AGS Reports Fourth Quarter and Full Year 2020 Results
Fourth Quarter 2020 Highlights:
• Orion Starwall Off to an Encouraging Start with over 300 Games Installed as of December 31, 2020
• Domestic Active Unit EGM RPD Increased 8% Year-Over-Year to Approximately $27
• Installed Base of Industry-leading Table Game Progressive Products Increased by 127 Units Sequentially
• Received our Provisional Michigan i-Gaming Supplier License in December and AGS Content Currently Live
• Generated Positive Operating and Free Cash Flow for the Second Consecutive Quarter
• $111.7 Million of Available Liquidity as of December 31, 2020
LAS VEGAS, March 4, 2021 - 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 fourth quarter and full year ended December 31, 2020.
AGS President and Chief Executive Officer David Lopez said, “2020 was a year full of unprecedented challenges, the likes of which required the unwavering commitment of a passionate, loyal, and hardworking team to successfully overcome. To that end, I am extremely honored by and thankful for the tireless efforts put forth by so many of our AGS team members to ensure we not only survived the COVID-19 pandemic, but put ourselves in a position to emerge a stronger, more resilient company.”
Lopez added, “Looking beyond the many challenges faced throughout the year, one of the bright spots, to the extent there was one, is that the COVID-19 pandemic slowed down the pace of life. As a company, we used this time to refine our strategy and improve our operating efficiency, with a keen focus on three key areas; people, product, and processes. As a result, I believe we are better positioned today to achieve success across all three of our business segments than at any other point in our company’s history.”
AGS Chief Financial Officer Kimo Akiona added, “I am incredibly proud of the way our team came together throughout 2020 to face the unprecedented operational and financial hurdles introduced by the spread of COVID-19. Not only were we able to nimbly streamline our business to preserve liquidity at the onset of COVID-19, but we opportunistically shored up our balance sheet in May and successfully ramped operations as our casino operator partners gradually brought their businesses back online. As I look ahead to 2021, I believe our strong liquidity position, improving product portfolio, and organizational alignment position us to achieve improved financial performance”
Fourth Quarter 2020 Financial Results
• During March and April and continuing through mid- to late-May, nearly all of our customers closed their operations due to the COVID-19 pandemic and the actions taken by governments and businesses to contain the virus. COVID-19-related measures continued to impact our customers’ businesses throughout the fourth quarter, pacing the majority of the year-over-year declines in the metrics presented above, including revenues, (loss) income from operations, net (loss) income, and Adjusted EBITDA.
• Consolidated revenue totaled $46.6 million compared to $77.8 million in the 2019 fourth quarter, representing a year-over-year decrease of 40.1%. The year-over-year decline reflects the COVID-19 pandemic’s negative impact on our customers' operations and, subsequently, our gaming operations revenue and EGM unit sales.
• We estimate approximately 90% of our 16,268-unit domestic installed base was active as of December 31, 2020. Internationally, we estimate approximately 36% of our 7,985-unit installed base was active as of December 31, 2020.
• Gaming operations revenue, or recurring revenue, totaled $40.0 million compared to $51.6 million in the 2019 fourth quarter. The year-over-year gaming operations revenue decrease reflects the impact of COVID-19 on our EGM and Table Product recurring revenue streams, partially offset by higher Interactive segment revenue, as compared to the prior year. Recurring revenue comprised 85.7% of our total revenue compared to 66.3% in the prior year, reflecting the relative resiliency inherent in our gaming operations business.
• Our 2020 fourth quarter net loss of $17.2 million declined as compared to net income of $1.4 million in the 2019 fourth quarter. Lower net income year-over-year reflects the impact of the COVID-19 pandemic on our operations, coupled with higher interest expense related to our incremental debt financing, which we closed upon in May 2020.
• Total Adjusted EBITDA (non-GAAP)(1) decreased to $21.3 million compared to $37.3 million in the 2019 fourth quarter. A year-over-year decrease in our EGM adjusted EBITDA, which we largely attribute to the impact of COVID, was partially offset by higher adjusted EBITDA in our Table Products and Interactive segments, as compared to the prior year’s quarter.
• Total Adjusted EBITDA margin (non-GAAP)(1) decreased to 45.7% in the fourth quarter of 2020 compared to 47.9% in the prior year, reflecting the impact of normalization in our operating cost base to support the anticipated recovery in our revenues from post-COVID lows.
(1) Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures, see non-GAAP reconciliation below.
EGM Quarterly Results
Domestic Gaming Operations (2)
• Domestic gaming operations revenue totaled $34.1 million, compared to $41.6 million in the prior year’s quarter. The year-over-year revenue decline reflects the impact of COVID-19-related capacity restrictions and casino closures and, to a lesser extent, a decline in our installed base compared to the prior year period.
• As of December 31, 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 90%, of our domestic EGMs were active at the end of the 2020 fourth quarter.
• Our domestic EGM installed base decreased by 2,100 units year-over-year, primarily due to the strategic pruning of approximately 1,200 lower-yielding Integrity units. Additionally, approximately 500 lower-yielding IL VLT units were removed from the base in the fourth quarter of 2020 as part of a planned end of lease term sale. Excluding the Integrity and IL VLT removals, our installed base decreased by approximately 350 units year-over-year, predominantly driven by COVID-19-related floor reconfigurations.
• Domestic EGM revenue per day ("RPD") decreased to $23.26 compared to $24.97 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, but were included in the calculation of RPD.
