Please ensure Javascript is enabled for purposes of website accessibility

PlayAGS, inc (AGS) Q3 2021 Earnings Call Transcript

By Motley Fool Transcribers – Nov 12, 2021 at 8:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

AGS earnings call for the period ending September 30, 2021.

Logo of jester cap with thought bubble.

Image source: The Motley Fool.

PlayAGS, inc (AGS 0.76%)
Q3 2021 Earnings Call
Nov 12, 2021, 9:00 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Hello, everyone, and welcome to PlayAGS Q3 '21 Earnings Call. My name is Emily, and I'll be coordinating the call today. [Operator Instructions] I now have the pleasure of handing the call over to Brad Boyer, Vice President of Investor Relations. Please go ahead, Brad.

10 stocks we like better than PlayAGS, Inc.
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* 

They just revealed what they believe are the ten best stocks for investors to buy right now... and PlayAGS, Inc. wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of November 10, 2021

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

Thank you, operator, and good afternoon, everyone. Welcome to the PlayAGS Inc. third quarter 2021 earnings conference call. With me today are David Lopez, CEO; and Kimo Akiona, CFO.

The slide presentation reviewing our key operational and financial highlights for the third quarter 2021 can be found on our Investor Relations website, On today's call, we will provide an overview of our Q3 2021 financial performance and offer perspective on our current financial outlook for the business.

This conference call will include the use of 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 in our business. 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 & Chief Executive Officer

Thanks, Brad, and good afternoon, everyone. Our third quarter results once again reflect our growing product momentum and improved execution. While our financial performance was driven by a multitude of factors, I would like to highlight a few that I view as most impactful. First, in advance of the initial COVID outbreak, we invested in broadening the scale and scope of our game development franchise. Though the return on game dev investments takes time to recognize, I'm confident our third quarter results would have looked a lot different if not for the contribution made by those additions to our game development team.

Second, we continue to leverage recent hires with significant industry experience to apply greater analytical rigor around all facets of our gaming operations business. In addition to thoroughly evaluating new deployed machine capex, our team also ensures our existing assets are oriented to optimize our return on investment, which occasionally includes strategic pruning opportunities. All told, I expect the recent changes in people and process to create a franchise with higher RPD potential and superior returns on deployed capital, which combined will enhance our free cash flow generation over time.

Finally, we have worked diligently to carefully assemble a deep content road map for each of our cabinets to strengthen the returns for AGS and our operator partners.

In the end, I believe our product management improvements and recent game development investments should better position our products for success in the quarters ahead. Thanks in no small part to the initiatives I've just highlighted, we continue to see considerable momentum building behind all areas of our business.

Turning first to our premium game initiatives. Demand strengthened throughout the quarter, with premium games accounting for over 8% of our domestic installed base at quarter-end compared to approximately 4% at the start of the year. Supported by Curve Premium strong performance, our premium games generated nearly 13% of our domestic game ops revenue in the quarter. Given our superior revenue performance, I'm confident our premium strategy will gradually strengthen our returns on invested capital and allow for continued growth of our footprint both in Class II and Class III markets.

Shifting to the slot product sales. While the broader North American slot replacement market continues to recover from post-COVID lows, it's clear that our core content performance has helped to accelerate our recovery. The volume of quality content available today within our core game portfolio is the best in the company's history, with three families of games performing nicely above average. Importantly, our improving execution has not been lost in the market as the strong performance of our Captain Riches, Tiki Fortune and Lucky O'Reilly titles allow us to achieve the largest percentage point growth in the October EILERS Performance Report in the new core games category. Ultimately, I believe that added depth, quality and diversity of our core content portfolio could allow us to take share as the domestic replacement market further recovers.

Looking beyond slots, the operational momentum also extended to our interactive and table product segments. In the interactive space, our performance remains relatively consistent as we begin to ramp spending to prepare for the future growth in what we believe is one of the most promising segments. In our Table segment, third quarter revenue and adjusted EBITDA established new all-time records. Notably, we saw sequential growth across all Table product verticals, including progressives, side bets, premium games and shufflers. Looking ahead, I see no signs of momentum slowing as demand from virtually all new Table Products remain strong. Perhaps most importantly, the momentum witnessed throughout the third quarter carried over to the Global Gaming Expo.

