PlayAGS, Inc. (AGS) Q3 2018 Earnings Conference Call Transcript

PlayAGS, Inc. (AGS 5.07%)
Q3 2018 Earnings Conference Call
Nov. 8, 2018 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the AGS Q3 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. Please go ahead.

Julia Boguslawski -- Investor Relations

Thank you, and good afternoon, everyone. Welcome to AGS' third-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 third quarter 2018, which can be found on our Investor Relations website, investors.playags.com.

Today's call is to provide you with information regarding our Q3 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 for our 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.

David Lopez -- Chief Executive Officer

Thank you, Julia, and thank you, everyone, for joining AGS' Q3 earnings call. For those using the slide deck, please turn to Slide 3. I'll start by providing a brief overview of our third 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 with our outlook for the balance of the year.

I'm pleased to announce that we reported another solid quarter, fueled by exceptional sales volume resulting in 1,332 EGMs sold, the most in our company's history. Total revenue was a record, at $75.5 million, up 34% year over year, which was the result of continued demand and market penetration of our high-performing products. Q3 performance was underscored by ongoing momentum in our EGM segment, driven by the Orion family of cabinets and bolstered by our launch into Alberta and Ontario. Mexico continues to be a steady contributor, and Tables reported its best quarter to date, driven by our meaningful share of table products at the new MGM Springfield, opening in August.

Slide 4 shows that recurring revenue of $50.7 million grew 18% year over year. And finally, adjusted EBITDA grew to approximately $33.6 million, up 14% over last year. 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 early success of our new core-plus cabinet, the Orion Slant. Additionally, third-quarter performance benefited from the continued Icon placements and the inclusion of the Rocket Gaming and Invent assets from our strategic acquisitions in the second half of 2017.

With that, I'll now provide an update on segment performance for the quarter. Turning to our EGM segment, on Slide 5, revenue growth was fueled by our tremendous sales effort and our higher-priced products like Orion Portrait and Orion Slant comprising a strong percentage of the overall mix. Approximately 53% of sold units were the Orion Portrait cabinet, highlighting the fact that Orion Portrait continues to be the major growth engine in the EGM segment, with its performance being bolstered by the release of successful new games this year. Our Orion Portrait library now includes 23 titles, with a plan to add 18 more by Q2 2019.

We are still very underrepresented with Orion placements even on floors where we've had an existing footprint. And rebuys are driven -- are driving a good portion of our growth. Roughly 20% of EGM units came from Orion Slant, demonstrating strong customer acceptance and performance for our new cabinet, with 11 titles now available. With nearly 800 Orion Slants placed, including trials, after only five months in the field, we're very pleased with the rollout and look forward to even greater momentum as the content library builds.

Like we have been saying over our last few calls, sales were driven by placements across the United States, with nearly 60 different operator across 19 states as well as several Canadian provinces. This quarter marked our early entry into Alberta, Canada, as well as solid progress in other Canadian provinces such as Ontario. Overall, 24% of third-quarter sold units came from Canada. Corporate orders comprised approximately 50% of EGM sales revenue in the quarter.

EGM sales performance also benefited from the sale of 276 units to one large tribal customer who historically purchases in the third quarter of each year. We reported a total recurring EGM base of 24,184 units, up 10% year over year. In addition to the inclusion of the Rocket Gaming EGMs, recurring units growth was bolstered by new products, as well as openings and expansions over the past 12 months. As we mentioned on our last earnings call, we voluntarily removed 500 underperforming units from one distributor in Texas this quarter and have been working to redeploy them across North America.

Sequentially, we're down because of the removal and the timings related to redeployments, such as lead times to refurbish and shipping units. Despite the removal in Texas, we are confident we will end the year net positive on total recurring units, albeit a modest increase. This annual net positive figure for recurring units also takes into consideration the end-of-lease buyout options of approximately 400 VLTs in Illinois in the fourth quarter, pursuant to the financial expectations under the contract. Over time, we are transitioning out of the VLT business, where these units are performing on an average of $12 per day, far below our domestic revenue per day average, or RPD, of $27.14.

When thinking about the recurring install base, it's important to think about the quality of our base in addition to its size. So while we will be up slightly in the recurring units over 2017, it's with a better mix of units positively impacting our RPD. This is part of our ongoing optimization strategy, and we will always look for the highest return on invested capital for our equipment. We continue to make good progress with this strategy, upgrading more than 880 of our legacy machines year to date.

