David Lopez - CEO, President & Director Julia Boguslawski - CMO & Executive VP of IR Kimo Akiona - CFO, CAO & Treasurer.

Brad Boyer - Stifel David Katz - Jefferies Carlo Santarelli - Deutsche Bank Chad Beynon - Macquarie John DeCree - Union Gaming.

Good day, and welcome to the AGS Second Quarter 2018 Earnings Call and Webcast. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Julia Boguslawski, Chief Marketing Officer and EVP of Investor Relations. Please go ahead..

Thank you, and good afternoon, everyone. Welcome to AGS' Second Quarter 2018 Earnings Conference Call. With me today are David Lopez, CEO; and Kimo Akiona, CFO. We posted a slide presentation reviewing our key operational and financial highlights for the second quarter 2018, which can be found on our investor relations website, Investors. PlayAGS.com.

Now I will quickly cover the Safe Harbor. Today's call is to provide you with information regarding our Q2 2018 performance in addition to our financial outlook. This conference call includes forward-looking statements.

Any statement that refers to expectations, projections, or other characterizations of future events including financial projections or future market conditions, is a forward-looking statement based on assumptions today.

Actual results may differ materially from those expressed in these forward-looking statements, and we make no obligation to update our disclosures.

For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the earnings release that we issued today as well as risks described in our annual report on Form 10-K, particularly in the section of these documents titled, "Risk Factors".

Our commentary today will also include non-GAAP financial measures. We believe that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends.

These measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Reconciliations between GAAP and non-GAAP metrics or reported results can be found in our earnings release, issued today. Please refer to our filings with the SEC for more information.

With that, I'd like to turn the call over to our CEO, David Lopez..

Thank you, Julia, and hello, everyone, and thanks for joining AGS' Q2 Earnings Call. For those using the slide deck, please turn to slide 3. I'll start by providing a brief overview of our second quarter operational highlights, along with some color on our progress against various growth initiatives.

After a financial overview from Kimo, I'll close the call and update on our outlook for the balance of the year. I'm pleased to announce that we achieved many records for the company in the second quarter, including revenue, adjusted EBITDA, recurring revenue, sales revenue, ASPs, and domestic RP, to name more than a few.

Coming off a record-breaking first quarter, I was extremely proud of the team for continuing to deliver such solid results. Q2 was a quarter highlighted by ongoing momentum in our EGM segment, driven by the Orion Portrait Cabinet and bolstered by the successful launch of the new Orion Slant Cabinet.

We also announced the introduction of a new revenue channel for our interactive business in the quarter, and reported meaningful year-over-year progress in our tables business. Slide 3 shows that Q2 revenue of approximately $72.8 million was up more than 45% year-over-year. Net loss of $5.3 million also improved, up 74%.

Adjusted EBITDA grew to approximately $36.6 million, up 40% over last year. Although we achieved record sales in the second quarter, I'm pleased to report that we also achieved record recurring revenue of $52.6 million, which grew 26% year-over-year and 6% sequentially.

These year-over-year double-digit gains in revenue and EBITDA were primarily driven by new placements and follow-on orders of our Orion Portrait Cabinet in both early-entry and ramping markets, as well as the introduction of our new core-plus cabinet, the Orion Slant.

Additionally, second-quarter performance benefited from steady icon placements and the inclusion of the Rocket Gaming and In Bet assets from our strategic acquisitions in the second half of 2017. With that, I'll now provide an update on our segment performance for the quarter.

Turning to our EGM segment on slide 5, Q2 marked an exceptional sales effort for AGS with 1,058 cabinets sold, the most in our company's history. Approximately 60% of the sold units were the Orion Portrait Cabinet, and 12% came from Orion Slant, demonstrating strong customer acceptance and performance for our new cabinet.

Like the last couple of quarters, sales were driven by placements across the entire country, with nearly 60 different operators across 19 states, including two Canadian jurisdictions. 21% of the sold units went into California across 11 properties, in addition to strong placements in both Nevada and New Jersey.

Corporate orders comprised approximately 50% of EGM sales revenue in the quarter, highlighting our success making inroads with this important customer subset.

