PlayAGS(AGS) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and internal controls ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, changes in stockholders' equity, and cash flows, along with detailed notes explaining the company's business, accounting policies, and specific financial line items CONDENSED CONSOLIDATED BALANCE SHEETS The balance sheets show the company's financial position at September 30, 2023, compared to December 31, 2022, indicating a slight decrease in total assets and liabilities, while stockholders' equity increased | Metric | September 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------- | :-------------------------------- | :------------------------------- | | Total Assets | $683,748 | $684,751 | | Total Liabilities | $621,004 | $635,390 | | Total Stockholders' Equity | $62,744 | $49,361 | | Cash and Cash Equivalents | $43,662 | $37,891 | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME The statements of operations highlight the company's performance for the three and nine months ended September 30, 2023 and 2022, showing strong revenue growth and a significant improvement from a net loss to net income for the nine-month period Three Months Ended September 30 | Metric | 2023 (in thousands) | 2022 (in thousands) | Change ($) | Change (%) | | :-------------------------- | :------------------ | :------------------ | :--------- | :--------- | | Total Revenues | $89,378 | $78,259 | $11,119 | 14.2% | | Income from Operations | $14,523 | $9,031 | $5,492 | 60.8% | | Net (Loss) Income | $(156) | $476 | $(632) | (132.8)% | | Basic EPS | $(0.00) | $0.01 | | | Nine Months Ended September 30 | Metric | 2023 (in thousands) | 2022 (in thousands) | Change ($) | Change (%) | | :-------------------------- | :------------------ | :------------------ | :--------- | :--------- | | Total Revenues | $262,385 | $227,700 | $34,685 | 15.2% | | Income from Operations | $41,345 | $24,522 | $16,823 | 68.6% | | Net Income (Loss) | $361 | $(10,576) | $10,937 | (103.4)% | | Basic EPS | $0.01 | $(0.28) | | | CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY This statement details the changes in stockholders' equity for the three and nine months ended September 30, 2023 and 2022, primarily reflecting increases in additional paid-in capital and a positive shift in accumulated deficit | Metric | September 30, 2023 (in thousands) | September 30, 2022 (in thousands) | | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Total Stockholders' Equity | $62,744 | $44,223 | | Additional Paid-in Capital (9M End) | $415,014 | $405,116 | | Accumulated Deficit (9M End) | $(353,111) | $(355,666) | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS The cash flow statement for the nine months ended September 30, 2023, shows increased cash generated from operating activities and significantly reduced cash used in financing activities compared to the prior year | Metric | Nine Months Ended September 30, 2023 (in thousands) | Nine Months Ended September 30, 2022 (in thousands) | Change ($) | | :-------------------------------------- | :-------------------------------------------------- | :-------------------------------------------------- | :--------- | | Net cash provided by operating activities | $59,755 | $52,574 | $7,181 | | Net cash used in investing activities | $(43,404) | $(54,521) | $11,117 | | Net cash used in financing activities | $(10,418) | $(59,585) | $49,167 | | Cash, cash equivalents and restricted cash, end of period | $43,892 | $33,467 | | NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS These notes provide detailed explanations of the company's business segments, significant accounting policies, and specific financial statement line items, offering context for the reported financial performance and position NOTE 1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note describes PlayAGS, Inc.'s core business as a gaming product and service supplier across three segments: Electronic Gaming Machines (EGM), Table Products, and Interactive Games. It also details the company's revenue recognition policies for gaming operations and equipment sales, and provides a disaggregation of revenues by segment - PlayAGS, Inc. operates in three distinct segments: Electronic Gaming Machines (EGM), Table Products, and Interactive Games, offering a range of gaming products and services globally[18] - The EGM segment offers proprietary video slot titles and various cabinet types, including premium lease-only and core cabinets available for sale or lease, along with conversion kits[19] - The Interactive segment provides a Business-to-Business (B2B) game aggregation platform for online real-money gaming (RMG) and Business-to-Consumer (B2C) free-to-play social casino apps like Lucky Play Casino[21][22] Revenue Disaggregation by