PlayAGS, Inc. (AGS) Earnings Call Transcript & Summary

Good morning, and welcome to the 2020 Annual Meeting of Stockholders of PlayAGS, Inc., or AGS. Thanks to the stockholders, officers and guests for joining today. This year, we have stockholders, Board members and officers who are attending both in person and virtually. Please note that no one attending via the webcast or telephone is permitted to use any audio recording device. I'm Victor Gallo, AGS' General Counsel, Secretary and Compliance Officer and the Presiding Officer and Chair of this annual meeting. It's now 8 AM, and the meeting will please come to order. Also on the call with us today is John Page of PricewaterhouseCoopers, which has served as the company's independent registered public accounting firm for the fiscal years ended December 31, 2019, 2018 and 2017 as, well as Chris Kaoutzanis and John Kim from the law firm of Paul, Weiss, Rifkind, Wharton & Garrison, which serves as the company's outside legal counsel. I have, in my capacity as secretary of AGS, submitted an affidavit of mailing, establishing that notice of this meeting was duly given. A copy of the notice of meeting and the affidavit of mailing will be incorporated into the minutes of this meeting. All stockholders of record at the close of business on May 8, 2020, are entitled to vote at this meeting. This meeting is convened in accordance with the notice of Annual Meeting of Stockholders that was first mailed on May 12, 2020, to stockholders of record as of May 8, 2020. You may find rules of conduct and other materials at the web portal when you entered into this meeting. Or if you are attending in person, those materials are available in this conference room as well. We ask that you follow these rules in fairness to all stockholders and in order to facilitate an orderly meeting. As stated in the rules of conduct, the stockholder should not address the meeting until recognized. You may use the web portal to submit questions that will be taken up in the question-and-answer portion of the meeting. AGS has, in accordance with its bylaws, appointed Ted Wiener, representing American Stock Transfer & Trust Company, as the independent inspector of election. Mr. Wiener has submitted to me an oath of inspection of election, which will be incorporated into the minutes of this meeting. Before we move on to the proposals, our President and Chief Executive Officer, David Lopez, will provide a brief business update. David?

Thank you, Vic, and thank you, everyone, for attending today, either in person or via our web portal. On our first quarter earnings call in early May, I detailed the various measures AGS initiated to navigate our business through the challenging environment caused by the COVID-19 pandemic. As casinos started to suspend operations in March, we took immediate action to manage our cash outlays in order to best preserve liquidity. We actively reduced all nonessential discretionary spending, and we took a hard look at all operating expenses, including making some tough calls as it related to our workforce. We also scaled back all growth capital expenditures and optimization efforts while we're in the midst of shutdowns. On March 19, we borrowed the full amount of $30 million under our revolving credit facility, and on May 1, we announced that we closed an incremental term loan of $95 million and received financial covenant relief through 2020 by amending our existing credit agreement. As a result of these actions, we reduced our cash outflow approximately 80% to $4 million per month, which excludes debt service costs of approximately $3.8 million. This provided us with sufficient liquidity to manage through the most trying times in April where essentially every casino was shut down and even since then as casinos have started to come back online through May and June. As of today, approximately 450 casinos have reopened, representing just under 50% of total casinos in North America. Over 11,600 units of our domestic recurring EGMs are now live, which is about 65% of our total domestic installed base. Our Mexico EGM units remain largely offline at the moment, however, we anticipate that casinos will start reopening in July and August. Performance from our active EGMs has been better than expected, albeit bolstered by pent-up demand as well as the stimulus benefit. Although casinos are steadily reopening, we are holding fairly steady on expenses, only ramping departments that are absolutely essential to run our business, such as field service and manufacturing. Prior to COVID, we were seeing strong initial performance from our new products, such as the Starwall and Orion Rise as well as continuing momentum from our new titles on Orion Portrait and our suite of table game progressives. For the balance of this year, we will lean on our strong recurring revenue footprint and our high-performing content, which in this environment is even more important than ever. Although faced with short and midterm challenges, the long-term opportunities for our business remain intact. We are encouraged by the spirit of the gambler and resiliency of our industry overall. Throughout this process, we have stayed dedicated to all of our stakeholders while keeping a close eye on our corporate culture, knowing that if we can treat our team members fairly through these extremely difficult times, we'll be a stronger and more competitive company as we transition into 2021. We want to thank all of our employees, our customers and our shareholders for their support. And with that, I'll turn it back to Vic.