EGM sales performance also benefited from the opening of the Hard Rock in Atlantic City, in addition to the new Palms remodel in Las Vegas, contributing about $1.8 million in revenue in the second quarter. For sold units, the story for Q2 still centered on our Orion Portrait Cabinet.

We have seen many customers who either took initial orders late last year or early this year, re-ordered the Orion Portrait in a much more meaningful way the second time around based on its initial performance. Our deepening title library for this cabinet has really extended its staying power, as well as created new opportunities for more placements.

A great example of our high-quality game library is our new Olympus Strikes, which has some very promising performance figures right out of the gate. We plan to release another 10 to 12 new titles for Orion Portrait before the end of 2018. We reported a total recurring EGM Base of 24,523 units, up 14% year-over-year.

In addition to the inclusion of the Rocket Gaming EGMs, recurring unit growth was bolstered by new openings and expansions over the past 12 months. In the quarter, we placed 50 Orion Slants on lease in addition to nearly 400 new recurring placements in Mexico.

We grew our recurring base 9% year-over-year in this market, driven by new customer relationships that resulted in additional floor share for AGS. We are also excited to announce that we've launched ICON into Mexico, with roughly 200 total units in the market.

We're confident that we have increased the potential for new units, and have also created more optimization opportunities in Mexico based on the initial performance of the ICON Cabinet. Other international opportunities include the launch of the ALORA Video Bingo Cabinet into the Philippines.

We had initially anticipated these units would go live earlier, but new regulatory rules and processes required us to re-ship our trial units so that they complied with the new operating procedures. Based on the revised timeline, we anticipate units to go live in Q4 after initial trial units are installed in September.

We've made good progress with our yield optimization strategy, upgrading nearly 1,500 of our legacy machines on a trailing 12-month basis with our latest high-performing products. We are now starting to see real RPD improvement as the base of upgraded units continues to grow.

As of Q2, approximately $8.3 million of trailing 12-month recurring revenue came from our optimization efforts in both the U.S. and Mexico.

As a result of optimization, growing the recurring footprint with new, high-performing product, and the overall health of our poor tribal markets, domestic RPD grew to its highest level in years, averaging $27.79 in Q2. This grew $1.90 from the prior-year period, and $1.07 sequentially.

As of Q2, we had more than 3,600 Orion Portrait Cabinets installed with roughly 52% sold, 44% on lease, and 4% on trial. Our trial conversion rate on Orion continues to hold at 99%, and our removal rate is under 1%, which is even more impressive considering our installation base is growing at a fast pace.

The result of the Q2 Eilers Fantini Slot Survey shown on slide 6 highlighted AGS's casino-owned game performance, maintaining its industry-leading 1.7 times house average position, leading all suppliers. This quarter marks the sixth consecutive quarter that we have held this position.

Our leased game performance of 2.2 times house average was second only to Aristocrat. We are also pleased that the most recent survey results reflected AGS had attained more than 7% ship share for the quarter, which includes route operations and was about 330 basis points higher than our trailing 12-month average.

These are just survey placements, not indicative of the entire domestic market. However, we believe the trend is in line with the kind of momentum we're seeing in the marketplace. As slide 11 highlights, we continue to make progress on our goal to achieve 5% market share.

By maintaining 5% and above ship share since the initial rollout of the Orion Portrait in Q1 of '17, we feel very confident that we are on the right path to hit that target.

Moving on to tables, in the second quarter we achieved record revenue of $1.8 million, up 152% year-over-year, due to the strong placements of Bonus Spin and the inclusion of the In Bet asset, specifically Super 4 Blackjack, on our STAX Progressive.

This is our third quarter reporting positive adjusted EBITDA in our table segment, and we saw 122% EBITDA growth over the prior-year period. Our table product footprint grew by 56% year-over-year with an installation base of 2,737 units. The inclusion of the In Bet games and growth of Bonus Spin placements drove performance.

