PlayAGS(AGS) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This part covers PlayAGS, Inc.'s unaudited financial statements, management's discussion, market risks, and internal controls ITEM 1. FINANCIAL STATEMENTS This section presents PlayAGS, Inc.'s unaudited condensed consolidated financial statements and detailed notes for Q1 2025 and Q4 2024 CONDENSED CONSOLIDATED BALANCE SHEETS The balance sheets present the company's financial position, detailing assets, liabilities, and stockholders' equity | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Assets | | | | Total current assets | $180,220 | $177,683 | | Property and equipment, net | $82,363 | $80,145 | | Goodwill | $286,801 | $286,504 | | Intangible assets, net | $110,112 | $114,833 | | Total assets | $709,681 | $709,592 | | Liabilities and Stockholders' Equity | | | | Total current liabilities | $45,421 | $47,855 | | Long-term debt | $529,396 | $530,385 | | Total liabilities | $592,306 | $596,857 | | Total stockholders' equity | $117,375 | $112,735 | | Total liabilities and stockholders' equity | $709,681 | $709,592 | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME The statements of operations detail the company's revenues, expenses, and net income over the reporting periods | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------------- | :----------------------------------- | | Total revenues | $94,825 | $95,973 | | Income from operations | $16,583 | $19,800 | | Interest expense | $12,117 | $13,980 | | Net income | $3,211 | $4,345 | | Total comprehensive income | $4,691 | $5,267 | | Basic income per common share | $0.07 | $0.11 | | Diluted income per common share | $0.07 | $0.10 | | Weighted average common shares outstanding (Basic) | 41,266 | 39,205 | | Weighted average common shares outstanding (Diluted) | 41,336 | 39,346 | CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY This statement outlines changes in stockholders' equity, including net income, stock-based compensation, and share repurchases | Metric | March 31, 2025 (in thousands) | March 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Balance at January 1, 2025/2024 | $112,735 | $67,667 | | Net income | $3,211 | $4,345 | | Foreign currency translation adjustment | $1,480 | $922 | | Stock-based compensation expense | $1,377 | $2,106 | | Stock option exercises | $457 | $50 | | Repurchase of common stock | $(1,885) | $(2,151) | | Balance at March 31, 2025/2024 | $117,375 | $72,939 | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS The cash flow statements summarize cash generated and used in operating, investing, and financing activities | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------------- | :----------------------------------- | | Net cash provided by operating activities | $26,553 | $26,325 | | Net cash used in investing activities | $(19,825) | $(15,272) | | Net cash used in financing activities | $(5,420) | $(21,666) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $1,319 | $(10,598) | | Cash, cash equivalents and restricted cash, end of period | $48,421 | $40,582 | NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS These notes provide detailed explanations of the company's accounting policies and specific financial line items NOTE 1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note describes PlayAGS, Inc.'s business segments and outlines its significant accounting policies - PlayAGS, Inc. operates in three distinct segments: Electronic Gaming Machines (EGM), Table Products, and Interactive Games, each involved in the design, development, acquisition, manufacturing, marketing, distribution, installation, and servicing of their respective product lines[20] Disaggregated Revenues by Segment (Three Months Ended March 31) | Segment | 2025 (in thousands) | 2024 (in thousands) | | :---------------- | :------------------ | :------------------ | | EGM | | | | Gaming operations | $53,428 | $53,799 | | Equipment sales | $29,175 | $33,452 | | Total EGM | $82,603 | $87,251 | | Table Products | | | | Gaming operations | $4,242 | $4,105 | | Equipment sales | $711 | $461 | | Total Table Products | $4,953 | $4,566 | | Interactive | | | | Gaming Operations | $7,269 | $4,156 | | Total Interactive | $7,269 | $4,156 | | Total Revenue | $94,825 | $95,973 | - The company has not adopted any new accounting pronouncements in the current period, and no recently issued accounting guidance is anticipated to have a significant material effect on the condensed consolidated financial statements[67][68][69] NOTE 2. PROPERTY AND EQUIPMENT This note details the company's property and equipment, including gaming equipment and depreciation expense Property and Equipment, Net (in thousands) | Category | March 31, 2025 | December 31, 2024 | | :-------------------------- | :------------- | :---------------- | | Gaming equipment | $277,245 | $271,406 | | Other property and equipment | $29,991 | $28,708 | | Less: Accumulated depreciation | $(224,873) | $(219,969) | | Total property and equipment, net | $82,363 | $80,145 | - Depreciation expense for the three months ended March 31, 2025, was $9.4 million, a decrease from $10.1 million for the same period in 2024[70] NOTE 3. GOODWILL AND INTANGIBLES This note provides information on goodwill and intangible assets, including amortization expense Goodwill Carrying Amount (in thousands) | Segment | December 31, 2024 | Foreign Currency Adjustments | March 31, 2025 | | :-------- | :---------------- | :--------------------------- | :------------- | | EGM | $277,453 | $297 | $277,750 | | Table Products | $9,051 | - | $9,051 | | Interactive | $- | - | $- | | Total | $286,504 | $297 | $286,801 | Intangible Assets, Net (in thousands) | Category | March 31, 2025 Net Carrying Value | December 31, 2024 Net Carrying Value | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Indefinite-lived trade names | $12,126 | $12,126 | | Trade and brand names | $139 | $154 | | Customer relationships | $25,134 | $27,431 | | Contract rights under development and placement fees | $5,203 | $6,581 | | Gaming software and technology platforms | $63,546 | $64,202 | | Intellectual property | $3,964 | $4,339 | | Total intangible assets, net | $110,112 | $114,833 | - Amortization expense related to intangible assets was $9.8 million for the three months ended March 31, 2025, compared to $9.4 million for the same period in 2024[73] NOTE 4. ACCRUED LIABILITIES This note details the company's accrued liabilities, including salary accruals and deferred revenue Accrued Liabilities (in thousands) | Category | March 31, 2025 | December 31, 2024 | | :-------------------------- | :------------- | :---------------- | | Salary and payroll tax accrual | $12,474 | $12,375 | | Taxes payable | $2,699 | $3,366 | | Current portion of operating lease liability | $2,961 | $2,886 | | License fee obligation | $1,800 | $1,800 | | Placement fees payable | $1,587 | $3,086 | | Deferred revenue | $2,806 | $3,409 | | Accrued other | $8,254 | $7,071 | | Total accrued liabilities | $32,581 | $33,993 | NOTE 5. LONG-TERM DEBT This note outlines the company's long-term debt, including term loans and revolving credit facilities Long-Term Debt (in thousands) | Category | March 31, 2025 | December 31, 2024 | | :-------------------------------- | :------------- | :---------------- | | Term loans, net | $533,031 | $533,951 | | Finance leases | $2,970 | $3,022 | | Total debt | $536,001 | $536,973 | | Less: Current portion | $(6,605) | $(6,588) | | Long-term debt | $529,396 | $530,385 | - The First Lien Credit Facilities include a $575.0 million senior secured first lien term loan maturing on February 15, 2029, and a $40.0 million senior secured first lien revolving facility[80][82] - An amendment to the First Lien Credit Agreement on February 5, 2024, reduced the applicable interest margin on the term loan and resulted in $1.6 million in loan costs expensed as loss on extinguishment and modification of debt[87][88] NOTE 6. STOCKHOLDERS' EQUITY This note details common stock outstanding and the company's share repurchase program - As of March 31, 2025, there were 41,449,136 shares of common stock outstanding[13][90] - The company has a share repurchase program authorized for up to $50.0 million, with $39.8 million remaining available as of March 31, 2025. The program was extended to August 11, 2025[93] NOTE 7. WRITE-DOWNS AND OTHER CHARGES This note explains write-downs and other charges recognized during the reporting period - For the three months ended March 31, 2025, the Company recognized $0.6 million in write-downs and other charges, primarily from the disposal of long-lived assets and impairment of intangible assets[95] - In contrast, the Company did not recognize any meaningful write-downs and other charges for the three months ended March 31, 2024[95] NOTE 8. BASIC AND DILUTED INCOME This note presents basic and diluted income per common share and related calculations Basic and Diluted Income Per Common Share | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net income attributable to common stock | $3,036 | $4,019 | | Weighted average of common shares outstanding, basic | 41,266 | 39,205 | | Weighted average of common shares outstanding, diluted | 41,336 | 39,346 | | Basic income per common share | $0.07 | $0.11 | | Diluted income per common share | $0.07 | $0.10 | - Excluded from diluted EPS calculation for Q1 2025 were 425,286 restricted shares subject to unmet performance vesting conditions[98] NOTE 9. BENEFIT PLANS This note describes the company's 401(k) plan and long-term incentive plans - The expense associated with the 401(k) Plan was $0.6 million for both the three months ended March 31, 2025, and 2024[99] - The 2014 Long-Term Incentive Plan (LTIP) was terminated in April 2024, with remaining awards active until vesting or exercise[100] - As of March 31, 2025, 1,753,135 shares were available for issuance under the 2018 Omnibus Incentive Plan[102] NOTE 