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Playags Inc (AGS 1.30%)
Q4Â 2019 Earnings Call
Mar 4, 2020, 5:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day and welcome to the AGS Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions].
I'd now like to turn the conference over to Julia Boguslawski. Please go ahead ma'am.
Julia Boguslawski -- Chief Marketing Officer & Executive Vice President of Investor Relations
Thank you, and good afternoon everyone, welcome to AGS's fourth quarter and full year 2019 earnings conference call. With me today are David Lopez, President and CEO; and Kimo Akiona, CFO. We posted a slide presentation reviewing our key operational and financial highlights for the fourth quarter and full year 2019, 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 fourth quarter and full year 2019 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 Form 10-K, filed today, 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 David Lopez.
David Lopez -- President & Chief Executive Officer
Thank you, Julia. And thank you everyone for joining AGS's Q4 and 2019 year ending earnings call. For those using the slide deck, please turn to slide three, where I'll start by providing a brief overview of our fiscal year 2019 operational highlights followed by segment performance for the quarter. After a financial overview from Kimo, I'll close the call by sharing our growth drivers and business outlook for 2020.
Slide four shows that Q4 revenue of $77.8 million was up 8% year-over-year. Net income of $1.4 million increased year-over-year from a net loss of $10.3 million in the prior year period, which Kimo will touch on later. Adjusted EBITDA grew to approximately $37.3 million, up 18% over last year. The gains in revenue and adjusted EBITDA were led by EGM sales revenue and greater recurring revenue, primarily due to the inclusion of Integrity units, as well as growth in Table Products revenue. For the full-year 2019, total revenue grew 7% year-over-year to $304.7 million, of which approximately 69% was recurring. Adjusted EBITDA of approximately $146.1 million, grew 7% year-over-year.
On slide three, you will see a list of several business highlights for the fiscal 2019, which include, we surpassed 9,000 placements of the Orion Portrait cabinet with more than 4,000 placements made in 2019. Our slot division achieved an average domestic ship share of 5.5%. We sold 4,879 EGMs, which was up 11% from 2018. EGM domestic market share grew to 3% up from 2.5% at year-end 2018 within a market that has approximately 1 million machines. We ended the year with nearly 2,200 placements of Rakin' Bacon! our highest performing game on Orion Portrait.
We sold approximately 570 units into five Canadian provinces. We launched the Orion Upright into the market in the second half of 2019, ending the year with more than 630 placements. Annual domestic RPD excluding Oklahoma increased 4% from 2018. Table Products revenue grew 33% year-over-year to more than $10 million in 2019, 94% of which was recurring.
Q4 Table Products EBITDA surpassed $1 million for the second consecutive quarter. Mexico reported record revenue, up 14% in 2019. And lastly, for the third year in a row, we are awarded the Best and Brightest Places to Work For in the Nation, recognizing our commitment to maintaining a best-in-class corporate culture. Despite the domestic EGM highlights, 2019 was negatively impacted by results in our gaming ops business in Oklahoma as we saw decreases in revenue that had an impact on our overall performance. I'll cover some of our recent efforts in Oklahoma, as well as our plans for 2020 later in this presentation.
With that, I'll now provide an update on our segment performance for the quarter. Beginning with our EGM segment on slide five, revenue growth was driven by 1,283 sold EGMs, up 11% year-over-year with Orion Upright accounting for 24% of the mix. In the quarter, we sold units at 77 properties across 26 states in addition to sales in Canada and Mexico. We have been growing our footprint in Washington, selling approximately 50 units in Q4 and believe it will be a growth market for us in 2020.
We had solid sales growth in California, Nevada, Arkansas and Florida, achieving approximately 5% domestic ship share in Q4. EGM sales revenue also included the sale of approximately 300 lower RPD Class III units from the Integrity installed base. That said, we did not count these units in our sold number KPI of 1,283 units.
As we have talked about on our last two earnings calls, we have been working to better manage our footprint in Oklahoma after evaluating our capital strategy and analyzing the current operating environment in Oklahoma, we believe the prudent thing to do is to sell some of our underperforming units to generate cash that can be invested in other higher performing markets or we can choose to allocate some of those dollars to improve revenue per day in Oklahoma.
Moving to RPD, year-over-year domestic yields of $24.97 were down 5%. Outside of Oklahoma, our domestic RPD grew 7% year-over-year to $35.63, driven by strong performance from our Orion family of cabinets.
Slide 11 breaks out Oklahoma RPD specifically and separates integrity performance from our legacy base. Although Q4 Oklahoma RPD was down year-over-year, we are experiencing less degradation than we saw in Q2 and Q3 of 2019. Q4 Oklahoma RPD remained relatively flat from Q3 signifying stabilization as a result of some of our targeted countermeasures. Those efforts have included game title changes, cabinet swaps, on floor relocations and selling of underperforming units.
Slide eight shows our recent market share gains as we make strides toward our 5% market share goal. Our annual ship share contributions from Florida, California and Nevada represent the greatest growth markets in 2019.