As a result of optimization, growing the recurring footprint with new high-performing product and the overall health of our core tribal markets, domestic RPD grew by $1.70 year over year, to $27.14. In the quarter, we added 240 new recurring placements in Mexico, driven by the recent introduction of the Icon cabinet to this market, which helped us gain floor share. We now have more than 400 Icons in Mexico, providing a strong secondary market for this cabinet. We grew our recurring revenue 11% year over year in the country due to continued optimization efforts with our Halo cabinet, as well as new incremental Icon units and some strategic placements of Orions, which improved overall yield.

A quick update on our Philippines unit. We're in the final stages of regulatory approval. We've done everything on our end, and once we have the approval we can swiftly move to install the units. I mentioned on our last call that based on our revised timeline, our goal is to go live in Q4, with initial units in by the end of the year.

Our Alora video bingo cabinet and library of games which is targeted for the Philippines market, as well as Mexico and eventually Brazil, had a very strong showing at G2E. Based on the customer response to the new content and the innovative foot pedal feature, we feel very good about its prospects in 2019. As of Q3, we had more than 4,460 Orion Portrait cabinets installed, with 58% sold, 37% on lease and 5% on trial. Our trial conversion rate on Orion continues to hold at approximately 99%, with our removal rate just under 1%, a truly impressive stat considering our install base is fast approaching 5,000 units.

The result of the Q3 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 seventh consecutive quarter that we held that position. Our leased game performance of 2.1 times house average was second only to Aristocrat. What's important to note with these performance stats is that it's not just one title driving these numbers; we have 8 different titles in the market performing at 1.6 times house average, or better.

We're pleased that the most recent survey results reflected that AGS had attained more than 6% ship share for the quarter, which includes route operations, and was about 160 basis points higher than our trailing 12-month average. These are just survey placements and not indicative of the entire domestic market. However, we believe the trend demonstrates the kind of momentum we continue to see in the marketplace. Slide 10 highlights our recent ship share gains as we continue our path to achieve 5% market share domestically, with notable shipments in Nevada, Alabama, Canada, Florida and California this quarter.

Moving on to our Table segment, on Slide 7. In the third quarter, we achieved record revenue of $2.1 million, up 87% year over year, due to strong placements and new openings such as MGM Springfield and both Ocean's Club and Hard Rock in Atlantic City, in addition to overall growth in our table progressives. We were very pleased to have nearly 120 of our table products live on the MGM Springfield casino floor, demonstrating our ability to fully outfit the pit with high-performing products. This quarter marks our fourth quarter that Tables has reported positive adjusted EBITDA.

Our Table Products footprint grew more than 30% year over year, with an install base of 3,065 units. The inclusion of the in-bet games and growth of Bonus Spin and Buster Blackjack placements drove performance. Super 4 continues to be our fastest growing Table product, with 476 installeds across nine states, including recent entry into Nevada. Our total progressive footprint has more than 880 units as of Q3.

We announced several weeks ago that we received GLI approval for our DexS shuffler, which is a significant milestone for the Table segment. We remain on track to commercialize by year-end, with production units available this month. We believe DexS will be a meaningful contributor to the Table segment in 2019 and beyond. In the Interactive segment, on Slide 8, we reported $1.7 million in revenue in the quarter, which was nearly all recurring and which was down 16% year over year.

The decline is in line with our continued strategy of pivoting from B2C social to other interactive revenue models such as B2B social and real money gaming, which also contributed to our EBITDA decline year over year. The $754,000 decrease in Interactive EBITDA was primarily due to the $1 million loss associated with the acquisition and integration of our recently acquired real money gaming content aggregator, as we had indicated on the last call. We stated that our real money gaming business would contribute to a $2 million EBITDA loss in the back half of the year, or roughly $1 million a quarter. We continue to distribute content from more than 10 suppliers, with more than 400 games, and we made progress in the quarter by signing on more online operators, such as GVC, with approximately one dozen more in the pipeline.

As we continue to partner with more operators and expand our supplier relationships, we are also working hard to launch our own AGS content on the platform, which will address pent-up market demand and provide us with the most favorable economics. We remain on track to offer AGS content real money gaming markets in early 2019. With that, I'll turn the call over to Kimo.

Kimo Akiona -- Chief Financial Officer

Thanks, David, and good afternoon, everyone. As David mentioned earlier, our results for the quarter were truly impressive, and Slide 14 in the appendix provides a comprehensive operational summary. For the third quarter, total revenues were up 34%, to $75.5 million, of which $71.8 million was from EGMs, $2.1 million from Table Products and $1.7 million from Interactive. The increase in revenues were driven by record EGM equipment sales, primarily in early entry markets such as Canada and Nevada, as well as improved performance in our gaming operations business with a notable increase in our domestic RPD.

