AGS REPORTS RECORD SECOND QUARTER 2023 RESULTS

Second Quarter 2023 Highlights:

• Total Revenue Increased 17% Y/Y to a Record $89.8 Million; Growth Achieved Across All Three Business Segments
• Global EGM Sales Topped 1,250 Units; Up 35% Y/Y and 7% Ahead of Q2 2019
• Domestic EGM Recurring Revenue Grew 7% Y/Y; Third Consecutive All-Time Quarterly Record
• Table Product Revenue Advanced 25% Y/Y to a Record $4.4 Million
• Generated Net Income of $851 Thousand
• Adjusted EBITDA Increased by over 15% Y/Y to a Record $39.6 Million
• Cash From Operations Eclipsed $25 Million; Free Cash Flow Reached $12.6 Million (+38% Y/Y)
• Lowering Targeted Year-End 2023 Net Leverage Range to 3.25x to 3.50x

LAS VEGAS, Aug. 3, 2023 /PRNewswire/ -- PlayAGS, Inc. (NYSE: AGS) ("AGS", "us", "we" or the "Company"), a designer and developer of equipment and services solutions for the global gaming industry, today reported operating results for the second quarter ended June 30, 2023.

Commenting upon the Company's second quarter results, AGS President and Chief Executive Officer David Lopez said, "Our record-setting second quarter financial performance clearly demonstrates the strength of our products, team members, and strategy, which is creating significant momentum within all three segments of our business. The unique combination of a growing portfolio of high-performing products and an exceptionally talented team has me excited about what lies ahead for our Company in 2023 and beyond."

Kimo Akiona, AGS Chief Financial Officer added, "During the second quarter we delivered on our commitment to further de-lever our balance sheet through a combination of Adjusted EBITDA growth and free cash flow generation. Supported by our record-setting financial performance through the first six months of the year, the sustained operating momentum we continue to observe across all three business segments, and our confidence in our ability to leverage our capital deployment discipline and improving working capital efficiency to consistently generate free cash flow, we now expect to exit 2023 with net leverage in the range of 3.25 times to 3.50 times."

Second Quarter 2023 Financial Results

• Total revenue increased 17% year-over-year to a record $89.8 million compared to $76.6 million in Q2 2022. All three operating segments delivered year-over-year revenue growth in Q2 2023, with the EGM and Table Products segments establishing new quarterly revenue records of $82.7 million and $4.4 million, respectively. Total revenue improved 8% over the then record $83.2 million achieved in Q1 2023, representing the Company's tenth consecutive quarter of sequential growth.
• Gaming operations, or recurring revenue, reached a record $61.0 million, up 8% versus the prior year and 4% sequentially. Domestic EGM recurring revenue grew to a record $49.3 million, representing a year-over-year increase of 7% and 3% ahead of the previous record of $47.7 million set in Q1 2023. International EGM recurring revenue advanced 18% year-over-year and increased sequentially for the twelfth consecutive quarter. Table Products and Interactive recurring revenue increased 11% and 6% year-over-year, respectively. Recurring revenue accounted for nearly 70% of the Company's consolidated Q2 2023 revenue mix.
• Equipment sales revenue advanced 45% year-over-year to a record $28.9 million, topping the previous record of $26.9 million, established in Q3 2019, by more than 7%. EGM sales revenue increased by over 40% versus the prior year to $28.3 million, while Table Products sales revenue surpassed $500 thousand for the first time. Equipment sales revenue increased approximately 18% relative to the $24.5 million delivered in Q1 2023, supported by quarterly sequential Table Products and EGM sales revenue growth of 36% and 17%, respectively.
• Net income totaled $851 thousand compared to $1.5 million in Q2 2022, as the recent move higher in market-level interest rates increased the Company's interest expense by approximately $6 million relative to the level incurred in the prior year period. A more than 50% year-over-year increase in income from operations offset a significant portion of the prevailing interest rate environment's impact on the Company's reported net income.
• Total Adjusted EBITDA (non-GAAP)(1) increased 16% year-over-year to a record $39.6 million, driven by EGM and Table Products Adjusted EBITDA growth of 17% and 12%, respectively. Q2 2023 Total Adjusted EBITDA surpassed the $36.5 million delivered in Q1 2023 by 8%, with all three operating segments achieving quarterly sequential growth, and exceeded the prior quarterly record of $37.3 million, set in Q4 2022, by 6%.
• Total Adjusted EBITDA margin (non-GAAP)(1) was 44.1% compared to 44.6% in Q2 2022 and 43.9% in Q1 2023. Operating leverage realized on outsized EGM equipment sales revenue growth, further increases in higher-margin gaming operations revenue and continued improvement in EGM equipment sales gross margin combined to push the Company's Total Adjusted EBITDA margin back above the 44.0% level.

