To say the least, it has been a pretty hectic, and successful, past five years for gaming equipment provider AGS.
Since its purchase by Apollo Gaming Management in 2013, AGS has evolved into a global company focused on creating a diverse mix of entertaining gaming experiences for every kind of player, offering high-performing Class II and Class III slot products, an expansive table products portfolio and highly-rated social casino solutions for operators. The company has also maintained an impressive growth record during this time frame, fueled in part by strategic acquisitions (Class II slot supplier Cadillac Jack in 2015, online casino games provider Rocket Play also in 2015, the installed Class II machine base of Rocket Games in 2017) and new product introductions that have resonated on casino floors, a list that includes the ICON and Orion slot cabinets, Xtreme Jackpots multi-link progressive game technology, numerous new table games and a white-label social casino platform.
Indeed, AGS has performed at such a high level that Apollo decided to bring the company public this year, recently launching an initial public offering (IPO) of 10,250,000 shares of common stock priced at $16 per share. The company has listed its shares of common stock on the New York Stock Exchange under the ticker symbol “AGS.” AGS received gross proceeds of approximately $164.0 million from the offering, most of which were used to pay down existing debt, according to executives.
Overseeing this new phase for AGS is David Lopez, who has been president and CEO of AGS since 2014. Lopez and Julia Boguslawski, chief marketing officer and executive vice president of investor relations for AGS, recently met with Casino Journal Editor Paul Doocey to discuss the IPO, its impact on AGS and the current status of the company’s gaming machine business. Below are some edited excerpts from this conversation.
AGS recently commenced with an IPO and selling of common stock. Why did the company decide to go public at this time?
LOPEZ: Apollo had been waiting for a time when both the market and AGS were performing well. We’ve been performing pretty positively over the past year as was the market until recently. Apollo’s long-term goal has been to establish a liquidity platform in gaming…we thought it was a good time across the board to do the IPO and establish that platform.
How has the IPO gone thus far?
LOPEZ: It has gone well so far… we priced at $16 [per share], opened at $17 and we’ve been bouncing around $18 to $20 since.
So the recent slot market “correction” has not had much of an effect on you so far?
LOPEZ: No… we have been very stable and really weathered that storm nicely. During those down days, a lot of people said AGS was the only green on their screens, so we have been doing pretty well.
In what ways does going public help AGS?
LOPEZ: Effectively, what we have done is de-levered. All the proceeds from going public have been used to take out our PIK note, so we have de-levered down to 4.3 times leverage. That is a range we are comfortable with, and that will help us by opening up some additional cash flow for continued growth and investment.
Do you know how big this increase in cash flow will be and do you have it dedicated to any particular areas of the business?
LOPEZ: We know how much it will free up, and for the most part we are investing it right back into the business. That has been our philosophy since Apollo acquired the company… we have grown very quickly, you can see it in our numbers from a unit, revenue and EBITDA perspective. We want to continue that momentum right now, and that is where those dollars will go.
BOGUSLAWSKI: We see a huge opportunity for us in the Class III slot machine space. We now have great Class III products to put into that market and, in combination with new jurisdictional license approvals, we can better pursue the white space in the Class III marketplace. So, as David described, a lot of the free cash flow is going to build new Class III units so we can keep up with demand. We will continue to make R&D a priority… we realize we need to continue to feed the beast. We have great, high-performing games right now and some amazing cabinets, but we have to continue innovating for the long run.
Turning to your slot machine business, AGS reported an installed base of 21,000 slot machines last summer. Where does this figure stand now? What has been some of the reasons for its growth?
LOPEZ: Yes, we were around 21,000 recurring revenue units last summer. Now we are around 23,600 or so, including the Rocket Gaming acquisition of 1,550 machines. So with or without the Rocket acquisition, we have been growing our recurring revenue business. Our install base has had pretty broad growth across the board from both Class III and Class II, although pretty clearly we are growing in Class III and picking up in ship share. Two years ago, our ship share was below 1 percent; now we bounce around between 5.5-6 percent ship share.