Turning to our international footprint, Mexico ended the year up 23% in total revenue with equipment sales revenue driving most of the growth. Mexico continues to serve as a good secondary market for products like our ICON cabinet, as well as Orion Portrait which outperforms the floor much like it does in the US.
Moving on to our Table segment on slide 13. In 2019 we grew installs across every category in our Table business, progressives, premium games, utility products, and side bets. And we ended the year with Tables contributing more than $10 million in revenue. Our performance in this segment continues to build momentum with fourth quarter revenue up 29% year-over-year to $2.8 million. Our footprint grew 19% year-over-year to an installed base of 3,766 units.
The success of our table progressive drove most of year-over-year growth to more than 100 placements this quarter. Notable installs include Gila River, Wild Horse Pass in Arizona, Woodbine in Ontario and Tachi Palace in California to name a few. It goes without saying that we are very pleased with the performance of our progressive products yet we're even more excited about the pipeline as we look forward to the full year 2020 impact.
Dex made its debut in Pennsylvania in Q4, trialing at two properties and is now installed in roughly 15 markets across the US and Canada. Although, we are pleased with performance thus far, our customers are excited and awaiting the launch of the Pax shuffler later this year, which will help expand our shuffler offerings and address more of the market.
In the interactive segment on slide 14, we reported $1.3 million in revenue in the quarter, up 2% year-over-year. Q4 saw the launch of AGS content on Golden Nugget, our second operator in New Jersey, in addition to Kelly Kehn in Mexico and 888casino and Buzz Bingo in Europe. Most recently, we went live with three new operators in New Jersey, Mohegan Sun, Golden Nugget and Resorts, giving us a total of four operators in the state.
With that, I'll turn the call over to Kimo for a more detailed discussion of our financial results.
Kimo Akiona -- Chief Financial Officer
Thank you, David, and good afternoon everyone. Before I begin, I'd like to point you to slide 19, which provides a consolidated operational summary. As David touched on earlier, net income attributable to PlayAGS Inc. of $1.4 million increased year-over-year from a net loss of $10.3 million, primarily due to improved operating income in the current quarter, offset by non-cash stock-based compensation expense that increased by $1.9 million. Note, the prior year included a pretext goodwill impairment of $4.8 million related to our Interactive segment.
Total adjusted EBITDA and adjusted EBITDA margin in Q4 were 37.3% and 48%, respectively, and were both up year-over-year. Adjusted EBITDA margin improved roughly 400 basis points year-over-year, primarily due to greater EBITDA contribution from our EGM and table businesses in addition to reduced operating expenses in our Interactive segment.
Turning to our EGM segment. Fourth quarter EGM equipment sales increased 13% year-over-year to $26.1 million due to an increase in sold units, as well as the sale of underperforming units in Oklahoma, which David mentioned earlier. And as a reminder, this sale is not included in our sold units and EGM ASP metric. Our domestic EGM ASP decreased 5% year-over-year to $17,800 due to a larger sale to a single customer in the quarter. Normalized for this sale, ASP was $18,250
In our domestic EGM gaming operations business, our installed base grew by over 2,000 units year-over-year, driven by the addition of units from the Integrity acquisition. Normalized for these units, our domestic installed base decreased by approximately 400 units, which includes the end of lease buyout of 280 VLTs in the first half of 2019. As David previously mentioned, we're in the process of conducting a strategic review of our installed base to determine the best decisions for the business moving forward.
We look at our domestic installed base in two ways. Our Oklahoma footprint and our non-Oklahoma footprint. In non-Oklahoma, we believe opportunities exist to grow our market share in the Class III premium space, which David will touch upon in his closing comments. In Oklahoma, we believe that opportunities to improve our business come via a variety of measures.
First, let's talk about the composition of our installed base. With approximately 10,200 units in Oklahoma, some of which are older generation machines, as well as some third-party units, we will continue to optimize units that we believe will generate the best returns, using new game titles on existing cabinets, as well as new hardware such as the new Orion Rise, Orion Curve and Starwall, to help drive gains in RPD and improve overall yield.
As we consider the current operating environment in Oklahoma, we have begun to strategically sell or prune some underperforming parts of our footprint this year in locations where we do not believe the capital outlay would generate the best returns for us. This could impact the Oklahoma installed base by about 500 to 1,000 units in 2020. By executing on these initiatives, we believe we will exit 2020 with a more optimal footprint, greater stabilization in the base and better cash returns moving forward.
Domestic EGM revenue per day or RPD decreased by 5% to $24.97 compared to $26.41 in the prior year period. When normalized for the impact of Integrity, we estimate that domestic RPD was $26.20, down approximately 1% year-over-year. The decline is due to organic growth of our footprint in Oklahoma by approximately 800 units throughout the year.