We are pleased to announce that AGS had an impressive share of table games at two new property ownings in Atlantic City in Q2. Between Ocean Club and Hard Rock, we placed more than 60 Super 4 Blackjack Progressives, which speaks to the many competitive advantages of our products and our team.

Super 4 is the fastest-growing product in our table portfolio, as the blackjack experience is significantly elevated with the must-hit feature, and a five-level progressive jackpot.

Our first placements of Super 4 in Nevada are going live as we speak at Sunset Station, and we feel confident that this installation opens the door for additional units at other Station properties.

Driven by Criss Cross Poker, we also added approximately 20 premium games in the quarter which carry our highest ALP in the segment, in addition to adding more than 30 Bonus Spins. We now have 220 Bonus Spins in the marketplace, and together with our progressive including STAX, that grows the table progressive footprint to approximately 720 units.

Finally, performance in the quarter was further enhanced by the sale of roulette table signage, resulting in approximately $100,000 in the quarter. This sale underscores the depth and breadth of our table products portfolio, as we have more than 30 products available to cover nearly every part of the table gaming fit.

That also includes card shufflers, and I'm pleased to announce that we have had a trial unit of the Dex S shuffler live in California for almost two weeks now. Initial performance has been solid, and the shuffler has held up well in a busy casino environment.

We'll continue to monitor performance closely, and prepare to launch at more test locations with a goal to commercialize by the end of the year. In the interactive segment on slide 8, we reported $1.7 million in revenue in the quarter, which was nearly all recurring, and down 13% year-over-year.

The decline is in line with our strategy of pivoting from B2C to other interactive revenue models such as B2B and Real Money Gaming, which also contributed to the EBITDA decline of $258,000 year-over-year. Interactive EBITDA was also negatively impacted by the acquisition of Gameiom, a Gibraltar and U.K.-licensed content aggregator in the U.K.

The acquisition of Gameiom supports our strategy to expand distribution channels for our industry-leaning game content and enables AGS to participate in RMG, or Real Money Gaming, in the online space.

Gameiom currently distributes content from more than 15 gaming suppliers, and their flexible, scalable and open RGS platform can deliver hundreds of games to online operators quickly and reliably. Gameiom has signed deals and completed integration with five of the top Gibraltar operators, including Ladbrokes Coral, 888, William Hill, and Bet Victor.

We believe that these integrations, along with signing on new operators and expanding our supplier relationships will help drive meaningful growth in our interactive segment, specifically next year as the business further scales and we enter into new jurisdictions.

On the B2B side of our social business, in Q2 we officially launched the Social White-Label for Akwesasne Mohawk Casino and Resort, a major B2B customer for AGS.

This was a big win for us, as the installation included an integration with the IGT Casino Management system, and we received comprehensive support from the property to launch the app to their customers. Early results are very positive, and show significantly higher payer conversion and engagement than anticipated.

Also I'm pleased to announce that just yesterday, we launched our Social White-Label solution with Stars Group, who is planning to launch Casino Stars on iOS and Google Play later this month. What's more, we built a solid pipeline of interested customers that will help drive growth in the B2B social side of our business in 2019 and beyond.

Before I hand it over to Kimo, I would also like to mention that during the quarter we hosted our third annual GameON Customer Summit at Pachanga Resort and Casino in early June.

More than 100 customers attended the 2-day event, and more than half of the attendees were senior level executives at tribal and commercial casinos across North America and Mexico. Our team, along with the impressive roster of industry and technology thought leaders, presented 15 conference sessions on a host of topics relevant to casino operators.

Response at this event was extremely positive, with 92% of customers saying that they are even more likely to engage with AGS and purchase products after attending the conference. Additionally, we also hosted our first-ever GameON in Mexico earlier in the quarter. With that, Kimo will now go through a discussion of our financial results..

premium, side bets, as well as progressives. For the third quarter in a row, table products segment contributed positive adjusted EBITDA of nearly $0.1 million, which was an increase of over $0.4 million.

Interactive revenues slightly decreased to $1.7 million for the quarter, due to the continued optimization of user acquisition spend in our B2C social business offset by $0.1 million increase in B2B revenues.