Exiting G2E, we received overwhelming positive operator feedback on the product showcase for our booth. On the slot side, operators were particularly complementary of the depth of content, enhanced graphics and new gameplay mechanics. The feedback on our Table Products was equally as encouraging with our Bonus Spin Xtreme progressive receiving the gold award in the annual GGB Gaming and Technology Awards. All told, G2E served as a formal opportunity for us to showcase our team's output over the past 18 months. Judging from the customers' response, it appears operators were collectively supportive of our current strategic path.

Before turning the call over to Kimo, I would be remiss to ignore the topic of inflationary cost and supply chain disruption. As the supplier of a great number of manufactured gaming products, we are not immune to these macroeconomic factors. That said, I would like to highlight the actions our team has taken to mitigate the impact on our business. First, our sales leadership has initiated a price integrity program to limit discounting on all for-sale and recurring revenue products. Additionally, well before the onset of the supply chain disruption, we undertook measures to value engineer each of our slot cabinets. And last but not least, we've extended our material planning time line to help lock in future inventory to the best of our ability. Although we can't eliminate the present global supply chain issues, we believe our ops and procurement teams have taken the right actions to mitigate the overall impact on our business.

In closing, I would like to reiterate just how excited I am about the prospects for our company. Over the past 18 months, we planted the seeds of change at AGS. And with the firm foundation in place, I'm confident in what lies ahead as we transition into harvest mode. I would like to thank our employees for their contribution to our company's success and look forward to further updating you on our next call.

With that, I'll turn the call over to Kimo.

Kimo Akiona -- Chief Financial Officer, Chief Accounting Officer, & Treasurer

Thank you, David, and good afternoon, everyone. I would like to start off today's call by reviewing our third quarter results and providing some forward-looking perspective for each of our operating segments. Although not anticipated, it is important to note my forward-looking commentary assumes no material changes with respect to COVID-related operating restrictions, casino closures or macroeconomic conditions.

Turning to our results. Third quarter EGM revenue was $61.6 million, up slightly on a quarterly sequential basis. We sold a total of 663 units in the quarter, 110 of which were associated with new casino openings and expansions. Domestic average selling price or ASP was approximately $19,000, reflecting a higher mix of premium price Orion Curve units sold in the quarter.

Looking ahead to the fourth quarter, we expect our improving core game content execution, broadening opportunities set within HHR and steadily improving North American replacement unit demand to result in unit sales that nicely exceed third quarter levels.

With respect to ASP, we expect growing demand for our premium-priced Orion Curve cabinets, combined with our price integrity initiatives, to result in fourth quarter ASP that is in line with to slightly ahead of the level achieved in the third quarter.

Turning to our domestic gaming operations business. Third quarter RPD of $31.08 exceeded $30 for the second consecutive quarter and came in nicely ahead of the $25.08 achieved in the third quarter of 2019. A supportive broader domestic gaming revenue environment, a growing mix of higher-yielding premium games within our domestic installed base, improving core content execution and our ongoing strategic pruning initiatives all contributed to our improved domestic RPD performance in the quarter.

Our domestic EGM installed base increased by 321 units on a quarterly sequential basis to a total of 15,767 units, marking the first growth in our domestic installed base since the third quarter of 2019. Consistent demand for our expanded suite of premium recurring revenue products and, to a lesser degree, new casino openings and expansions paced our domestic installed base expansion in the quarter.

Looking ahead to the fourth quarter and into 2022, we expect our domestic installed base to remain on a stable to modestly positive trajectory as continued growth in our premium game footprint could be partially offset by our ongoing efforts to strategically prune lower-yielding units from the base.

As it pertains to our outlook for domestic RPD, we remain encouraged by the resilience we are seeing in the broader North American gaming revenue environment and the lift we are experiencing from our growing premium game footprint. Although third quarter domestic RPD contracted slightly from the record levels achieved in the second quarter, overall, broader domestic gaming revenue trends feel relatively stable with this trend continuing into October. In that context, we believe we should be able to leverage the stable gaming macroeconomic conditions and the improved complexion of our domestic installed base to deliver fourth quarter domestic RPD that exceeds fourth quarter 2019 levels.

Furthermore, as we look ahead to 2022, we believe the hardware and game content changes we have already made, combined with those that we intend to make to our domestic installed base, could allow us to achieve domestic RPD nicely ahead of our full year 2019 average, even if the strength in the broader domestic gaming environment were to moderate.