Units placed in Oklahoma generate lower yields than our domestic average RPD and therefore, these placements have the effect of pulling down our overall domestic RPD, while still increasing both revenue and adjusted EBITDA. Our international RPD for the fourth quarter decreased by $0.42 or 5% as our international installs were in new markets and properties in Mexico, which have lower yields than our average international RPD.
EGM adjusted EBITDA grew 14% to $36.6 million and adjusted EBITDA margin increased nearly 300 basis points to approximately 50% compared to the prior year period. These increases were primarily due to growth in gaming operations and equipment sales revenue, and to a lesser extent reduced operating expenses.
Now turning to table products. Fourth quarter adjusted EBITDA grew by more than 700,000, driven largely by 600 new recurring placements and relatively flat operating expenses compared to the prior year period. The quarter benefited from additional sales revenue versus last year, driven by the sale of table signage and to a lesser extent, sales of the Dex S card shuffler.
Q4 adjusted EBITDA margin was 36% as compared to 12% in the prior year period, driven by improved operating performance, as well as a reduction in royalty expense as we converted progressive units on lease from a competitor to our own stacks progressive. We believe tables' margin will continue to improve in 2020 as we further scale the business and grow our installed base.
Moving to our Interactive segment, revenue grew 2% year over year to $1.3 million. Although, revenue from our social business is declined by approximately 400,000 year over year, we have grown our real money gaming revenues by roughly the same amount. The revenue decline in our social business aligns with our strategy of decreasing user acquisition marketing spend and focusing our efforts on real money gaming where we believe there is a greater long term earnings potential for us. Adjusted EBITDA increased by $500,000 in the quarter, driven by real money gaming growth in several European markets and New Jersey, as well as decreased operating costs in the segment.
Turning to operating expenses. Adjusted SG&A expense of $13.1 million decreased slightly in Q4, down 3% year-over-year with increases in headcount offset by decreased operating costs in our interactive segment, as well as decreases in professional fees.
Adjusted R&D expense for Q4 was $7.2 million, compared to $7.9 million in the prior year period. The decrease is primarily due to the timing of development and professional fees year-over-year. R&D as a percentage of revenue was approximately 9% in the current year, compared to 11% in the prior year period.
Moving on to our capital structure update on slide 15. Total net debt, which is the principle amount of total debt less cash and cash equivalents, was $520.6 million, compared to $468.1 million at December 31, 2018. Our total net debt leverage ratio, which is the total net debt divided by adjusted EBITDA, increased from 3.4 times at December 31, 2018 to 3.6 times at December 31, 2019, the increase in net debt as well as our leverage ratio was primarily driven by the acquisition of Integrity, which closed in February of 2019. In the fourth quarter, we paid down approximately $1.5 million in debt.
Capital expenditures were down $4.6 million or 21% year-over-year to approximately $17.4 million in Q4. The prior year periods are considerably higher growth capex due to over 800 recurring units installed in the quarter. Growth capex in the fourth quarter of 2019 was approximately $8.8 million and intangible capex was $5.8 million, which included placement fee payments of $1.4 million and greater software costs associated with the upcoming launch of our three new EGM products, including our new premium only lease product, Orion Rise and Starwall.
Maintenance capex was $2.6 million and corporate capex was $200,000. For 2020, the right way to think about annual capex is approximately $67 million to $71 million, which compares to $71.1 million in 2019. Our capex in 2020 will be impacted as we enter the premium lease category and continue to improve our Oklahoma footprint through strategic optimization. We are focused on effectively managing these investments to achieve the best returns.
For the year ended 2019, free cash flow remained relatively flat at $16.9 million with $8.1 million generated in the fourth quarter. For 2020, we believe that our new product introduction, as well as our strategy to improve cash returns in Oklahoma and further market penetration outside of Oklahoma, will enabled us to grow free cash flow.
And last, as covered in more detail in our risk factors in today's 10-K. We are closely monitoring the situation with the Alabama-Coushatta Tribe of Texas where we currently have units installed at their Naskila property. Recently, the tribe's appeal was denied as to whether the Indian Gaming Regulatory Act or the Texas Restoration Act prevailed with regards to operating EGMs at this property. This denial effectively upheld the Texas Restoration Act. What this means is that, there is risk regarding the long-term gaming operations of the Naskila property, which in turn means there is risk of removal of our EGMs, which are currently on participation.
That said, as of today, there is no mandate to remove EGMs at the property nor is there a ruling to shut down gaming operations. Although, there are several potential outcomes that could delay anything from happening, particularly for the balance of the year, there is still risk of removal at some point in the future.
When exactly, we don't know, but we want to make investors aware as the full year impact is approximately $9 million to $10 million in adjusted EBITDA,. Again, we feel it's prudent to make investors aware of the situation as our 2020 guidance does not contemplate the removal of EGMs from Naskila.
With that, I will turn the call back over to David for closing remarks.
