419)	11
Less: Net income attributable to non-controlling interests			(93)
Net (loss) income attributable to PlayAGS, Inc.		(14,419)	(82)
Foreign currency translation adjustment		(8,184)	642
Total comprehensive (loss) income		$ (22,603)	$ 560
Basic and diluted loss per common share:
Basic (in dollars per share)		$ (0.41)
Diluted (in dollars per share)		$ (0.41)
Weighted average common shares outstanding:
Basic (in shares)		35,543	35,371
Diluted (in shares)		35,543	35,371
Gaming Operations [Member]
Revenues
Total revenues		$ 42,685	$ 52,861
Operating expenses
Cost of goods and services sold	[1]	9,993	9,619
Equipment Sales [Member]
Revenues
Total revenues		11,628	20,181
Operating expenses
Cost of goods and services sold	[1]	$ 5,208	$ 9,524

[1] exclusive of depreciation and amortization

XML

Note 1 - Description of the Business and Summary of Significant Accounting Policies - Property and Equipment Useful Life (Details)	3 Months Ended
	Mar. 31, 2020
Minimum [Member]
Gaming equipment (in years) (Year)	2 years
Maximum [Member]
Gaming equipment (in years) (Year)	6 years
Gaming Equipment [Member] | Minimum [Member]
Gaming equipment (in years) (Year)	2 years
Gaming Equipment [Member] | Maximum [Member]
Gaming equipment (in years) (Year)	6 years
Property, Plant and Equipment, Other Types [Member] | Minimum [Member]
Gaming equipment (in years) (Year)	3 years
Property, Plant and Equipment, Other Types [Member] | Maximum [Member]
Gaming equipment (in years) (Year)	6 years

XML

Note 3 - Property and Equipment - Property and Equipment (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Less: Accumulated depreciation	$ (99,103)	$ (95,449)
Property and equipment, net	94,043	103,598
Gaming Equipment [Member]
Property and equipment, gross	169,771	175,837
Property, Plant and Equipment, Other Types [Member]
Property and equipment, gross	$ 23,375	$ 23,210

XML

Note 14 - Operating Segments (Details Textual)	3 Months Ended
	Mar. 31, 2020
Number of Reportable Segments	3

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Note 6 - Long-term Debt - Schedule of Long-term Debt (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Total debt	$ 553,915	$ 524,727
Less: Current portion	(6,071)	(6,038)
Long-term debt	547,844	518,689
First Lien Credit Facilities [Member] | Revolving Credit Facility [Member]
Total debt	30,000
First Lien Credit Facilities [Member] | Term Loan [Member]
Total debt	522,135	522,989
Equipment Long-term Note Payable and Finance Leases [Member]
Total debt	$ 1,780	$ 1,737

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Note 9 - Basic and Diluted Loss Per Share (Details Textual) - shares	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Weighted Average Number Diluted Shares Outstanding Adjustment, Total (in shares)	0
Restricted Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares)	695,204	419,600
Share-based Payment Arrangement, Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares)	130,362	895,113

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Note 11 - Stock-based Compensation (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Share-based Payment Arrangement, Option, Activity [Table Text Block]

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contract Term (years)		Aggregate Intrinsic Value (in thousands)
Options outstanding as of December 31, 2019		1,382,986		$	9.10		5.45	$	4,793
Granted		-			-		-		-
Exercised		(15,544	)	$	10.15
Canceled or forfeited		(4,274	)	$	10.15
Options outstanding as of March 31, 2020		1,363,168		$	9.08		5.04	$	-
Options exercisable as of March 31, 2020		1,233,857		$	8.54		4.80	$	-

Nonvested Restricted Stock Shares Activity [Table Text Block]

	Shares Outstanding			Grant Date Fair Value (per share)
Restricted Stock Outstanding as of December 31, 2019		712,496		$	23.66
Granted		38,941		$	10.45
Vested		(75,565	)	$	23.84
Canceled or forfeited		(23,199	)	$	24.74
Restricted stock outstanding as of March 31, 2020		652,673		$	22.82

XML

Note 3 - Property and Equipment (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Property, Plant and Equipment [Table Text Block]

	March 31, 2020			December 31, 2019
Gaming equipment	$	169,771		$	175,837
Other property and equipment		23,375			23,210
Less: Accumulated depreciation		(99,103	)		(95,449	)
Property and equipment, net	$	94,043		$	103,598