Shifting to our international EGM business, although we continue to see signs of improvements throughout the Mexico market, the pace of recovery has been much slower relative to what we are experiencing in our domestic business. Third quarter international RPD was $5.11, up 10% over $4.56 -- $4.66 achieved in the 2021 second quarter, but still well below levels we were achieving prior to COVID. At the end of the second quarter, we estimate approximately 65% of our 7,896 unit international installed base was active, relatively consistent with the prior sequential quarter.

Despite a smaller revenue base, our team has remained extremely diligent at managing expenses within our international segment to ensure the business continues to positively contribute to our consolidated adjusted EBITDA and free cash flow performance.

Our Table Products segment once again delivered record revenue and adjusted EBITDA performance in the third quarter. The total Table Products installed base grew to 4,648 units at quarter-end, representing an increase of 190 units on a quarterly sequential basis. Importantly, we expanded the installed base across all segments of the business, including progressives, side bets, premium gains and shufflers. Looking ahead to the fourth quarter, we believe further commercialization of several new, highly anticipated Table Products, including our Bonus Spin Xtreme progressive, the initial launch of our PAX S specialty card shuffler and the growing appeal of our AGS arsenal site license offering has the potential to simultaneously expand our Table Product installed and increase our Table Product revenue relative to the levels achieved in the 2021 third quarter.

Finally, results within our Interactive segment remained stable with the third quarter revenue topping $2.5 million for the second consecutive quarter. Perhaps more importantly, our Interactive segment delivered positive adjusted EBITDA for the seventh consecutive quarter, supported by our improved revenue performance. Throughout the quarter, we thoroughly evaluated the technical and commercial components of our real money gaming business to ensure we are positioned to efficiently and effectively capture our fair share of the immense online growth opportunity that lies ahead. As part of this internal review process, we identified several opportunities for improvement that we believe will strengthen our RMG business' long-term vibrancy.

That said, the implementation of these measures is likely to moderate the sequential revenue growth trajectory we are able to achieve within the Interactive business for the next two to three quarters.

Looking ahead, we remain deeply committed to furthering our presence within the RMG channel and believe the enhancements we are implementing today will only help to turbocharge our three-pronged growth strategy in the back half of 2022 and beyond.

Before moving on to your questions, I would like to provide some perspective on how we see margins, cash flow and leverage shaping up for the remainder of the year, and offer some initial thoughts for 2022.

We achieved an adjusted EBITDA margin of 47% in the third quarter, supported by continued strength within our higher-margin gaming operations business. Looking ahead to the fourth quarter, we expect a growing mix of lower-margin equipment sales revenue, ongoing investments in R&D to support future growth initiatives and seasonally elevated trade show expense to push our adjusted EBITDA margin slightly below the low end of our targeted 45% to 47% range.

Third quarter capex totaled $14.9 million, bringing our year-to-date capital spend to $36.3 million. Through the first nine months of the year, we generated $17.9 million of positive free cash flow.

Looking ahead to the fourth quarter, we expect our capital expense to increase modestly relative to the level incurred in the third quarter, driven by growing demand for our expanded suite of premium recurring revenue products. Although encouraged by our early success within the premium category, we continue to thoroughly analyze all of our new game placement decisions to ensure we are allocating capital to the highest and best use.

Supported by our strong third quarter financial performance, the stable North American gaming industry macroeconomic environment and further indications of improving demand for our products, we now expect to be nicely free cash flow positive for the full year.

Finally, our net leverage at September 30, 2021, was 4.7 times, down from 7.5 times at the start of the year. Our adjusted net leverage for covenant compliance purposes was 4.3 times, placing us nicely in compliance with our 6 times leverage covenant. Looking ahead, we expect to end the year with net leverage inside of 4.5 times as we remain laser-focused on restoring the balance sheet flexibility we had prior to the COVID pandemic when our balance sheet was levered well inside of 4 times. Additionally, we continue to carefully manage our leverage and liquidity position to ensure we can execute on opportunities to lower our borrowing costs as they present themselves.

As a reminder, our $95 million incremental term loan priced at LIBOR plus 13%, steps down to a 101 soft call in May 2022, potentially creating an opportunity for us to materially lower our cash interest expense, in turn strengthening our free cash flow generation.

Operator, this concludes our prepared remarks. We would now like to open up the call for questions.

Questions and Answers:


Thank you very much. [Operator Instructions] Our first question today comes from David Bain from B. Riley. David, your line is open.