David Lopez -- President & Chief Executive Officer
Thanks, Kimo. Slide 16 illustrates several initiatives that we expect to drive 2020 financial results. The first is our entry into the premium lease space. With the launch of our two premium EGM products, the Orion Rise and Starwall, we will now be able to gain access to the domestic Class III and Class II premium market. For the Eilers report the Class III premium market size is roughly 70,000 units and although some operators may be optimizing their premium footprint, others are maintaining their current footprint, and of course, demand for high-performing premium content remains strong.
We accelerated the rollout of the Starwall due to customer demand with our first unit installed in Oklahoma just last week. A first of its kind Starwall showcases six packs of Orion Portraits against the video backdrop with hundreds of LED tiles to create cinematic motion graphics complementary to the game theme. We launched Starwall with two brand extensions of our successful Jade Wins Deluxe and Golden Wins Deluxe, which both feature a massive bonus wheel to enhance
Player engagement.
The first Orion Rise units have been installed in a couple of markets as well with orders ramping as we near the second quarter. We are confident that the combination of this vibrant high rise cabinet along with the content coming from our various studios will afford us an opportunity to compete in the premium Class III space, as well as give us a boost in our Class II lease-only jurisdictions.
The second initiative is the launch of the new Orion Curve as well as numerous new game families on the Orion Portrait. These launches play to our strength of making great single screen hardware and content. Additionally, Portrait cabinets are the fastest growing EGM category on the casino floor, which gives us confidence on the new offerings in this category.
We've been working to fast track the launch of the Orion Curve with our first placement set for the end of this month. Our first two titles Royal Phoenix and Sacred Dragon which we unveiled at G2E look to lead our launch with more games coming during the balance of the year.
Similarly, we haven't taken our foot off the gas with Orion Portrait and believe that some of the new content will help drive greater placements throughout the year. We have begun our roll out of two new cash on real games and early feedback has the titles performing well versus house and zone averages. The third initiative centers on the continued momentum in our Tables business, enhanced by the opportunity to secure site licenses, as well as the roll out of the Pax shuffler.
In the first quarter, we have secured a couple of exciting site licenses, which we will discuss in greater detail on our next call. A site license entails an operator committing to a long-term arrangement, which pays AGS a fixed monthly license fee for a comprehensive suite of products, such as premium games and side bets. We started the year strong with more products and options for our customers than ever before, including NHL brands, which are now available on Bonus Spin and our Roulette Signage.
Later on this year, we will also launch the Pax shuffler for the specialty table games, which will give us yet another growth lever in the Tables segment setting us up for a strong 2021. The final initiative focuses on generating the best returns on our cash by investing in new product categories, as well as focusing our efforts to improve revenue per day in Oklahoma.
We believe the best uses of our cash are twofold; first, launching new premium products into the Class III and Class II premium lease only market which represents ample whitespace for us. And second, selectively optimize our cash returns in markets like Oklahoma and Mexico to drive gains in RPD and improve overall yields and cash flow.
If you turn to slide 17, we believe we are in position in 2020 to produce between $148 million and $153 million in adjusted EBITDA. As a note, our adjusted EBITDA guidance does not contemplate any impact from the COVID-19 virus. To reach these targets, we expect to increase EGM unit sales slightly increased our overall selling price driving additional growth in our Table segment and generate year-over-year improvements in RPD in the second half of the year.
Because of the timing of the new product releases, we expect 2020 to be slightly back half weighted similar to 2019. Although, all three new slot products will be launched by Q2, it will be very early in the release cycle, and therefore, we will be in good position to build momentum as we enter Q3.
We are launching new titles for all three new products in addition to our existing Orion family of cabinets during each quarter this year, which sets us up to exit 2020 at a stronger growth rate. To help with modeling this year, we believe that adjusted EBITDA margins will be similar to 2019 in the 47% to 48% range.
Kimo mentioned, our year-end leverage ratio of 3.6 times. Notwithstanding any potential M&A, we believe that we can maintain this ratio and use our free cash flow to potentially bring it down slightly by year-end to approximately 3.3 times.
Overall, we believe that 2020 will be a meaningful product release year, where we should be in position to build momentum every quarter, generating stability, while also functioning as a turning point to return to more meaningful growth in 2021 and beyond. Finally, before we move to Q&A, I want to thank our shareholders, our customers and our AGS team for your support.
With that, we thank you for listening and we'll move to Q&A portion of the call.
Questions and Answers:
Operator
We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Brad Boyer of Stifel. Please go ahead.
Brad Boyer -- Stifel -- Analyst
Yeah. Thanks for taking the questions guys. You covered quite a bit of ground there. So I appreciate all the insights. First question for me, David, is just around sort of the roll out of not only new hardware, which I think we all kind of understand. But more so on the game theme side. I think a big hang up for a lot of investors right now is that, even if we look at the slide deck here, I mean, we're still talking about some game themes that have been out in the market for quite a while. Just curious if we could provide any additional color on any sort of new games that are out there in the market, maybe how they're performing and sort of how the cadence of new game theme rollouts is going to look this year?