EGM

Three Months Ended June 30, 2023 compared to Three Months Ended June 30, 2022

EGM Quarterly Results

Domestic Gaming Operations⁽³⁾

• Domestic EGM gaming operations, or recurring revenue, increased 7% year-over-year to a record $49.3 million, exceeding the previous record of $47.7 million, established in Q1 2023, by approximately 3%. A nearly 40% year-over-year increase in our higher-yielding premium EGM installed base, further deployment of our first-ever high-denomination game content and chart-topping Spectra UR43 gaming cabinet, continuous installed base optimization efforts, and a stable gaming macroeconomic backdrop drove our improved quarterly recurring revenue performance versus the prior year. Domestic EGM recurring revenue established a new record for the third consecutive quarter and topped $45 million for the fifth quarter in a row. Recurring revenue accounted for over 60% of the total domestic EGM revenue generated in Q2 2023.
• The domestic EGM installed base expanded to 16,422 units at the end of Q2 2023, representing an increase of 395 units versus the prior year. Outsized premium EGM footprint growth and deployment of our high-performing Spectra UR43 cabinet supported our year-over-year domestic EGM installed base expansion. The domestic EGM installed base increased by over 60 units versus the prior sequential quarter, marking the fifth consecutive quarter in which we were able to achieve quarterly sequential installed base growth. Continued penetration of the higher-yielding premium game market segment and further expansion of our Spectra UR43 gaming cabinet footprint paced our sequential domestic EGM installed base growth in Q2 2023.
• Our installed base of high-performing premium EGM units increased by nearly 40% year-over-year, accounting for over 16% of our domestic EGM installed base at the end of Q2 2023 compared to approximately 12% at the end of Q2 2022. Our premium EGM installed base increased by approximately 8% on a quarterly sequential basis, marking our fourteenth consecutive quarter of premium unit growth. Our premium EGM product offerings continue to deliver superior per unit economics, strengthening our reported domestic EGM RPD metrics and enhancing the returns we are able to achieve on our machine-related growth capital investments.
• Domestic EGM RPD increased 3% year-over-year to a record $33.48, exceeding $30 for the ninth consecutive quarter. Outsized premium unit growth, further capital efficient installed base optimization, deployment of our high-performing Spectra UR43 cabinet and a stable gaming macroeconomic environment paced our improved Q2 2023 domestic EGM RPD performance. Domestic EGM RPD increased approximately 2% relative to the $32.82 achieved in Q1 2023, reflecting the continued benefit from the implementation of our company-specific yield optimization tools and historically normal seasonality in market-level gross gaming revenue ("GGR") trends.

International Gaming Operations

• International EGM gaming operations, or recurring revenue, totaled $5.1 million, up nearly 20% versus the $4.3 million delivered in Q2 2022. The outsized year-over-year International EGM recurring revenue growth rate reflects the continued strong performance of established AGS franchise game themes throughout the Mexico casino market, a consistent and broad-based recovery in prevailing local macroeconomic conditions in Mexico, further successful implementation of our global installed base optimization initiatives, and favorable foreign exchange fluctuations. International EGM recurring revenue improved approximately 8% over the $4.7 million delivered in Q1 2023, representing the twelfth consecutive quarterly sequential increase.
• The international EGM installed base totaled 6,120 units at June 30, 2023, down approximately 130 units versus the prior sequential quarter. The Company intends to leverage its global fleet optimization initiatives to capital efficiently stabilize its international EGM installed base over the remainder of 2023.
• International EGM RPD increased 33% year-over-year to $8.90, topping the $8 level for the second consecutive quarter and eclipsing the $8.22 achieved in Q2 2019 by more than 8%. The Company estimates International EGM RPD grew by approximately 19% year-over-year on a constant-currency basis. International EGM RPD increased approximately 7% over the $8.29 achieved in Q1 2023, improving sequentially for the twelfth consecutive quarter.