Interactive adjusted EBITDA declined due to the revenue decline, and $0.4 million of additional operating cost from our recent acquisition of online content aggregator Gameiom from the acquisition date through the end of the quarter.

Moving on to our capital structure update on slide 9, total net debt, which is the principal amount of total debt less cash and cash equivalents, was $483.7 million as of June 30, 2018, compared to $648.7 million at December 31, 2017.

The substantial reduction was driven by the IPO and related redemption of our HoldCo pick notes during the first quarter. In the second quarter, net debt decreased by over $3 million due to mandatory principal payments on our term loans and a higher balance of cash and cash equivalents.

As a result of the above transactions and our strong operational performance, our total net debt leverage ratio, which is total net debt divided by adjusted EBITDA for the trailing 12-month period, decreased from 6.1 times at December 31, 2017 to 4.2 times at March 31, 2018, and now 3.8 times at June 30, 2018.

Capital expenditures were approximately $13.1 million for the second quarter of 2018, which comprised $8.7 million for growth machine CapEx, $2.7 million for intangible CapEx, $1.5 million of corporate CapEx, and $0.2 million of maintenance CapEx.

Turning to operating expenses, both SG&A and R&D expenses increased in the second quarter by $5 million and $0.7 million, respectively. The increase in SG&A is primarily due to $2.3 million in increased professional fees driven by costs associated with the acquisition of Gameiom, as well as costs associated with our previous offerings.

The remaining amount of the increase in SG&A, as well as the increase in R&D, relate primarily due to higher head count to support our growing business, and the development of our next-generation products such as Orion Slant and the Dex S card shuffler. With that, I will now turn the call back over to David for closing remarks..

Thank you, Kimo. 2018 is shaping up to be a momentous year for AGS, and we couldn't be more pleased with our first-half results.

If you turn to slide 12, you'll see that given our progress executing against our many growth initiatives on slides 10 and 11 in the first half of the year, and due to our improved visibility for the balance of the year, we are resetting our adjusted EBITDA guidance range and revising upwards.

The better-than-expected ongoing momentum of Orion Portrait, particularly in new markets like Canada where we have less than 1% market share and significant upside potential, gives us confidence to increase our 2018 guidance to a range of $132 million to $136 million in adjusted EBITDA.

This newly-increased guidance range is inclusive of a small adjusted EBITDA drag in 2018 related to operations from Gameiom as we invest, integrate, and scale the business to prepare for profitability in the first half of 2019.

Additionally, the $132 million to $136 million range takes into account the voluntary removal of approximately 500 underperforming EGMs in late July.

These units, all placed via one distributor in Texas, were not meeting our performance expectations, dragging down our average RPD, and we determined that these units would create better returns if redistributed to other locations.

With a very low RPD of $15.00 per day, we are more than confident in our ability to move swiftly to place these units throughout the U.S. and Mexico effectively executing on a large-scale optimization plan.

Despite the Gameiom impact and these EGM removals, we remain confident in the resiliency and growth of our recurring install base and the velocity of the sales business, which allowed us to substantially raise our guidance by lifting the bottom end by $6 million and top end by $5 million.

We recently announced our first order of more than 130 units in Alberta, that will be installed this month, which we believe will help accelerate us into the Canadian market.

Better-than-anticipated demand of Orion Slant, the rollout of the ALORA Video Bingo Cabinet, and pent-up demand for the Dex S card shuffler, will put us in a strong position entering 2019.

Additionally, obtaining new licenses for our Gameiom platform will help fuel growth by providing access to new operators in the Real Money Gaming space, as we continue to scale the business. We maintain our CapEx range of $55 million to $60 million, and we believe based on our growth opportunities we will be on the high end of this range.

From the results of our first six months as a publicly-traded company and our commentary today, it should be clear that Fiscal 2018 is shaping up to be a record year for AGS. We're very excited about our momentum and look forward to finishing up the year on a high note, as we position ourselves for 2019 and beyond.

Before we move to Q&A, I'd like to thank all our shareholders and customers for their continued support, investment and confidence in AGS, as well as the entire AGS team. With that, we'll move to the Q&A portion of the call..

