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Playags Inc (NYSE:AGS)
Q1 2021 Earnings Call
May 7, 2021, 3:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon. Welcome to PlayAGS First Quarter 2021 Earnings Conference Call. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions].

I would now like to turn the conference over to Brad Boyer, Vice President of Investor Relations, Corporate Development and Strategy. Please go ahead.

Brad Boyer -- Vice President of Investor Relations, Corporate Development and Strategy

Thank you, Operator, and good afternoon everyone, welcome to AGS' first quarter 2021 earnings conference call. With me today are David Lopez, CEO and; Kimo Akiona, CFO. A slide presentation reviewing our key operational and financial highlights for the first quarter 2021 can be found on our Investor Relations website, investors.playags.com.

On today's call, we will provide an overview of our Q1 2021 financial performance and offer perspective on our current financial outlook. This conference call includes forward-looking statements and 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 would like to turn the call over to our CEO, David Lopez.

David Lopez -- President and Chief Executive Officer

Thanks, Brad and good afternoon everyone. As I sit here and reflect on the past 12 months, I'm amazed at how well the gaming industry has endured throughout the COVID-19 pandemic. It's hard to believe it has only been a year since we and our industry peers were talking about the steps we were taking to preserve our liquidity in the face of unprecedented adversity.

At the onset of COVID, as casinos across the country began shutting down, I often heard industry executives and other constituents utter the phrase, Never underestimate the spirit of the gambler. Judging by our first quarter financial performance, the gambler spirit is alive and well. As you have heard from our Casino operator partners and seen in the state reported GGR data, the first quarter was all about momentum. Although lingering casino closures, occupancy restrictions and several unprecedented weather events got the quarter off to a bumpy start, trends began to rapidly improve as the quarter progressed.

To that end, relaxed COVID related operating restrictions, declining case counts, improved vaccination efforts and other macro-economic tailwinds allowed our US casino partners to benefit from the release of significant pent-up demand across our businesses throughout the month of March.

Fortunately, we were able to leverage our nearly 16,000-unit domestic EGM installed base to benefit alongside our operator partners, as March domestic RPD increased 13% over March 2019 driving our first quarter RPD, 3% above the corresponding 2019 levels. While pleased with the performance of our domestic installed base in the quarter, and despite some of March's strength carrying into April, we acknowledge the culmination of several events played a role in the results, we and our customers were able to achieve. That said, we encourage investors to keep the first quarter market dynamics in mind while modeling our business forward as we believe broader gaming trends are likely to stabilize overtime as this initial surge in pent-up demand transitions to new normal.

Looking beyond the broader market dynamic, further execution upon several strategic initiatives enhanced our gaming operations performance in the quarter. On the premium gaming front, demand for Starwall remained steady as we added 120 units in the quarter, bringing our total footprint to over 400.

In April, we introduced new Starwall configuration to the market, which we believe have the potential to stimulate customer demand for the product. As part of our strategy to further penetrate the lucrative premium recurring revenue segment, we recently initiated a field trial of our Orion Curve premium package with the products slated for broader roll-out in the back half of the year.

We continue to be excited about the prospects for Curve premium as it will be offered in a naturally distanced carousel layout and will feature an extension of our player favorite, Rakin' Bacon brand. All told, we believe the combination of Starwall and Curve Premium favorably position us to command a greater share of the 70,000 units domestic premium market, which generates over $1 billion of annualized gross gaming revenue.

In addition to our premium effort, we continue to look for opportunities that prove lower yielding units from within our installed base, as this strategic initiative has the potential to streamline our cost and improve our fair share operating performance overtime. In the first quarter, we pruned and sold approximately 430 units from our domestic installed base. Note, these units are not included in our product sales KPIs for the quarter.

Ultimately, we believe pruning could allow us to generate comparable or higher revenue from a smaller capital footprint, further enhancing the overall return and capital efficiencies of our gaming operations business. Turning to product sales, although we sold a modest 289 units in the quarter, we are encouraged by the tone and tenor of recent conversations with our customers. As a more favorable operating environment continues to support a broad based recovery in gaming revenue, we are slowly starting to see the improved revenue performance trigger a willingness by operators to commit capital for new unit purchases.