EGM Equipment Sales

• AGS sold 1,259 EGM units globally in Q2 2023, representing an increase of approximately 35% compared to the 934 units sold in Q2 2022 and approximately 7% ahead of the 1,181 units sold in Q2 2019. The sales momentum building as a result of the continued strong performance of the chart-topping Spectra UR43 cabinet; a strategic focus on broadening our customer account penetration, particularly with larger multi-site corporate operators; the ability to leverage a deeper and more diverse suite of gaming content and cabinet variety to increase average order size; continued outsized penetration of the Historical Horse Racing ("HHR") market, supported by the strength of our game performance; and relatively consistent core North American replacement unit demand contributed to our improved EGM unit sales performance versus the prior year. EGM unit sales increased by over 10% relative to the 1,121 units sold in Q1 2023 and have now grown sequentially in nine of the past ten quarters.
• The average sales price ("ASP") in Q2 2023 was $20,700 versus $19,703 in Q2 2022, topping $20,000 for the first time in the Company's history. Our record-setting ASP performance reflects the premium pricing we have been able to command on our high-performing Spectra UR43 cabinet and continued implementation of our price integrity initiatives across the balance of our EGM equipment portfolio.
• We sold units into 29 U.S. states, four Canadian provinces and one international jurisdiction outside of North America throughout Q2 2023, as we continue to successfully implement strategic initiatives intended to broaden our customer account penetration, particularly with larger corporate buyers. To that end, we sold units to a record 149 unique customers in Q2 2023, representing an increase of more than 65% versus the prior year and nearly 60% higher than the number sold to in Q2 2019.

Product Highlights

• Our high-performing Spectra UR43 gaming cabinet remains at the top of the charts, achieving the number one ranking in the "Portrait Upright" category of the July 2023 Eilers-Fantini Cabinet Performance Report for the seventh consecutive month. The strong initial performance of the cabinet's two launch titles, Shamrock Fortunes and Long Bao Bao, continues to broaden its appeal with tribal and commercial operators alike, with each theme delivering reported performance of over 1.75 times house average, per Eilers. Spectra UR43 accounted for over 750 of the total units sold in Q2 2023, pushing our total footprint to more than 1,650 units at quarter end. Supported by the sustained strength in Spectra' UR43's launch title performance and the deep portfolio of over 30 titles under development to support the cabinet during its first year of commercialization, we expect demand for the cabinet to remain strong over the coming quarters.
• Orion Curve Premium reached a notable milestone in Q2 2023, as our installed base surpassed 1,500 units in just under two years' time. Demand for Curve Premium remains relatively robust, as evidenced by the quarterly sequential installed base growth of 13% delivered in Q2 2023. Our extensive Curve Premium game theme pipeline, featuring a number of popular AGS brands and proven game mechanics, the expanded breadth of our product configuration and merchandising offerings, and strategic targeting of latent customers should allow us to broaden Curve Premium's market penetration as we progress throughout the remainder of 2023.
• The Company's initial high-denomination game themes, Mega Diamond and Gold Inferno, continue to establish themselves in the market, with strong reported game performance above 1.25 times house average landing each title in the top 25 of the "High Denom, Video Reel" category of the July 2023 Eilers-Fantini Game Performance Report. In addition to providing the Company's account executives with the means to sell into a new segment of their customers' slot floors, the games also serve as another tool to support the Company's installed base optimization initiatives and to strategically broaden its online RMG content offering into a category with high player appeal.

Table Products

Three Months Ended June 30, 2023 compared to Three Months Ended June 30, 2022