On the road with AGS: Gaming equipment maker highlights growing opportunities By Howard Stutz, Executive Editor, CDC Gaming Reports December 11, 2018 at 8:35 pm Two top executives from casino equipment provider AGS met recently with investment managers in San Francisco and Denver. Union Gaming Group analyst John DeCree went with them. The Las Vegas-based manufacturer wasn’t seeking money. The non-deal road show allowed AGS – which has been on fire in the eyes of investors since its initial public offering in January – to highlight its growing business opportunities in 2019. The meetings also provided insight into the national and international gaming equipment market from AGS’ point of view. The company has quietly been taking market share from the larger providers. DeCree said he came away from the meetings “feeling as confident as ever about the company’s outlook.” He said the AGS has a “relatively unique story” when compared with others in the gaming equipment sector. AGS’s presence at the Global Gaming Expo in Las Vegas in October was far more expansive than its tradeshow booth from a year ago, when the company was preparing for its IPO. Among slot machine titles displayed on the newest cabinets, AGS offered several table game selections, a table game card shuffler, and some examples of interactive table game signage, including a roulette wheel featuring the logo of the NHL’s Vegas Golden Knights. There was a general feeling of optimism from the major gaming equipment manufacturers following G2E, but AGS is exceedingly confident. CDC Gaming Reports colleague Buddy Frank reported during G2E that four AGS games made the top 25 index in the August Eilers-Fantini Game Performance Database. Eilers-Fantini ranked AGS fourth among all slot machine manufacturers; Aristocrat Technologies, Scientific Games and Konami Gaming, all heavyweights, were in the top three. With that history, AGS CEO David Lopez and Chief Marketing Officer Julia Boguslawski told the investment community that the company was mostly focused on growing its North American presence, where it collects roughly 85 percent of its revenue, in 2019. But opportunities are being explored in Asia and Latin America, as well. “The company does have an international pipeline, namely the Philippines and Brazil, but very little, if any, of these opportunities are included in the current valuation,” DeCree said. Gaming legalization is being debated in Brazil, namely video bingo. DeCree didn’t have much sense that that market will be a revenue story for 2019; even if legislation passes, it’s difficult to determine how quickly the games could go live. He said AGS has agreements to provide roughly 8,500 gaming machines out of a market that is estimated at between 300,000 and 500,000 games. While roughly 2 percent to 3 percent might seem like a small market share, DeCree called Brazil “transformational” for AGS, saying the country could provide an estimated $60 million in cash flow. As for the Philippines, AGS’s first games aren’t expected to go live until the second half of the year. A few “administrative snags” have slowed the rollout. DeCree said there should be an “earnings contribution” later in the year, but the full effect will be a 2020 story. In the near term, AGS’s focus remains the U.S., in particular gaining casino space in jurisdictions where the company is absent, such as Pennsylvania, or can grow its base. AGS’s primary focus is expansion beyond the Class II Indian casinos into commercial casino settings. DeCree investors have focuses on AGS’s large contract with the Chickasaw Nation in Oklahoma, owners of the massive WinStar World Casino and Resort, which has some 7,400 gaming machines. That deal is set to expire at the end of next year. AGS officials said the company expects to announce a contract renewal in the next few weeks, but DeCree said he wouldn’t be concerned if it took longer. “When a renewal is finalized and announced, it could help prop up valuation a little bit by removing the overhang,” he said. Like many of its gaming equipment manufacturing peers, AGS’s stock value has taken a bit of a beating in the past few months. Still, the company’s shares sit at $22.04 on the New York Stock Exchange as of closing Tuesday, an amount still well above its IPO numbers. AGS’s total debt – $476.9 million as of Sept. 30 – makes the company “relatively under leveraged” compared to other manufacturers and allows executives to seek small “tuck-in” acquisitions to grow the base. AGS management cited more than 20 small gaming company or technology purchases that it has made in the last few years. DeCree said the idea would be for AGS to buy smaller competitors and underperforming slot routes where there is an opportunity to grow the business, not to just realize cost synergies or buy cash flow at reasonable multiples. “We think it’s unlikely AGS pursues any material or transformational transactions at this point, given the depth of its organic growth pipeline,” DeCree said. Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at email@example.com. Follow @howardstutz on Twitter.