PlayAGS, Inc.

Hello everyone and welcome to today's call titled Play AGS Third Quarter 2023 Earnings Conference Call. My name is Ellen and I'll be the call operator today. All participant lines will be muted throughout the presentation. At the end of today's presentation, there'll be an opportunity to ask a question. If you'd like to ask a question at this time, please press star followed by one on your telephone keypad. If at any point your question has been answered or you change your mind and would like to revoke your question, you can do this by pressing star followed by two. I would now like to turn the call over to Brad Boyer, SVP of Investor Relations, to begin. Brad, please go ahead whenever you're ready.

Thank you, Operator, and good afternoon, everyone. Welcome to the PlayAGS Incorporated third quarter 2023 earnings conference call. With me today are David Lopez, CEO, and Kimo Akiyama, CFO. A slide presentation reviewing our key operational and financial highlights for the third quarter ended September 30, 2023, can be found on our Investor Relations website, investors.playags.com. On today's call, we will provide an overview of our Q3 2023 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 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 this 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 an 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. We delivered another solid quarter of execution in Q3, with our product momentum and focus team producing performance, that far exceeded the trends observed across the broader domestic gaming landscape and contributed to several new financial records along the way. That said, I would like to highlight a few of the notable accomplishments from the quarter. First, domestic EGM gaming operations revenue increased 6% year over year, once again outpacing the revenue trends observed across the broader domestic gaming landscape. Second, Global EGM unit sales increased by over 30% versus the prior year, far surpassing the 2% market level increase forecasted by Eilers. I would note our replacement unit sales and the number of customers sold to both reached new records in the quarter. Third, we estimate MEXA RPD increased 9% year-over-year on a constant currency basis, as our ongoing optimization efforts and a stable macroeconomic backdrop continue to support our performance in the region. Fourth, interactive revenues increased more than 20% year-over-year to a record $3.1 million driven by returns on strategic investments initiated in the back half of 2022. And finally, table products revenues surpassed $4 million for the third consecutive quarter with the continued strong rollout of Pax Shuffler pushing table sales revenue above the $500,000 level for the second quarter in a row. Ultimately, the noteworthy top line trends I just described allowed us to deliver on three financial metrics that I believe matter most to those of you on the call. Adjusted EBITDA surpassed the $40 million level for the first time, establishing a new record for the third time in the past four quarters. Next is free cash flow, which increased to a record of approximately $13 million, reflecting strong operating performance and a continued focus on working capital efficiency and CapEx discipline. And last, net leverage fell to 3.4 times, which is inside of our targeted year end range, a quarter ahead of schedule. With another record quarter behind us, our focus now turns to Q4 in 2024, which leads me to G2E. where I can constantly say this was our company's best show to date. Continuing a theme that began our pre-GQE customer meetings, the show itself served as a coming out party for our collective R&D team. Showcasing the dramatic product transformation spurred by their commitment and focus over the past several years, this transformation did not go unnoticed by our customers. From new cutting edge cabinets, to a thoughtfully curated portfolio of diverse slot content, new table game concepts, and a turbocharged interactive offering, our booth truly had it all. Taking everything into account, I believe our current pipeline of new products puts us in the desirable position to continue our theme of relative outperformance for the foreseeable future. Within slots, our product momentum is very real. with Spectra 43 continuing to deliver exceptional performance, while Spectra 49, the second cabinet in our Spectra family, has jumped out to a strong start across all initial test sites. In addition to this success, I'm also excited about our entrance into the mechanical reel and jumbo market segments, with initial deployment scheduled for the back half of 2024. With a complete portfolio of slot products capable of addressing the most in-demand segments on operators' floors and a well-diversified portfolio of game content, I'm confident we have the tools at our disposal to consistently grow our ship share in the quarters ahead. Momentum is equally evident in our premium game segment, where we just completed our 15th consecutive quarter of unit growth. Similar to slot sales, I believe we have the right hardware and game content momentum necessary to level up in this growing market segment, building on our current premium unit mix of 17%. Turning the tables, our position as partner and innovator of choice continues to propel the business forward. On the topic of innovation, We recently introduced several new features and functionality for our bonus spin extreme progressive, which have the potential to broaden the product's appeal and allow us to build upon our existing BSX installation base of over 500 units. Additionally, our PACSAS shuffler continues to prove efficient and effective, with our footprint quickly approaching 300 units. Looking ahead, the continued momentum behind BSX and PACS, along with the new jurisdictional and product approvals, is allowing us to accelerate our sell-in to under-penetrated markets. Additionally, we have kicked off early stage development for a new multi-deck shuffler, which will allow us to attack the largest segment of the global shuffler market. Combined, we believe these opportunities put our cable business on a compelling multi-year growth trajectory. Finally, our interactive segment has entered launch mode. As evidenced by our record Q3 performance, during the quarter we launched our first game in the popular three-reel category. Mega Diamond, our most successful new game released to date, has outperformed our previous best release by nearly 40%. The strong performance propelled the title to the top of the charts in the October Eilert Report with another AGS game theme, Capital Gains, taking second place. As I look to 2024 and beyond, I'm confident the strategic addition to our interactive team should allow for more consistent delivery of AGS content into the online channel, further diversification of our online content offerings into additional genres, and more strategic and impactful interactions with our B2C partners, all of which will position us to deliver outsized growth. While I am encouraged by the recent success and consistent momentum building across all three of our operating segments, I'm even more enthused with how our improved operating performance has allowed us to deliver on two key strategic objectives, consistent free cash flow generation and delivery. As I previously mentioned, Free cash flow in the quarter set a new company record, surpassing $10 million for the second consecutive quarter. Looking ahead, we remain focused on leveraging our organizational commitment to CapEx discipline and working capital efficiency to consistently generate quarterly free cash flow with a target of steadily improving our annual free cash flow conversion over time. Additionally, we intend to pair our improved free cash flow with continued adjusted EBITDA growth to further reduce our net leverage. While we continue to target year-end net leverage in the range of 3.25 to 3.5 times, we have our sights set on driving leverage into the mid twos, at which point we believe we will be presented with opportunities to further unlock shareholder value. In closing, I would like to thank our team members across the globe for their commitment, focus, and dedication. Your efforts have not only produced a run of record-setting financial performance, but also contributed to the development of the most diverse and compelling product lineup in our company's history. That said, I remain extremely excited about what lies ahead for the company, and I look forward to sharing our progress with you on future calls. With that, I will turn the call over to Timo.