[Operator Instructions] The first question will come from Brad Boyer with Stifel..

First question is for David, here, just around the product sales. Obviously 1,000-plus units is a lot better than what we were thinking, and I think what some others were thinking. You touched a little bit on kind of the diversity from the operator and geographic side of things.

Just curious if there's anything in there that was sort of lumpy, that might have pushed that number up? And asking this question in the context of kind of how to think about the opportunity here going forward..

I think it's a decent proxy. If you look at the last quarter, and how things have been going for us, we've been in this range. We've been in the ball park. So, I think from quarter-to-quarter you might see a little lumpiness overall, but being in that 800 to 1,000, plus-or-minus range, I think is a pretty consistent number for us at this time.

We're comfortable with it. It's not too far off from the Q1 number. I don't think there's anything grossly lumpy in the Q2 number. I think we usually do see that in one quarter a year, and I think last year it was Q3 we had some lumpiness.

But in this quarter, it's pretty consistent, spread across a lot of properties, a lot of jurisdictions, like we had said. But, a decent proxy for sales for us..

Yes, and Brad, I'll just add to that, too, I think David mentioned in the script that we had a little bump from new opening and some remodels, but really as David talked about, create growth from sort of all of our customers and some strong growth from corporates as well, which we actually think will continue..

Okay great, that's helpful. And then second question here, and I don't know if you guys can tease this out or not, but the basis of this question is just trying to get at sort of the opportunity here over the longer term, as we think through growth.

I mean, obviously you guys have an immense amount of white space out there still to address, but just curious as you look at the quarter, and I mean, we can just look at product sales, for instance.

If you have any sense of sort of how sales to customers that had existing products trended? Because obviously, as you guys diversify on the platform side with the Slant, part of the growth going forward is going to be revolving around getting existing customers to take more product on their floor. So just any thoughts around that would be helpful..

So I think we're all about the reorder at this point. You know, on the first go-around, and I think this was pretty much true on ICON and it's repeating history again, but our initial orders were always pretty modest from our customers. I think they were feeling us out on both ICON and Orion.

Orion, obviously, performs at a higher rate, but all the reorders have been pretty strong. You also saw, you might have saw the press release we put out for Alberta. That's one where Alberta came in strong, right up front, but we also believe that we'll probably see a reorder in the future from them. So it's something that we're used to.

It's something that I think our sales guys are very good at going back and getting that reorder, and it's just a part of normal business. So I think a good portion of what we do these days really truly is reorders, and starting off modest and coming on with a stronger order seems to be the trend with a lot of our customers..

Thanks, and thanks for the heads-up on that press release. I'll check that out. Lastly, for Kimo, just a question around the reiteration of the CapEx budget, and I think there was a comment at the end there that it may come in toward the top end of the range.

I mean obviously, if we look at the numbers here, some of the commentary, there's clearly a growing preference to purchase some of these premium cabinets over leasing them. So, I think the lease expectations today relative to maybe where we were at the start of the year might be a little less.

So just curious, what's driving the decision to reiterate the CapEx guidance range at this point?.

I think we talk a lot about optimization, and I think you can see that initiative bearing fruit. I think part of the RPD growth that you saw last quarter, and what you saw this quarter, is coming from the groundwork that we've been laying for call it over 18 months now.

Our expectation is that we'll continue to comb through our lease base in the U.S., and now we're even doing it in Mexico, and we're going to continue to deploy capital to kind of improve the install base because we're seeing the returns. And I think those returns, next to new incremental installs, are the best use of our capital.

So we're going to continue to do that for the balance of the year..

The next question will come from David Katz with Jefferies..

Just thinking a little bit longer-term, you're obviously having a lot of success with the current range of cabinets that you have.

When we look out over the next 12 to 24 months, will you need more cabinets in order to keep the momentum going? At what point should we be starting to think about that?.

That's a great question, and if you're ever in Atlanta I will meet you there. So we've got a pretty good stable of products that'll be coming out over the next few years. You know, we've quoted a few times by the year 2020 I think how many cabinets; I think it's four more or so cabinets that we'll have.