XML

Note 6 - Long-term Debt - Schedule of Long-term Debt (Details) (Parentheticals) - USD ($) $ in Millions	3 Months Ended	12 Months Ended
	Mar. 31, 2020	Dec. 31, 2019
First Lien Credit Facilities [Member] | Revolving Credit Facility [Member]
Effective interest rate	4.50%	0.00%
First Lien Credit Facilities [Member] | London Interbank Offered Rate (LIBOR) [Member] | Revolving Credit Facility [Member]
Interest rate	3.50%	0.00%
First Lien Credit Facilities [Member] | Base Rate [Member] | Revolving Credit Facility [Member]
Interest rate	3.50%	0.00%
Term Loan [Member] | First Lien Credit Facilities [Member]
Unamortized discount and costs	$ 8.5	$ 9.0
Term Loan [Member] | First Lien Credit Facilities [Member]
Effective interest rate	5.20%
Term Loan [Member] | First Lien Credit Facilities [Member] | London Interbank Offered Rate (LIBOR) [Member]
Interest rate	3.50%	3.50%
Term Loan [Member] | First Lien Credit Facilities [Member] | Base Rate [Member]
Interest rate	3.50%	3.50%

XML

Note 10 - Benefit Plans (Details Textual) $ in Millions			3 Months Ended
	Jan. 30, 2018	Apr. 28, 2014 shares	Mar. 31, 2020 USD ($) shares	Mar. 31, 2019 USD ($)	Dec. 31, 2019 shares	Jan. 16, 2018 shares
Defined Contribution Plan, Cost | $			$ 0.4	$ 0.4
Stockholders' Equity Note, Stock Split, Conversion Ratio	1.5543
The 2014 Long-Term Incentive Plan [Member]
Share Based Compensation Arrangement By Share Based Payment Award, Term (Year)		10 years
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized (in shares)		2,253,735
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant (in shares)					423,268
The 2018 Omnibus Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized (in shares)						1,607,389
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant (in shares)			479,830

XML

Note 6 - Long-term Debt (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Long-term Debt Instruments [Table Text Block]

	March 31, 2020			December 31, 2019
First Lien Credit Facilities:
Term loans, interest at LIBOR or base rate plus 3.50% (5.10% at March 31, 2020), net of unamortized discount and deferred loan costs of $8.5 million and $9.0 million at March 31, 2020 and December 31, 2019, respectively.	$	522,135		$	522,989
Revolving credit facility, interest at LIBOR or base rate plus 3.50% (4.50% at March 31, 2020)		30,000			-
Finance leases		1,780			1,737
Total debt		553,915			524,727
Less: Current portion		(6,071	)		(6,038	)
Long-term debt	$	547,844		$	518,689

XML

Note 1 - Description of the Business and Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Disaggregation of Revenue [Table Text Block]

	Three Months Ended March 31,
	2020		2019
EGM
Gaming operations	$	38,885	$	49,500
Equipment sales		11,470		20,155
Total	$	50,355	$	69,655
Table Products
Gaming operations	$	2,324	$	2,130
Equipment sales		158		26
Total	$	2,482	$	2,156
Interactive (gaming operations)
Social gaming revenue	$	822	$	958
Real-money gaming revenue		654		273
Total	$	1,476	$	1,231

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

		March 31, 2020							December 31, 2019
	Classification	Gross amortized cost		Allowance for credit losses			Amortized cost, net of allowance for credit losses		Gross amortized cost		Allowance for credit losses			Amortized cost, net of allowance for credit losses
Trade receivables:	Accounts Receivable	$	10,756	$	-		$	10,756	$	22,741	$	-		$	22,741
Receivables with extended payment terms:
Originated in 2020	Accounts Receivable	$	3,009	$	-		$	3,009		N/A		N/A			N/A
Originated in 2019	Accounts Receivable		4,073		-			4,073		5,461		-			5,461
Total receivables with extended payment term		$	7,082	$	-		$	7,082	$	5,461	$	-		$	5,461
Sales-type leases receivables:
Originated in 2019	Accounts Receivable	$	1,772	$	(89	)	$	1,683	$	2,206	$	(111	)	$	2,095
Originated in 2017	Accounts Receivable		42		(2	)		40		52		(3	)		49
Total Sales-type leases receivables		$	1,814	$	(91	)	$	1,723	$	2,258	$	(114	)	$	2,144
Development Agreements:
Originated in 2020	Deposits and other	$	2,390	$	-		$	2,390		N/A		N/A			N/A
Originated in 2019	Deposits and other		2,431		-			2,431		2,359		-			2,359
Total Development Agreements		$	4,821	$	-		$	4,821	$	2,359	$	-		$	2,359

Property, Plant and Equipment, Useful Life [Table Text Block]

Gaming equipment (in years)	2 to 6
Other property and equipment (in years)	3 to 6

Fair Value, Liabilities Measured on Recurring and Nonrecurring Basis [Table Text Block]

	March 31, 2020				December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term Debt	$	562,423	$	433,475	$	533,727	$	534,578

XML

Note 8 - Write-downs and Other Charges

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Asset Impairment Charges [Text Block]

NOTE

8.

