PlayAGS, Inc.

Good afternoon. Thank you for attending today's play AGS Q421 earnings call. My name is Bethany and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to our host, Brad Boyer, SVP of Corporate Operations and Investor Relations. Please go ahead.

Thank you, Operator, and good afternoon, everyone. Welcome to the PlayAGS Incorporated fourth quarter and full year 2021 earnings conference call. With me today are David Lopez, CEO, and Kimo Akiyona, CFO. A slide presentation reviewing our key operational and financial highlights for the fourth quarter and full year ended December 31, 2021, can be found on our investor relations website, investors.playags.com. On today's call, we will provide an overview of our Q4 and full year 2021 financial performance and offer perspective on our current financial outlook for the business. This conference call will include the use of forward-looking statements. Any statement that refers to expectations, projections, or other characterizations of future events, including financial projections or future market conditions, is a forward-looking statement based on assumptions today. Actual results may differ materially from those expressed in these forward-looking statements, and we make no obligation to update our disclosures. For more information about factors that may cause actual results to differ from material forward-looking statements, please refer to earnings release that we issued today, as well as risk described in our annual report on Form 10-K, particularly in the section of these documents titled Risk Factors. Our commentary today will also include non-GAAP financial measures. We believe the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends in our business. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. Reconciliation between GAAP and non-GAAP metrics for our reported results can be found in our earnings release issued today. Please refer to our filings with the SEC for more information. With that, I would like to turn the call over to our CEO, David Lopez.

