PlayAGS(US:AGS)2023-08-05 21:16Financial Performance - Total revenues increased 17% year-over-year to nearly $90 million, marking the 10th consecutive quarter of sequential improvement [6][8] - Adjusted EBITDA grew 16% year-over-year to approximately $40 million, with adjusted EBITDA margin slightly above 44% [6][20] - Free cash flow surpassed $12 million in Q2, bringing year-to-date free cash flow to approximately $4 million [8][22] Business Segment Performance - Domestic game operations revenue increased 7% year-over-year to $49.3 million, establishing a new record for the third consecutive quarter [7][13] - EGM sales revenue surpassed $28 million, up more than 40% year-over-year, with EGM average selling prices (ASPs) exceeding $20,000 for the first time [7][16] - Table products revenue reached $4.4 million, up over 25% year-over-year, driven by the success of the PAX shuffler [7][18] - Interactive segment RMG revenue increased 10% year-over-year to $2.3 million, setting a new record [7][19] Market Performance - Domestic RPD reached $33.48, surpassing $30 for the ninth consecutive quarter, indicating strong performance in the domestic market [7][13] - International recurring revenue increased nearly 20% year-over-year, with international RPD topping $8 for the second consecutive quarter [17] Company Strategy and Industry Competition - The company is focused on recruiting top talent in R&D, sales, and product management to drive growth across all segments [6][9] - The launch of the Spectra 43 cabinet has been a significant success, contributing to record sales and strong market performance [9][10] - The company aims to reduce net leverage to below 3x in the medium term, indicating a focus on financial health and stability [23] Management Commentary on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to maintain momentum in premium product sales and overall market share growth [14][33] - The company anticipates continued strong performance in Q3, driven by the success of new product launches and a stable gaming environment [14][36] - Management highlighted the importance of ongoing investments in R&D and product development to sustain long-term growth [28][50] Other Important Information - Capital expenditures for Q2 totaled approximately $16 million, with full-year projections expected to land between $65 million to $70 million [21] - The company is focused on maintaining cash reserves and deleveraging before considering share repurchases [39] Q&A Session Summary Question: Thoughts on leverage and refinancing opportunities for next year - Management indicated a target leverage ratio below 3x in the medium term, with considerations for market conditions before refinancing [26][27] Question: R&D levels and future growth - Management is comfortable with current R&D levels but remains open to scaling up if necessary to maintain momentum [28][29] Question: Premium installed base growth and market share - Management expressed confidence in the potential for continued growth in the premium installed base, with aspirations for higher market share [32][33] Question: Share repurchases and valuation considerations - Management emphasized a focus on deleveraging and cash accumulation before considering share repurchases [39] Question: Updates on Texas market opportunities - Management reported ongoing marketing activities in Texas but no significant updates on expansion plans [41] Question: Drivers of gross margin performance in the EGM business - Management attributed improved gross margins to strong sales of the Spectra cabinet and a favorable product mix [42][43] Question: Future operating leverage in the Interactive segment - Management expects to see operating leverage in the Interactive segment starting next year as new content is released [45][49] Question: Pipeline and future product launches - Management hinted at exciting new products and developments to be revealed at G2E, reflecting strong R&D investments [52][53]