David mentioned the growth in our recurring revenue year over year, which was driven by several factors. First, the contribution of EGMs purchased from Rocket Gaming. Second, an increase in Orion Portrait cabinets on lease year over year. We ended the third quarter with almost 1,700 Orion Portrait cabinets on lease, up from 500 in the prior-year period.

Third, strong RPD performance from our domestic and international EGM gaming operation businesses. And fourth, an increased install base of Table Product units on lease, up 715 units year over year, driven by the in-bet assets, new openings and the continued success of our progressives and side bets. Net income of $4.3 million improved over the prior-year period, from a net loss of $4.1 million. Total adjusted EBITDA was up $4.2 million, driven primarily by our EGM segment, which grew revenues by $18 million, and was partially offset by an increased adjusted operating expenses of $6.1 million, primarily due to increased salary and benefit costs in SG&A and R&D.

Included in that amount was approximately $1 million of operating costs from Gameiom, as David mentioned earlier. Total adjusted EBITDA margin decreased, to 44%, in the third quarter, compared to 52% in the prior-year period, due to several factors: first, the increased proportion of equipment sales to total revenues; second, operating costs associated with Gameiom; third, increased salary and benefit costs that were previously mentioned; fourth, higher period costs of approximately $1.1 million related to manufacturing and service; and fifth, to a lesser extent, the margin impact of the 276-unit sale to a long-standing tribal customer. For the year-to-date period ended September 30, 2018, adjusted EBITDA margin was 49%, down from 52% in the prior-year period. So turning to our EGM segment, EGM equipment sales increased 82% year over year, to $24.7 million, due to the sale of 1,332 units in the current quarter, as compared to 842 in the prior-year period.

Our premium-priced Orion Portrait cabinet and our newly introduced Orion Slant cabinet continues to drive our sales momentum and contributed to our increase in average selling price of approximately $18,000, or 14%. Our Icon and Orion family of cabinets continued to contribute to our ongoing success at penetrating the Class III market in which many customers prefer to buy, rather than lease, EGMs. Domestic EGM install base grew by over 1,500 units year over year, driven primarily from the acquisition of approximately 1,500 EGMs from Rocket Gaming in December 2017. Our international EGM install base also increased, by 645 units, which is attributable to our market share gains in underserviced markets within Mexico.

Domestic RPD for the current quarter increased by $1.70, to $27.14, compared to the third quarter of 2017, driven primarily by our new product offerings and through the ongoing optimization of our install base with our industry-leading EGMs. Notable increases were seen in certain markets like Oklahoma, Texas, Florida, California and Washington, to name a few. International RPD for the current quarter also increased, by $0.19, to $8.52, compared to the third quarter of 2017, driven by the optimization of our install base. Now turning to Table Products.

Revenues increased by roughly $1 million year over year, primarily due to the 30% increase in our install base, which grew to 3,065 units, compared to 2,350 units in the prior year. The increase is driven by growth in each of our product categories: progressives, premium table games, side bets and signage sales. The revenue increase was also due to an increased average monthly lease price, or ALP, of $214, up 42% from the prior year, which was driven by our higher-priced progressives and premium offerings. For a fourth quarter in a row, Table Product segment contributed positive adjusted EBITDA, with over $0.4 million in the third quarter, which was an increase of nearly $0.7 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. Interactive adjusted EBITDA declined mainly due to the $1 million of additional operating costs from our recent acquisition of Gameiom. Revenues from our new RMG business was $0.2 million in the third quarter of 2018. Turning to operating expenses, both SG&A and R&D expenses increased in the third quarter, by $5.5 million and $1.4 million, respectively.

The increase in SG&A is primarily due to $2.2 million in increased professional fees driven by the acquisition and integration of Gameiom, as well as costs associated with our previous securities offerings. The remaining amount of the increase in SG&A as well as the increase in R&D relate primarily to headcount to support our growing business and the development of next-generation products such as Orion Upright and the DexS shuffler, as well as approximately $500,000 of noncash stock-based compensation, as compared to $0 in the prior-year period. 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 $477 million as of September 30, 2018, compared to $648.7 million at December 31st, 2017. This substantial reduction was driven by the IPO and related redemption of our HoldCo PIK notes during the first quarter.

In the third quarter, net debt decreased by over $6.9 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 31st, 2017, to 3.6 times at September 30, 2018. On October 5th, 2018, we repriced our existing Term B loans and reduced the interest rate spread by 75 basis points, from LIBOR plus 425 basis points to LIBOR plus 350, saving nearly $4 million in annual cash interest expense, with an additional 25 basis points potential reduction upon receiving an upgrade from Moody's Investor Service. In conjunction with the repricing, we also secured commitments for an additional $30 million in term loans under our existing credit agreement.

