Executive Summary

Record quarter: Revenue rose 14% year over year to $89.4M, Adjusted EBITDA hit a new high at $40.1M (44.9% margin), and free cash flow reached a record $12.7M; modest net loss ($0.2M) reflected ~$4M higher interest costs year over year amid rate moves .
Segments: EGM led with 14% revenue growth (1,345 units sold, +33% YoY), Table Products +9%, and Interactive +20% to a record $3.1M; recurring revenue reached a record $61.0M and ~70% of mix .
Balance sheet: Net leverage improved to 3.4x vs 3.8x at year-end 2022; company reiterated 2023 year-end leverage target of 3.25x–3.50x and capex plan of $65–$70M .
Outlook catalysts: Management expects Q4 global EGM unit sales to exceed Q3, ASP to ~return to ~$20K, Q4 Adjusted EBITDA margin to stay >44%, and domestic RPD to match/slightly exceed Q4’22 ($31.46); Spectra UR49 commercial launch and premium mix expansion are near-term growth drivers .

What Went Well and What Went Wrong

What Went Well

Record profitability/FCF despite rates: Adjusted EBITDA reached $40.1M (up 16% YoY) and free cash flow a record $12.7M, with margin expansion to 44.9% driven by outsized EGM growth, higher-margin Spectra sales mix, and Interactive ROI .
Broad-based segment strength: EGM revenue +14% YoY with 1,345 unit sales (+33% YoY), Table Products revenue +9% with PAX S/BSX momentum, and Interactive revenue +20% to a record $3.1M (RMG +26% sequentially) .
Strategic product pipeline: “Best G2E to date” with Spectra UR49 following Spectra UR43 success; premium mix up to 17% of domestic installed base; management confident in “relative outperformance” continuing (“our booth truly had it all… puts us in the desirable position to continue our theme of relative outperformance”) .

What Went Wrong

Bottom-line pressure from higher interest: Q3 swung to a small net loss of $0.2M vs $0.5M profit in Q3’22, largely from ~$4M higher debt service amid rate increases (partly offset by stronger operating income) .
Table Products margin compression: Table Adjusted EBITDA fell 5% YoY and margin dropped to 55.5% (from 63.5%) due to higher field service allocation and greater equipment sales mix .
Domestic EGM RPD seasonality: Domestic RPD ticked down sequentially from $33.48 in Q2 to $32.57 in Q3 due to normal seasonal GGR trends; CFO flagged potential inventory build for Q1 demand that could modestly impact Q4 FCF .

Financial Results

Headline P&L vs Prior Periods

Metric	Q3 2022	Q2 2023	Q3 2023
Revenue ($M)	$78.259	$89.832	$89.378
Net Income (Loss) ($M)	$0.476	$0.851	$(0.156)
Diluted EPS ($)	$0.01	$0.02	$0.00
Adjusted EBITDA ($M, non-GAAP)	$34.467	$39.593	$40.111
Adjusted EBITDA Margin (%)	44.0%	44.1%	44.9%

Notes: Adjusted EBITDA and margin are non-GAAP; see reconciliation in filings .

Segment Revenue Breakdown

Metric ($M)	Q3 2022	Q2 2023	Q3 2023
EGM Revenue	$71.620	$82.681	$81.862
Table Products Revenue	$4.036	$4.396	$4.387
Interactive Revenue	$2.603	$2.755	$3.129
Total Revenue	$78.259	$89.832	$89.378

Segment Adjusted EBITDA (non-GAAP)

Metric ($M)	Q3 2022	Q2 2023	Q3 2023
EGM Adjusted EBITDA	$31.331	$36.857	$36.772
Table Products Adjusted EBITDA	$2.561	$2.263	$2.436
Interactive Adjusted EBITDA	$0.575	$0.473	$0.903
Total Adjusted EBITDA	$34.467	$39.593	$40.111