The sentiment was reinforced by the results of the recent Eilers- Fantini quarterly slot survey where operators indicated they plan to replace an average of 6.5% of their own gains over the next 12 months, a notable increase from the 5.9% reported last quarter and well above the pandemic low of 4.2%.

While we believe it could take a few years before we return to 2019 levels, we are feeling confident about the potential for a continued recovery in our unit sales as we progress through 2021. To accelerate the pace of our EGM revenue recovery, we continued to look for opportunities to efficiently expand our business into areas such as Historical Horse Racing or HHR. We placed additional games into Virginia and Kentucky HHR markets during the first quarter. And driven by exceptional AGS game performance, our pipeline for the remainder of the year continues to grow.

Looking ahead, we believe we have the potential to broaden our presence in the Virginia and Kentucky markets while also taking advantage of placement opportunities in additional HHR markets. Before closing, I would like to briefly touch on the trends that we are seeing in our Table Products and Interactive businesses. First within tables, our team continues to relentlessly and thoughtfully grow the business as evidenced by the achievement of record EBITDA performance in the quarter.

Although small on an absolute dollar basis, I don't want investors to overlook the fact that not only did this business not exist just a few short years ago, but it also is operating on an ever improving EBITDA margins. Looking ahead, I remain confident in the growth prospects for our Table Products business, supported by further installation momentum of our industry best progressive products, greater adoption of our AGS Arsenal site licenses and the launch of our PAX S hand forming shuffler later in the year.

With respect to Interactive, we continue to execute our four pronged growth strategy to drive results in our Real Money Gaming business. RMG revenues established a new record in the first quarter, driven by a successful launch in the Michigan iGaming market, introduction of additional AGS content into the online domain and integration with additional B2C online operators.

Importantly, the momentum we saw on the first quarter has continued into April, which highlights the improving execution of our R&D strategy. Perhaps the most notable achievement given our interactive segment occurred subsequent to the quarter end as we were able to leverage our growing online presence to execute our first omnichannel, enterprise wide agreement with a large multistate operator.

In addition to providing the operator with the access to our growing suite of online content, the agreement also extends to our product sales and gaming operation segment. A first of its kind for AGS, we intended to look for opportunities to further leverage our omnichannel content capabilities with additional operators in the future.

In closing, I was very pleased with our team's execution in the quarter and I'm equally as encouraged by the macro-level trends and overall sentiment we are seeing across the gaming landscape segment. Following one of the best strategic planning off-sites I've ever been a part of, I believe we are strengthening our organizational alignment around key business objectives which should allow us to improve our operating efficiencies that enhance shareholder value overtime.

I'd like to thank all our AGS team members for their hard work, flexibility and commitment in the first quarter, and I look forward to sharing our progress with all of you in the quarters ahead.

With that, I will turn the call over to Kimo to provide additional perspective on our financial results, liquidity position and current outlook for the business.

Kimo Akiona -- Chief Financial Officer

Thank you, David and good afternoon everyone. I'm proud of the way our team came together to deliver strong first quarter financial performance. Our results once again serve as a testament to the resiliency and durability inherent to our Company's recurring revenue-centric business model. Although it remains difficult to predict the degree to which changes in the macroeconomic environment, including those directly related to COVID-19 protocols might impact our customers' operations or demand for our products, I am confident our improved execution and strong liquidity position will allow us to deliver more consistent financial performance and in turn, further enhance shareholder value.

Turning to our first quarter 2021 operating results, we generated consolidated revenue of $55.4 million, representing an increase of 2% versus the prior year's quarter. Our gaming operations or recurring revenue improved 4% year-over-year. Easing COVID-19 related operating restrictions and ongoing vaccination efforts, unlock significant pent-up demand across our US operator partners businesses as the quarter progressed, in turn, strengthening our domestic EGM gaming operations revenue.

Continued rollout of our industry leading table game progressive products, broadening of our penetration into the lucrative EGM premium games segment and enhanced execution within our Real Money iGaming business further supported our improved recurring revenue performance in the quarter.

