PlayAGS Rallies on Q4 Earnings Preview, Debt Refinancing Plan

Posted on: January 18, 2022, 07:57h. 

Last updated on: January 18, 2022, 02:40h.

On a rough day for the broader market and amid mixed performance by casino stocks, PlayAGS (NYSE:AGS) is standing out. That’s after the gaming supplier revealed a bullish preview of its fourth-quarter results and a debt refinancing effort.

PlayAGS slot machines, seen in the illustration above. Their stock is soaring on a new debt reduction plan. (Image: PlayAGS)

In early trading, shares of the Las Vegas-based slot machine manufacturer and gaming fintech provider are higher by nearly six percent. That’s putting the stock on pace for its highest close in about two months after forecasting revenue and earnings before interest, taxes, depreciation and amortization (EBITDA) for the fourth quarter that easily beat the results posted in the last three months of 2020.

PlayAGS is forecasting adjusted EBITDA of $30.67 million to $32.82 million on sales of $68.4 million to $70.8 million for the October through December period of 2021. That compares with adjusted EBITDA of $21.29 million on revenue of $46.62 million in the year-earlier quarter. The company’s EBTIDA margin is expected to be 44.8 percent to 46.4 percent, compared with 45.7 percent in the final three months of 2020.

PlayAGS, which is one of the more favored small-cap gaming names among analysts, is in the process of finalizing fourth-quarter and full-year financial reports. Those updates are scheduled to be delivered on March 10 after the close of US markets.

Refinancing Effort Lifting PlayAGS, Too

In addition to the aforementioned fourth-quarter preview, investors are also likely cheering the PlayAGS plan to refinance outstanding obligations and lower net leverage.

A refinancing transaction could include increasing the size of the company’s revolving credit facility, extending its debt maturities and reducing its borrowing costs,” according to a statement. “Additionally, the company could look to use a material amount of cash on the company’s balance sheet that could exceed $50 million in connection with such refinancing.”

PlayAGS didn’t reveal a date for potential debt-related transactions. But companies across a variety of industries may be looking to refinance outstanding obligations ahead of the Federal Reserve raising interest rates. The central bank’s tightening cycle could start as soon as March.

Free cash flow (FCF) can help with that effort, and some analysts are bullish on the company’s prospects on that front. The slot maker is forecasting a fourth-quarter FCF of $5.5 million to $11.5 million, or at least more than double the $2.35 million posted in the comparable period in 2020.

Encouraging Net Leverage Target

Investors are also likely applauding a plan by PlayAGS to dramatically reduce net leverage — net debt divided by trailing 12-month EBITDA.

For the final three months of 2021, the company is forecasting a net leverage ratio of 4.2x to 4.3x. But it’s aiming to get that figure down to 4x by the end of this year.

The company’s net leverage ratio target does not contemplate, nor is it dependent upon, a refinancing of its outstanding indebtedness,” it said in the statement.

Those efforts could be supported by a brisk pace of new installations and sales at regional and tribal casinos, as operators renew their focus on high-margin gaming opportunities.