The net proceeds are expected to be used for general corporate purposes and additional capital to accelerate growth. Capital expenditures were approximately $16.1 million for the third quarter of 2018, which comprised of $10 million for growth machine CAPEX, $4 million for intangible CAPEX, $1.1 million of corporate CAPEX and $1.1 million of maintenance CAPEX. With that, I will now turn the call back over to David for closing remarks.

David Lopez -- Chief Executive Officer

Thank you, Kimo. 2018 is almost in the books, and I'm very proud of the team for delivering such strong results in our first year as a public company. If you turn to Slide 12, you'll see that due to our performance and our improved visibility for Q4, we are tightening our adjusted EBITDA guidance range to $134 million to $136 million. This range takes into consideration the previously mentioned EBITDA loss for operations related to Gameiom as we invest, integrate and scale our real money online business to prepare for profitability, which we expect in 2019.

We anticipate about a $1 million negative impact for Interactive in Q4 related to this, in addition to G2E expenses which are historically around $1 million in the fourth quarter. We maintain our CAPEX range of $55 million to $60 million and our LTM numbers within that range at roughly $59 million. Just last month, we enjoyed a strong showing at G2E, with considerable traffic through our booth and many meetings that materialized into new business for AGS. We are proud to have been shortlisted for the annual Global Gaming Awards LAN-based Supplier of the Year as well as celebrating STAX taking the gold medal for Best Table Game Innovation in the annual Gaming & Technology Awards.

Several of our new games for Orion Portrait and Slant showed extremely well, including a couple of new titles straight from our Australia game development studio. During the show, we also unveiled the newest addition to the Orion cabinet family, the Orion Upright. The Upright has dual 27-inch screens and leverages the popular Orion design language with its innovative LED display. This cabinet helps broaden our product portfolio and provides operators with more options to build their AGS footprint.

Official launch in Q3 2019, the Upright will offer 10 of our Icon's cabinet strongest titles on a modern platform, along with multiple new game titles. We are also excited to see even more momentum in the table progressives after unveiling Bonus Spin Extreme at G2E, our next-generation of Bonus Spin that offers not one, but three player-attracting wheels and innovative community bonus features. As always during G2E, we hosted several customer and investor events, most notably an investor presentation outlining our plans to achieve $250 million in EBITDA within the next three to five years. The presentation is available on our IR website, and I encourage you to download and take a look if you have not already.

The objective of the presentation is to highlight how we can achieve $250 million in EBITDA, and it breaks down what we believe will be the contributions from each segment, as well as how potential tuck-in M&A may factor into that target. There are slides that cover the specific drivers within each segment, such as new markets and new products, and our EGM growth aligns with our 5% market share objective. Better than anticipated demand of Orion Slant, new market momentum in Canada and the Philippines and our newly acquired license to operate in Pennsylvania and pent-up demand for the DexS shuffler puts us in strong position entering 2019. Additionally, obtaining new customers, new licenses and new third-party suppliers for our online content aggregation platform, as well as releasing AGS game content onto our platform, will help fuel growth in the real money gaming space as we continue to scale the business.

We expect to talk more about these drivers on the Q4 call as we provide color on our 2019 outlook. Before we move to Q&A, I want to welcome our newest addition to our board of directors, Geoff Freeman. Geoff most recently served as the president and CEO of the American Gaming Association and currently wears both of those hats at the Grocery Manufacturers Association. Geoff has a proven track record of effecting substantial positive change in our industry, such as spearheading the AGA's effort to overturn PASPA, which led to legalized sports betting in the U.S.

Under his 5-year tenure, the AGA grew its membership by 200% and made significant strides to unify tribal and commercial gaming operators. We're honored to have Geoff provide his oversight and help take AGS to the next level. We want to thank our shareholders, customers and partners for their continued support, investment and confidence in AGS, as well as the entire AGS team for delivering another impressive quarter. With that, we'll move to the Q&A portion of the call. 

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Brad Boyer, with Stifel. Please go ahead.

Brad Boyer -- Stifel Financial Corp. -- Analyst

Hey, thanks for taking my questions, guys, and congrats on another solid quarter here. First question is just around the margins. I assume that's probably what's on top of everyone's mind. A little bit lighter than what folks were looking for.

Obviously, some of that is mix driven given the exceptional unit sales in the quarter. Just curious if we can get a better sense of how we should be thinking about margins, going forward, while keeping in mind that obviously revenue mix is going to play a fairly big role here. But just wanted to see if we could get some color around that. It would be helpful.