Why do you think the ship share numbers have grown so well for AGS?
LOPEZ: It simply comes down to performance. During our road show for the IPO, we told investors there was nothing terribly complicated about slot business growth for us. When you look at game performance statistics, we have been around 2.7x house average for our premium game releases, and 1.8x house average for our for sale games. This performance is what drives the decision making of our operator customers… it is the performance of the games that is winning the day for us.
In addition, we have upped our marketing game. We invested in a better presence at G2E and started a customer summit [GameON]—both these marketing programs have been very successful for us and helped to increase awareness about AGS to operators.
As mentioned above, AGS recently purchased the installed Class II machine base of Rocket Games. What was the reason behind this purchase? What competitive edge does it provide AGS?
LOPEZ: We just acquired the assets and the installations of their Class II footprint. We looked at it as an opportunity to take on an additional revenue stream. Also, through optimization with our units and content, we believe we can take this business and make it more profitable over time. It was really what I would term a “real estate play” for us… it’s a business that tucks right into us. We are very strong in Class II and we understand the products and the customers in this marketplace.
AGS unveiled its Orion cabinet in 2016 and launched it into the field 2017. How has it performed? What are some of the reason why?
LOPEZ: It is really amazing how well Orion has done. We have over 1,900 installs including trials, and so far we have only had one removal of an Orion. The numbers are stunning at this point… numbers I would not believe if I did not work here.
The performance of this cabinet is a combination of design and quality games. The Orion cabinet is designed to attract players from across the slot floor; entice them to come in for a closer look, sit down and try out the game. The games themselves feature player-proven art, symbols, math and so on. The challenge for us is to get the customer into the seat… once we do that, we know we can eventually win them over with the game.
What new Orion cabinet features can operators look forward to in 2018?
LOPEZ: Orion was launched as a portrait cabinet and we are now coming out with Orion Slant, which we will have available in Q2 this year. This style of this cabinet, and the games we have developed for it, are really designed for the more serious gambler. I think Orion Slant combined with our new game types will be a very happy marriage.
What has AGS done to maintain /improve the performance of its core ICON cabinet?
BOGUSLAWSKI: The ICON remains a really functional core cabinet, so our plans for it involve content—we are rolling out more games versus feature improvements and plan on launching 30 or so in 2018. This will include our Xtreme Jackpots local area progressive, which can link progressive jackpots across multiple game types on the slot floor. It can even work across multiple cabinet types… if an operator has an ICON and an Orion cabinet, they can link the games on both machines through Xtreme Jackpots. This creates a greater sense of achievability for the player.
Is there anything new in the works for AGS’ Big Red cabinet?
LOPEZ: We actually just rolled out our latest version of Big Red called Colossal Stars.
Big Red is a very stable product for us; when it gets onto a slot floor, it stays there a long time. We have customers who love it, it still performs phenomenal numbers, and it is a very sticky product. Our goal is to keep enhancing the game and, long term, to introduce more games into this product. We want to keep things fresh and have Big Red on the slot floor for a long time.
BOGUSLAWSKI: We are also excited to roll Big Red out into new jurisdictions like Canada, Pennsylvania and Ohio. Those are just some of the new promising markets for this cabinet.
As for the Colossal Stars enhancement, the big news there is that it is the same classic Big Red format but with the addition of a 42-inch monitor to the top of the cabinet. It is also now on our Atlas platform—newer technology that creates a smoother player experience with enhanced graphics. This will help us refresh and maintain our current Big Red footprint.
Overall, what would you say sets AGS cabinets apart from the competition? Why should an operator go with your products instead of a competitor’s?
LOPEZ: We don’t have to pitch them too much… the quality and performance of our cabinets and games really pitch themselves. Our products really do speak for themselves.
We continue to put the time, resources and investment into our development team and the results show our customers why they should go with us. It comes down to performance. There is no magic selling into a casino when your products perform and your cabinets look great… there is not a long conversation on why AGS. It is a very natural and organic process to pick up the ship share.