Segment (Three Months Ended September 30) | Segment | 2023 (in thousands) | 2022 (in thousands) | | :-------------- | :------------------ | :------------------ | | EGM Gaming Ops | $54,026 | $50,233 | | EGM Equip Sales | $27,836 | $21,387 | | Table Gaming Ops| $3,871 | $3,756 | | Table Equip Sales| $516 | $280 | | Interactive Ops | $3,129 | $2,603 | | Total Revenue | $89,378 | $78,259 | Revenue Disaggregation by Segment (Nine Months Ended September 30) | Segment | 2023 (in thousands) | 2022 (in thousands) | | :-------------- | :------------------ | :------------------ | | EGM Gaming Ops | $160,789 | $148,067 | | EGM Equip Sales | $80,312 | $60,926 | | Table Gaming Ops| $11,445 | $10,652 | | Table Equip Sales| $1,432 | $378 | | Interactive Ops | $8,407 | $7,677 | | Total Revenue | $262,385 | $227,700 | - Gaming operations revenue is primarily derived from operating leases for gaming equipment and content licenses, with B2C social casino revenue from virtual coin sales and B2B/RMG revenue based on a percentage of monthly revenue or platform fees[28][32] - Equipment sales revenue is recognized when customers obtain control of gaming machines, table products, and integral game content software[33] - The company adopted ASU No. 2022-02, Financial Instruments - Credit Losses, in the first quarter of 2023, which did not have a significant effect on its condensed consolidated financial statements[62] NOTE 2. PROPERTY AND EQUIPMENT This note details the net carrying value of property and equipment, primarily gaming equipment, and reports the associated depreciation expenses for the current and prior periods | Metric | September 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------- | :-------------------------------- | :------------------------------- | | Property and equipment, net | $80,377 | $82,361 | Depreciation Expense | Period | 2023 (in millions) | 2022 (in millions) | | :-------------------- | :----------------- | :----------------- | | Three Months Ended Sep 30 | $10.0 | $10.2 | | Nine Months Ended Sep 30 | $30.5 | $29.5 | NOTE 3. GOODWILL AND INTANGIBLES This note provides a breakdown of goodwill by segment and details the composition and net carrying value of intangible assets, along with their amortization expenses and the impact of contract rights and placement fees on gaming operations revenue Goodwill Carrying Amount | Segment | September 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------- | :-------------------------------- | :------------------------------- | | EGM | $280,828 | $278,629 | | Table Products | $9,051 | $9,051 | | Interactive | $0 | $0 | | Total | $289,879 | $287,680 | Intangible Assets, Net | Metric | September 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------- | :-------------------------------- | :------------------------------- | | Total intangible assets, net| $129,236 | $142,109 | Amortization Expense Related to Intangible Assets | Period | 2023 (in millions) | 2022 (in millions) | | :-------------------- | :----------------- | :----------------- | | Three Months Ended Sep 30 | $8.9 | $8.8 | | Nine Months Ended Sep 30 | $26.2 | $27.5 | Reduction of Gaming Operations Revenue from Accretion of Contract Rights | Period | 2023 (in millions) | 2022 (in millions) | | :-------------------- | :----------------- | :----------------- | | Three Months Ended Sep 30 | $1.6 | $1.6 | | Nine Months Ended Sep 30 | $4.7 | $4.8 | NOTE 4. ACCRUED LIABILITIES This note outlines the components of accrued liabilities, showing a slight decrease in total accrued liabilities from December 31, 2022, to September 30, 2023 | Metric | September 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------- | :-------------------------------- | :------------------------------- | | Total accrued liabilities | $36,700 | $37,262 | NOTE 5. LONG-TERM DEBT This note details the company's long-term debt, primarily consisting of First Lien Credit Facilities (term loans and a revolving facility), and finance leases, along with their terms and interest rates | Metric | September 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------- | :-------------------------------- | :------------------------------- | | Total debt | $554,746 | $556,141 | | Long-term debt | $548,479 | $550,081 | - The company's First Lien Credit Facilities include a $575.0 million New Term Loan Facility maturing on February 15, 2029, and a $40.0 million New Revolving Credit Facility terminating on February 15, 2027[77][79] - Borrowings under the Amended Credit Agreement bear interest at an adjusted term SOFR (subject to a 0.75% floor for term loans and 0.00% for revolver) plus an applicable margin of 4.00%, or a base rate plus 3.00%[78] - As of September 30, 2023, there were no required financial covenants for the company's debt instruments[83] NOTE 