The 4 proposals being considered at this annual meeting are explained in detail in the proxy statement that was made available to all stockholders entitled to vote. Each of the proposals being voted upon at this meeting is deemed to have been properly brought before the meeting. The first item and proposal 1, the election of Anna Massion, David Sambur and David Lopez to AGS' Board of Directors as Class III directors in each case for a term of 3 years expiring at the Annual Meeting of Stockholders to be held in 2023. In proposal 1, the Board recommended that stockholders vote for the election of Anna Massion, David Sambur and David Lopez. Anna Massion, David Sambur and David Lopez are current members of our Board of Directors. There have been no additional nominations received, and in accordance with the company's bylaws, no additional nominations may be made at this meeting. The nominations are therefore closed. Proposal 2 is the advisory vote to approve the compensation of the company's named executive officers. In proposal 2, the Board recommended that stockholders vote for the approval on an advisory basis of the compensation paid by the company to the named executive officers, as disclosed in the proxy statement. Proposal 3 is the approval of an amendment to AGS' Omnibus Incentive Plan to increase the number of shares of common stock authorized for issuance thereunder from 1,607,389 shares to 4,607,389 shares, an increase of 3 million shares. In proposal 3, the Board recommended that the stockholders vote for such an amendment to AGS' Omnibus Incentive Plan. Proposal 4 is the ratification of the appointment of PricewaterhouseCoopers as the company's independent registered public accounting firm for the fiscal year ending December 31, 2020. In proposal 4, the Board recommended that stockholders vote for such ratification of the appointment of PricewaterhouseCoopers as the company's independent registered public accounting firm for the fiscal year ending December 31, 2020. At this time, we will be glad to address any questions that you may have about the proposals to be voted on or anything related to the business of the company, including questions directed to John Page, the PwC representative. Only matters with respect to the proposals should be raised at this time. [Operator Instructions] We'll give it a couple of minutes to see if any additional questions arise. If not, we'll move the meeting on. We'll just give it a minute. Okay. If there are no questions at this time, I declare the polls open. Any record stockholders desiring to vote in person should do so at this time. If you're a record stockholder entitled to vote and have not yet voted or want to change your vote, now is the time to do so by clicking on the voting button on the web portal and following the instructions there. [Voting]

It appearing that everyone wishing to cast a ballot has done so, the polls are now closed on all proposals. Based on the results and information we have received from the inspector of election, I declare the following: with respect to proposal 1, each of Anna Massion, David Sambur and David Lopez has been elected to AGS' Board of Directors as a Class III director for a term of 3 years expiring at the Annual Meeting of Stockholders to be held in 2023. With respect to proposal 2, the advisory vote to approve the compensation of the company's named executive officers has been approved. With respect to proposal 3, the amendment to AGS' Omnibus Incentive Plan to increase the number of shares of common stock authorized for issuance thereunder from 1,607,389 shares to 4,607,389 shares, an increase of 3 million shares, has been approved. And with respect to proposal 4, the ratification of the appointment of PricewaterhouseCoopers as the company's independent registered public accounting firm for the fiscal year ending December 31, 2020, has been approved. The final results of the vote, including the precise vote counts for the above 4 proposals will be included in the current report on Form 8-K, which AGS will file with the Securities and Exchange Commission. The business and procedural aspects of the meeting are now concluded. The results of the vote will be incorporated into the minutes of this meeting. That concludes the meeting, and we are officially adjourned. I would like to take this opportunity to thank you for your attendance and interest. Operator, we're done.