David Bain -- B. Riley -- Analyst

Great. Thank you and congratulations on the nice results. I guess my first question would be on HHR, since I didn't hear that mentioned. There seems to be a lot of potential expansion opportunities next year in that segment. Can we get an idea of how you see that segment emerging and basically your overall strategy to continue to be one of the leaders to supply it?

David Lopez -- President & Chief Executive Officer

Yes. Thanks, David. HHR has been strong. Obviously, we've commentated on it in previous quarters. Our performance in this space is incredibly strong. So we're big fans of it. We continue to invest in it from a perspective of porting games into HHR. I think that we're going to explore additional optionality over the next year or so. But expansion continues to happen. I think it looks like Kentucky, Virginia is all clicking, and we know New Hampshire is opening up as well. That's not all inclusive. There's a couple of other jurisdictions that have sort of fired up as late. So we're encouraged it's going to continue to grow. We're going to participate in that all the way through the growth curve, and it's been a nice, as we say, adjacencies to our regular slot sales business.

David Bain -- B. Riley -- Analyst

Okay. Great. And then you highlighted some premium placement success in the quarter. If we look at that penetration of those numbers that you gave, what is the sort of the strategy in terms of penetration within your mix? It seems like Starwall and Curve Premium are the go-to sort of cabinets for premium at this point. Or are there more to come there? Is it more about depth within those cabinets now and that's sort of staged for growth from here? Can you just kind of give us a basic overview as to what the road map looks like for premium if that keeps it --

David Lopez -- President & Chief Executive Officer

[Speech Overlap] Yes, sorry. David, thanks. So our strategy there is to focus, yes, on Starwall and Curve Premium. But as we have talked about and if we sort of turn back time a little bit in our expansion of studios from just sort of being in Atlanta, primarily to Australia, Austin, other locations, Reno and beyond, our big goal is to deepen the content pipeline. So keep it simple on the boxes. We don't need to have five different flavors of premium. We will have additional flavors in the future. But for now, we believe content is king. It's almost just like the online business. So that's our huge focus right now.

I'm really proud of the team. If we go back and sort of look at the games that we've produced over the past year and how it's affected not just our premium space, which I know we quoted we've gone from 4% of our installed base at the start of the year up to now to 8% of our installed base at the end of the quarter, but our core games are clicking as well. Some of our core games are performing on the floor just as well as some of the competition's premium products. So very proud of what the team is doing. Our investments that we've made over the last 18 to 24 months and a little bit beyond has really set the nice foundation for the future there.

David Bain -- B. Riley -- Analyst

Okay, great. Great quarter again. Thanks.

David Lopez -- President & Chief Executive Officer

Thanks, Dave.


Our next question comes from Jeff Stantial from Stifel. Jeff, your line is open.

Jeff Stantial -- Stifel -- Analyst

Hey, afternoon, everyone. Thanks for taking the questions and congrats on a nice set of results here. I wanted to start on the game ops business. As you cited, second quarter in a row with yields over $30 per day. Obviously, there's still some significant macro tailwinds to the consumer, though your premium mix has scaled pretty impressively year-to-date. If you think about the cadence that you've been adding premium units to the footprint for the last couple of quarters, let's call it, a couple of hundred premium units a quarter, is it reasonable to think that we could be looking at sustainable $30-plus yield even if the consumer does taper and, call it, domestic spending levels start to approximate something closer to 2019 levels? Is it reasonable to think that could be not too far off? Just curious, your thoughts there.

David Lopez -- President & Chief Executive Officer

So directionally -- it's a great question by the way. We talk about this obviously internally. We talk about it with you folks as well. And we believe that, yes, there's the macroeconomic tailwinds. We all acknowledge that they're there. We continue to sort of wait for the new normal to settle in, right? And we did see a little leveling off in the past few months. But you start off right here in Q4 and October is strong. Again, doesn't -- it's not showing any certain weakness at this point and it continues to be strong. And so our goal is to sort of what you're alluding to, is to continue to grow our premium footprint within our base, right, to keep our RPD up there.

As far as giving you an exact number of where we want it to be, no. I mean, we're not quite there yet, and we don't have the crystal ball on the macroeconomic environment and how deep that could affect us. As I've always said, though, I believe the new normal is above what it was in 2019 before the pandemic. I think when things settle in, it will remain above the 2019 numbers. And I'm not speaking industrywide. And again, focus on premium, focus on content, and that will help us keep strong RPD numbers on there.