Key KPIs

KPI	Q3 2022	Q2 2023	Q3 2023
EGM Units Sold (global)	1,014	1,259	1,345
Average Sales Price (ASP) ($)	$19,146	$20,700	$19,380
Domestic EGM RPD ($)	$31.13	$33.48	$32.57
International EGM RPD ($)	$7.34	$8.90	$9.43
EGM Installed Base (Total)	22,532	22,542	22,507
Table Products Installed Base (units)	4,969	5,257	5,309
Table Avg Monthly Lease Price ($)	$243	$241	$240
Interactive Revenue ($M)	$2.603	$2.755	$3.129

Cash Flow and Leverage

Metric	Q3 2022	Q2 2023	Q3 2023
Net Cash from Operating Activities ($M)	$17.670	$25.705	$29.883
Free Cash Flow ($M, non-GAAP)	$(2.000)	$12.571	$12.716
Net Leverage (x)	—	3.6x (6/30/23)	3.4x (9/30/23)

Notes: Free Cash Flow is non-GAAP; see reconciliation . Net leverage based on LTM Adjusted EBITDA .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Year-end Net Leverage (x)	FY 2023	3.25x–3.50x (lowered on Q2 print)	3.25x–3.50x (reaffirmed)	Maintained
Capital Expenditures ($M)	FY 2023	$65–$70	$65–$70	Maintained
Global EGM Unit Sales	Q4 2023	N/A	Expected to exceed Q3 levels	New positive
ASP ($)	Q4 2023	N/A	Expected ~return to ~$20,000	New positive
Domestic EGM RPD ($)	Q4 2023	Q4’22 actual $31.46 (context)	In line to slightly ahead of $31.46	New positive
Adjusted EBITDA Margin (%)	Q4 2023; FY 2023	N/A	Q4 >44%; FY 44–45% target	New positive
Cash Interest ($M)	Q4 2023	N/A	~ $13.5 (proxy from Q3)	New clarification
Working Capital	Q4 2023	N/A	Potential inventory build may modestly impact FCF	New headwind watch

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 & Q2 2023)	Current Period (Q3 2023)	Trend
Spectra platform momentum	Spectra UR43 launch scaling; ASP >$19K in Q1; >$20K in Q2; top rankings; strong replacement demand	“Best G2E to date”; Spectra UR49 introduced; ~60% of Q3 unit sales were Spectra; UR49 priced above UR43; deep pipeline	Improving
Premium mix expansion	Premium footprint grew 13 straight quarters through Q1; >16% of domestic base in Q2	Premium reached 17% of domestic base; 15th consecutive quarter of premium unit growth	Improving
EGM sales/customer penetration	Q1/Q2: broadened account penetration; record customers; HHR momentum	1,345 units (+33% YoY); >150 unique customers; sold into 30 U.S. states, 5 Canadian provinces	Improving
Interactive (RMG)	Investments to accelerate cadence; RMG record $2.3M in Q2	Record $3.1M total; RMG +20% seq to $2.8M; top Eilers rankings (Mega Diamond #1, Capital Gains #2)	Improving
Tables (PAX S, BSX, Arsenal)	PAX S scaling (>265 units Q2); BSX near 500; site licenses expanding	PAX S >290 units; BSX >500 installed; first Arsenal license in OR; table revenue >$4M third straight quarter	Improving
Macro/GGR & seasonality	Q1/Q2 domestic GGR stable; Q2 domestic RPD record	Domestic GGR stable; domestic RPD down seq due to seasonality; Q4 RPD to be in line to slightly above Q4’22	Stable
Mexico/regulatory	International RPD rising; macro recovery	International RPD $9.43; mgmt downplayed slot ban noise as saber-rattling	Improving/Low risk per mgmt
R&D roadmap	Multi-studio content; high-denom titles	Mechanical reel and jumbo cabinets coming 2H24	Expanding