David Lopez -- President & Chief Executive Officer
Thanks, Brad. So, I think it's both hardware and software. And I know -- and games, if you will. Our games that have been released here in the last, it's just been recently as we said, as we wanted to roll these games out to help enhance our RPD in Oklahoma and some other jurisdictions. They've just recently been released without like giving specific numbers, I'd say strong is good way to put it on the games that we've released, along with the hardware we've actually just put the Starwall in the service.
And as we said in our prepared remarks and of course Rise also is in service now. All those between the new games and the two new cabinets, and of course, Curve is coming we don't have anything on that just yet. Everything is really early, but it's showing good indications of being one of our better games as far as the games that are coming out and as far as the hardware, it's all performing well and the numbers look great.
Cadence, we talked about that a little bit in the remarks, again, back-half weighted as far as when it all comes, but Starwall is out already, Rise is already rolling out. And, I think, we're talking about really getting into Curve here in Q2 you'll start to see more volume toward the end of the quarter, but of course into Q3 is when it's really going to hit stride. So, we're confident we like what we're seeing early on. We felt good about these games at G2E, we felt good about the games as we were demoing to our customers. And I think the numbers are starting to prove that out.
Brad Boyer -- Stifel -- Analyst
Okay. Very helpful. And then second, you guys did provide a lot of color around Oklahoma, one thing I noticed just in the slides, looks like to-date you've touched over 1,500 units, I know, I mean, it's kind of a moving target, but it's a little bit higher than kind of what we had talked about previously kind of 1,200. I guess, just curious where we stand there in the -- as far as realigning games, putting capital into sort of optimizing Oklahoma. I mean, is it your expectation that we're going to continue to see a significant number of units beyond the 1,500 level touched as we move into 2020? Or do you think we're kind of in the latter innings of sort of that revitalization of the base process in Oklahoma? I think -- good question. I think, as you said it's a moving target, as far as we're concerned, we look at those changes as both being game conversions and cabinet swaps. We're trying to be as judicious as we can with cabinet swaps because that's where the capital sits. As far as game theme conversions, we've actually had very good results with those, we look at those numbers weekly and monthly, the returns on that obviously are very good. The cost is de-minimis and the returns on that -- on the cost is really just labored getting out there and we make that money back very quickly. But we can see a demonstrable return on those changes. Those will continue. As far as how we're going to go out and touch the base. We've got about 10,000 -- roughly 10,000 units out there or so in Oklahoma. So we've touched 15% of it. I think, there is still plenty more to get to. But those touches will include simple game conversions. And then as we want to keep some of our powder dry here, we know Starwall is on the way. And, again, early results on Starwall specifically are very strong. Rise is doing very well. We want to keep our powder dry for Rise and of course for Curve. So, there is more work to be done there. But of course as we always, we've been saying it for a couple of quarters now. The cavalry is coming in 2020 and now, we can see them on the horizon and it's sort of coming up on us. So we're very, very pleased with the results there and we'll be again judicious with the capital. It's a balance between getting optimizing that base and sort of what the spend should be in order to go out and get that. Okay. And then lastly, just on the Table segment, I mean, the performance this year was pretty sensational, I mean, you basically took a business that was doing no EBITDA and now it's doing $4 million, dramatically grew your revenues. I guess, just as we look ahead to 2020 and perhaps even a little bit beyond. I guess, any color you can provide as to how we should be thinking about growth in that segment from here? I mean, obviously, you've done a great job with the side bets and progressives and Pax is potentially kind of going to hit the market, maybe later this year. But just I think it'd be helpful for everyone on the call, if you could sort of maybe frame the growth opportunity in Tables from here? And that's it from me. Thanks.
David Lopez -- President & Chief Executive Officer
Thanks, Brad. So, I'll begin with just talking a little bit about the products and Kimo can maybe add a little bit of framework for growth without us being terribly specific there. Pax, obviously, is going to be huge for us. It's something that really turns us from a company that since has a shuffler to a shuffler division. So that's very helpful. Our customers are happy with what they see with this first round with the Dex. But really more than anything after they saw Pax at G2E, they're very excited because they want to see that competition in the marketplace and they see the quality and the type of unit that we've designed from the ground up. So, we have high hopes for that, it comes in the second half to very late 2020. It gives us nice momentum moving into 2021.
And, of course, our site license strategy has gone very well for us. We've made some strategic hires in the division, in the table game division that have gone very well for us. We've got quite a bit of momentum on site licenses. The progressives are really hitting stride. We've talked about, we've got some of this NHL licensing that we're mixing in there. So, table games is very promising, we're excited about it. Yes. We grew this from sort of zero, many, many years ago and now we've turned it into a real business. And I'll sort of turn it over to Kimo if he wants to put any framework around growth.