Jeff Stantial -- Stifel -- Analyst

Understood. Yes, that's helpful directionally. And then margins front, I appreciate the reiteration of the 45% to 47% target. I wanted to focus on some of the language in the release suggesting maybe some residual austerity measures are still being reflected in opex during Q3. If you just look at the EGM segment, you've been running kind of $11 million to $12 million of SG&A and, call it, $7.5 million of R&D. It sounds like the plan is to take and to ramp R&D sequentially to support the breadth of content that you guys are planning to put out there, and there might be some onetime stuff around G2E and SG&A. But are those both numbers, if you look out to 2022, still somewhat reasonable kind of ways to think about opex? Or are there other costs still left out of the business or austerity measures or claim or cost inflation, etc., to think that we should be ramping that meaningfully into 2022?

Kimo Akiona -- Chief Financial Officer, Chief Accounting Officer, & Treasurer

No. I mean, I think you called out the high points. When you look at what we saw in Q3, margin came in good, right? It's a little bit stronger than we might have expected, call it, a quarter ago. Some of that was from our game ops segment, obviously, performing even better than we expected. Some of that actually is from some timing of expenses. We had expenses we thought would hit in Q3 that are actually going to hit in Q4. Those would be -- some of it is marketing. Obviously, we knew G2E was in Q4 [Technical Issues] with some different professional fees. R&D, there's some fees that will come in in Q4 as well. But as far as austerity measures, I mean, we stopped talking about that in the sense of, we kind of reanalyzed our business last year, right? And we sort of removed a lot of that as we entered this year and we sort of just operate, I'll say, a little bit different. And savings that we got, call it, in op service, SG&A., like we always said, we reinvested savings back into R&D, and we expect that to continue as we move into 2022 as well.

Jeff Stantial -- Stifel -- Analyst

Perfect. That's all from me. I'll pass it on. Appreciate all the color, guys.

Kimo Akiona -- Chief Financial Officer, Chief Accounting Officer, & Treasurer



Our next question comes from Barry Jonas from Truist. Barry, please go ahead.

Barry Jonas -- Truist -- Analyst

Thank you. Hey, guys, sounds like you're addressing the supply chain issue out there. But I'm curious, David, if you think this is a long-term issue that at some point will have visible impacts either for AGS or your competitors?

David Lopez -- President & Chief Executive Officer

Hard to say. At this point, we know it reaches into 2022, obviously. How far through 2022, we're to just sort of swag it a little bit. Probably mid-2022 is when we expect things to come back in line. But it seems like every time there's signs of it stabilizing and us really understanding it perfectly, you know, it might -- maybe takes a right or a left on us. But that's why we're doing what we're doing in our ops and product procurement teams because it's important for us to sort of stay ahead of things, plan, very closely work with our ops and product management sales teams. And so they've been doing that since the very beginning of the pandemic. Again, proud of the work they've done there because this is not easy stuff, but we've got really a first-class team, Barry. And to get back to probably into Q1, Q2 of '22 and beyond that, it's a little hard to say how much further it will go. If you talk to the car industry folks, obviously, they expect it to go a little deeper, but we aren't exactly sharing all the same materials.

Barry Jonas -- Truist -- Analyst

Understood. I guess as a follow-up question. We heard a little bit about this, but as you're sort of growing the Interactive segment, I'm curious if there's sort of more of a strategy of coordinating development and release of game content across multiple channels, namely EGM and Interactive?

David Lopez -- President & Chief Executive Officer

Yes. So absolutely something that we're going to be focused on. We've already sort of started doing work toward that right now. That's why some of the investment that we've talked about in Interactive will actually give us a greater ability to do just what you described, but with more jurisdictions coming online in the U.S. where the AGS content really resonates. This is our goal and to have a more sort of in-line release.

Usually, I'd say there's always a debate of which one comes first, the chicken and the egg here. Do you go online first or do you go brick-and-mortar? We've been going with brick-and-mortar first. And what we've done of late is we adjust our road map based on the success of games in brick-and-mortar instead of just going into the online space blindly, because we can get quick results in the brick-and-mortar casinos. And so that is our goal both short and midterm is to get those tightly aligned and as I said, investment into the interactive space so that our pipe or our ability to port content is much bigger.

Barry Jonas -- Truist -- Analyst

That's great. Thanks.

David Lopez -- President & Chief Executive Officer

Thanks, Barry.


Our next question comes from Chad Beynon from Macquarie. Chad, please go ahead.