Management Commentary

“We delivered another solid quarter of execution in Q3… producing performance that far exceeded the trends observed across the broader domestic gaming landscape… I believe our deeper and more diverse product portfolio… position us to deliver on this theme of relative outperformance for many quarters to come.” — David Lopez, CEO .
“Adjusted EBITDA surpassed the $40 million level for the first time… free cash flow… approximately $13 million… net leverage fell to 3.4x… inside of our targeted year-end range a quarter ahead of schedule.” — David Lopez, CEO .
“Our current pipeline of new products puts us in the desirable position to continue our theme of relative outperformance… With a complete portfolio… I’m confident we have the tools… to consistently grow our ship share.” — David Lopez, CEO .
“Although seasonal G2E-related expenses are likely to contribute to modest sequential compression in our Q4 adjusted EBITDA margin, we expect to remain above the 44% level… target full year adjusted EBITDA margin in the range of 44% to 45%.” — Kimo Akiona, CFO .
“We remain confident in our ability to exit 2023 with net leverage in the range of 3.25x to 3.5x.” — Kimo Akiona, CFO .

Q&A Highlights

Deleveraging focus: Management reiterated deleveraging as a “North Star,” targeting mid-2x leverage over time via EBITDA growth and consistent FCF; near-term aim remains 3.25x–3.50x by year-end 2023 .
Mechanical reel/jumbo rollout: Trials expected before broader rollout in back half of 2024; entry expands AGS from “one swim lane” to multiple, enhancing competitiveness and cross-sell .
Operator CapEx behavior: In tighter environments, slot manufacturers may get the nod over non-revenue projects; tribal/Canada customers generally more consistent to aggressive, supporting stability .
Installed base dynamics: Q3 saw “use it or lose it” convert-to-sale by some customers affecting net installed base; optimization remains ongoing with better returns aided by stronger content performance (e.g., Spectra) .
Mexico regulatory noise: Potential slot ban chatter viewed as periodic political saber-rattling; no indications from major operators that action is serious .
Margin trajectory: Team is intent on incremental margin improvement; not ready to commit to a 45–47% target, with R&D spend to remain steady .
Interactive focus: North America remains primary opportunity; success tied to content cadence and new genres (first 3-reel game “Mega Diamond” is best release to date) .

Estimates Context

We attempted to retrieve S&P Global consensus for Q1–Q3 2023 to benchmark revenue/EPS/EBITDA vs estimates; however, S&P CIQ mapping for AGS was unavailable via the tool at this time. As a result, we cannot present Wall Street consensus comparisons for this quarter. Values retrieved from S&P Global were unavailable via our estimates tool.

Where estimates may need to adjust: Given record Adjusted EBITDA, stronger-than-expected Interactive and sustained EGM sales momentum into Q4 (including UR49 launch), Street models may need higher sales volumes, slightly better Q4 margin (>44%), and lower year-end leverage trajectory; however, potential Q4 inventory build could temper FCF conversion assumptions .

Key Takeaways for Investors

Product cycle is working: Spectra UR43 momentum plus UR49 launch and premium mix expansion underpin sustained ship share gains and margin support into 2024 .
Recurring revenue resilience: Domestic outperformed broader GGR; international (Mexico) continues to comp strongly with rising RPD; installed base optimization remains a lever .
Profitability/FCF inflecting: Record EBITDA and FCF with reiteration of >44% Q4 margin; watch G2E-related spend and possible inventory build’s modest FCF impact in Q4 .
Deleveraging path credible: Net leverage at 3.4x with line-of-sight to 3.25x–3.50x year-end; mid-2x targeted longer term could unlock refinancing opportunities and lower cash interest .
Tables and Interactive are second engines: PAX S and BSX footprints are scaling; Interactive record revenue with top-ranked online titles (Mega Diamond/Capital Gains) suggests multi-year digital growth runway .
Risks: Rising rates press net income; Table margin mix/field service allocation; macro/GGR seasonality; regulatory noise in Mexico (management downplays) .
Near-term trading setup: Positive skew from UR49 commercialization, expected Q4 unit outperformance and margin >44%; modest FCF headwind from inventory build is known/explicitly flagged .

Additional notes

8-K press release and full Q3’23 earnings call transcript were read in full; no other AGS press releases in Q3 were found in the document set .
Prior two quarters’ releases (Q1/Q2’23) were reviewed to establish trend context .

PlayAGS, Inc. (AGS)·Q3 2023 Earnings Summary