6. STOCKHOLDERS' EQUITY This note provides information on the company's authorized and outstanding common and preferred stock, as well as details of its share repurchase program - As of September 30, 2023, the company had 38,702,415 shares of common stock outstanding[85] - The board of directors approved a share repurchase program for up to $50.0 million, with $46.7 million still available as of September 30, 2023, and extended to August 11, 2025[88] NOTE 7. WRITE-DOWNS AND OTHER CHARGES This note summarizes write-downs and other charges recognized by the company, primarily related to asset impairment, disposal of long-lived assets, and fair value adjustments to contingent consideration - For the three months ended September 30, 2023, the company did not recognize any significant write-downs and other charges, compared to $1.4 million in the prior year, primarily from a fair value adjustment to contingent consideration[90] - For the nine months ended September 30, 2023, the company recognized $0.6 million in write-downs and other charges, mainly related to intangible asset impairment and long-lived asset disposal, down from $1.8 million in the prior year[91] NOTE 8. BASIC AND DILUTED (LOSS) INCOME This note details the calculation of basic and diluted earnings per share (EPS) for the nine months ended September 30, 2023 | Metric | Nine Months Ended September 30, 2023 | | :-------------------------------------- | :----------------------------------- | | Net income attributable to common stock | $330 (in thousands) | | Weighted average common shares outstanding, basic | 37,965 (in thousands) | | Basic EPS | $0.01 | NOTE 9. BENEFIT PLANS This note describes the company's 401(k) plan and its equity incentive plans, including the Long-Term Incentive Plan (LTIP) and the Omnibus Incentive Plan, highlighting the shares available for future issuance 401(k) Plan Expense | Period | 2023 (in millions) | 2022 (in millions) | | :-------------------- | :----------------- | :----------------- | | Three Months Ended Sep 30 | $0.5 | $0.4 | | Nine Months Ended Sep 30 | $1.7 | $1.5 | - As of September 30, 2023, the company had 4,423,884 shares available for issuance under the Omnibus Incentive Plan[100] NOTE 10. STOCK-BASED COMPENSATION This note details the company's stock-based compensation, including stock options, restricted stock, and phantom stock units, outlining their vesting conditions, fair value, and unrecognized compensation expense - As of September 30, 2023, unrecognized compensation expense was $3.2 million for restricted stock and restricted stock units (2.3-year weighted average period) and $12.1 million for phantom stock units (2.2-year weighted average period)[102] - An amendment to performance-based restricted stock units for the CEO and CFO in Q1 2023 resulted in an incremental fair value of $3.9 million, recognized over service and performance vesting periods[103] Stock Options Outstanding (September 30, 2023) | Metric | Value | | :-------------------------------- | :------ | | Number of Options Outstanding | 1,158,202 | | Weighted Average Exercise Price | $9.04 | Restricted Stock and Restricted Stock Units Outstanding (September 30, 2023) | Metric | Value | | :-------------------------------- | :-------- | | Shares Outstanding | 1,420,041 | | Weighted Average Grant Date Fair Value (per share) | $10.07 | Phantom Stock Units Outstanding (September 30, 2023) | Metric | Value | | :-------------------------------- | :-------- | | Shares Outstanding | 3,588,299 | | Weighted Average Grant Date Fair Value (per share) | $6.44 | NOTE 11. INCOME TAXES This note explains the company's effective income tax rates for the three and nine months ended September 30, 2023 and 2022, highlighting the primary factors causing differences from the federal statutory rate, such as valuation allowances and US tax on foreign income - The effective income tax rate for Q3 2023 was an expense of 119.9%, primarily due to changes in valuation allowance on deferred tax assets and US tax on foreign income[117] - The effective income tax rate for 9M 2023 was an expense of 39.5%, primarily due to changes in valuation allowance on deferred tax assets, expiration of statute of limitations for uncertain tax positions, and US tax on foreign income[118] NOTE 12. COMMITMENTS AND CONTINGENCIES This note details various legal and tax-related contingencies, including ongoing securities class action and shareholder derivative lawsuits, an Alabama rental tax assessment, and a preliminary Mexican import tax audit, for which the company is unable to estimate the probability or amount of liability - The company is involved in a consolidated securities class action lawsuit alleging false and misleading statements, with a remaining 'scheme liability' claim against the company, CEO, and