PlayAGS, Inc.

Good afternoon. Thank you for attending today's AGS Q4 2022 earnings conference call. My name is Tamia, and I will be your moderator for today. 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 1 on your telephone keypad. It is now my pleasure to pass the conference over to your host, Brad Boyer, Senior Vice President of Investor Relations.

Thank you, Operator, and good afternoon, everyone. Welcome to the PlayAGS Incorporated fourth quarter and full year 2022 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 31st, 2022, 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 2022 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, We make no obligation to update our disclosures. For more information about factors that may cause our actual results to differ materially from our forward-looking statements, please refer to the earnings press release we issued today, as well as risks described in our annual report on Form 10-K, particularly in a 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. Reconciliations 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. Q4 2022 was a record-setting quarter for AGS on many fronts. That said, I would like to highlight a few of the many impressive accomplishments from the quarter. Total company revenue increased 16% year over year to a record $82 million. Net income and adjusted EBITDA grew to quarterly records of $2.5 million and $37.3 million, respectively. Domestic EGM recurring revenue grew by 8% year over year to a record of over $47 million. Global EGM unit sales increased by more than 35% year over year to over 1,100 units. Our premium EGM install base increased by nearly 60% year over year. And table product revenue was up more than 20% year over year to approximately $4 million. All the highlights I just described were directly driven by the investments we have made into our R&D, sales, and product management teams over the past several years. Looking back, it is remarkable to think how far we have come in such a short period of time. The payoff from these investments is not only reflected in our record-setting fourth quarter results, but also in the consistent improvement in our financial performance over the past several years. Here are a couple of high-level examples. First, total company revenues have now increased sequentially in each of the past eight quarters, while adjusted EBITDA has made similar progress by growing in seven of eight quarters. Drilling a little deeper, domestic EGM RPD has held above the $30 level for the past seven quarters, while our domestic EGM install base has grown sequentially for three consecutive quarters. Looking ahead to 2023, I see a set of company-specific growth catalysts forming within all three segments of our business that should allow our operating momentum to continue. Turning first to EGM sales, our recently launched Spectra cabinet continues to serve as the star of the show. Spectra has now achieved top billing in the ILRS cabinet report for five consecutive months, with reported performance consistently exceeding two times house average. Spectra's launch titles, Long Bow Bow and Shamrock Fortunes, continue to support the cabinet's chart-topping performance, with each theme achieving a top 15 ranking for Eilers. In addition to Spectra, our first two high-denomination game themes, Mega Diamond and Gold Inferno, continue to deliver strong game performance both inside and outside of the high-limit room. Factra and our high-denom game pack a serious one-two punch by enabling us to attack various segments of the operator's floor, contributing to an increase in our average order size. Shifting to the people side of the EGM business, recent investment in R&D, product management, and sales should not only provide our team with a deeper and more diverse portfolio of products to sell, but it will also enhance market penetration in turn, strengthening returns on our investments. In 2023, we intend to nearly double our core game content releases as compared to the number of launched in 2019, allowing for more shots on goal with our customers. Finally, we recently received state level regulatory approval to begin selling our products into Colorado, Minnesota, and Missouri. three states that collectively represent an addressable market of over 40,000 units. We plan to make our initial sales into these markets later this year. Ultimately, I believe our unique blend of product, people, and new market growth catalysts should allow us to increase our share of the domestic slot sales market in 2023. Moving on to our domestic EGM recurring revenue business, although we have produced 12 consecutive quarters of premium footprint growth, we estimate we have only penetrated 65% of the addressable casino market for our products. That said, when viewed in conjunction with the over 25 new premium titles scheduled to launch throughout 2023 and the added diversity of our product offerings, we intend to expand upon our 15% premium unit mix as the year progresses. Additionally, we plan to further leverage the expanded scope of our core product portfolio and added capabilities of our product management team to further optimize the performance of our core unit footprint. All told, I believe the steady performance of our existing premium footprint, the opportunity for additional premium unit growth, and our unique set of core unit optimization tools should allow us to improve upon our record 2022 recurring revenue performance. Although it is still very early in the year, I would note 2023 is off to a very encouraging start as we set new all-time monthly record for domestic EGM recurring revenue in January and trends through February remain on a similar trajectory. Looking beyond EGMs, I'm equally excited about the outlook for our table products business. PAX S are recently launched single deck card shufflers off to a strong start with our footprint expanding to nearly 150 units at year end. With PAX approval in all major North American markets and supported by the overwhelmingly positive customer feedback we continue to receive on the product, we believe we remain in the very early stages of realizing the product's true growth potential. In addition to PAX, We also see accelerating demand for our bonus spin extreme table game progressive. At year end, BSX was installed in nearly 20 different gaming jurisdictions throughout the United States and Canada with an install base of over 400 units. Last but certainly not least, the growth prospects for our interactive segment are as bright as they've ever been. Following the recent announcement of several impactful new customer wins, including DraftKings and BCLC, our portfolio of over 30 proven AGS titles is now live in nearly every active North American jurisdiction and with all five of the highest revenue generating operators in the United States, a group that collectively accounts for over 80% of market-wide GGR. Additionally, We believe recent strategic new hires on our technical and commercial teams should meaningfully transform the trajectory of the business by accelerating the flows of AGS game content into the online channel. In summary, I believe that with the investment we have made in people, along with the momentum and potential we have in all three product lines, we are on pace to challenge our record full year adjusted EBITDA performance in 2023. Before closing, I would like to address a topic that is usually reserved for chemo, the balance sheet and deleveraging, an area where I'm happy to report achievement of our year-end net leverage target of less than four times. I want to reinforce to our investors that as an organization, we are intently focused on increasing cash flow and reducing the amount of leverage on our balance sheet via shrewd expense management and the careful and calculated reinvestment in our products, and install base. To wrap up my comments, I would like to thank our AGS team members for their hard work and dedication throughout 2022. Without you, we cannot deliver the type of record results we reported today. I truly believe we have the strongest team and deepest product lineup in my tenure as CEO, and I am greatly encouraged by what lies ahead for our company in 2023 and beyond. With that, I will turn the call over to Kimo.