WRITE-DOWNS AND OTHER CHARGES

The Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income include various transactions, such as loss on disposal or impairment of long-lived assets and fair value adjustments to contingent consideration that have been classified as write-downs and other charges. During the

three

months ended

March 31, 2020

, the Company recognized

$0.1

 million in write-downs and other charges primarily related to the disposal of long-lived assets. During the

three

months ended

March 31, 2019

, the Company recognized

$1.0

million in write-downs and other charges driven by losses from the disposal of assets of

$0.3

million,

a fair value adjustment to contingent consideration of 

$0.4

million (the Company used level

3

observable inputs in conducting the impairment test) and the impairment to intangible assets of 

$0.4

million related to game titles (the Company used level

3

of observable inputs in conducting the impairment tests).

XML

Note 4 - Goodwill and Intangibles

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

NOTE

4.

GOODWILL AND INTANGIBLES

Changes in the carrying amount of goodwill are as follows (in thousands):

	Gross Carrying Amount
	EGM			Table Products		Interactive(1)		Total
Balance at December 31, 2019	$	279,228		$	7,821	$	-	$	287,049
Foreign currency adjustments		(3,776	)		-		-		(3,776	)
Impairment		-			-		-		-
Balance at March 31, 2020	$	275,452		$	7,821	$	-	$	283,273

(

1

)

Accumulated goodwill impairment charges for the Interactive segment as of 

March 31, 2020

 were

$8.4

 million.

During the

first

quarter of

2020,

our EGM and Table Products reporting units' operating results were significantly lower than expectations, driven by the rapid nationwide spread of the novel coronavirus and the actions taken by state and tribal governments and businesses, including the closure of casinos, in an attempt to contain the virus. Many of our customers have temporarily closed their operations and the markets that we serve have been significantly and adversely impacted, which was considered to be a triggering event. These closures have resulted in a reduction of gaming operations revenues particularly related to our leased EGMs and table products as we have ceased to bill our customers from the date that they closed. The closures have also impacted equipment sales revenue due to a decline in our customer demand to purchase our EGMs and other products during the closures.  Accordingly, we performed a quantitative assessment, or “Step

1”

analysis, as of

March 31, 2020

to analyze whether this triggering event resulted in an impairment of associated goodwill in these

two

reporting units.  There is

no

balance of goodwill in the Company’s other reporting unit.

Based on our quantitative analysis, the fair value was

34%

greater than the carrying value for the EGM reporting unit and

21%

greater for the Table Products reporting unit. As of

October 1, 2019 (

the date of the Company’s annual impairment assessment), the fair values of the EGM reporting unit and the Table Products reporting unit were

50%

and

111%

greater than their respective carrying values. We estimated the fair value of both reporting units using the discounted cash flow method. The most significant factor in the assessment was the projected cash flows adjusted for the estimated adverse impact of COVID-

19

on the Company’s operations.  Our projected cash flows for the current year are dependent on our assumptions for when our casino customers will reopen. The current year projected cash flows and those for future years are also impacted by our estimate of when the operations of our casino customers will return to pre-COVID-

19

 levels. Given the ongoing impacts of COVID-

19

across our business, the long-range cash flow projections that we use to assess the fair value of our businesses and assets for purposes of impairment testing are subject to greater uncertainty than normal. If our projections do

not

align with our actual results in future quarters, we will update the projected cash flows, which

may

result in an impairment of goodwill. Other factors included in the discounted cash flow calculation were the discount rate of

10%

for EGM and 

14%

for Table Products and the long-term growth rate of

3%

for both reporting units. As of

October 1, 2019,

the discount rates utilized in the discounted cash flow projections were

10%

and

14%

for the EGM and Table Products reporting units, respectively.