10. STOCK-BASED COMPENSATION This note details stock-based compensation expense and changes in equity awards Unrecognized Stock-Based Compensation Expense (in thousands) | Award Type | March 31, 2025 Unrecognized Compensation Expense | March 31, 2025 Expected Weighted Average Period to be Recognized (years) | | :------------------ | :------------------------------------------ | :---------------------------------------------------------- | | Stock Options | - | - | | Restricted Stock Units | $4,872 | 2.0 | | Phantom Stock Units | $4,237 | 1.3 | - No stock options were granted during the three months ended March 31, 2025, or 2024[106] Changes in Stock Options, Restricted Stock Units, and Phantom Stock Units Outstanding (March 31, 2025) | Category | Stock Options | Restricted Stock Units | Phantom Stock Units (Equity) | Phantom Stock Units (Liability) | | :-------------------------------- | :------------ | :--------------------- | :--------------------------- | :------------------------------ | | Outstanding as of Dec 31, 2024 | 570,839 | 1,061,184 | 1,511,660 | 210,416 | | Granted | - | 4,125 | - | - | | Exercised/Vested | 120,458 | 318,588 | 93,730 | - | | Canceled or forfeited | - | - | 24,721 | 3,589 | | Outstanding as of March 31, 2025 | 450,381 | 746,721 | 1,393,209 | 206,827 | NOTE 11. INCOME TAXES This note explains the company's effective income tax rate and its components - The effective income tax rate for the three months ended March 31, 2025, was an expense of 30.7%, compared to 13.2% for the same period in 2024[118] - The difference from the federal statutory rate of 21.0% in 2025 is primarily due to the lapse of statute for certain foreign tax attributes, net of tax credits[118] - The difference from the federal statutory rate in 2024 was primarily due to changes in the valuation allowance on deferred tax assets[118] NOTE 12. COMMITMENTS AND CONTINGENCIES This note outlines the company's legal proceedings, tax disputes, and merger-related challenges - The securities class action lawsuit, alleging violations of the Exchange Act and Securities Act, was dismissed by the lower court on February 13, 2024, and affirmed by the Ninth Circuit on March 27, 2025. The plaintiff intends to petition for rehearing en banc[124][125] - A shareholder derivative lawsuit, piggy-backing on the class action, remains stayed pending the final resolution of the securities class action appeal[126] - The company is disputing an $8.2 million assessment from Mexican tax authorities (SAT) related to NAFTA compliance for imported EGMs, believing its documentation is sufficient. A restricted cash deposit has been made, and the company has not accrued any liability due to the inability to accurately estimate potential loss[128][129][130] - Demand letters and two lawsuits have been filed by purported stockholders challenging disclosures in the proxy statement related to the Merger Agreement. The company believes its disclosures comply with law but voluntarily supplemented them to avoid nuisance[131] NOTE 13. OPERATING SEGMENTS This note provides financial information for the company's EGM, Table Products, and Interactive operating segments - The company's operating segments (EGM, Table Products, Interactive) are evaluated based on revenues and segment Adjusted EBITDA, which is a non-GAAP measure excluding items like depreciation, amortization, and stock-based compensation[134][135][136][138] Segment Revenues and Adjusted EBITDA (Three Months Ended March 31, 2025, in thousands) | Segment | Total Revenues | Adjusted EBITDA | | :---------------- | :------------- | :-------------- | | EGM | $82,603 | $34,934 | | Table Products | $4,953 | $2,641 | | Interactive | $7,269 | $4,525 | | Total | $94,825 | $42,100 | Segment Revenues and Adjusted EBITDA (Three Months Ended March 31, 2024, in thousands) | Segment | Total Revenues | Adjusted EBITDA | | :---------------- | :------------- | :-------------- | | EGM | $87,251 | $39,681 | | Table Products | $4,566 | $2,406 | | Interactive | $4,156 | $1,932 | | Total | $95,973 | $44,019 | NOTE 14. ACQUISITIONS This note details the Merger Agreement for PlayAGS, Inc.'s acquisition by Brightstar Capital Partners - On May 8, 2024, PlayAGS, Inc. entered into a Merger Agreement to be acquired by affiliates of Brightstar Capital Partners[140] - Upon closing, each share of common stock will be converted into the right to receive $12.50 in cash[142] - Key closing conditions met include stockholder approval (August 6, 2024) and expiration of HSR waiting periods (December 9, 2024). The initial termination date was extended to August 6, 2025, with the merger expected to close by the third calendar quarter of 2025, subject to gaming regulatory approvals[143][148][149] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section analyzes PlayAGS, Inc.'s financial condition and results of operations for the reporting period Overview This overview describes PlayAGS, Inc.'s business, product lines, and