So we view that rotation of cabinets to be part of our success. I think if you look back at the gaming space and in supply, who's been successful, it's been keeping things fresh on the hardware side and being out front of things. Not waiting for your cabinet to get dated, or starting to look old.

So we know on the next round, what will we attack next, what cabinet will get replaced. We want to obsolete ourselves, obviously. We want to stay focused on that. We commit a good portion of our revenue, as a percentage of our revenue, to R&D.

We're going to continue to do that, and obviously a part of that R&D spend is our hardware, so we're uber-focused on the hardware. And again, I mean honestly, if you're ever in Atlanta, happy to even show you sort of our work in progress. It's always fun to see..

Okay, I'll pick you up.

One other question, which is - and I think this was touched on earlier - if I'm adding the first two quarters together, and assuming that there should be a similar curve to what you had last year, which I think was kind of a peak in the third quarter, right? If we're $71 million through two quarters and 3Q is bigger, it does imply that your guidance is a little bit on the conservative side..

I think if you - yes, it's a good question. I think we know that there's always a little bit of seasonality in that Q4 number. Remember, there's some things, and there's some expenses, I think like G2E and some other things. We know that Gameiom is in there, as Kimo's saying, so we've got Gameiom in there.

We've included that in that guidance figure for you. Like I said, G2E. But we have a bit of seasonality, yes. Q3 we hit a little bit of a bump usually, we get a little bit of a bump in Q3. Our seasonality is up there. And then down in Q4, a tad from there. So I'd say that the range that we're giving you is a good range.

It's where we see and what we see today in the visibility that we have, and we're confident in that range that we provided..

Got it.

One last one, if I may? As we start to think about next year and pencil out 2019, could we be, Kimo, on the doorstep of some free cash flow? And is that too high-class a problem for you to start thinking about at this stage as to what you might do with that?.

Yes, I think - you know, so we've sort of talked about it a little bit before, that we feel like next year feels like an inflection point. We always like to asterisk that with, that's excluding any kind of Brazil opportunity or anything large that comes up.

But I think next year is an inflection point, where you'll see free cash flow starting to build, and then we'll make our decision what we do with that, obviously. I think, like you mention, it's a high-class problem.

We'd rather be I think addressing kind of new deployments and more lease opportunities, but when that day comes, I think it'll be a high-class problem to have for sure..

The next question will come from Carlo Santarelli with Deutsche Bank..

David, just to touch base again on the comments you made on Texas, and I just want to go through quickly kind of where, how you're thinking about like the op space as we move through the rest of the year.

Because obviously, you have the - I think it was 500 installed machines that you'll be taking out of Texas and redeploying? And then if I'm not mistaken, in the fourth quarter there's some Illinois stuff that will take some machines out of the base as well? Do you feel like between the redeployments and the incremental installs, the base could look anywhere remotely similar at the end of the year? Or are we kind of going lower with all that stuff?.

So I think on the year, we know we're going to be positive. So when I refer to our install base, I'm including all of our install base, North America, meaning including Mexico. So when I usually refer to these numbers, I'll refer to everything. So yes, we'll be positive on the year, and that's one of the reasons.

We knew we'd be positive if we went ahead and did this. But what this came down to was really a good long-term decision for us and our shareholders to take and redeploy those units. As I said in the prepared remarks, they're underperforming. They're around $15.00 a day.

I think our domestic RPD just going off memory from my comments was around $27.00 a day. That's pretty much, I consider that not a good use of our capital because those units are our capital. So we want to take this opportunity and do it really from a position of strength, while things are going very well, to remove those units, refurb them, redeploy.

So it's going to break down, a lot of them will go to Mexico, and how we break it down from there, I think it's about 60% will go to optimizing units. 40% will go to new installs of the optimized units. We'll see those go out mostly in Q3, so we'll get a nice little RPD leftover time from those.

And I believe that the majority of the new installs from these removals that get refurbished will be done by the end of the year. So we think we'll be in good shape. Again, a lot of those units going to Mexico, small balance coming to the U.S. for some optimization and some other installs.

