"We ended our first year as a public company with a solid fourth quarter and 35% growth in annual revenue," said Chief Executive Officer David Lopez. "Our continued top line growth, increased operating cash, and free cash flow generation reflects the industry-leading performance of our products and AGS' unique position given how underrepresented we are in the market. These two factors contributed to our phenomenal growth in electronic gaming machines ("EGMs"), ending the year with more than 4,300 sold units, a 71% increase from fiscal 2017. We kicked off 2019 with the close of our acquisition of Integrity Gaming Corp., which bolsters our recurring revenue footprint and provides long-term optimization opportunities. With new product and content launches, further penetration of both new and early-entry markets, and international expansion, AGS is positioned for another high-growth year in 2019."
Fourth Quarter 2018 Financial Highlights
Fourth Quarter Business Highlights
Balance Sheet Review
Capital expenditures increased $7.4 million to $22.0 million in the fourth quarter, compared to $14.6 million in the prior year period due to increased recurring units. As of December 31, 2018, we had $70.7 million in cash and cash equivalents compared to $19.2 million at December 31, 2017. Total net debt, which is the principal amount of debt outstanding less cash and cash equivalents as of December 31, 2018, was approximately $468.1 million compared to $648.7 million at December 31, 2017. This substantial reduction was driven by the IPO and related redemption of our HoldCo PIK notes during the first quarter. In the fourth quarter, net debt decreased by over $8.8 million due to a higher balance of cash and cash equivalents and mandatory principal payments on our term loans. As a result of the above transactions and our strong operational performance, our total net debt leverage ratio, decreased from 6.1 times at December 31, 2017, to 3.4 times at December 31, 2018. (4)
Acquisition of Integrity Gaming Corp.
On February 8, 2019, we completed the acquisition of Integrity Gaming Corp. ("Integrity"), a regional slot route operator with approximately 2,600 recurring revenue gaming machines in operation across over 33 casinos in Oklahoma and Texas. Under the terms of the deal, AGS acquired all issued and outstanding common shares of Integrity for a cash payment of CAD$0.46 per share, reflecting a total transaction value of USD$49.0 million, which includes repaying USD$35.0 million of Integrity's outstanding debt. The acquisition was funded with cash on the balance sheet and funds from the new $30 million term loan facility closed on October 5, 2018.
Entry Into Philippines
We recently completed the necessary regulatory requirements in the Philippines and initial units of our Alora video bingo cabinet are now live. The Philippines video bingo market comprises approximately 70,000 machines currently, and we are confident that our content and innovative cabinet will be a competitive market addition.
We expect to generate total Adjusted EBITDA(4) of $160.0 - $164.0 million in 2019, representing growth of approximately 17% - 20% compared to 2018.
We further expect 2019 capital expenditures to be in the range of $65.0 - $69.0 million, compared to $66.2 million in 2018, reflecting an expectation for a continued increase in our installed base in both existing and new markets as well as our ongoing yield optimization initiative, which includes units recently purchased from Integrity.
We expect our total net debt leverage ratio, excluding any potential future M&A, to be at or below 3.0 times within the next 12 months.
We have not provided a reconciliation of forward-looking total Adjusted EBITDA and total net debt leverage ratio to the most directly comparable GAAP financial measure, net income (loss), due primarily to the variability and difficulty in making accurate forecasts and projections of the variable and individual adjustments for a reconciliation to net income (loss), as not all of the information necessary for a quantitative reconciliation is available to us without unreasonable effort.
We expect that the main components of net income (loss) for fiscal year 2019 will consist of operating expenses, interest expenses as well as other expenses (income) and income tax expenses, which are inherently difficult to forecast and quantify with reasonable accuracy without unreasonable efforts. The amounts associated with these items have historically and may continue to vary significantly from quarter to quarter and material changes to these items could have a significant effect on our future GAAP results.