In aggregate, revenue generated from recurring sources accounted for 80% of our total reported revenue compared to 79% in the 2020 first quarter. With respect to equipment sales, total revenue decreased 6% year-over-year to $10.9 million. Revenues related to our ongoing efforts to strategically prune lower yielding units from our Oklahoma EGM installed base increased by $2.1 million. However, this increase just more than offsets the sustained sluggishness in the North American replacement market, reflecting operator current preference to carefully manage capital expenditures as their businesses recover from COVID-19 related business disruption.

First quarter 2021 net loss of $7.8 million improved compared to a net loss of $14.4 million incurred in the prior year's quarter. The year-over-year decline in our reported net loss reflects our improved revenue performance led by our recurring revenue businesses and recognition of lower depreciation and amortization expense due to several intangible assets reaching the end of their useful lives.

Higher interest expense related to our incremental debt financing, which we closed upon in May 2020, partially offset the flow-through of our improved operating performance to the bottom line. Consolidated adjusted EBITDA totaled $26.3 million compared to $24.5 million in the prior year's quarter. Adjusted EBITDA margin was 47.5% nicely above the 45.1% achieved in the first quarter of 2020.

Strength within our high margin recurring revenue businesses and an increase in higher margin revenues generated from our ongoing strategic pruning initiative paced our improved adjusted EBITDA and adjusted EBITDA margin performance versus the prior year. These items were partially offset by normalization in our operating expenses versus the prior year period, which benefited from our early stage COVID-19 related liquidity preservation initiatives.

As we look to the full year, we continue to expect margins to bracket, which is another way of saying land slightly above or slightly below the low end of our targeted 45% to 47% adjusted EBITDA margin range. Our margin outlook reflects the anticipated impact of investments in our R&D franchise to support future growth initiatives ahead of a more pronounced recovery in new unit sales revenue.

I will now provide an update of each of our operating segments beginning with our EGM business. Total first quarter 2021 EGM revenue was $50.5 million, relatively consistent with the prior year's quarter. We sold a total of 289 units in the quarter, all of which were replacement units compared to 464 units in the prior year period.

EGM units were sold into 14 US states and two Canadian provinces with British Columbia, Virginia and Ohio emerging as our top three sales markets. Domestic average selling price or ASP was approximately 17,500 relatively consistent with the level achieved in the prior year. As David mentioned, we're starting to see an early indication of modest improvement in customer demand for new units as COVID operating restrictions are eased and the health of our customers' businesses improves.

However, we continue to believe the North American sales market could potentially take a few years to fully recover to pre-COVID levels. That said, I believe we will see a fairly material quarterly sequential increase in our second quarter 2021 unit sales, as a result of a more favorable opening and expansion demand outlook.

Our domestic EGM installed base at the end of the first quarter comprised 15,456 units, representing a quarterly sequential decrease of 812 units. The sequential decline reflects the planned strategic pruning of approximately 430 lower yielding units and the impact of COVID related floor reconfigurations.

After adjusting for these changes, we estimate approximately 99% of our domestic units were active at quarter end. The net impact of the removed units on our domestic installed base was partially offset by replacements of opening and expansion units and growth within our HHR and Orion Starwall unit footprints.

Moving ahead, we remain committed to searching for inefficiencies within our installed base and strategically pruning as situations permit. Additionally, we believe the upcoming launch of our Orion Curve Premium Package further Orion Starwall market penetration and planned new openings and expansions have the potential to produce modest, quarterly sequential domestic installed base growth over the remainder of the year.

First quarter domestic EGM RPD was $27.10, representing an increase of nearly 30% compared to $21.08 achieved in the prior year quarter. We attribute improved RPD performance to a more accommodative US casino operating environment supported by easing COVID-19 related operating restrictions and improved vaccine distribution. These measures resulted in the release of significant pent-up demand across our casino operator partners' businesses.

We also believe the continued growth of our Premium Game footprint and the strategic pruning of lower-yielding units further enhanced our quarterly RPD performance. Domestic EGM RPD grew approximately 17% relative to the $23.26 achieved in the 2020 fourth quarter and increased approximately 3% as compared to the $26.42 realized in the 2019 first quarter.