Chad Beynon -- Macquarie -- Analyst

Hi. Thank you. Good afternoon. Thanks for taking my question. In terms of product sales shipments, Kimo, you noted that fourth quarter should exceed the third quarter, which actually benefited from some new openings. So I'm guessing that comment comes from what's currently kind of in the warehouse and what's been ordered. And then also maybe some of the commentary that came from your customers, the G2E. Just wondering if you guys feel better about the journey getting back to, let's call it, closer to 1,000 units per quarter based on your conversations, based on what you have coming out, if that's any different versus kind of how you thought about it last quarter? Thanks.

Kimo Akiona -- Chief Financial Officer, Chief Accounting Officer, & Treasurer

Yes. I would say we feel better on a number of fronts, right? The focus first on the macro environment, and I think the health of the operator, it's like, yes, I think a lot of the conversations that were had pre-G2E and a lot of different meetings that we had with the large customers and at G2E, yes, everybody was pretty positive, right? I mean it's no secret that when you look at all the numbers coming out of the operators and the different state gaming revenue numbers, I think everybody is performing really, really well.

I think the second point to make is just internally, we feel better. I think one of the comments might have been in David's section in the prepared remarks, it's like we've never had such a broad set of products to offer our customers, right? If you just look at slots. I think you were at the booth for the Booth Tour, and you look at the slot content that we have, whether it's the cabinet offerings, the different games, whether it's core or premium, like we just feel better on what we have to offer. So if you combine the two, right, it obviously would say that we feel really good about Q4 based on the pipeline we already have. And then as we look at next year with the pipeline build, we feel much better than we did, say, a quarter or two ago.

David Lopez -- President & Chief Executive Officer

Yes. And at G2E, just to sort of chime in, one of the things that was impressive from my view was that we had so much nice, good quality content that we wanted to get on the floor at G2E that we didn't put some things in there that were already released. And one game in particular, probably one of our best core games out there, I call it Monkey Pirate, but it's not really the name of the game. It's actually called Captain Riches. That wasn't even in our booth. And that's a game that's a core for-sale game, and it is out there legitimately competing with premium content. So we're really excited. I think, obviously, that's lending to our quarterly sales figures along with a bunch of other content that we have. And then, of course, the operators, as we've been saying for a couple of quarters now, continue to march toward a bigger spend from a capex point of view to refresh their floors.

Chad Beynon -- Macquarie -- Analyst

Thanks, David. And then separately on the balance sheet and capital allocation. Kimo, you noted the current terms of the loans and the amounts there. But it sounds like you're expected to generate some good free cash flow, you have some cash on the balance sheet. How are you thinking about either M&A, some of the things that are out there or kind of holding that cash to reduce some of the leverage, given what that will save on interest expense? Thank you.

Kimo Akiona -- Chief Financial Officer, Chief Accounting Officer, & Treasurer

Yes. Yes. I mean, it's a pretty consistent message, I think, that we get on and talk about each quarter, right? As far as M&A, we're always looking for what could be, I think, additive in different pieces of the business, right? And generally, what looks really attractive to us are sometimes a smaller, we use the word tuck-in, but sometimes are just smaller product acquisitions, right, or something that could really help the Table Games division or something that we look at that could be seemingly additive to like Interactive, whether it's another studio or something small, right?

As far as anything transformational, I wouldn't say that there's much in the way of that. But as far as other uses, I think you see us consistently reinvesting in the business through R&D. We're obviously putting money behind the premium and game ops initiatives, and we're very, very focused, I think, on the potential event next year, right, when our $95 million incremental rolls to 101 soft calls, like we look forward to being able to do something with that. And whether we refinance the entire term loan B structure or not, we'll see. But we're encouraged by conversations we've already had to-date. So we'll have very good options, we feel.

Chad Beynon -- Macquarie -- Analyst

Definitely. Thank you very much, guys. Appreciate it.

Kimo Akiona -- Chief Financial Officer, Chief Accounting Officer, & Treasurer

Thanks, Chad.


[Operator Instructions] At this time, we have no further questions. [Operator Closing Remarks]

Duration: 36 minutes

Call participants:

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

David Lopez -- President & Chief Executive Officer

Kimo Akiona -- Chief Financial Officer, Chief Accounting Officer, & Treasurer

David Bain -- B. Riley -- Analyst

Jeff Stantial -- Stifel -- Analyst

Barry Jonas -- Truist -- Analyst

Chad Beynon -- Macquarie -- Analyst

More AGS analysis

All earnings call transcripts

AlphaStreet Logo

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.