CFO[121][122][123][124][125] - A shareholder derivative lawsuit, piggy-backing on the securities class action, remains stayed pending resolution of the motion for judgment on the pleadings in the securities class action[126] - The Alabama Department of Revenue assessed $3.3 million in unpaid state and local rental taxes on EGM participation revenues from a Native American tribe (May 2016-August 2019), which the company disputes based on federal preemption; a trial is scheduled for December 2023[128][129] - The Mexican tax authority (SAT) has communicated preliminary assessment scenarios of up to approximately $9.4 million for alleged non-compliance with NAFTA requirements for imported EGMs, which the company plans to dispute[132][133][134] NOTE 13. OPERATING SEGMENTS This note provides financial information for the company's three reportable segments (EGM, Table Products, Interactive), detailing their revenues and Adjusted EBITDA for the three and nine months ended September 30, 2023 and 2022 Revenues by Segment (Three Months Ended September 30) | Segment | 2023 (in thousands) | 2022 (in thousands) | | :-------------- | :------------------ | :------------------ | | EGM | $81,862 | $71,620 | | Table Products | $4,387 | $4,036 | | Interactive | $3,129 | $2,603 | | Total Revenues | $89,378 | $78,259 | Adjusted EBITDA by Segment (Three Months Ended September 30) | Segment | 2023 (in thousands) | 2022 (in thousands) | | :-------------- | :------------------ | :------------------ | | EGM | $36,772 | $31,331 | | Table Products | $2,436 | $2,561 | | Interactive | $903 | $575 | | Subtotal | $40,111 | $34,467 | Revenues by Segment (Nine Months Ended September 30) | Segment | 2023 (in thousands) | 2022 (in thousands) | | :-------------- | :------------------ | :------------------ | | EGM | $241,101 | $208,993 | | Table Products | $12,877 | $11,030 | | Interactive | $8,407 | $7,677 | | Total Revenues | $262,385 | $227,700 | Adjusted EBITDA by Segment (Nine Months Ended September 30) | Segment | 2023 (in thousands) | 2022 (in thousands) | | :-------------- | :------------------ | :------------------ | | EGM | $107,661 | $93,090 | | Table Products | $6,950 | $6,411 | | Interactive | $1,596 | $1,862 | | Subtotal | $116,207 | $101,363 | NOTE 14. ACQUISITIONS This note details the acquisition of table game-related intellectual property and an installed base of table games under the Lucky Lucky trade name from Aces Up Gaming in January 2022 - On January 3, 2022, the company acquired intangible assets related to table game intellectual property and an installed base of table games under the Lucky Lucky trade name from Aces Up Gaming[143] - The acquisition consideration of $4.8 million was allocated primarily to $1.2 million in tax-deductible goodwill and $3.5 million in intangible assets, amortized over approximately 9.1 years[143] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial performance and condition, discussing key business drivers, detailed results of operations for the quarter and nine-month period, segment-specific performance, liquidity, and capital resources Overview The overview describes PlayAGS, Inc. as a leading designer and supplier of gaming products across its EGM, Table Products, and Interactive segments, highlighting its expansion into various gaming markets and the significant portion of revenue derived from recurring lease agreements - PlayAGS operates in three segments: Electronic Gaming Machines (EGMs), Table Products, and Interactive, with EGMs representing 92% of total revenue for the nine months ended September 30, 2023[146][147] - Approximately 69% of total revenue for the nine months ended September 30, 2023, was generated through recurring contracted lease agreements (revenue sharing or fee-per-day) or Interactive gaming operations[146] - The company has expanded its product line since 2014 to include Class III EGMs, Historical Horse Racing (HHR) EGMs, table game products, and interactive products, aiming for growth in new and existing markets[146] Key Drivers of Our Business This section identifies the critical factors influencing the company's revenues and expenses, including consumer spending, product pricing, market expansion, competitive landscape, and macroeconomic conditions - Revenue drivers include consumer spending on revenue share installed base, daily fees and selling prices of EGMs, revenue share percentages, customer capital budgets, EGM replacement levels, casino expansion, new gaming jurisdictions, product competitiveness, and general macroeconomic factors[154] - Expense drivers include fluctuations in labor costs (productivity, overtime, training), component prices for gaming equipment, energy prices, gaming license costs, maintenance expenses, and tariff increases[154] Results of Operations - Three Months Ended