GS reported Wednesday operating results for its second quarter ended June 30, 2019. Total revenue increased by 2% to $74.5 million, driven by record gaming operations revenue, or recurring revenue, from increases in the company’s EGM and Table Products segments, as well EGM sales revenue.
“Results in the second quarter were mixed, with 2% year-over-year growth in both total and recurring revenue offset by a slight decrease in Adjusted EBITDA. The decrease was related to increased operating expenses as we continue to invest in strategic areas of our business, particularly in R&D, to capitalize on the vast whitespace in front of us,” said David Lopez, President and Chief Executive Officer. “With our many upcoming product launches, including the Orion UprightSM and three new slot innovations which we’ll showcase at G2E, we remain confident in the many opportunities for sustainable growth in the back half of 2019 and beyond.”
Gaming operations revenue grew to $53.6 million, up 2% year-over-year, driven by EGMs purchased from Integrity Gaming Corp., growth of AGS’ international installed base, and an increase in Table Products revenue.
EGM sold units increased 12% to 1,181 compared to 1,058 in the prior year, led by sales of the Orion PortraitSM and Orion SlantSM cabinets in markets such as Florida, Alabama, California, Nevada, and Mexico. Domestic EGM installed base grew by 1,774 units year-over-year, driven by the acquisition of 2,500 EGMs from Integrity. The prior year installed base included approximately 500 EGMs at one customer in Texas which were predominantly redeployed internationally and 700 VLT units that were purchased in an end-of-lease buyout.
EGM equipment sales revenue increased 3% to $20.8 million, driven by international sales. Domestic sales included 1,053 domestic units, of which nearly 70% were sold into early-entry markets such as Nevada, Canada, Michigan, and Pennsylvania.
Table Products revenue increased by 35% to $2.4 million, driven by increased progressive table game and side bet placements. There was an increase of 643 units year-over-year and 95 units sequentially, boosted by the continued growth of the Super 4 progressive blackjack, Buster Blackjack side bet, and Criss Cross PokerTM premium game offering. AGS expects that momentum and demand for its new Dex STM card shuffler will continue to grow, with approximately 100 shufflers currently installed in several markets across the U.S.
Net loss of $7.6 million was up 42% year-over-year from $5.3 million. Net loss includes an impairment of goodwill of $3.5 million and an impairment of intangible assets of $1.3 million related to the firm’s real money gaming business (iGaming) within its Interactive segment.
Total Adjusted EBITDA (non-GAAP) decreased by 2% to $35.7 million, mainly due to increased EGM-related headcount costs in SG&A and R&D, increased EGM service costs of $0.5 million associated with a larger installed base, and a $0.2 million increased loss in Interactive Adjusted EBITDA. Total Adjusted EBITDA margin decreased to 48% in the second quarter of 2019 compared to 50% in the prior year, driven by increased headcount related and service costs mentioned above.
As for the Interactive segment, social gaming revenue decreased $0.8 million as a result of strategically optimizing our user acquisition costs. The decrease in Interactive Adjusted EBITDA is primarily due to increased iGaming operating cost. iGaming Adjusted EBITDA loss was $0.7 million in the current period. AGS generated $0.2 million in revenue from iGaming in the current period.
The company’s social white-label casino solution ConnexSysSM is currently live with five operators, and there are five additional deals signed and pending launch. AGS now has more than 25 suppliers live across the iGaming platform with 13 new suppliers launched since Q1 2019.
Based on AGS’ year to date progress, the company is revising its annual adjusted EBITDA guidance. It now expects to generate total adjusted EBITDA of $145 – $150 million in 2019, representing growth of approximately 6% – 10% compared to the prior year period.
The change is due to several factors, including decreased gaming operations revenue in its EGM segment, largely due to product underperformance in Oklahoma; decreased gaming operations revenue in its Interactive segment caused by delayed entry into New Jersey, as well as select markets in Europe and Latin America; and decreased sales revenue from its EGM segment due to anticipated softness from certain corporate customers.