But we feel very comfortable in our ability to get out there and be productive, and really make the best use of our - we'll call it cash, in this instance, right?.

Yes. No, for sure.

Great, that's super-helpful, and then just in terms of as you think about the integration of the acquisition as well as the human capital that you've brought on, and obviously as Kimo talked about a little bit, some of the incremental SG&A that's coming on from that, do you guys feel you're fairly well-situated right now with respect to the scope of what you're doing, the new markets you're entering, as well as the verticals that you're kind of hitting what's hopefully an inflection point, most notably the table side, with respect to your corporate and department-level management?.

Yes, I think as far as our infrastructure goes, and I guess if you're talking about - I don't know if you're talking about Gameiom, or if you're just talking about really just the whole of the company?.

No, the whole of the company, I'm sorry..

Yes, so I think that we're in pretty good shape from a corporate infrastructure point of view, that we're very comfortable there. Where you'll see our investment as we grow, as revenue grows, you'll see the investments coming in sort of the obvious departments. R&D will grow with it because that's our future.

Yes, the service department will grow and we'll also continue to invest in sales. We're going to look to continue to drive the business through R&D, sales, and obviously we want to provide great customer service to our customers. So we're going to keep our service ratios intact..

The next question comes from Chad Beynon with Macquarie..

Wanted to touch on the Slant, given how recent the launch was, and you noted in the presentation that you have 275 out there in the field. Obviously this isn't as premium of a product as the Portrait.

Can you talk about if this has been complementary in casinos, or are operators taking this because of your performance with the Portrait and that's one of the reasons why they're taking it on? And then more importantly, how has it performed? Obviously it shouldn't perform as well as the Portrait, given the ASP, but just some color on how the performance has been? Thanks..

Thanks. So, good question. I think that - why are people taking the Slant? I think, number one, although it's not priced as our uber-premium, super-premium cabinet, it's still priced pretty well.

So, I think that it's a very attractive cabinet, very competitive in that slant space, but at the end of the day I think the customers are going to be taking long-term - forget about the moment that we live in right now.

Long-term, we have unique content that will be delivered to the Slant cabinet, and we believe in our content, we believe in our ability to create great content going forward, and we're going to put unique content on there. And I think that's what's going to drive a lot of that.

There's also a very good portion of the floor that sort of demands that sort of slant product. We want our piece of that floor, and that combined obviously with our ability to create great games that are uniquely developed for Slant, I think will drive that business for us..

Thank you, David. And then Kimo, a differently-asked question on the free cash flow and kind of what to do. Your leverage you noted at the end of the quarter is 3.8. That could look even a little bit lower than that, given your updated guidance. You have a revolver out there, your term loans are priced pretty attractively.

If you're in a position to do anything from an M&A standpoint, do you look at more things like the Gameiom, are there certain segments within the overall gaming space that are more attractive? And then secondarily, what is the right leverage target? Thank you..

The leverage target, I think we always have said that we're comfortable where we're at. I think Q2 is, it's exciting that the business has accelerated at a pace where I think it allowed us to hit 3.8 sooner than I even though, I think that day might have come a little bit later in the year. So I think, I sit here very happy at where we are today.

I think I'll let David take the acquisition question, because I think we answer it kind of in a multi-faceted way, that the hurdle is really high. I think if you look at where the business is today, we're hitting a pace and we have in our core business everything we need to go after the white space.

And every time we look at every opportunity, the biggest thing we look at is what's going to distract us from attacking that white space. I think it's a lot of different hurdles, but I think I'll let David take the acquisition side of that question..

Yes, so again, good question. I think that we've always had the philosophy that tuck-ins will suit us very well. We've done those.

As far as like, we've referred to it in our various businesses, not necessarily big acquisitions all the time but we like to steal some bases here and there, right? And so you do some low-cost acquisitions that we think there's value in, from a multiple perspective, and then we take that business and we sort of blow it up and make it better.