Kimo Akiona -- Chief Financial Officer
I think you covered most of it, but I mean, growth rate wise, right, this is a start-up business. So, of course, the growth rate sound really high, but you can look for low-single digit million EBITDA, right, contribution from this business incrementally each year. I think what's exciting about this business, right, is the margins continue to get better each year. I think if you look at the investments that's needed in this business, it's different than the slot business, right. I think it's a lower investment and we get really good returns. So, margins will continue to improve, I think it will catch up with slots by the time we exit 2020. And maybe, hopefully we can punch beyond that.
Brad Boyer -- Stifel -- Analyst
Perfect. Thanks, guys.
David Lopez -- President & Chief Executive Officer
Thanks.
Kimo Akiona -- Chief Financial Officer
Thanks, Brad.
Operator
And our next question will come from Chad Beynon with Macquarie. Please go ahead.
Jordan Bender -- Macquarie -- Analyst
Good afternoon. It's Jordan Bender on for Chad. Can you talk about your learnings from the last two EGM acquisitions. And if you see any more opportunities in this space heading into 2020?
David Lopez -- President & Chief Executive Officer
Yeah, sure. So, in our last couple of EGM acquisitions they were tuck-ins, they probably, I'd say they are -- we thought they were right. They were tuck-ins, they gave us an opportunity sort of work within a base that we already exist, some new accounts for us, bring in some EBITDA, give us an opportunity to optimize with our units over time and then just give us flexibility down the road as you can see here even within the quarter as to what we did with some of our base.
Beyond that, tuck-ins really across the board, whether it'd be EGMs, Tables, Interactive or other is something that we continue to look at, they are easier to similarly integrate with the company. So, we feel good about tuck-ins, it's what we've been doing I think since 2014 and 2015. So we're very comfortable with it.
As far as other EGM tuck-ins, they are always out there, always evaluating them, we don't jump out and do anything unless it meets our criteria long-term as far as growth and what it contribute to the company. So, that's sort of what we've learned and also opportunities are always there.
Jordan Bender -- Macquarie -- Analyst
Okay. And then I think you got a little bit of contribution from Integrity and you'll get a little in 2020. I was wondering why your organic 2020 EBITDA grow three times that might be?
David Lopez -- President & Chief Executive Officer
Most of the growth rate would be organic as we closed on Integrity in, call it, mid-early February of 2019. So, predominantly, the rates that we put out are mostly organic.
Jordan Bender -- Macquarie -- Analyst
Okay. Okay. I'm going to pass it on. Thanks, guys.
David Lopez -- President & Chief Executive Officer
Appreciate it. Thanks.
Kimo Akiona -- Chief Financial Officer
Thank you.
Operator
And our next question will come from David Katz with Jefferies. Please go ahead. Mr. Katz, your line is open for questions. And our next question will come from Barry Jonas with SunTrust Robinson Humphrey. Please go ahead.
Barry Jonas -- SunTrust Robinson Humphrey -- Analyst
Hey, guys. So, look for starters, I think you can argue gaming stocks now are trading on coronavirus fears. So, I just wanted to explicitly ask you if you're seeing any impact in operator purchasing behavior or in play levels in your participation business?
David Lopez -- President & Chief Executive Officer
Yeah. Good question, and thanks, Barry. Nothing yet and we agree with your coronavirus trading fears at the moment. There is nothing material that we've seen. We haven't seen any changes in buying behaviors just yet. We haven't seen anything come across in RPD on our participation units. Obviously, we'll be monitoring all that along with the coronavirus very closely, but nothing material to this point. And even if we reach out and anticipate maybe the next question is supply chain management, again, we watch all our parts very closely there that come from all over the world and there is nothing material there as well. But we watch it very closely obviously.
Barry Jonas -- SunTrust Robinson Humphrey -- Analyst
Great. That's really helpful. So, next I noticed guidance didn't mention anything about the Oklahoma compact disputes or excluding it, is that factored at all? And maybe can you help frame any potential impact either to the negative or the positive for AGS as you see it?
David Lopez -- President & Chief Executive Officer
Yeah. We've always sort of stuck to the same line here and that as far as Oklahoma goes, we again watch the situation there with the negotiation very closely. But being that we are primarily a Class II company in many of our jurisdictions, including Oklahoma, we're confident that if they were to flip the switch and say, hey, we've got to -- we just have to over time and they won't do it overnight. But over time we want to convert to Class II. We sort of like that because it ends up leveling the playing field.
In Oklahoma, we actually are out there as primarily a Class II provider and we're up against Class III games. So it's a little bit of a disadvantage, if that were to flip to all Class II, it certainly provides an upside opportunity for us here at AGS. So, that's very good question. And obviously we watch it very closely, but we're prepared for whichever way it goes.
Barry Jonas -- SunTrust Robinson Humphrey -- Analyst
Great. And then just last one, I think, I just wanted to talk about the road to 250. At this point, what do you think has to happen to achieve that in the time frame you've previously outlined?
