AGS Reports Third Quarter 2020 Results

LAS VEGAS, Nov. 5, 2020 /PRNewswire/ -- PlayAGS, Inc. (NYSE: AGS) ("AGS", "us", "we", or the "Company"), a designer and developer of equipment and services solutions for the global gaming industry, today reported financial results for the third quarter ended September 30, 2020.

AGS President and Chief Executive Officer David Lopez said, "I am extremely proud of how our team came together to offset the challenges brought upon by the COVID-19 pandemic to deliver better than expected third quarter 2020 financial results. Our employees' experiences throughout the pandemic will only help to strengthen their collective resolve, in turn propelling AGS to emerge a stronger and more nimble company as the world gradually returns to normal."

Lopez added, "I continue to believe AGS has its strongest pipeline of new product and game themes in the Company's history, positioning our EGM segment for greater success in the quarters ahead. I am particularly enthused about the prospects for our domestic EGM recurring revenue business, supported by the continued outperformance of our initial Starwall installs, and believe improved hardware and game content position us to command our fair share of future unit placements. Additionally, I remain encouraged by the strategic growth opportunities emerging within our table games segment and look for our interactive performance to continue to improve as additional states contemplate the introduction of real money online gaming legislation."

AGS Chief Financial Officer Kimo Akiona added, "Our third quarter financial performance improved dramatically compared to the 2020 second quarter, with revenues, net loss, and adjusted EBITDA improving sharply on a sequential basis. Importantly, we were free cash flow positive in the quarter, allowing us to report a strong liquidity position of $113.2 million at quarter end. Given our better-than-expected third quarter financial performance and growing comfort with our resulting liquidity position, we elected to fully repay the $30 million outstanding on our revolving credit facility, subsequent to quarter end."

Third Quarter 2020 Financial Results

• During March and April and continuing through mid-to-late-May, nearly all our customers closed their operations due to business disruption caused by the global spread of COVID-19 and the actions taken by governments and businesses to contain the virus. Though less impactful than in the second quarter of 2020, COVID-19-related measures continued to impact our customers' businesses throughout the third quarter, pacing the majority of the year-over-year declines in the metrics presented above, including revenues, (loss) income from operations, net loss, and Adjusted EBITDA.
• By September 30, nearly all our customers' casinos in the United States and Canada resumed limited operations. In Mexico, approximately 50% of our customers' properties were reopened with capacity restrictions as of September 30, 2020.
• Total revenue reached $49.3 million compared to $16.8 million in the 2020 second quarter. Revenue decreased 37.9% year-over-year, with the decline predominantly attributable to the pandemic's negative impact on our customer's operations and, subsequently, our gaming operations revenue and EGM unit sales.
• Gaming operations revenue, or recurring revenue, totaled $36.3 million compared to $10.2 million in the 2020 second quarter. Recurring revenue decreased 30.9% year-over-year as a portion of our leased EGMs and Table Products were out of service as a result of COVID-related casino closures and capacity limitations. A year-over-year increase in our Interactive segment revenue helped to partially offset the declines in our other reporting segments.
• Our 2020 third quarter net loss of $11.1 million improved dramatically from the $42.6 million net loss reported in the 2020 second quarter. As a result of management's actions taken to reduce spending amid COVID-19, including employee furloughs, workforce reductions, and salary decreases, coupled with a strategic focus to streamline expenses, primarily in professional fees, sales and marketing activities, and, to a lesser extent, modest delays in development expenses, we were able to partially offset the flow through of our year-over-year revenue decline to minimize our reported net loss.
• Total Adjusted EBITDA (non-GAAP)(1) increased to $27.0 million from a $1.2 million loss in the 2020 second quarter. Adjusted EBITDA declined as compared to the $36.8 million delivered in the prior-year period, as year-over-year decreases in our EGM and Table Products segments were partially offset by growth in our Interactive segment.
• Total Adjusted EBITDA margin (non-GAAP)(1) increased to 54.8% in the third quarter of 2020 compared to 46.3% in the prior year, reflecting a greater mix of higher-margin lease revenues, the sale of previously leased, lower-yielding Oklahoma units to distributors with modest offsetting costs, and management's actions to reduce operating expenses and other costs in response to the COVID-19 crisis.

EGM Quarterly Results

Domestic Gaming Operations(3)

• Domestic gaming operations revenue decreased $10.9 million year-over-year to $31.6 million, driven by disruptions in lease revenue from EGMs that were not active during the period and, to a lesser extent, a decline in our installed base compared to the prior year period.
• As of September 30, 2020, nearly all our customers' properties in the United States and Canada were reopened, with most operating under some type of capacity limitation. We estimate that more than 14,500, or approximately 87%, of our domestic EGMs were active at the end of the 2020 third quarter.
• Domestic EGM installed base decreased by approximately 1,900 units year-over-year, primarily due to the sale of 476 previously leased, lower-yielding Oklahoma units to distributors in the current period and 891 in previous periods(4). Additionally, several of our customers reconfigured their slot floors in response to COVID-19 and, as a result, removed nearly 350 EGMs from our domestic installed base in the 2020 third quarter.
• Domestic EGM revenue per day ("RPD") decreased to $20.81 compared to $25.08 in the prior year period, reflecting the impact of EGMs that were not active in the quarter and thus did not contribute to EGM revenue.
• Excluding EGMs that were not active during the period, Domestic EGM RPD increased to approximately $29, supported by strong play levels, which we believe were bolstered by pent-up demand, a resilient core gambling customer, and limited supply of active EGMs.

International Gaming Operations

• International gaming operations revenue decreased to $0.6 million in the current year period compared to $6.4 million in the prior year period as most of our customers' casinos in Mexico and the Philippines were closed at the commencement of the quarter.
• Several casinos reopened throughout the quarter and as of September 30, 2020, nearly half of our customers' properties were open in Mexico, which accounts for approximately 4,800 EGMs in our international installed base. We estimate that approximately 2,500 of these EGMs were active at the end of the quarter as the casinos in Mexico are required to follow strict protocols that include deactivating adjacent machines and cleaning machines after each is played. 
• International installed base decreased 638 units year-over-year as a result of permanent casino closures in Mexico and the sale of previously leased machines in the last 12 months.

Equipment Sales

• EGM units sold decreased to 387 units in the third quarter, primarily attributable to business disruptions related to COVID-19 as noted above an