Domestic EGM RPD improved month-over-month throughout the 2021 first quarter with notable strength witnessed across several impactful geographies during the quarter's final month. As David mentioned, we believe our first quarter domestic RPD performance benefited from several unique macroeconomic factors, many of which we believe were temporary. That said, we would expect to see some level of moderation in our reported domestic RPD as these macro influences gradually taper off.

Turning to our international EGM business, our installed base comprised 7,985 units at quarter-end, unchanged versus the 2020 fourth quarter and about 50% of which were active as of the end of the quarter. International RPD was $2.94, down 57% year-over-year, but up approximately 15% on a quarterly sequential basis.

A less supportive macroeconomic climate and stringent COVID-19 related operating protocols continue to protract the recovery within our Mexico gaming operations business. That said, we are seeing signs of additional casino openings and improved customer demand throughout the Mexico market, which has a feeling cautiously optimistic about the potential for international RPD to continue to gradually recover as we progress through the remainder of 2021.

Our Table Products segment generated first quarter revenue of $2.8 million, representing an increase of 11% year-over-year and 8% on a sequential quarterly basis. Table Products' adjusted EBITDA was $1.4 million, establishing a new quarterly record for the segment. The total Table Products installed base at quarter end comprised 4,362 units, representing an increase of 12% year-over-year and 108 units sequentially.

We estimate approximately 90% of our Table Products lease installed base was active at quarter end compared to 80% at the start of the quarter. Looking ahead, operator interest in our growing suite of industry-leading progressive products and our AGS Arsenal site license offering continues to build. Combined, we believe progresses, site licenses, impacts have the potential to simultaneously expand our Table Products installed base and increase our average lease price as we proceed throughout 2021.

Finally, our Interactive segment delivered first quarter 2021 revenues of $2.1 million representing an increase of 41% year-over-year. Our Real Money Gaming business led the way in the quarter with revenues more than doubling year-over-year to a record $1.4 million. Perhaps more importantly, our interactive segment delivered positive adjusted EBITDA for the fifth consecutive quarter supported by improved revenue performance.

Looking ahead, we believe our continued success in integrating our online content with additional B2C operators introducing additional AGS titles into the online domain, and expanding our suite of online content to include our first online table game offering have the potential to produce improved revenue and profitability within the interactive segment in the quarters ahead.

Turning our focus to cash flow and the balance sheet, first quarter capex totaled $9.9 million compared to $10.6 million in the prior year period. Growth and intangible capex accounted for the majority of our quarterly capital spend at $5.2 million and $3.8 million respectively. Looking out over the remainder of 2021, we expect our quarterly growth capex to ramp in the second and third quarters as we look to broaden our presence in the premium recurring revenue segment prior to moderating in the fourth quarter.

First quarter free cash flow was near breakeven compared to positive $8.2 million in the prior year. The year-over-year free cash flow decline reflects the first quarter 2021 period related unfavorable working capital changes. As of March 31st, 2021, we had $107.3 million of available liquidity inclusive of our $30 million undrawn revolver compared to $111.7 million at December 31st, 2020.

For the full year, we remain confident in our ability to maintain or potentially improve upon our December 31st, 2020 liquidity position with improvement weighted to the back half of the year. Total net debt, which is the principal amount of total debt less cash and cash equivalents was approximately $543.6 million at March 31st, 2021 compared to $540.8 million at December 31st, 2020.

Our total net debt leverage ratio, which is total net debt divided by adjusted EBITDA for the trailing 12-month period decreased from 7.5 times at December 31st, 2020 to 7.4 times at March 31st, 2021. Our modified net debt leverage ratio used for covenant compliance purposes was 4.0 times below the maximum allowable level of 6.0 times.

Operator, this concludes our prepared remarks and we would now like to open the line up for questions.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions]. Our first question is from Chad Beynon from Macquarie, go ahead.

Chad Beynon -- Macquarie -- Analyst

Hi, good afternoon and thanks for taking my question. Nice results. Guys, understanding that you're not giving guidance, I wanted to focus on the installed base outlook. David, you noted that the premium market comprises roughly 70,000 units in North America, and it sounds like Starwall is performing well and Curve is right around the corner.