David Lopez -- President & Chief Executive Officer
Good deal. So, as far as road to 250 goes, obviously with this year, we can look forward into the next few years, you've got a couple of years left there. We know we need to be, I think, if it goes out another couple of years or three years here, if we look at that road to 250, those numbers need to be sort of in the low-to-mid-teens if our calculations are correct.
Clearly, we've seen a little bit of headwinds here, we've seen our Oklahoma headwinds, we know where we're at this year, but going forward, that would be the calculation with our new products, with Interactive hitting stride at some point, it's a business that we believe we really need to be in, and that will hit stride. Table games beginning to grow for us, that sort of the growth rates that we'll need to be in, in the next two to three years to hit that mark over time.
Barry Jonas -- SunTrust Robinson Humphrey -- Analyst
Great. Looking forward to you hitting that. Thanks.
Operator
[Operator Instructions] Our next question will come from David Katz with Jefferies. Please go ahead.
David Katz -- Jefferies -- Analyst
Hi. Afternoon, everyone. Sorry, I missed my turn. I wanted to just go back to the --one comment about the guidance and I think if I heard correctly Kimo indicated cash flow should be up in 2020. And obviously there is a modest amount of growth in EBITDA less the capex, which is approximately at the same level. Is incremental cash flow and de-levering is that coming from the sale of units more so than the operations or a little bit of both adds up, how should we be thinking about that?
Kimo Akiona -- Chief Financial Officer
I don't think it's not any one specific thing, David, but it's a mixture, right. Like I think if you look at some of the things that happened in 2019, we had some incremental placement fees and certain things that hit capex that won't reoccur in 2020. We did have some working capital call it drain, if you will, at higher levels in 2019 that I don't think will occur again at the same level in 2020. So, it's sort of a mixture of a couple of different things, but I wouldn't say it's just one specific thing. But again, we've got confident that we will grow, free cash flow will improve off of 2019.
David Katz -- Jefferies -- Analyst
Right. And that was really my second question, we obviously have gone through some resetting over the past few quarters. And presumably, as the reductions happen and the confidence grows that it's low enough, where -- how would you describe your degree of confidence that the 2020 numbers are solid? And then as we look out beyond that you're obviously rolling out games and in the coming quarters we'll get a clear sense of what a more efficient installed base and product line can do. Is there anything else that gives you confidence that growth comes back in 2021?
David Lopez -- President & Chief Executive Officer
I think -- it's interesting, I think, you covered sort of almost the answers in the question a little bit there for us. And you've done a good job.
David Katz -- Jefferies -- Analyst
Thank you.
David Lopez -- President & Chief Executive Officer
It really does come down to some things, we need to be more efficient in certain jurisdictions, I'll name a couple Oklahoma and Mexico, obviously. We want to make up those much more profitable jurisdictions. Again, the table game division is really just starting to hit on all cylinders and feels like we've been in that business for a long time, but really hasn't been very long that business has been spending up. So, we're confident there. And I think even in the beginning of the year here we can see that we're beginning -- we started a new plan, if you will, or offerings for our customers and they are very interested and then signing up for it.
Interactive, second half of the year here we should see more momentum as well, but I think what gives us confidence in the slot business is, yes, 2019, we said it was a little bit of a reset in 2019. But when you look at 2020 and we talk about it internally, we have game changer products that are coming online. There is nothing like the Starwall out there that incorporates a cabinet is successful as the Orion Portrait and has this display incorporated it that were just beginning to scratch the surface on.
Again, first install very good returns. Very excited to see what we have seen so far. And then the Rise and the Curve cabinets, we have a high level of confidence. And then just setting aside the hardware as Brad asked early in the call. The new content that's coming, we're now really firing on all cylinders on all of the studios that we have across the globe are now providing product, whether it be at Reno, Austin, Atlanta, Australia, et cetera. They're all providing products for our product line and we're beginning to see those returns with really great games and great RPD and win per day there. So, that's what really gives us the confidence. It's really the team that we put together and now what they're producing.
David Katz -- Jefferies -- Analyst
All right. Okay. I'd say you said it better. Thank you very much.
David Lopez -- President & Chief Executive Officer
Appreciate it, David.
Kimo Akiona -- Chief Financial Officer
Thanks, David.
David Katz -- Jefferies -- Analyst
Thanks.
Operator
[Operator Instructions] Our next question will come from John DeCree of Union Gaming. Please go ahead.
John DeCree -- Union Gaming -- Analyst
Good afternoon, everyone, and thanks for taking all the questions. Just one from me on the Interactive segment I realized today it's a small piece of your business, but couple other public companies have been out there talking about the size of that opportunity, specifically real money wagering on the heels of more sports betting legislation going throughout the country. So, David, I was wondering, I think you've mentioned in your prepared remarks or response to another question, how important that businesses to be in. I was wondering if you could give us kind of your outlook on that industry and how it evolves in the US and if you're optimistic, we could see some more momentum behind digital gaming, which could be a pretty big business and it's obviously a segment that you're focusing on?