Kimo Akiona -- Chief Financial Officer

Yeah. Hey, Brad, this is Kimo. So I think we tried to point out in the script just a couple of things that impacts it this quarter, specifically. One of them, in our -- so in COGS.

And specifically, gaming operations margin. We had a charge related to just some manufacturing and production costs that hit the period, that otherwise would have been in other periods, as well. So that impacted us by about $1.1 million. I think if you normalize that, you would look at our game ops margin to be closer to what it was back in Q2-ish.

Another thing that impacted us in the quarter, I think you heard some color that we gave around a large sale that we did in the quarter. So that large sale carried slightly less margin on the sale side than we normally experience, as well. So those are two kinds of discrete items that hit us in the quarter. I think when you move to EBITDA margin, I think we talk -- we gave some color around expenses or operating expenses that we incurred related to Gameiom.

I think we've given color around that last quarter and said that people should expect about $1 million in Q3, that's what we saw. And you should expect about another $1 million in operating costs in Q4, as well; that's what we expect. So I think if you look at that in total and you kind of fast forward to Q4, you could look for EBITDA margins to be fairly comparable to what we saw in Q3. But we would always remind you to look at the 9-month margin, the 9-month year-to-date margin, being at about 49%.

And that's something that for the full year we feel more confident in something toward the higher 40% range for EBITDA margin. I hope that's helpful.

Brad Boyer -- Stifel Financial Corp. -- Analyst

Yeah, no, that's very helpful. And then David, just a question for you. Obviously, everyone loves it when you put up a 1,300-unit quarter, but we also love recurring revenue. So just curious if there's anything you're doing -- when the games are performing as well as they are, it's hard to push leases; I get it.

But anything you're doing to help sort of grow that lease install base?

David Lopez -- Chief Executive Officer

Good question, and thanks, Brad. Something as you guys -- as we always talk about with you guys that we're really focused on the lease install base. We even talked about how last quarter we did some, a bit of a bold move when we moved those units out of Texas. We talked about that on the call again now.

So we can just use those for optimization and additional installs in the U.S. and Mexico. I think it's just -- it really just comes down to really what we talk about is hard work. And we say it's just hard work.

And it's getting out there on the road, getting our sales guys out there, getting focused in jurisdictions that we know are not lease-only but predominantly lease and where we can get good RPD, good healthy RPD. And of course, as you know, and we talk about on every call, and we talked about in the prepared remarks again today, optimization is a big part of getting that RPD lift. We continue to stay committed to that. So it's all about going out there and getting to the jurisdictions.

You know what they are, mostly. But we stay focused. And we look at Oklahoma, and you look at our penetration in Oklahoma, but we continue to add units in Oklahoma. It continues to be a healthy market for us.

We're having units in every corner of the U.S., Canada and Mexico, wherever we know that it's a strong lease jurisdiction. So we just stay focused on that. It's going to be a huge focus obviously in Q4 and beyond and exactly something that when we look at '19 that we're going to stay focused on.

Brad Boyer -- Stifel Financial Corp. -- Analyst

OK. Thanks for that color. And then lastly, obviously, in the short term to the extent that people prefer sales over lease, there's obviously an offset to your CAPEX a little bit. If I look at the quarter in and of itself, you guys generated a pretty healthy amount of free cash flow when I strip out the CAPEX and your cash interest costs.

Obviously, being mindful of the fact that there's probably some capital spend coming next year around Philippines, but just curious to hear your latest thoughts around capital allocation above and beyond reinvesting in the current business. Thanks.

David Lopez -- Chief Executive Officer

So I'll start and then I'll flip it to Kimo here. So I think that as we've talked about we're going to reinvest in the business. You just asked me about lease space. So obviously, we continue to stay committed there.

As we look to move to the Philippines shortly here. As Brazil now has a president in place, and he's sort of like a neutral to positive move when you think about how you might look at that guy coming into office here at the beginning of the year. A lot of the other folks that were elected in Brazil are pro-gaming. Although the president sort of said he's maybe neutral or not a big fan of gaming, he said he's going to turn it over to the states.

And all at the same time in classic Brazilian fashion, I think he was at a barbershop the other day playing the numbers. And that would be the lottery numbers. So that's very -- he's definitely going to do something. We find it to be, again, neutral to positive.

All of this will require capital because as we look at Brazil and Philippines, we talked about it in the last quarter, we're focused in these jurisdictions because they're lease only. There's going to be little to zero sales in those jurisdictions. They will require capital. So focused on growing the business.

Focused on growing the lease space. We talked about as far as the road to 250 goes, the road to $250 million in EBITDA, that there's going to be some M&A activity that will mix in there. So we'll need a little bit of cash, and we'll need to keep our powder dry there, as well. And then obviously as far as cash uses after we exhaust all those things, I'll flip it to Kimo and I think that maybe then we talk about other uses.