• Excluding EGMs that were not active during the period, Domestic EGM RPD increased 8% year-over-year to approximately $27, supported by growth within our premium-leased unit installed base, the strategic pruning of lower-yielding units, a resilient core gambling customer, and reduced supply of active EGMs.
International Gaming Operations
• International gaming operations revenue decreased to $1.8 million compared to $6.0 million in the prior year period. The year-over-year decline reflects the impact of measures implemented to slow the spread of COVID-19, such as temporary casino closures and capacity restrictions, on our business. Additionally, in contrast to the United States, Mexico has not provided any type of fiscal stimulus to support its post-COVID-19 economic recovery.
• We estimate approximately 36% of our international EGMs were active at the end of the quarter. Mexico continues to require operators to follow strict protocols that include deactivating adjacent machines and cleaning machines after each is played.
• Our international installed base decreased by 512 units year-over-year as a result of permanent casino closures in Mexico and COVID-19-related floor reconfigurations.
• EGM units sold decreased to 283 units in the fourth quarter of 2020, primarily attributable to business disruptions related to COVID-19 as noted above and reduced customer budgets for EGM purchases. Additionally, we faced a softer new opening and expansion calendar, as compared to the prior year.
• Domestic ASP remained stable at $18,035 compared to $17,833 in the prior year period.
• We sold units into 17 U.S. states and one Canadian province, with Virginia, Nevada and California emerging as our top three sales markets.
• The Orion Curve accounted for 37% of units shipped in the quarter.
• Installed an additional 246 premium, lease-only Orion Starwall games, increasing our installed base to over 300 games at quarter end. Starwall games continue to perform well and operator interest remains steady.
• Installed over 175 Orion Curve cabinets in the quarter, increasing our total footprint to over 370 units as of December 31, 2020.
• Completed our first sale of Historical Horse Racing (“HHR”) units into the Virginia HHR market.
(2) "Domestic" includes both the United States and Canada.
Table Products Quarterly Results
• Gaming operations, or recurring, revenue totaled $2.4 million compared to $2.7 million in the prior year’s quarter. Capacity limitations and other restrictions implemented at casinos to help combat the spread of COVID-19 negatively impacted the year-over-year comparison.
• Continued growth across all product categories, including side bets, premium table games, table equipment and, most notably, progressives, drove a 13.0% year-over-year increase in our installed base. We estimate approximately 80% of our installed base was active at quarter end.
• Equipment sales revenue increased 81.7% compared to the prior year period. The year-over-year improvement reflects an increase from sales of protective VisiDeal Shield plexiglass player dividers and other parts to help our casino customers operate safely in the current environment.
• Our installed base of table game progressives grew to over 1,500 units, representing a year-over-year increase of 235 units and quarterly sequential growth of 127 units.
• Interest in our all-inclusive site license offering, the AGS Arsenal, continues to build as our customers look for additional ways to improve operating efficiency. We were live with six licenses as of December 31, 2020.
Interactive Quarterly Results
• Total revenue increased 27.0% year-over-year to $1.7 million, while Adjusted EBITDA totaled $0.3 million, marking a $0.7 million improvement versus the prior year.
• Interactive achieved positive Adjusted EBITDA for the fourth consecutive quarter. Continued growth within our real-money gaming ("RMG") business and consistent social gaming performance, coupled with cost savings from the restructuring of our social business in prior periods, helped to drive improved profitability within the segment.
• RMG revenue increased 49.8% year-over-year, supported by the continued introduction of our EGM content into the European RMG market, our fourth quarter 2019 launch into the New Jersey market, and our second quarter 2020 launch into Pennsylvania. We also believe COVID-19 stay-at-home measures supported our quarterly performance.
• In December 2020 we received our provisional Michigan i-Gaming supplier license and our content is currently live within the state.
Liquidity and Capital Expenditures
As of December 31, 2020, we had $111.7 million in total liquidity compared to $43.2 million at December 31, 2019. The total principal amount of debt outstanding, as of December 31, 2020, was $622.5 million, predominantly comprised of $621.1 million in first lien term loans, which mature in 2024.
As a precautionary measure to increase the Company’s cash position and facilitate financial flexibility in light of uncertainty in the gaming industry at the time resulting from the COVID-19 pandemic, in March the Company borrowed $30.0 million under the revolving credit facility and in May issued an additional $95.0 million in term loans. In connection with the new term loans, the Company negotiated a financial covenant relief period through December 31, 2020 related to its net first lien leverage ratio financial covenant and implemented a revised calculation of EBITDA to be used in the net first lien leverage ratio for the first three quarters of 2021. In October, we elected to fully repay the $30.0 million previously drawn down on our revolving credit facility.
Total net debt, which is the principal amount of debt outstanding less cash and cash equivalents, as of December 31, 2020 was $540.8 million compared to $520.6 million at December 31, 2019. Our Total Net Debt Leverage Ratio increased from 3.6 times at December 31, 2019, to 7.5 times at December 31, 2020, see Total Net Debt Leverage Ratio Reconciliation below(3).
Capital expenditures decreased by 19.1% year-over-year to $14.1 million in the current period, in line with our plans to conservatively manage the use of our cash and only invest in those projects that will provide the highest return on our investment. The current quarter capital expenditures were primarily comprised of $3.4 million in intangible capital expenditures, including capitalized internal software development costs, and $8.7 million in growth capital expenditures, which reflects costs associated with the placement of additional units into our leased installed base.
(3) Total Adjusted EBITDA and total net debt leverage ratio are non-GAAP measures, see non-GAAP reconciliation below.
Complete release with spreadsheet is posted at http://investors.playags.com/