Thanks, Brad, and good afternoon, everyone. Before addressing our fourth quarter financial performance, I would like to extend the collective thoughts and prayers of the entire AGS team for our contractors in the Ukraine. We continue to closely monitor the situation and are doing everything feasible to ensure the health and safety of our contractors and their families. Turning to our results, if 2020 was the year of resiliency within our business, 2021 was the year of transition. Supported by the foundational changes put into place over the preceding 18 months and an accommodative macroeconomic backdrop, we were able to establish operating momentum within all three business verticals, a trend that continued into the fourth quarter. Aided by a commitment to fortifying our R&D franchise, enhancing our go-to-market strategy, broadening of our customer account penetration, and a general recovery in the North American replacement market demand, we were able to achieve sequential growth in our domestic EGM unit sales volume in all four quarters of 2021. The year culminated with the sale of 815 units in the fourth quarter, an increase of over 20% sequentially and nearly three times the volume sold in the fourth quarter of 2020. The momentum was equally as apparent within our domestic gaming operations business, led by our strategic push to further penetrate the industry's higher yielding premium game segment. It was not that long ago, Q4 2019 to be exact, that our premium offering consisted of one product, our novelty big red jumbo cabinet. Since that time, our R&D, product management, and sales teams have collaborated to deliver eight consecutive quarters of growth within our premium gain footprint, with placements more than doubling year over year. Premium EGMs accounted for approximately 10% of our domestic install base at year end. Looking beyond EGMs, our table product segment remains a record-setting machine. with fourth quarter adjusted EBITDA reaching approximately $2 million. Our commitment to investing in product and technology to drive customer profitability and efficiency continues to resonate with our operator partners, driving six consecutive quarters of growth in table products revenue and adjusted EBITDA. Finally, our interactive segment delivered over $2 million of revenue for the fourth consecutive quarter and continues to do so in an EBITDA positive fashion. Our traditional slot content continues to resonate in the online real money gaming channel as we take steps to further broaden our geographic and B2C operator partner reach. With our vastly improved 2021 results behind us, our attention has shifted to ensure we are best positioned to achieve even greater success in 2022. To that end, I would characterize 2022 as a year of acceleration for AGS, one in which we look to further leverage the continuous improvement in our people, products, and processes to strengthen our financial performance. With that said, I would like to highlight four initiatives that I believe will allow the business momentum established in 2021 to continue throughout 2022. In turn, further strengthening shareholder value. It is important to note all four of the initiatives I'm going to discuss are direct byproducts of our commitment to recruit, cultivate, and retain some of the best R&D talent in the gaming industry. Turning to our first initiative, we continue to look for opportunities to further optimize our domestic EGM install base with a keen eye on our over 11,000 unit Class 2 footprint. Looking to 2022, our pipeline of new Class 2 core content looks as strong as ever. Additionally, it's important to remind everyone that our premium strategy also extends to the Class 2 market, with those games delivering superior RPD performance. With a renewed focus and a strong pipeline of games, we have the ability to further unlock the full potential of our Class 2 footprint. As a reminder, every dollar of lift in RPD performance across our Class 2 installed base produces over four million of incremental annualized high margin recurring revenue, creating an attractive return profile for our Class 2 investments. For our second initiative, we will focus on an equally compelling opportunity to build on our early success in the premium game segment. Supported by the strong initial performance of our Raken Bacon Deluxe family of games, operator interest in our Orion Curve Premium offering continues to build. Importantly, Curve Premium supports a variety of different configurations, providing an added versatility as our operators look to install the product on their floors. Ultimately, we believe the strong performance of our initial launch titles, a deep library of new game themes, and the introduction of new gameplay mechanics provides us with the firepower needed to become a more prominent provider of games in the premium segment. Shifting to our third initiative, which is EGM unit sales. While we have made great progress broadening our customer account penetration over the last 12 months, we see considerable opportunity in front of us, particularly with several larger multi-site corporate operators. Aided by our track record of strong core performing games, we are encouraged by the opportunities we see in front of us with several prominent corporate customers. In addition, supported by the scheduled introduction of new game content featuring a broader variety of bet levels, game graphics, and game play mechanics, We have further refined our product roadmap to arm our sales force with the tools needed to target additional segments of the casino floor. Finally, we continue to leverage our exceptional game performance to deepen our penetration of the historical horse racing market, or HHR. The expansion of HHR in both new and existing states has led to more prolific growth opportunities within the segments. Combined, we believe these key initiatives lay a solid foundation for sustainable, long-term EGM unit sales growth, both in 2022 and beyond. For our fourth initiative, I'm especially excited about the prospects for our table product business in 2022. While further customer adoption of our industry-leading progressive products and Arsenal site licenses drove much of the growth we are able to achieve in 2021, I believe we are in the early innings of realizing the potential of these two offerings. Additionally, our recent acquisition of the Lucky Lucky Blackjack side bet builds on our track record of acquiring proven table product content and leveraging our technology, sales team, and service network to broaden our market penetration. Finally, in the spirit of saving the best for last, I'm pleased to announce our PACS S specialty car game shuffler recently received GOI approval with our first revenue generating units now live in the field. With the launch of PACS, I believe we further demonstrate our commitment to investing in products and technology to make our operator partners more efficient, productive, and solidifying our position as a vendor of choice within the table product segment. Before closing, I would like to turn my attention to a somewhat less interesting, though equally important initiative, our company-wide commitment to maximizing free cash flow. The initial payoff from this commitment was apparent in our 2021 financial performance, as we exceeded the level of free cash flow generated in 2019, despite only achieving approximately 85% of 2019 adjusted EBITDA. At the end of the day, I believe the consistent and predictable attributes inherent to our core recurring revenue businesses, our recently lower borrowing costs, and our refined capital deployment processes have created a business with resilient and durable free cash flow generation potential, an attribute that appears to be grossly overlooked in the context of our current share price. Additionally, as free cash flow develops, continues to accumulate, I believe we'll have an opportunity to continue the organic de-levering of our balance sheet, creating the potential to further engineer value for our loyal equity stakeholders. In closing, I would like to thank our employees for their continued dedication and focus during a challenging and complex 2021. I'm greatly excited about our company's prospects for 22 and beyond, and I look forward to updating all of you on our progress on upcoming calls. With that, I'll turn the call over to Kimo.