AGS has issued its first financial results as a public company.
Based on the stock market reaction, investors liked it.
AGS stock jumped over 5 percent from the mid-Wednesday afternoon earnings announcement through the close of trading on Thursday.
The response wasn’t to the bottom line. After all, AGS lost $1.94 a share last year, though a big improvement from 2016’s $3.51 a share in red ink.
What they liked is that AGS beat expectations and issued a bullish outlook.
The company grew EBITDA last year by 25.2 percent to $106.841 million and projected 16 percent to 22 percent growth this year to $124 million to $130 million.
One caution on AGS has been debt. The company has been working on that, using IPO proceeds to bring debt down, redeeming PIK notes and re-pricing debt to reduce annual interest expenses by $6.4 million.
And CEO David Lopez spoke with a bullishness that suggests forecasts might prove conservative.
Lopez cited the success of AGS’ slot machine games, and new cabinets like Orion Portrait, the soon-to-come Orion Portrait slant cabinet, and a growing library of games for those cabinets.
AGS also happens to be in that early phase of geographic expansion where, if casinos want its products, it can grow simply by entering new jurisdictions.
Once limited to Native American casinos, AGS is assertively entering new jurisdictions, including big ones. It is about to enter Ohio and is in the process of then entering Pennsylvania, Massachusetts and Colorado, for example. Further, it is still young in other major states including Nevada and Mississippi, and California with Class III machines.
Then there is the opportunity to grow internationally.
Math is another reason to expect growth. Lopez quoted the Eilers-Fantini Quarterly Slot Survey in noting AGS’ low market share compared to its high ship share, meaning likely growth to close that gap.
For example, in the latest Eilers-Fantini survey, AGS had 1 percent North American market share, but 5.8 percent ship share, and the intention of slot managers to allocate 4.5 percent of their money to AGS this year.
Game performance buoys the case.
Survey respondents said AGS’ games sold to casinos generated revenue at 1.81 times house average. Premium leased games scored 2.05 times.
Participants in the new Eilers-Fantini Slot Performance Report revealed AGS’ machines winning a leading average of $431 a day per machine.
Then there are table games. At present, the table games industry falls into two categories: Scientific Games’ Shuffle Master and a fractured market of small companies and individual game developers.
Tables are a small and relatively new part of AGS with sales at $4.065 million last year, just 1.9 percent of revenues. By comparison, Sci Games’ tables business did $50 million in the fourth quarter alone. That gives some sense of AGS’ potential. And the segment is growing rapidly. Revenues rose 52 percent last year accelerating to 142.6 percent growth in the fourth quarter.
Plus, as is well known, Lopez and much of his management team know the business as Shuffle Master veterans.
Of course, the goal is profitability not growth, and AGS is in the red. However, that won’t last long. Analysts forecast AGS to turn profitable this year or next with Patrick Scholes of Sun Trust Robinson Humphrey forecasting earnings per share hitting $1.19 by 2020.
There are cautions to long-term forecasts, including when, if ever, does two-thirds owner Apollo Global Management sell out, and that AGS at some point will reach a size where further growth becomes harder and expensive.
But at this early stage, Lopez seems justified in his bullishness.