Intangible assets consist of the following (in thousands):

		March 31, 2020							December 31, 2019
	Useful Life	Gross		Accumulated			Net Carrying		Gross		Accumulated			Net Carrying
	(years)	Value		Amortization			Value		Value		Amortization			Value
Indefinite lived trade names	Indefinite	$	12,126	$	-		$	12,126	$	12,126	$	-		$	12,126
Trade and brand names	5 - 7		14,870		(13,766	)		1,104		14,870		(13,209	)		1,661
Customer relationships	5 - 12		216,258		(123,702	)		92,556		219,788		(120,384	)		99,404
Contract rights under development and placement fees	1 - 7		48,878		(10,747	)		38,131		48,180		(8,888	)		39,292
Gaming software and technology platforms	1 - 7		165,298		(101,062	)		64,236		162,391		(96,193	)		66,198
Intellectual property	10 - 12		19,345		(8,040	)		11,305		19,345		(7,575	)		11,770
		$	476,775	$	(257,317	)	$	219,458	$	476,700	$	(246,249	)	$	230,451

Intangible assets are amortized over their respective estimated useful lives ranging from

one

to

twelve

years. Amortization expense related to intangible assets was

$13.4

 million and

$10.9

million for the

three

months ended

March 31, 2020

and

2019

, respectively. 

Management reviews intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset

may

not

be recoverable. There were

no

impairments recorded for the period ended

March 31, 2020.

We recorded impairments related to internally developed gaming titles of

$0.4

million for the period ended

March 

31,

2019

 as it was determined by Management that the gaming titles would

no

longer be used.

The Company enters into development agreements and placement fee agreements with certain customers to secure floor space under lease agreements for its gaming machines. Amounts paid in connection with the development agreements are repaid to the Company in accordance with the terms of the agreement, whereas placements fees are

not

reimbursed. For development agreements in the form of a loan, interest income is recognized on the repayment of the notes based on the stated rate or, if

not

stated explicitly in the development agreement, on an imputed interest rate. If the stated interest rate is deemed to be other than a market rate or zero, a discount is recorded on the note receivable as a result of the difference between the stated and market rate and a corresponding intangible asset is recorded. The intangible asset is recognized in the financial statements as a contract right under development agreement and amortized as a reduction in revenue over the term of the agreement. Placement fees can be in the form of cash paid upfront or free lease periods and are accreted over the life of the contract and the expense is recorded as a reduction of revenue. We recorded a reduction of gaming operations revenue from the accretion of contract rights under development agreements and placement fees of

$1.9

 million and

$1.3

 million for the

three

months ended

March 31, 2020

and

2019

, respectively. 

XML

Note 12 - Income Taxes

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE

12.

INCOME TAXES

The Company's effective income tax rate for the 

three

months ended  

March 31, 2020

, was a benefit of

19.0%.

This effective rate approximates the federal statutory rate of 

21.0%

 due to offsetting changes in our valuation allowance on deferred tax assets and lapse in applicable statute of limitations for certain uncertain tax positions. The Company's effective income tax rate for the

three

months ended 

March 31, 2019

, was a benefit of

100.2%.

The difference between the federal statutory rate of 

21.0%

 and the Company's effective tax rate for the

three

months ended 

March 31, 2019

, is primarily due to changes in our valuation allowance on deferred tax assets and lapse in the applicable statute of limitations for certain uncertain tax positions. 

The Company entered into an indemnification agreement with the prior owners of Cadillac Jack (acquired in

May

of

2015

) whereby the prior owners have agreed to indemnify the Company for changes in tax positions by taxing authorities for periods prior to the acquisition. As of

March 31, 2020

, an indemnification receivable of

$0.6

 million has been recorded in other assets in the financial statements. This amount includes the indemnification of the original pre-acquisition tax positions along with any related accrued interest and penalties and is offset by a corresponding liability for unrecognized tax benefits in other long-term liabilities. When the related unrecognized tax benefits are favorably resolved, a corresponding charge to relieve the associated indemnification receivable would be recognized in our Consolidated Statements of Operations and Comprehensive (Loss) Income.

During the

three

months ended

March 31, 2020

, the Company recognized a

$3.2

 million reduction in the indemnification receivable and related charges in our Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income primarily due to lapse in the applicable statute of limitations on indemnified tax positions. During the

three

months ended

March 31, 2019

, the Company recognized a

$5.5

million reduction in the indemnification receivable and related charges in our Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income primarily due to lapse in the applicable statute of limitations on indemnified tax positions.