Kimo Akiona -- Chief Financial Officer

I think David covered most of it, obviously. And I think after you sort of exhaust those highest ROI opportunities that we have and have had, that's why tuck-ins is a part of it. Because we've kind of proven looking at things like Rocket, recently Gameiom. But ex-that and ex-Brazil, I think next year again will be probably hit an inflection point where we'd be able to start paying down debt.

But again that is excluding any kind of Brazil or any other large bluebird type opportunity. I think the one thing maybe David didn't mention was our commitment to R&D. So we'll continue to invest in our R&D team like we have, and that takes some capital, as well.

Brad Boyer -- Stifel Financial Corp. -- Analyst

Perfect. Thanks for the help, guys.

David Lopez -- Chief Executive Officer

Yup. Thanks, Brad.

Kimo Akiona -- Chief Financial Officer

Thank you.

Operator

Our next question comes from Cameron McKnight, with Credit Suisse. Please go ahead.

Ben Combes -- Credit Suisse -- Analyst

Hi. This is actually Ben, on for Cameron. Thanks for taking my call. Just wondering if you could provide an update on resigning of the Chickasaw agreement?

David Lopez -- Chief Executive Officer

Yeah. So Chickasaw agreement, for us, it's still a little early for us to renew the agreement, but we've been working on this sort of like especially hard. We know that it's a focus for our investors. We really are probably -- the need to renew it probably stretches well into next year, into third quarter or fourth quarter.

But I think that we'll be ready to offer some news on that in the very near future. As I've said to our investors, as I've said on calls, I have no concerns about getting that deal renewed, no concerns about the terms on that deal or anything of the like. Very confident. It's a great relationship for us, not just obviously with the Chickasaw Nation but with all tribes in Oklahoma and our tribal relationships across the country, but especially obviously with them.

We're confident in our ability to get that negotiated and wrapped up, and we'll probably have some news for you guys soon.

Ben Combes -- Credit Suisse -- Analyst

OK. Great. And then I was just wondering if you could quantify how much R&D spend went into the product that you showed at G2E this year versus the product that you showed last year.

David Lopez -- Chief Executive Officer

So I think quantifying R&D spend on a per-cabinet basis is not something we've done to date. I'd say that generally speaking, it's all pretty consistent. Without giving you a number year to year, I'd say that we get some efficiencies, though. When you think about the Orion Portrait, it cost x.

I think that when you think about the Orion Slant, it cost a percentage of x. I'm not talking about 20%, but you could reduce the cost a little bit because we're using a lot of the same infrastructure and technology and the lighting. And now you're talking about the Orion Upright, which is now my new favorite because I just love the cabinet, you're looking at again same lighting technology, many of the same button panel technology. A lot of the work has already been done.

So it's sort of just a structural deal. So it's a little bit cheaper than even the Slant was last year. So we get some efficiencies there our R&D. Without giving you specific numbers, we do get some efficiencies as we move from cabinet to cabinet within a cabinet family.

Ben Combes -- Credit Suisse -- Analyst

Fantastic. Thanks very much for the update.

David Lopez -- Chief Executive Officer

Yeah, thanks.

Operator

Our next question comes from Carlo Santarelli, with Deutsche Bank. Please go ahead.

Carlo Santarelli -- Deutsche Bank -- Analyst

Great. Hey, thank you, guys. David, I wanted to ask a follow-up to a question asked earlier. You obviously having spent time at Shuffle Master and clearly a little bit of a different business, but certainly a lease versus sale model, what did you take from your experience there that kind of you apply to your decisions here to kind of use the lease model more, the participation model more, relative to the for-sale model, acknowledging that a lot of it will boil down to customer preference?

David Lopez -- Chief Executive Officer

Yeah. It's always -- we like to say we're indifferent. We like to say that we're indifferent and whatever they'd like to do, Carlo, is what we want to do. But it's really about getting more leases out there.

We love to lease versus do a sale. Sales give us this wonderful short-term pop. They're a part of our business. They're a percentage of our revenue.

As you see, sales continue to climb for us. That's a testament to our R&D team, the boxes that we put out there, the work of the whole company, if you will. But that said, what I take away from my days at Shuffle is stay focused on the lease side. Converting out of necessity or to make a quarter is not the way to look at things.

We think very long term, very long term for the shareholders. So when there's something out there and when there's an opportunity -- casinos are still coming at the end of every quarter. They talk about it. We had meetings this week.

