ags20190816_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the quarter ended March 31, 2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from to .

Commission file number 001-38357

PLAYAGS, INC.

(Exact name of registrant as specified in its charter)

Nevada	46-3698600
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

5475 S. Decatur Blvd., Ste #100 Las Vegas, NV 89118

(Address of principal executive offices) (Zip Code)

(702) 722-6700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value	AGS	New York Stock Exchange

As of May 3, 2021, there were 36,627,139 shares of the Registrant’s common stock, $0.01 par value per share, outstanding.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer ☒

Non-accelerated filer ☐

Smaller reporting company ☐

Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☒ No ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Table of Contents

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS

	CONDENSED CONSOLIDATED BALANCE SHEETS AT MARCH 31, 2021 AND DECEMBER 31, 2020	1

	CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS ) INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020	2

	CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AT MARCH 31, 2021 AND 2020	3

	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020	4

	NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	5

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	22

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	38

ITEM 4.	CONTROLS AND PROCEDURES	39

PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	40

ITEM 1A.	RISK FACTORS	40

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	40

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	40

ITEM 4.	MINE SAFETY DISCLOSURES	40

ITEM 5.	OTHER INFORMATION	40

ITEM 6.	EXHIBITS	42

	SIGNATURES	43

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PLAYAGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share and per share data)

(unaudited)

	*March 31, 2021*			*December 31, 2020*
*Assets*
Current assets
Cash and cash equivalents	$	77,299		$	81,689
Restricted cash		20			20
Accounts receivable, net of allowance of $2,122 and $2,077, respectively		45,332			41,743
Inventories		26,567			26,902
Prepaid expenses		8,615			4,210
Deposits and other		5,089			4,704
Total current assets		162,922			159,268
Property and equipment, net		76,794			81,040
Goodwill		285,569			286,042
Intangible assets		179,685			187,644
Deferred tax asset		6,637			6,762
Operating lease assets		9,331			9,763
Other assets		9,243			10,259
Total assets	$	730,181		$	740,778

*Liabilities and Stockholders’ Equity*
Current liabilities
Accounts payable	$	6,399		$	9,547
Accrued liabilities		28,912			26,325
Current maturities of long-term debt		7,001			7,031
Total current liabilities		42,312			42,903
Long-term debt		601,044			601,560
Deferred tax liability, non-current		2,358			2,254
Operating lease liabilities, long-term		9,081			9,497
Other long-term liabilities		29,381			30,781
Total liabilities		684,176			686,995
Commitments and contingencies (Note 12)
Stockholders’ equity
Preferred stock at $0.01 par value; 50,000,000 shares authorized, no shares issued and outstanding		—			—
Common stock at $0.01 par value; 450,000,000 shares authorized at March 31, 2021 and at December 31, 2020; and 36,602,139 and 36,494,002 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively.		366			364
Additional paid-in capital		381,547			379,917
Accumulated deficit		(329,960	)		(321,412	)
Accumulated other comprehensive loss		(5,948	)		(5,086	)
Total stockholders’ equity		46,005			53,783
Total liabilities and stockholders’ equity	$	730,181		$	740,778

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

PLAYAGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(amounts in thousands, except per share data)

(unaudited)

	*Three Months Ended March 31,*
	*2021*			*2020*
Revenues
Gaming operations	$	44,416		$	42,685
Equipment sales		10,943			11,628
Total revenues		55,359			54,313
Operating expenses
Cost of gaming operations(1)		8,676			9,993
Cost of equipment sales(1)		3,468			5,208
Selling, general and administrative		12,608			11,640
Research and development		8,060			8,231
Write-downs and other charges		724			55
Depreciation and amortization		18,408			24,369
Total operating expenses		51,944			59,496
Income (loss) from operations		3,415			(5,183	)
Other expense
Interest expense		10,981			8,342
Interest income		(288	)		(52	)
Other expense		147			4,339
(Loss) income before income taxes		(7,425	)		(17,812	)
Income tax (expense) benefit		(345	)		3,393
Net (loss) income		(7,770	)		(14,419	)
Foreign currency translation adjustment		(862	)		(8,184	)
Total comprehensive (loss) income	$	(8,632	)	$	(22,603	)