I think the other perspective, and I think Kimo talked about it, that we're comfortable with where we are, what we have for a foundation. We're very comfortable, although working very hard to enhance our R&D teams. That's for the - to address the existing white space.

But as we like to think about where we are today, and the number we just guided to today, we're thinking for our shareholders, we're thinking about the road to $250 million in EBITDA.

So, as we think about that, we like to continue to address these various things in the company, what our infrastructure looks like, how we feel about R&D teams, do we need another studio here or there, do we want to invest in maybe a studio or something special for Gameiom. Whatever it may be, I think that we evaluate it as it goes on.

But the hurdle is high. We don't set it low, right? We want to make sure that we're not reaching too far.

We want to make sure that, as we always say, that it's responsible growth for our shareholders, and I think that's something that we've been focused on, we'll continue to be focused on, but we evaluate all these things and what we like to refer to now, and we've talked recently about, as the road to $250 million in EBITDA.

Those are the things that we evaluate..

The next question will be from John DeCree with Union Gaming..

I just wanted to talk, I guess high-level, about white space as you enter new markets and maybe Alberta is a good example.

What are some of the milestones that you kind of look ahead to, in terms of increasing your penetration or getting four share in a market, in terms of timing and how quickly you can get in there? If there's - you know, if it's a lot of regulatory stuff you have to get through, is it identifying customers, does the game have to prove in that market, what are some of the things you kind of look at before you really start to see your penetration really pick up in new markets? And maybe Alberta's a good example, since it's topical right now?.

Yes, our general counsel is in the room, and I'd like to say, just give us our licenses and we'll set the boys free. I mean, honestly, it's not - I'd love to give you some great, sophisticated answer, John, but really it's, can you please get us a license? Thank you very much. It's done, and then we let the dogs out.

I mean, we get them after our customers. They know our customers, they know how to be successful. We have a great development team. We've got a great hardware product. We've got great products across table games and slots, the whole nine yards.

And so I think it's really just about getting the approvals, and I keep looking at our general counsel because that's really the cornerstone to our success in every jurisdiction.

Our contents translated great, and if you think about it now, it's all the way from up north in Canada, right down into Mexico, the content translates to every state, every country, every jurisdiction, every province that we get into. And that's something that we anticipated.

It's nice to see that our anticipation comes to fruition, but it's also, I think the big hurdle is just getting the license, getting our initial installs, and I think pointing back to that Alberta press release, that's an initial order. That's before they really even get out there and get numerous installs..

Got it, thanks for that color, David. Just one question, perhaps a little color on your views on pricing, your for sale product? It's one of the highest ASPs we see in the sector, in three consecutive quarters of sequential growth. Obviously, games are performing at the top.

What's your ability, or how do you think about continuing to drive ASP higher going forward? Can you really command the price that you want? Is it kind of more of a mix issue as we go forward, and is there much more room, is that ASP can get higher if it's already getting up there very nicely..

Yeah, so I think it just comes down to mix, John. I think that it's not necessarily about us continue to command the price. I think that our boys are pretty sticky on their pricing. They do a good job of supporting our pricing schedule.

Obviously, there's discounts for volume and stuff like that, but they stick to the plan on pricing, and I think that that ASP rising is just more about mix, where as we see the Orion products, or the Orion family, start to take over from ICON a little bit.

And obviously we're okay with that, because you're seeing that rise, not just in ASP but we're obviously seeing it in ALP as well. So, it's a good observation, but I think that that - the driver there is mostly mixed from ICON to Orion, generally speaking.

I think that as we go into some other jurisdictions, you know, in the new jurisdictions too, we'll see more sales and obviously some of those sales are lower quantity. So as you saw in my prepared remarks, we spread our cabinet sales across a lot of customers.

It's not always just these big homers that we're hitting to get an install, so when you do lower quantity per customer, but we're still doing good numbers for the quarter, you can see how that also affects ASP.

But across the board, though, our guys are doing a fantastic job in sales of holding the line, and driving up that ASP by getting Orion out there..

Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to David Lopez for any closing remarks..

Thank you very much. We appreciate you guys calling in. (technical difficulty) after Q3. Appreciate it..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..