David Lopez -- President & Chief Executive Officer
So, thanks, John. This is a division that we talk about obviously a lot internally. We talk a lot with our shareholders and with analysts, it's sort of a difficult one to be in at times, because you have to dip your toe in the water, you have to learn, you've got to lose a little bit of money along the way to be in it. But it is without a doubt, a division that we must have, we must be in this business that crossover between brick-and-mortar and the Interactive space is something that it's an area that the operators are all very interested in, whether it'd be real money, social or otherwise.
So, we're happy to be there and we're confident that it's going to grow. Right now, we really just talked about a few jurisdictions is being impactful on our business, but as time goes on over the next two years to three years, it's something that we know will go sort of like we said, it'll march across the country state-by-state and have a more tangible impact much like it has in New Jersey and Pennsylvania and that'll be meaningful for -- to us from a revenue and an EBITDA point of view.
So, we're excited. We're happy to be there. We're happy that operators are buying in big time and we've seen that actually with one of the bigger operators, regional operators has made a considerable investment recently. So, we think everybody's on the same boat here and heading in the right direction.
John DeCree -- Union Gaming -- Analyst
David, perhaps, a question for some of your customers. But you're fairly plugged in as well. Do you see any, I guess, your view on momentum any states that you guys have focused on or jurisdictions that you think could be closer than not -- that where we could see some real opportunities pop-up over the next 12-months or 24-months or is it just still a little vague at this point?
David Lopez -- President & Chief Executive Officer
I think, no, I'd say, it's still a little vague as far as you're not talking about new jurisdictions or anything you just talk about existing jurisdictions that are new to us?
John DeCree -- Union Gaming -- Analyst
New jurisdictions for you or just in general approved on legislative front, it would make the pie bigger for real money wagering.
David Lopez -- President & Chief Executive Officer
There's -- you're still on -- I want to make sure because I lost you, I was going brick and mortar really quick, I apologize.
John DeCree -- Union Gaming -- Analyst
[Speech Overlap] back to Interactive.
David Lopez -- President & Chief Executive Officer
Yeah. Staying on Interactive. Yeah, I think, there is probably a pretty orderly march across the US there. I don't want to be the guy with the crystal ball here, trying to predict which one is going to come next. Obviously, we'd love to see a lot happen in tribal California and some others and have it being much more meaningful. But ultimately, we think that just about every state that has brick and mortar gambling at some point, we'll have online and Interactive because it's going to be a very important part of the strategy for the brick and mortar casinos to sort of stay in touch and stay dial into their customers and give them the opportunity to enjoy what they do in the facility, obviously from the comfort of their own home home or mobile. So, no bold predictions there, but we're confident that as the AGA has said in many other organizations that it's going to happen and it's going to happen slowly, surely, but fairly, orderly.
John DeCree -- Union Gaming -- Analyst
Fair enough. I appreciate the thoughts, David. Thank you.
David Lopez -- President & Chief Executive Officer
Thanks, John.
Operator
Our next question will come from David Bain of Roth Capital. Please go ahead. Mr. Bain, your line is open for questions.
David Bain -- Roth Capital -- Analyst
I'm sorry, can you hear me. Sorry about that. David issues today. So, yeah, just a quick question, I believe you mentioned on Oklahoma that you sold a few units in the fourth quarter. Did you save the number of units?
David Lopez -- President & Chief Executive Officer
Yes, we gave a number of units in the prepared remarks, it's around...
Kimo Akiona -- Chief Financial Officer
Over 300. Over 300, David.
David Lopez -- President & Chief Executive Officer
Yeah. Yeah.
David Bain -- Roth Capital -- Analyst
A little over 300 and that's something we can expect going forward. And is that I guess -- is that in guidance at this point?
Kimo Akiona -- Chief Financial Officer
So, in the prepared remarks, we talked a little bit about our strategy around Oklahoma and really analyzing our footprint. So, what we tried to do there was frame up that, look, we are open to selling certain portions of our footprint on call it specific analysis basis. And so you'll see some of that in probably the first half of the year.
David Bain -- Roth Capital -- Analyst
Okay. And it will be in relatively small amounts, it sounds like.
David Lopez -- President & Chief Executive Officer
Yeah. Comparable.
David Bain -- Roth Capital -- Analyst
Okay. All right. Perfect. That's it for me. Thank you.
David Lopez -- President & Chief Executive Officer
Thanks, Dave.
Operator
[Operator Closing Remarks]
Duration: 54 minutes
Call participants:
Julia Boguslawski -- Chief Marketing Officer & Executive Vice President of Investor Relations
David Lopez -- President & Chief Executive Officer
Kimo Akiona -- Chief Financial Officer
Brad Boyer -- Stifel -- Analyst
Jordan Bender -- Macquarie -- Analyst
Barry Jonas -- SunTrust Robinson Humphrey -- Analyst
David Katz -- Jefferies -- Analyst
John DeCree -- Union Gaming -- Analyst
David Bain -- Roth Capital -- Analyst