The two customers that we met with actually mentioned to us that, hey, there are some vendors that we can go out there with capital and get some efficiencies in our purchases, which means they go out and ask for big discounts at the end of the quarter. That is not something that we're dialed into doing. We don't do that. And that's why when you look at I think our average sales prices, keep them up there, keep them sort of best in class, do not discount off of those.

And just stay focused, going back to sort of Brad's question, focused on going to every corner of the nation, tribal, nontribal, commercial, every place that we can get a lease unit in. If it's five units that are high-quality units in Nebraska, we're going to go get them. Because we can get good yield in certain jurisdictions where our guys get out there and get the work done. So I think the -- there's probably some other lessons that I won't share on this call, but yes, it's to say focused, don't do deals at the end of the quarter, and always think long term.

Carlo Santarelli -- Deutsche Bank -- Analyst

Super helpful. Thank you. And then if I could, just one follow-up. In prior decks, you guys had kind of a wider range for the Alora cabinet.

In your most recent presentations, including the one at G2E, you're kind of targeting in on that RPD of $12. Is there anything that you guys, more or less, have learned in the interim that's kind of narrowed that range? Or are you just taking a little bit more conservative approach to how presumably we would think to model kind of the Philippines opportunity?

David Lopez -- Chief Executive Officer

Now you're talking about the range of placements?

Carlo Santarelli -- Deutsche Bank -- Analyst

Sorry. The RPD range. Yup

David Lopez -- Chief Executive Officer

So I think the key in the Philippines -- first of all, I think the key for us is to get our units over there and get installed. We're excited about the opportunity there. I think we'll learn a lot more in our first 30 to 60 days in the market. We'll be a nice new fresh cabinet.

We're going off assumptions that are in the market right now. And to be honest with you, I think it's one of those things that we've got to get our cabinet in there. If you look at our cabinet and you were going to these sort of strip malls that do this business in the Philippines and you looked at the units that are in there, I think it's not representative of what new cabinets would look like. It's nothing like what we're going to present.

We've got anything to sort of a new beautiful cabinet. We've got new games. We think that the math is proven. We understand the market.

And as I like to say, we've got a gas pedal that you can bet with while you eat your food, too. So we've got a little bit of everything. I think that the range -- I think that we want to be conservative. But at the same time, we'll be instructing you guys a lot more as we get into the market and we get our first 60, 90 days under our belt.

Carlo Santarelli -- Deutsche Bank -- Analyst

Perfect. Thank you, sir.

David Lopez -- Chief Executive Officer

Thank you.

Operator

Our next question is from Chad Beynon, with Macquarie. Please go ahead.

Chad Beynon -- Macquarie -- Analyst

Good afternoon. Thanks for taking my question. Regarding the EGM sales, you mentioned 24% of them in the quarter were sold in Canada. Big, large market, a lot of different players up there.

And it sounds like there was a lot of pent-up demand and part of this is you just being able to sell into there. You also announced new licenses in Pennsylvania and Ohio. And not that we should be getting ahead of ourselves and assuming, I guess, the same types of early success, but can you talk about any conversations you've had with some operators there? Or how should we think about opportunities in this market near term? Thanks.

David Lopez -- Chief Executive Officer

Hey, thanks. So it's probably good to start with, let's not get ahead of ourselves. I think the good news is that we're getting these approvals. There is going to be some pent-up demand.

I don't know that any of the sales you look at, in particularly even in Canada, just are representative of pent-up demand. Some of it is just a first order. And as we look into 2019, we might find that second orders could be even bigger than first orders. We don't know.

But I'd say that we don't want to use any of those first round of orders as a proxy for the future. Some of it could be representative of pent-up demand. Some of it could be representative of sort of dipping their toe in the water and then coming back with larger orders later. I think Pennsylvania will be a little bit of the same.

Those operators know us a little bit better than the Canadian operators, not to say that our units aren't well known up there, because I think they're performing amazingly in Alberta as far as the feedback that we're getting so far. They've just been rock star numbers. But Pennsylvania, I think that there will be a little bit of pent-up demand there. We'll get our initial orders, and then I think what's really key is going to be the reorder.

When we see the reorders, both in Canada and Pennsylvania and every jurisdiction, it's always really indicative of what they think of our product and our product performance. I'm always betting on us because so far we've done great with that. Our rebuys or the reorders have been fantastic so far. So I know I didn't give you any numbers there how to think about that necessarily, but I think that that's how you look at the initial order and then a rebuy, is that the initial order could represent some pent-up demand but it also might just represent, like, the trial, the trial of our units.

They'll buy some, they'll see how they do and then they'll come in with what I would refer to as the real order.

