Stock Story -
Electronic gaming manufacturer and supplier PlayAGS (NYSE:AGS) reported Q4 FY2023 results beating Wall Street analysts' expectations, with revenue up 15.2% year on year to $94.15 million. It made a GAAP loss of $0 per share, down from its profit of $0.06 per share in the same quarter last year.
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PlayAGS (AGS) Q4 FY2023 Highlights:
- Revenue: $94.15 million vs analyst estimates of $92.58 million (1.7% beat)
- Adjusted EBITDA: $42.8 million vs analyst estimates of $41.6 million (3.0% beat)
- EPS: $0 vs analyst estimates of $0.05 (-$0.05 miss)
- Free Cash Flow of $11.02 million, down 44.2% from the previous quarter
- Gross Margin (GAAP): 68.9%, down from 72.4% in the same quarter last year
- Market Capitalization: $348.8 million
Originating as a small slot machine business, PlayAGS (NYSE:AGS) provides electronic gaming machines, table game products, and digital gaming solutions to the casino and gaming industry.
Casinos and GamingCasino and gaming companies that offer slot machines, Texas Hold ‘Em, Blackjack and the like can enjoy limited competition because gambling is a highly regulated industry. These companies can also enjoy healthy margins and profits-have you ever heard the phrase ‘the house always wins’? Regulation cuts both ways, however, and casino and gaming companies may face stroke-of-the-pen risk that suddenly limits what they do or where they can do it. Furthermore, digitization is changing the game, pun intended. Whether it’s online poker or sports betting on your smartphone, innovation is forcing casino and gaming companies to adapt to keep up with changing consumer preferences such as being able to wager anywhere on demand.
Sales GrowthA company's long-term performance can indicate its business quality. Any business can enjoy short-lived success, but best-in-class ones sustain growth over many years. PlayAGS's annualized revenue growth rate of 4.5% over the last five years was weak for a consumer discretionary business. Within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. PlayAGS's annualized revenue growth of 17.2% over the last two years is above its five-year trend, suggesting some bright spots.
This quarter, PlayAGS reported robust year-on-year revenue growth of 15.2%, and its $94.15 million of revenue exceeded Wall Street's estimates by 1.7%. Looking ahead, Wall Street expects sales to grow 2.5% over the next 12 months, a deceleration from this quarter.
Cash Is KingAlthough earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
Over the last two years, PlayAGS has shown decent cash profitability, giving it some reinvestment opportunities. The company's free cash flow margin has averaged 10.1%, slightly better than the broader consumer discretionary sector.
PlayAGS's free cash flow came in at $11.02 million in Q4, equivalent to a 11.7% margin and in line with the same quarter last year. Over the next year, analysts predict PlayAGS's cash profitability will fall. Their consensus estimates imply its LTM free cash flow margin of 10.5% will decrease to 8.5%.
Key Takeaways from PlayAGS's Q4 Results It was good to see PlayAGS beat analysts' revenue and adjusted EBITDA expectations this quarter. The company's net leverage also declined to 3.2x at the end of the quarter, getting closer to the target range of 2.75x to 3.00x. Forward guidance was not given in the earnings release. Overall, this was a solid quarter, and the stock is up 2.3% after reporting and currently trades at $9.42 per share.