recent merger agreement - PlayAGS, Inc. is a leading designer and supplier of EGMs and other gaming products, operating in three segments: EGMs, Table Products, and Interactive. The company has expanded its product line since 2014 to include Class III EGMs, table game products, and interactive products[144] - For the three months ended March 31, 2024, approximately 68% of revenue was generated through recurring contracted lease agreements (revenue sharing or fee-per-day) or recurring revenue from Interactive gaming operations[144] - The company entered into a Merger Agreement on May 8, 2024, to be acquired by affiliates of Brightstar Capital Partners for $12.50 per share in cash, with the transaction expected to close by Q3 2025, subject to regulatory approvals[145][146][149] Key Drivers of Our Business This section identifies the primary factors influencing the company's revenue and expenses - Revenue is primarily driven by consumer spending on revenue share installed base, daily fees and selling prices of EGMs, revenue share percentages, customer capital budgets, replacement/expansion of casinos, new gaming jurisdictions, competitiveness of products, and macroeconomic factors[157] - Expenses are influenced by fluctuations in labor costs (productivity, overtime, training), component prices for gaming equipment, energy prices, costs of obtaining/maintaining gaming licenses, maintenance expenses, and tariffs/trade policy changes[157] Results of Operations This section provides a detailed analysis of the company's consolidated financial performance Consolidated Statements of Operations (Three Months Ended March 31, in thousands) | Metric | 2025 | 2024 | $ Change | % Change | | :-------------------------------- | :----- | :----- | :------- | :------- | | Total revenues | $94,825 | $95,973 | $(1,148) | (1.2)% | | Total operating expenses | $78,242 | $76,173 | $2,069 | 2.7% | | Income from operations | $16,583 | $19,800 | $(3,217) | (16.2)% | | Interest expense | $12,117 | $13,980 | $(1,863) | (13.3)% | | Loss on extinguishment and modification of debt | $- | $1,636 | $(1,636) | (100.0)% | | Income before income taxes | $4,635 | $5,006 | $(371) | (7.4)% | | Income tax expense | $(1,424) | $(661) | $(763) | 115.4% | | Net income | $3,211 | $4,345 | $(1,134) | (26.1)% | - Gaming operations revenue increased by $2.9 million (4.6%) year-over-year, driven by growth in the Interactive segment ($3.1 million) and Table Products ($0.1 million), partially offset by a decrease in the EGM segment ($0.4 million) due to lower revenue per day[159] - Equipment sales decreased by $4.0 million (11.9%) due to a reduction of 198 EGM units sold (1,243 units in 2025 vs. 1,441 in 2024)[160] - Research and development expenses increased by $2.3 million (21.3%) primarily due to a $2.5 million increase in salaries and benefits[163] - Interest expense decreased by $1.9 million (13.3%) due to a lower interest rate from the term loan credit facility repricing and a decrease in outstanding debt principal[166] Segment Operating Results This section analyzes the financial performance of each operating segment: EGM, Table Products, and Interactive - EGM segment revenues decreased by 5.3% to $82.6 million, with gaming operations revenue down 0.7% due to a $0.86 decrease in revenue per day (RPD) to $25.52, despite a 2.6% increase in total installed base[177][179] - EGM equipment sales decreased by 12.8% due to 198 fewer units sold, while the average sales price (ASP) increased by 5.6% to $21,787[177][180] - Table Products segment revenues increased by 8.5% to $5.0 million, driven by a 3.3% increase in gaming operations revenue due to a larger installed base (5,800 units, up 7.2%) and a 54.2% increase in equipment sales[182][184][185] - Interactive segment revenue surged by 74.9% to $7.3 million, primarily due to a significant increase in Real Money Gaming (RMG) revenues from Canadian and U.S. operators, driven by more games live on online casino customer sites[187][189] - Interactive Adjusted EBITDA increased by 134.2% to $4.5 million, mainly attributable to the substantial revenue growth[187][190] TOTAL ADJUSTED EBITDA RECONCILIATION TO NET INCOME This section reconciles Total Adjusted EBITDA to net income, detailing various adjustments Total Adjusted EBITDA Reconciliation (Three Months Ended March 31, in thousands) | Metric | 2025 | 2024 | $ Change | % Change | | :-------------------------------- | :----- | :----- | :------- | :------- | | Net income | $3,211 | $4,345 | $(1,134) | (26.1)% | | Income tax expense | $1,424 | $661 | $763 | 115.4% | | Depreciation and amortization | $19,185 | $19,439 | $(254) | (1.3)% | | Interest expense, net of interest income and other | $11,948 | $13,158 | $(1,210) | (9.2)% | | Loss on extinguishment of debt | $- | $1,636 | $(1,636) | (100.0)% | | Write-downs and other | $558 | $(24) | $582 | (2425.0)% | | Other adjustments | $1,441 | $429 | $1,012 | 235.9% | | Other non-cash charges | $2,236 | $2,269 | $(33) | (1.5)% | | Non-cash stock-based compensation | $2,097 | $2,106 | $(9) | (0.4)% | | Total Adjusted EBITDA | $42,100 | $44,019 | $(1,919) | (4.4)% | LIQUIDITY AND CAPITAL RESOURCES This section discusses the company's cash position, credit facilities, and cash flow activities - As of March 31, 2025, the company had $39.5 million in cash and cash equivalents and $40.0 million available under its revolving credit facility, providing sufficient liquidity for the next twelve months[199] - Net cash provided by operating activities increased slightly by $0.2 million to $26.6 million, while net cash used in investing activities increased by $4.6 million to $19.8 million, primarily due to higher purchases of property and equipment and software development expenditures[202][203][204] - Net cash used in financing activities decreased significantly by $16.2 million to $5.4 million, mainly due to the absence of a $15.0 million voluntary debt principal payment made in the prior period[202][205] OFF-BALANCE SHEET ARRANGEMENTS This section confirms the absence of material off-balance sheet transactions or obligations - The company does not maintain any off-balance sheet transactions, arrangements, obligations, or relationships with unconsolidated entities that are reasonably likely to have a material current or future effect on its financial condition or results of operations[207] CRITICAL ACCOUNTING POLICIES This section addresses any material changes to the company's critical accounting policies - There were no material changes to the company's critical accounting policies during the three months ended March 31, 2025[208] RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS This section refers to disclosures regarding recently issued accounting pronouncements - Refer to Note 1. 'Description of the Business and Summary of Significant Accounting Policies' for disclosures regarding recently issued accounting pronouncements[209] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section discusses the company's exposure to market risks, including interest rate and foreign currency risks - No material changes occurred in the company's quantitative and qualitative disclosures about market risk during the three months ended March 31, 2025[210] ITEM 4. CONTROLS AND PROCEDURES This section reports on the effectiveness of the company's disclosure controls and internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2025[211] - There were no changes in internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting during the fiscal quarter ended March 31, 2025[212] PART II. OTHER INFORMATION This part includes legal proceedings, risk factors, equity sales, defaults, and exhibits ITEM 1. LEGAL PROCEEDINGS This section incorporates information on legal proceedings by reference from the financial statement notes - Legal proceedings information is incorporated by reference from Note 12. 'Commitments and Contingencies' of the condensed consolidated financial statements[214] ITEM 1A. RISK FACTORS This section supplements existing risk factors with new considerations regarding international trade policies - The company is supplementing its risk factors with a new factor concerning international trade policies, including tariffs, sanctions, and trade barriers[215][216] - These trade policies may adversely affect the business by raising material costs, reducing margins, impacting supply chains, harming competitive position, and exacerbating macroeconomic conditions like inflation and foreign exchange volatility[217][218] - Ongoing uncertainty in trade policies can complicate strategic planning and increase legal and operational risks, particularly in international markets[219][220] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section reports on any unregistered sales of equity securities or use of proceeds - None[222] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This section reports on any defaults upon senior securities - None[224] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the company's operations - Not applicable[225] ITEM 5. OTHER INFORMATION This section contains any other information required to be disclosed - None[226] ITEM 6. EXHIBITS This section lists all exhibits filed with the Form 10-Q, including the Merger Agreement, organizational documents, certifications under Sarbanes-Oxley Act, and XBRL interactive data files - Exhibits include the Agreement and Plan of Merger (Exhibit 2.1), Certificate of Amended and Restated Articles of Incorporation (Exhibit 3.1), Amended and Restated Bylaws (Exhibit 3.2), Certifications pursuant to Section 302 and 906 of the Sarbanes-Oxley Act (Exhibits 31.1, 31.2, 32.1), and Inline XBRL documents (Exhibits 101.INS to 101.DEF, and 104)[227] SIGNATURES This section contains the required signatures for the financial report - The report was signed on May 8, 2025, by Kimo Akiona, Chief Financial Officer, Chief Accounting Officer, and Treasurer of PlayAGS, Inc[232]