Can you just kind of help us think about long term maybe what the market share goals could be? And then near term, how are you thinking about rolling out some of the titles that have been successful and could drive some growth in your installed base this year? Thank you.

David Lopez -- President and Chief Executive Officer

Thanks, Chad. So we'll start with sort of the second half of the question there, because I think on the first half we're not really offering any particular guidance on what we're aiming for our market share of that sort of premium base, that premium lease space.

As a reminder, we're just getting started. I think as Kimo and Brad and I were talking the other day, we're probably a solid six months into the launch of our premium product campaign. We're happy with how it's going so far, we've been happy with the momentum of the Starwall. We just launched Curve premium. Too early to tell there. Of course, happy because it's early and usually we see good results early with our products like that.

But we'll be rolling out curve premium throughout the back half of the year, additional in Q2, we think we've got a great line-up, quite honestly, not just in the slots, but we're very pleased Chad with our R&D effort there on games and really what our focus has been on since COVID, and of course, I'm just going to sort of plug the other two divisions [Phonetic] too, for Online and Tables have done a fantastic job in R&D. But I know, I'm giving you a high level answer here, but yeah, we're not guiding on market penetration or ship share rate or anything like that just yet.

It's too early in the game. But as you see on Starwall, so far so good. We're very pleased with the results and early on curve premium, but again, we're confident that, that's going to do well. Our first game that we're launching there is Rakin' Bacon Deluxe. It's a known product, it's sort of -- we call it a fan favorite with our players. So -- so far so good and obviously, you'll get more updates on that down the line.

Chad Beynon -- Macquarie -- Analyst

Okay, great. And then the other side of that, just on the strategic pruning, I know you guys went through a lot of time with this during the past six to nine months. Does the elevated RPD levels that we're seeing right now given strong regional gaming trends, does that kind of change how you were thinking about maybe pruning more? And where does this stand as you kind of look at it now?

David Lopez -- President and Chief Executive Officer

Yes, good question, and something we've obviously discussed. But we're pretty confident that the pruning process and what we've embarked on here Chad is the right thing to do. As far as the integrity base and what we've done there, we think it's been very effective. We are in the closing innings of that. We will continue to look at other areas of the business. It's something not generating revenue or it's generating very low revenues because of location or something of the like.

We're still going to get after and prune it, because from a cap allocation and efficiency point of view, we want to be smart with our money, and with shareholder money. And, we continue to think it's the right strategy to get underperforming units out, and as we continue to roll out, whether it's Class II for lease product or if it's Class III lease and Class III premium lease, we think this is going to continue to improve our performance, efficiency, RPD and the like.

So we're sticking our guns on it, and obviously it does change the equation when you look at a particular unit at any particular point in time. So of course, if our team, we have our team in product management and game ops, if they're looking at our unit now, of course, it might not look like it's ready to be pruned, versus maybe what it would look like in the past. So, it does impact some things, but it's -- the high level strategy, we're sticking to, yeah.

Chad Beynon -- Macquarie -- Analyst

Thanks, David. Appreciate it. Best of luck.

David Lopez -- President and Chief Executive Officer

Thanks Chad. Thanks.

Operator

Our next question is from Barry Jonas from Truist Securities. Go ahead. Mr. Barry?

Barry Jonas -- Truist Securities -- Analyst

Sorry about that, I was on mute. David, as the industry starts to recover, can you maybe talk about the general pricing environment? I imagine there were some pricing and discounting pressure on the height of COVID, but where are we now?

David Lopez -- President and Chief Executive Officer

So thanks, Barry, and thanks for being on mute, because we do that all the time. It wouldn't feel like anything near COVID if somebody wasn't on mute, right?

So, I think pricing has not really changed a whole bunch from even 2019, 2020, 2021, obviously during 2020 that's like hey, we can sort of take that off the table and set it aside. But I don't see average sale prices changing dramatically. You can look at certain pockets with certain vendors, and of course see some change in some modulation there on pricing. But I think that largely, it will be rather consistent, and we don't have anything in our plans to say, oh, there's going to be some dramatic shift in pricing.