September 30, 2023 compared to the Three Months Ended September 30, 2022 For the third quarter of 2023, the company reported a 14.2% increase in total revenues, driven by growth in both gaming operations and equipment sales. However, increased operating expenses and interest expense led to a net loss compared to net income in the prior year period Consolidated Statements of Operations (Three Months Ended September 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change ($) | Change (%) | | :-------------------------- | :------------------ | :------------------ | :--------- | :--------- | | Total Revenues | $89,378 | $78,259 | $11,119 | 14.2% | | Gaming operations | $61,026 | $56,592 | $4,434 | 7.8% | | Equipment sales | $28,352 | $21,667 | $6,685 | 30.9% | | Total operating expenses | $74,855 | $69,228 | $5,627 | 8.1% | | Interest expense | $14,588 | $10,291 | $4,297 | 41.8% | | Net (Loss) Income | $(156) | $476 | $(632) | (132.8)% | - Gaming operations revenue increased due to an 8.1% rise in EGM Revenue Per Day (RPD) to $26.28 and growth in the domestic EGM installed base[156] - Equipment sales increased significantly due to the sale of 331 more EGM units year-over-year, totaling 1,345 units in Q3 2023[157] - Selling, general and administrative expenses increased primarily due to a $2.5 million rise in salaries and benefits and a $1.1 million increase in non-cash stock-based compensation expense[160] Results of Operations - Nine Months Ended September 30, 2023 compared to the Nine Months Ended September 30, 2022 For the first nine months of 2023, the company achieved a 15.2% increase in total revenues and a substantial improvement in net income, turning around from a net loss in the prior year. This was driven by strong growth in gaming operations and equipment sales, despite higher interest expenses Consolidated Statements of Operations (Nine Months Ended September 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change ($) | Change (%) | | :-------------------------- | :------------------ | :------------------ | :--------- | :--------- | | Total Revenues | $262,385 | $227,700 | $34,685 | 15.2% | | Gaming operations | $180,641 | $166,396 | $14,245 | 8.6% | | Equipment sales | $81,744 | $61,304 | $20,440 | 33.3% | | Total operating expenses | $221,040 | $203,178 | $17,862 | 8.8% | | Interest expense | $42,362 | $27,851 | $14,511 | 52.1% | | Loss on extinguishment and modification of debt | $0 | $8,549 | $(8,549) | (100.0)% | | Net income (loss) | $361 | $(10,576) | $10,937 | (103.4)% | - Gaming operations revenue increased due to a 9.5% rise in EGM Revenue Per Day (RPD) to $26.36 and growth in the domestic EGM installed base, partially offset by a decrease in the international EGM installed base[166] - Equipment sales increased significantly due to the sale of 822 more EGM units year-over-year, totaling 3,725 units in 9M 2023[167] - Selling, general and administrative expenses increased primarily due to a $6.2 million rise in salaries and benefits, partially offset by a $1.0 million decrease in non-cash stock-based compensation[170] Segment Operating Results This section provides a detailed analysis of the financial performance and key performance indicators for each of the company's three operating segments: Electronic Gaming Machines (EGM), Table Products, and Interactive, highlighting segment-specific revenue and Adjusted EBITDA trends Electronic Gaming Machines (EGM) The EGM segment demonstrated strong revenue growth in both gaming operations and equipment sales for the three and nine months ended September 30, 2023, driven by increased Revenue Per Day (RPD) and higher unit sales, resulting in a significant increase in Adjusted EBITDA EGM Segment Revenues and Adjusted EBITDA (Three Months Ended September 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (%) | | :-------------------- | :------------------ | :------------------ | :--------- | | Total EGM revenues | $81,862 | $71,620 | 14.3% | | EGM Adjusted EBITDA | $36,772 | $31,331 | 17.4% | EGM Key Performance Indicators (Three Months Ended September 30) | Metric | 2023 | 2022 | Change (%) | | :-------------------- | :--- | :--- | :--------- | | Total revenue per day | $26.28 | $24.31 | 8.1% | | EGM units sold | 1,345 | 1,014 | 32.6% | EGM Segment Revenues and Adjusted EBITDA (Nine Months Ended September 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (%) | | :-------------------- | :------------------ | :------------------ | :--------- | | Total EGM revenues | $241,101 | $208,993 | 15.4% | | EGM Adjusted EBITDA | $107,661 | $93,090 | 15.7% | EGM Key Performance Indicators (Nine Months Ended September 30) | Metric | 2023 | 2022 | Change (%) | | :-------------------- | :--- | :--- | :--------- | | Total revenue per day | $26.36 | $24.07 | 9.5% | | EGM units sold | 