Basic and diluted loss per common share:
Basic		(0.21	)	$	(0.41	)
Diluted		(0.21	)	$	(0.41	)
Weighted average common shares outstanding:
Basic		36,466			35,543
Diluted		36,466			35,543

⁽¹⁾ exclusive of depreciation and amortization

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

PLAYAGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(amounts in thousands)

(unaudited)

	*Three Months Ended March 31,*
	*2021*			*2020*
Common stock
Balance, beginning of period	$	364		$	355
Stock option exercises		-			-
Repurchase of common stock		-			-
Vesting of restricted stock		2			1
Balance of common stock, end of period		366			356
Additional paid-in capital
Balance, beginning of period		379,917			371,311
Stock option exercises		-			158
Stock-based compensation expense		1,632			1,551
Vesting of restricted stock		(2	)		(1	)
Balance of additional paid-in capital, end of period		381,547			373,019
Accumulated deficit
Balance, beginning of period		(321,412	)		(235,474	)
Net loss attributable to PlayAGS, Inc.		(7,770	)		(14,419	)
Repurchase of common stock		(778	)		-
Restricted stock vesting and withholding		-			(348	)
Balance of accumulated deficit, end of period		(329,960	)		(250,241	)
Accumulated other comprehensive loss
Balance, beginning of period		(5,086	)		(2,408	)
Foreign currency translation adjustment		(862	)		(8,184	)
Balance of accumulated other comprehensive loss, end of period		(5,948	)		(10,592	)
Total stockholders' equity	$	46,005		$	112,542

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

PLAYAGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	*Three Months Ended March 31,*
	*2021*			*2020*
Cash flows from operating activities
Net (loss) income	$	(7,770	)	$	(14,419	)
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		18,408			24,369
Accretion of contract rights under development agreements and placement fees		1,706			1,859
Amortization of deferred loan costs and discount		1,104			492
Stock-based compensation expense		1,632			1,551
Provision (benefit) for bad debts		118			(299	)
Loss on disposition of long-lived assets		71			49
Impairment of assets		653			6
Benefit for deferred income tax		59			(101	)
Changes in assets and liabilities that relate to operations:
Accounts receivable		(3,887	)		20,284
Inventories		921			(5,324	)
Prepaid expenses		(4,408	)		(2,068	)
Deposits and other		(408	)		408
Other assets, non-current		1,339			3,681
Accounts payable and accrued liabilities		155			(11,679	)
Net cash provided by operating activities		9,693			18,809
Cash flows from investing activities
Customer notes receivable		-			(2,301	)
Purchase of intangible assets		-			(699	)
Software development and other expenditures		(3,766	)		(3,756	)
Proceeds from disposition of assets		11			27
Purchases of property and equipment		(6,109	)		(6,150	)
Net cash used in investing activities		(9,864	)		(12,879	)
Cash flows from financing activities
Repayment of first lien credit facilities		(1,347	)		(1,347	)
Repayment of incremental term loans		(238	)		-
Payment of financed placement fee obligations		(1,217	)		(3,444	)
Borrowing on revolver		-			30,000
Payments of previous acquisition obligation		(113	)		(201	)
Payments on finance leases and other obligations		(525	)		(333	)
Repurchase of stock		(778	)		(348	)
Proceeds from stock option exercise		-			158
Net cash (used in) provided by financing activities		(4,218	)		24,485
Effect of exchange rates on cash and cash equivalents		(1	)		(13	)
Net (decrease) increase in cash and cash equivalents		(4,390	)		30,402
Cash, cash equivalents and restricted cash, beginning of period		81,709			13,182
Cash, cash equivalents and restricted cash, end of period	$	77,319		$	43,584

Supplemental cash flow information:
Non-cash investing and financing activities:
Leased assets obtained in exchange for new finance lease liabilities	$	288		$	254

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

PLAYAGS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SEC Form 10-Q filed by PlayAGS, Inc.