Chad Beynon -- Macquarie -- Analyst

Great. Thank you. And then on the Rocket Gaming acquisition, you purchased that at an attractive multiple and it sounds like the RPD optimization efforts are working here. Is there anything left to do there? Is that an opportunity in the fourth quarter and into 2019? Or has that portfolio or that installed base kind of been perfected [indiscernible]?

David Lopez -- Chief Executive Officer

No. No. No. Good question, though, Chad.

So I think that it's like the totality of our install base. We look at all -- we've got over 28,000 units out there in the market, and a great number of those obviously domestically. It's not just a process. But as I like to say, and maybe this is not Julia's favorite analogy, but it's like painting the Golden Gate Bridge.

You start on one end. At the end of the year you're finished at the other end and then you just pick up your paint bucket and you go right back to the other side. And so it's an ongoing process to optimize our install base, both at Rocket and for AGS. But when we're, quote-unquote, done, we start over again, and we reoptimize the entire footprint over time.

And that's how we, a, preserve our footprint and, b, get a better RPD out of it over time. So yes, we've done some optimization there with Rocket. There's more to do. It's part of an ongoing process, just like it is the rest of our install base.

Operator

Our next question comes from Barry Jonas, with SunTrust Robinson Humphrey. Please go ahead

Barry Jonas -- SunTrust Robinson Humphrey -- Analyst

Just a couple. So another quarter of strong double-digit ASP growth. Just curious as you get into Q4 and next year, the comp gets a lot tougher, what's a good way to think about how ASPs will trend on a go-forward basis?

David Lopez -- Chief Executive Officer

Well I think that -- as we get into our rollout of more Icons -- excuse me, more Orion, you might see a little bit of overall lift because the Orion family will sort of be fully rolled out. So fewer Icons, more Orion. You get some natural lift there. As I said earlier when Carlo asked a question about staying committed and the things that we learned from sort of being at Shuffle, we're going to stick to our pricing.

We're not going to offer big discounts. That's all a part of lifting your ASPs. And then when we get into our next round of cabinetry, we're going beyond Orion now in this conversation, when we go beyond Orion obviously we'd look to sort of continue to lift that figure over time. Those are all aspirational things.

Aspirational in regard to just, hey, how high can we press that number? Well, we'll see, but it's all going to come down to mix, it's going to come down to quality of our games, and it's going to come down to the great work our R&D guys do on the cabinetry.

Barry Jonas -- SunTrust Robinson Humphrey -- Analyst

Great. And then just maybe a high-level one. You mentioned earlier the potential for growth in the Oklahoma market. I'm just hoping you can give a little more color on that market.

I know that there's some expansions planned, some potential tax changes which could boost Class II. And then on the flip side, I'm not sure if you see any risks with Arkansas casinos potentially coming.

David Lopez -- Chief Executive Officer

So as far as the risk goes, we don't see anything just yet, and I think it'd be very early in the game to talk about how Arkansas casinos could risk anything up in Oklahoma. I don't think that we will see the Oklahoma customer going to Arkansas. And I'd also say that Oklahoma sort of has some of the finest operators out there in the country, and they're going to, in the words of our president, secure their borders, if you will. They're going to, a, make sure that their players stay in the state and, b, they're going to continue to draw players from other states because they do what they do and they do it very well.

So I think that -- and as far as upside goes, nothing specific, but we always say modest growth in those jurisdictions. Modest growth in Class II and modest growth in Oklahoma. Now they do have some projects that are coming online. We haven't sort of published numbers on what we're going to do in those arenas yet, but they do have some expansions and some new projects that are coming online.

And we'll obviously continue to get our fair share, if you will, of the Chickasaw market as they expand and as every other tribe in Oklahoma expands, as well.

Barry Jonas -- SunTrust Robinson Humphrey -- Analyst

Fantastic. Thanks so much.

David Lopez -- Chief Executive Officer

Thanks, have a good one.

Operator

[Operator instructions] At this time there are no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to David Lopez for any closing remarks.

David Lopez -- Chief Executive Officer

Thanks. Thanks, everyone, for calling in, and we'll talk to you in a great number of months when we close out 2018 and we do our full-year call. Thanks again.

Operator

[Operator signoff]

Duration: 61 minutes

Call Participants:

Julia Boguslawski -- Investor Relations

David Lopez -- Chief Executive Officer

Kimo Akiona -- Chief Financial Officer

Brad Boyer -- Stifel Financial Corp. -- Analyst

Ben Combes -- Credit Suisse -- Analyst

Carlo Santarelli -- Deutsche Bank -- Analyst

Chad Beynon -- Macquarie -- Analyst

Barry Jonas -- SunTrust Robinson Humphrey -- Analyst

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