Higher costs lead to Q3 net loss at PlayAGS despite revenue rise

During the three months to 30 September, revenue amounted to $89.4m at PlayAGS. This was up from Q3 last year following growth across gaming operations and equipment sales.

While this is good news for PlayAGS, it was not enough to offset an increase in costs. The supplier reported higher operating expenses and interest costs in Q3, while the absence of tax benefits also hit the business.

However, president and CEO David Lopez was upbeat about the quarter. Speaking during an earnings call, Lopez pointed to growth within the company’s interactive business as a stand-out highlight in Q3. 

Lopez says the expanding interactive segment, coupled with growth in other areas, put the group in a good position for further success in Q4 and beyond.

“We delivered another solid quarter of execution in the third quarter, with our product momentum and focused team producing performance that far exceeded the trends observed across the broader domestic gaming landscape,” Lopez said. “This contributed to several new financial records along the way.

“Interactive revenues increased more than 20% year-over-year to a record $3.1m. This was driven by returns on strategic investments initiated in the back half of 2022. Here, I think that most of our opportunities still lie within North America.

“I believe our deeper and more diverse product portfolio, combined with our passionate team, position us to deliver on this theme of relative outperformance for many quarters to come.”

PlayAGS Q3: growth across all businesses

Taking a closer look at Q3, gaming operations generated $61.0m in revenue, an increase of 7.6% on last year. Equipment sales also jumped 30.9% to $28.4m.

PlayAGS said its electronic gambling machines (EGM) arm remains by far its main source of revenue. The division generated $81.9m in revenue in Q3, up 14.3% from the previous year, driven by a 30.2% rise in EGM equipment sales revenue.

Table products revenue also increased by 8.7% to $4.4m in Q3, marking the third straight quarter revenue from the division exceeded $4.0m. PlayAGS says a large part of this was also down to higher machine sales, with revenue from this climbing by 84.3% to $516,000.

As for the interactive segment, revenue jumped 20.2% to a record £3.1m. This, PlayAGS says, was helped by new game launches, more targeted business development activities with B2C operator partners, platform enhancements and a successful launch in West Virginia.

Higher spending costs PlayAGS

Moving on to spending, total operating expenses for Q3 were 8.2% higher at $74.9m. The main outgoing for PlayAGS was selling, general and administrative costs at $19.5m for the quarter.

PlayAGS also noted $14.6m in interest expenses, up 41.8% year-on-year and €259,000 in other, unspecified costs. This left a pre-tax profit of $785,000, compared to last year’s $1.4m loss.

However, PlayAGS had to pay €156,000 in income tax, whereas last year it secured a benefit of $1.4m. This, coupled with $1.4m in foreign currency translation, left a net loss of $1.5m. This was in contrast to a $499,000 profit in 2022.

That said, PlayAGS was able to post $40.1m in adjusted EBITDA. This was up 16.4% from last year and the first time quarterly EBITDA has exceeded $40.0m.

In the black for the year-to-date

Looking to the year-to-date, revenue for the nine months to 30 September amounted to $262.4m, a rise of 15.2% from 2022. This includes $180.6m in gaming operations revenue, up 8.3%, and $81.7m of equipment sales revenue, a rise of 33.3%.

Operating costs were 8.8% higher at $221.0m, while interest expense reached $41.3m. After accounting for other non-operating costs, this resulted in a pre-tax profit of $597,000, a stark contrast to last year’s $11.9m loss.

PlayAGS reported $236,000 in net tax income and also revealed it benefitted from a positive foreign currency translation of $4.8m. As such, it ended the period with a net profit of $5.1m, compared to a $10.1m loss in 2022. The group did not report year-to-date adjusted EBITDA.

“As I look to 2024 and beyond, I’m confident the strategic ambitions for our interactive team should allow for more consistent delivery of AGS content and the online channel,” Lopez said 

“Further diversification of our online content offerings into additional genres and more strategic and impactful interactions with our B2C partners will position us to deliver outsized growth.”