BOGUSLAWSKI: Our attention and focus is really on the player experience, and that help sets us apart as well. Our cabinets are designed completely with the player in mind. We consider every detail from where the players’ eyes are when they sit down to the comfort of the button panel to innovative lighting display… we are really focused on what it is like to be in the player’s seat.
We are also very focused and disciplined with our R&D dollars. We do not have a lot of competing priorities in R&D, unlike some of the other large manufacturers. We are not currently developing slots for skill-based players. We are not focused on or have dollars going to licensed brands at the moment. We know exactly who we are targeting—the core gambler that likes the Australian math “models,” high-volatility, Asian-themed games. We think that market has been a bit underserved… we know that is a very profitable gambler and we are focusing a lot of our attention and resources on them.
What have been some of the best performing core games for AGS? What new games will AGS be adding to its core library?
BOGUSLAWSKI: For the core games, our Golden Wins series of games—those have been so popular, and have really helped lead ICON’s success. Gold Dragon/Red Dragon is another successful core game as is Fire Wolf, which we have all over The Strip. Buffalo and Longhorn Jackpots have also been successful core games.
We are also very excited about our Fa series of games which are rolling out here this year for Orion Slant. The Fa series has similar math models to Golden Wins but with Asian themes and different art and celebrations, yet still offers the four-level progressive and high volatility that players love.
What have been some of the more successful games of the Orion platform? What is in store from a games perspective for this platform going forward?
BOGUSLAWSKI: For Orion, Fu Nan Fu Nu and River Dragons have been two recent successes. Those games are doing over 2x house average. We also have a handful of new titles for Orion that we are very excited about. Anything that goes under Orion is what we consider a premium game, and in 2018, we will be rolling out 12-15 new premium games.
I assume some of these new games will be based on your Xtreme Jackpots multi-link progressive game concept. Why has this concept been so successful for AGS?
LOPEZ: We have had a lot of success with this platform in Class II environments and really understand the value this sort of link provides a casino. It is very popular, it hits often, it spans across multiple game and cabinet types. So we want to take this and run with it into the Class III games types and jurisdictions and see more success there.
How does AGS go about creating its game content? What is the R&D process like?
LOPEZ: Everything is internal for us. We have slot development primarily in Atlanta [Ga.] and Austin [Texas], and last year we opened up a development office in Sydney, Australia. When you think about great games in the slot industry, a lot of them have come out of Australia over the past few years. So we opened up a studio there and have some great employees in that studio already.
That said, we are going to stick to the same game development philosophies. We are going to focus on the types of games we understand… games for gamblers featuring high volatility.
Is developing new slot games around licensed content something the company will pursue in the future?
LOPEZ: Not at this point in time… it is not something that we feel the industry needs more of right now. It is costly and time consuming to develop licensed games, and it is an area of the casino that is already well-served. The world doesn’t need another entertainment licensed game. We have a niche we address, and we think this niche has plenty of space for us to grow into and we will continue to focus on that.
BOGUSLAWSKI: At some point we may consider licensed games, but right now it goes back to being focused and disciplined with our R&D dollars. Orion does compete in that premium space and does very well there in terms of game performance, and that is without licensed brands.
Slot signage packages appear to be a growing trend in the gaming industry. How is AGS responding to this?
BOGUSLAWSKI: In 2017, we launched the Smart Sign package for both ICON and Orion. We offer signs in multiple configurations for both products and plan to offer a number of configurations for Orion Slant. We have seen studies that show signs can add 20-30 percent of additional coin-in on a game, so this is definitely a trend with operators. As we develop cabinets, we need to consider different configurations for sign packages.
What companies does AGS consider to be competition? How are you attempting to best them?
LOPEZ: We are not focused on any specific competitors. Focusing on a specific competitor and saying we have got to attack this or that game, I don’t think that is the way to be successful. We concentrate on what we do well… our attitude is that we will call our plays, run our plays and we are going to run them as well as we can. We have had a lot of success with that.