XML

Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Including Portion Attributable to Noncontrolling Interest [Member]	Noncontrolling Interest [Member]	Total
Balance at Dec. 31, 2018	$ 353	$ 361,628	$ (222,403)	$ (3,774)
Vesting of restricted stock	1
Balance at Mar. 31, 2019	354	363,379	(222,485)	(3,132)	107	$ 138,223
Stock option exercises		555
Stock-based compensation expense		1,196
Net loss attributable to PlayAGS, Inc.			(82)			(82)
Foreign currency translation adjustment				642		642
Net income					93	93
Business acquisitions					71
Cash distributions to non-controlling interest owners					(57)
Balance at Dec. 31, 2019	355	371,311	(235,474)	(2,408)
Vesting of restricted stock	1	(1)	(348)
Balance at Mar. 31, 2020	$ 356	373,019	(250,241)	(10,592)		112,542
Stock option exercises		158
Stock-based compensation expense		$ 1,551
Net loss attributable to PlayAGS, Inc.			$ (14,419)			(14,419)
Foreign currency translation adjustment				$ (8,184)		(8,184)
Net income
Business acquisitions
Cash distributions to non-controlling interest owners

XML

Note 1 - Description of the Business and Summary of Significant Accounting Policies - Estimated Fair Value of Long-term Debt (Details) - Fair Value, Inputs, Level 2 [Member] - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Reported Value Measurement [Member]
Long-term Debt, carrying amount	$ 562,423	$ 533,727
Estimate of Fair Value Measurement [Member]
Long-term Debt, fair value	$ 433,475	$ 534,578

XML

Note 4 - Goodwill and Intangibles (Details Textual) $ in Thousands		3 Months Ended
		Mar. 31, 2020 USD ($)	Mar. 31, 2019 USD ($)	Oct. 01, 2019
Number of Reporting Units		2
Amortization of Intangible Assets, Total		$ 13,400	$ 10,900
Impairment of Intangible Assets, Indefinite-lived (Excluding Goodwill)		0	400
Accretion of Contract Rights Under Development Agreements and Customer Agreements	[1]	$ 1,859	$ 1,271
Minimum [Member]
Finite-Lived Intangible Asset, Useful Life (Year)		1 year
Maximum [Member]
Finite-Lived Intangible Asset, Useful Life (Year)		12 years
Measurement Input, Long-term Revenue Growth Rate [Member]
Impairment Assumptions, Measurement Input				3
EGM [Member]
Reporting Unit, Percentage of Fair Value in Excess of Carrying Amount		34.00%		50.00%
EGM [Member] | Measurement Input, Discount Rate [Member]
Impairment Assumptions, Measurement Input				10
Table Products [Member]
Reporting Unit, Percentage of Fair Value in Excess of Carrying Amount		21.00%		111.00%
Table Products [Member] | Measurement Input, Discount Rate [Member]
Impairment Assumptions, Measurement Input				14
Interactive (Gaming Operations) [Member]
Goodwill, Impaired, Accumulated Impairment Loss		$ 8,400

[1] Non-cash item related to the accretion of contract rights under development agreements and placement fees.

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2020	May 01, 2020
Document Information [Line Items]
Entity Registrant Name	PLAYAGS, INC.
Entity Central Index Key	0001593548
Trading Symbol	ags
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	true
Entity Ex Transition Period	true
Entity Small Business	false
Entity Interactive Data Current	Yes
Entity Common Stock, Shares Outstanding (in shares)		35,603,870
Entity Shell Company	false
Document Type	10-Q
Document Period End Date	Mar. 31, 2020
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q1
Amendment Flag	false
Title of 12(b) Security	Common Stock, $0.01 par value

XML

Note 3 - Property and Equipment

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

NOTE

3.

PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in thousands):

	March 31, 2020			December 31, 2019
Gaming equipment	$	169,771		$	175,837
Other property and equipment		23,375			23,210
Less: Accumulated depreciation		(99,103	)		(95,449	)
Property and equipment, net	$	94,043		$	103,598

Gaming equipment and other property and equipment are depreciated over the respective useful lives of the assets ranging from

two

to

six

years. Depreciation expense was

$10.9

million and

$10.6

million for the 

three

months ended

March 31, 2020

and

2019

, respectively. 

XML

Note 13 - Commitments and Contingencies (Details Textual) $ in Millions	3 Months Ended
	Sep. 30, 2019 USD ($)
Insurance Claims [Member]
Loss Contingency Accrual, Provision	$ 1.6