From -- I think, what's good and it was in the prepared remarks is that number one, we're starting to see obviously with this performance everybody listens to the operator calls, with the performance we're hearing from the operators on their calls, it's freeing up some capital, it's not just sort of looking down the pipe and saying, hey, we're starting to see sort of some capital loosening up, it's loosening up, I think it's due to obviously there are great performance.

So for us Q2, we can say is going to be something better than a modest improvement over Q1, and it will be, although O&E is part of our Q2 numbers, O&E should be a modest portion of those figures that we are due in Q2. So ASP is inline, no big changes and -- but capital allocation is improving.

Barry Jonas -- Truist Securities -- Analyst

That's great. And then as a follow-up, I know margins can move on mix, but you guys and frankly, the whole industry I think have done a great job bringing [Phonetic] cost as a result of COVID. But as we look forward, were there meaningful items you can call out that are starting to come back or are going to need to come back?

Kimo Akiona -- Chief Financial Officer

Yeah, I would say if you look at the cost structure, I think it's fairly evident things like T&E have been seriously reduced as we come off of last year. But as you know, the Salesforce starts meeting with customers even more, so face-to-face and you got trade show start picking back up. You'll see some of that sales type related cost structure come back into the organization. I think as obviously the macro environment improves, we get more comfortable spending in some areas that we probably maybe tightened up or over tightened up probably coming off of last year.

So you'll see some cost come back into the business. I think that's why Barry, we try to give some parameters like historically, we've always spoken about the 45% to 47% margin, but for the full year, we're trying to talk more down toward the 45% range.

Barry Jonas -- Truist Securities -- Analyst

Anything you'd call out that you think is permanent that doesn't have to come back?

Kimo Akiona -- Chief Financial Officer

I mean, across the organization, we did do some headcount reductions. I think we were pretty load though about -- we reinvested some of those savings we took in certain areas back into R&D, so although may be permanent in one sense, we kind of just reallocated back that to the R&D. I was going [Phonetic] to say, if David, you had anything else to add?

David Lopez -- President and Chief Executive Officer

You know, I mean, Barry I think I'm not trying to send any message here or anything, and I know our marketing folks listen. I think our marketing spend and how we approach it might shift going forward. We might see some dollars reallocated from something like G2E meaning, we'll spend either a modest or significant portion less than what we used to at G2E and really reallocate those dollars in a number of different directions. I would say most of them in are marketing itself. But I think that COVID has taught us a few things, and this might be one of the areas where it may not be a true clawback, but reallocation of dollars to become more efficient and more effective with our spend to get a better ROI on the dollar.

So we'll probably see a G2E this year or the next year and we'll let you be the judge of the direction we're taking with that.

Barry Jonas -- Truist Securities -- Analyst

That's great. Sounds good. Thanks so much guys.

David Lopez -- President and Chief Executive Officer

Thanks, Barry.

Operator

Our next question is from David Katz from Jefferies. Go ahead.

David Katz -- Jefferies -- Analyst

Hi. Good afternoon, everyone. Thanks for taking my question. I wanted to just talk about something a bit more specific, which is the Kentucky historical racing machine market which seemingly is growing and getting some traction. What updated thoughts or initiatives might you have around participating there with some of your stronger content?

David Lopez -- President and Chief Executive Officer

So, the HHR space -- we're solidly squarely in the middle of that with one of our partners that enable our games to be served up in those jurisdictions. Our HHR game content and performance has been phenomenal. We're still -- we're in Kentucky now. We do quite well down there. We will see orders throughout the balance of the year. And there is some new jurisdictions that are also opening up over the next, I'll call it six to nine, perhaps as long as 12 months, but I'll say over the next six to nine months, we'll probably see another jurisdiction or two open up.

So we're bullish on HHR. We like it. It's obviously there in our prepared remarks that we've invested there because it helps bolster our product sales. We look forward to the new jurisdictions opening up and everywhere where we are right now, our game performance is nothing short of fantastic.

David Katz -- Jefferies -- Analyst

Excellent. Thank you so much.

David Lopez -- President and Chief Executive Officer

Thanks, David.

Operator

[Operator Instructions]. Our next question is from Jeff Stantial from Stifel. Go ahead.