3,725 | 2,903 | 28.3% | | Domestic installed base | 16,424 | 16,258 | 1.0% | | International installed base | 6,083 | 6,274 | (3.0)% | Table Products The Table Products segment experienced revenue growth in both gaming operations and equipment sales for the three and nine months ended September 30, 2023, driven by an increased installed base and strong sales of Pax S shufflers. Adjusted EBITDA saw a slight decrease in Q3 but an overall increase for the nine-month period Table Products Segment Revenues and Adjusted EBITDA (Three Months Ended September 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (%) | | :-------------------------- | :------------------ | :------------------ | :--------- | | Total Table Products revenues | $4,387 | $4,036 | 8.7% | | Gaming operations | $3,871 | $3,756 | 3.1% | | Equipment sales | $516 | $280 | 84.3% | | Table Products Adjusted EBITDA | $2,436 | $2,561 | (4.9)% | - The increase in gaming operations revenue is attributable to a 6.8% increase in the Table Products installed base to 5,309 units, driven by the success of progressives like Bonus Spin Xtreme and shufflers (Pax S and Dex)[198][200] - Equipment sales growth was primarily due to increased sales of Pax S single-deck shufflers[201] Table Products Segment Revenues and Adjusted EBITDA (Nine Months Ended September 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (%) | | :-------------------------- | :------------------ | :------------------ | :--------- | | Total Table Products revenues | $12,877 | $11,030 | 16.7% | | Gaming operations | $11,445 | $10,652 | 7.4% | | Equipment sales | $1,432 | $378 | 278.8% | | Table Products Adjusted EBITDA | $6,950 | $6,411 | 8.4% | Interactive The Interactive segment saw gaming operations revenue growth for both the three and nine months ended September 30, 2023, primarily from North American real-money gaming (RMG) operators, despite a strategic refocus away from international and social casino revenues. Adjusted EBITDA increased in Q3 but decreased for the nine-month period due to increased operating expenses Interactive Segment Revenues and Adjusted EBITDA (Three Months Ended September 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (%) | | :-------------------- | :------------------ | :------------------ | :--------- | | Total Interactive revenue | $3,129 | $2,603 | 20.2% | | Interactive Adjusted EBITDA | $903 | $575 | 57.0% | - Gaming operations revenue increased due to higher RMG revenues from Canadian and US-based operators, partially offset by a strategic refocus of resources away from international customers and social casino revenues[210][214] Interactive Segment Revenues and Adjusted EBITDA (Nine Months Ended September 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (%) | | :-------------------- | :------------------ | :------------------ | :--------- | | Total Interactive revenue | $8,407 | $7,677 | 9.5% | | Interactive Adjusted EBITDA | $1,596 | $1,862 | (14.3)% | TOTAL ADJUSTED EBITDA RECONCILIATION TO NET (LOSS) INCOME This section provides a reconciliation of the company's net (loss) income to Total Adjusted EBITDA, a non-GAAP measure used by management to assess business performance by excluding certain non-cash and non-operating items Total Adjusted EBITDA (Three Months Ended September 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (%) | | :-------------------- | :------------------ | :------------------ | :--------- | | Total Adjusted EBITDA | $40,111 | $34,467 | 16.4% | Total Adjusted EBITDA (Nine Months Ended September 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (%) | | :-------------------- | :------------------ | :------------------ | :--------- | | Total Adjusted EBITDA | $116,207 | $101,363 | 14.6% | LIQUIDITY AND CAPITAL RESOURCES This section discusses the company's liquidity position, expected funding sources for its operations and growth initiatives, and summarizes the historical cash flows from operating, investing, and financing activities - As of September 30, 2023, the company had $43.7 million in cash and cash equivalents and $40.0 million available under its revolving credit facility, which management believes provides sufficient liquidity for the next twelve months[228] Cash Flow Information (Nine Months Ended September 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change ($) | | :-------------------------------------- | :------------------ | :------------------ | :--------- | | Net cash provided by operating activities | $59,755 | $52,574 | $7,181 | | Net cash used in investing activities | $(43,404) | $(54,521) | $11,117 | | Net cash used in financing activities | $(10,418) | $(59,585) | $49,167 | | Net decrease in cash, cash equivalents and restricted cash | $5,981 | $(61,530) | $67,511 | - The decrease in cash used in financing activities