PlayAGS, Inc. (AGS) Q4 2023 Earnings Call Transcript
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Overview
AGS reported record financial metrics, including a 20% increase in EBITDA and a 45% rise in free cash flow. The Q&A highlighted opportunities from the IGT Everi deal and expansion plans, while management's clarity and optimism were evident. Strong revenue growth and positive market strategy further support a strong positive sentiment.
Key Financial Performance
Revenue Q4 2023 revenue increased 15% year-over-year, marking the 11th consecutive quarter of double-digit growth.
Adjusted EBITDA Q4 2023 adjusted EBITDA increased 15% year-over-year, with a margin surpassing 45%.
Global EGM Sales Global EGM sales increased 36% year-over-year to a record 1,519 units, driven by strong performance across multiple customer segments.
Interactive Revenue Interactive revenue grew over 30% year-over-year to $3.4 million, with adjusted EBITDA increasing nearly 160% year-over-year to a record $1.3 million.
Table Products Revenue Table Products revenues increased more than 20% year-over-year to a record $4.8 million, supported by customer adoption of new technologies.
Free Cash Flow Free cash flow increased more than 45% year-over-year to $11 million, marking the third consecutive quarter above $10 million.
Net Leverage Net leverage decreased to 3.2 times at year-end, down from 3.8 times at the start of the year.
Capital Expenditures Fourth quarter capital expenditures totaled $15 million, bringing full year capital spend to just under $62 million.
Cash Interest Expense Cash interest in the quarter was approximately $14 million, increasing full year cash interest expense to just under $54 million.
Operating Highlights
Global EGM Sales: Global EGM sales increased 36% year-over-year, to a record 1,519 units.
Interactive Revenue: Interactive revenue grew by over 30% versus the prior year to $3.4 million.
Table Products Sales: Table Products sales reached new records, producing an approximately 20% increase in adjusted EBITDA, to a record $2.8 million.
PAX S Shuffler: Customer adoption of the PAX S shuffler continues to surge, with over 330 units at year end.
Bonus Spin Xtreme: The Bonus Spin Xtreme progressive technology continues to be well-received, with a 5% sequential growth in install base.
Market Positioning in EGM Segment: AGS is positioned to expand into mechanical reel and jumbo segments, with GLI approval received for the mech reel cabinet.
International EGM Business: International RPD increased over 15% year-over-year, contributing to a 16% year-over-year increase in gaming operations revenue.
Interactive Market Positioning: Ranked as the sixth largest provider of slot content to North America online market with a reported market share of approximately 5%.
Free Cash Flow: Free cash flow increased more than 45% year-over-year to $11 million.
Net Leverage: Net leverage improved to 3.2 times, down from 3.8 times at the start of the year.
Adjusted EBITDA Margin: Fourth quarter adjusted EBITDA margin surpassed 45%.
Deleveraging Strategy: AGS will prioritize further deleveraging as its preferred use of excess capital.
Growth Strategy: Focus on broadening geographic and customer account reach, and enhancing product offerings.
Risk or Challenges
Competitive Pressures: The company faces competitive pressures in the gaming market, particularly as they aim to become a top five supplier. They need to leverage their product performance and broaden their customer base to gain market share.
Regulatory Issues: There are potential regulatory challenges in the gaming industry that could impact operations, especially as they expand into new jurisdictions.
Supply Chain Challenges: The company may encounter supply chain challenges that could affect the timely delivery of their products, particularly as they expand their product offerings.
Economic Factors: Economic factors, including fluctuations in gross gaming revenue (GGR) and market-level customer purchasing behavior, could impact the company's revenue growth and operational performance.
Debt Management: The company has a net leverage of 3.2 times, which is above their targeted range. They need to prioritize deleveraging to improve their financial stability.
Market Demand: The company anticipates a flat to 1% increase in market-level GGR for 2024, which could limit growth opportunities.
Guidance & Outlook
Global EGM Sales Growth: Global EGM sales increased 36% year-over-year, reaching a record 1,519 units.
Interactive Revenue Growth: Interactive revenue grew by over 30% year-over-year to $3.4 million.
Free Cash Flow: Free cash flow increased more than 45% year-over-year to $11 million.
Net Leverage Improvement: Net leverage improved to 3.2 times, down from 3.8 times at the start of the year.
Product Offerings Expansion: AGS is expanding into mechanical reel and jumbo segments, targeting over 15% of total units sold in North America.
Table Products Growth: Table Products revenues increased more than 20% year-over-year to a record $4.8 million.
Interactive Segment Growth: Interactive segment is expected to deliver the highest year-over-year revenue growth among the three operating segments.
2024 Revenue Growth: Consensus estimates project a 3% growth in Global EGM unit sales for 2024.
Adjusted EBITDA Margin Outlook: Expected adjusted EBITDA margin for 2024 is in the range of 44.5% to 45.5%.
2024 Capital Expenditures: Full year capital expenditures are expected to be in the range of $65 million to $70 million.
Free Cash Flow Growth: Full year free cash flow is projected to grow by 25% or more in 2024.
Net Leverage Target: Expect to exit 2024 with net leverage in the range of 2.7 times to 3 times.
Shareholder Return Plan
Free Cash Flow: Fourth quarter free cash flow reached $11 million, surpassing the $10 million level for the third consecutive quarter, contributing to a full year 2023 free cash flow of approximately $27 million.
Debt Repayment: On February 5, 2024, the company voluntarily repaid $15 million of its total debt outstanding, which is expected to reduce annualized cash interest expense by approximately $3 million.
Net Leverage: Net leverage fell to 3.2 times at year end, down from 3.8 times at the start of the year, and below the targeted range of 3.25 to 3.5 times.
Free Cash Flow Outlook for 2024: The company anticipates growing full year free cash flow by 25% or more in 2024, with positive free cash flow generation projected in all four quarters.
Key Q&A
Earnings Word Cloud
AGS Transcript
AGS reported record financial metrics, including a 20% increase in EBITDA and a 45% rise in free cash flow. The Q&A highlighted opportunities from the IGT Everi deal and expansion plans, while management's clarity and optimism were evident. Strong revenue growth and positive market strategy further support a strong positive sentiment.
The earnings call highlights record revenues and EBITDA, strong free cash flow, and reduced net leverage, indicating solid financial health. Product development is robust with new rollouts planned, and market strategy is focused on growth in key segments. The Q&A reveals management's confidence in deleveraging and handling potential risks, although some details were vague. Overall, the positive financial performance and optimistic guidance suggest a positive stock price movement.
AGS Report
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