Jeffrey Stantial -- Stifel Financial Corp. -- Analyst

Hey, great, thanks. Good afternoon guys, thanks for taking my questions. I wanted to start and ask on the international operations. You know, you talked to it a bit in the prepared remarks, still lag in the US, just where Mexico stands, I'd like to see a closure to restrictions type basis. But my question is that, David, as we look further out, as we sort of get a market opening back up, we expect to see a similar thesis or a narrative of pent-up demand unwinding as we saw here in the US? And I know you called out the lack of stimulus, but just curious if there's anything else to contemplate as well as a way to potential for your international ops that could sort of mirror what we're seeing here right now in the US, just more on a lag basis.

David Lopez -- President and Chief Executive Officer

Yeah, I hate to give you this answer, but I have no idea. I don't predict a huge pent-up demand in Mexico and in Latin America. I don't see that, the vaccine rollouts are slow. I think they're going to drag out for quite sometime. So I think it's going to come back on sort of in patches or in smaller geographies within Mexico and Latin-America.

Stimulus dollars don't really exist there. So there could be a little something there, but to predict something like that, I think the dynamic in the US versus Mexico and Latin America is very different.

Now if you were to go up north of the border to Canada, I think the interesting news there is not a lot of Canadian casinos have come back yet. It sadly -- COVID has sort of respiked there again. I think you could see some pent-up demand in Canada. But good news is, our Canadian customers have remained active with us and haven't really gone away. There has been a little bit of a business going on there, and we hope as the casinos reopen there, we'll see some capital dollars release and things like that.

But, if we're looking for this surge that we saw in the US, I'd say that's unlikely to be the case.

Jeffrey Stantial -- Stifel Financial Corp. -- Analyst

Okay, that's helpful. And I appreciate it. You commented in spite of pretty limited visibility for everyone here on the call. So that's really helpful. Switching gears here over to your premium leased growth strategy. In particular, I wanted to talk about how you guys view Class II versus Class III markets for the product segment. I think in the past, you commented on something to the tune of 15% of Starwall units being placed in Class II market. Is this sort of consistent with how you view the mix of the total premium leased exposure, and the growth opportunity moving forward? Just trying to get a sense of where the most upside potential here is that [Phonetic] you look to grow your footprint there.

David Lopez -- President and Chief Executive Officer

So without getting into the specifics of what percent is in which jurisdiction, I don't have it in front of me right now. I'll just end up quoting a number incorrectly. I would say in Class II, we continue to be pretty strong. When I look at Starwall, and what I anticipate with curve premium, I anticipate that those products will be very well in Class II. So it will have pretty significant representation of our footprint.

That said, Class III is, I don't want to say, the prize [Phonetic], it is one of the prizes, because Class II is very productive for us. But Class III is a very nice price for us as we move into the jurisdiction, rollout more Starwall at the moment. You know, we're actually rolling out a new configuration, we sort of refer to as a football shape Starwall, which creates a little more -- I know social distancing is not a term we may feel like we use forever. But it takes the middle seat of Starwall and it makes it much more productive. In other words, it performs more or like an end cap seal [Phonetic].

So we expect some good things from that in Class III and as we rollout Rakin' Bacon Deluxe on the curve premium, we're going to be attacking Class III mark with that. Again, no bold predictions about the mix, we're going after both markets, we're certainly very strong in Class II and we're looking to improve our situation in Class III.

Jeffrey Stantial -- Stifel Financial Corp. -- Analyst

Okay, great, thanks. That's really helpful. Thanks again, and congrats. Really nice quarter.

David Lopez -- President and Chief Executive Officer

Thanks.

Kimo Akiona -- Chief Financial Officer

Thank you.

Operator

[Operator Closing Remarks].

Duration: 43 minutes

Call participants:

Brad Boyer -- Vice President of Investor Relations, Corporate Development and Strategy

David Lopez -- President and Chief Executive Officer

Kimo Akiona -- Chief Financial Officer

Chad Beynon -- Macquarie -- Analyst

Barry Jonas -- Truist Securities -- Analyst

David Katz -- Jefferies -- Analyst

Jeffrey Stantial -- Stifel Financial Corp. -- Analyst

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