was primarily due to the reduction of debt principal and payment of related debt issuance costs in conjunction with the Amended Credit Agreement in the prior period[234] OFF-BALANCE SHEET ARRANGEMENTS The company states that it does not maintain any off-balance sheet transactions, arrangements, obligations, or other relationships that are reasonably likely to have a material current or future effect on its financial condition or results of operations - The company does not maintain any material off-balance sheet arrangements[235] CRITICAL ACCOUNTING POLICIES This section refers to the company's Annual Report on Form 10-K for a description of its critical accounting policies and confirms that there were no material changes during the nine months ended September 30, 2023 - There were no material changes to the company's critical accounting policies during the nine months ended September 30, 2023[236] RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS This section directs readers to Note 1 of the financial statements for disclosures regarding recently issued accounting pronouncements - Refer to Note 1, 'Description of the Business and Summary of Significant Accounting Policies,' for details on recently issued accounting pronouncements[237] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section discusses the company's exposure to market risks, primarily interest rate risk associated with its variable-rate long-term debt and foreign currency exchange rate risk from its international operations - The company's primary market risk exposure is interest rate risk from variable-rate long-term debt; a hypothetical 1% increase in interest rates would increase interest expense by approximately $5.7 million over the next twelve months[238] - The company is exposed to foreign currency exchange rate risk due to operations in Mexico and, to a lesser extent, the United Kingdom, which transact business in local currencies[239] ITEM 4. CONTROLS AND PROCEDURES Management, including the Chief Executive Officer and Chief Financial Officer, concluded that the company's disclosure controls and procedures were effective as of September 30, 2023, and reported no material changes in internal control over financial reporting during the quarter - The company's disclosure controls and procedures were evaluated and deemed effective as of September 30, 2023[241] - There were no material changes in the company's internal control over financial reporting during the fiscal quarter covered by the report[242] PART II. OTHER INFORMATION This section includes disclosures on legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and a comprehensive list of exhibits and signatures ITEM 1. LEGAL PROCEEDINGS This section incorporates by reference the detailed information on legal proceedings from Note 12, 'Commitments and Contingencies,' of the condensed consolidated financial statements - Information regarding legal proceedings is incorporated by reference from Note 12, 'Commitments and Contingencies,' in the notes to the condensed consolidated financial statements[244] ITEM 1A. RISK FACTORS This section refers to the comprehensive discussion of risk factors in the company's Annual Report on Form 10-K for the year ended December 31, 2022, and notes that additional, currently unknown or immaterial risks could also adversely affect the business - A discussion of the company's risk factors is included in 'Item 1A. Risk Factors' of its Annual Report on Form 10-K for the year ended December 31, 2022[245] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The company reported no unregistered sales of equity securities or use of proceeds during the period - None[246] ITEM 3. DEFAULTS UPON SENIOR SECURITIES The company reported no defaults upon senior securities during the period - None[247] ITEM 4. MINE SAFETY DISCLOSURES The company reported no mine safety disclosures during the period - None[247] ITEM 5. OTHER INFORMATION The company reported no other information to disclose under this item - None[248] ITEM 6. EXHIBITS This section lists all exhibits filed with the Form 10-Q, including corporate organizational documents, amendments to incentive plans, and various certifications required by the Sarbanes-Oxley Act, along with XBRL data files - Exhibits include the Certificate of Amended and Restated Articles of Incorporation, Amended and Restated Bylaws, Second Amendment to PlayAGS, Inc. Omnibus Incentive Plan, and certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[249][251] SIGNATURES This section contains the formal signatures, certifying that the report has been duly caused to be signed on behalf of PlayAGS, Inc. by its authorized officer - The report was signed on November 7, 2023, by Kimo Akiona, Chief Financial Officer, Chief Accounting Officer, and Treasurer[255]