What happened

Shares of PlayAGS (NYSE:AGS) dropped 52% on Thursday after the casino gaming products company announced significantly weaker-than-expected second-quarter results. 

More specifically, AGS' quarterly revenue grew 2% year over year, to $74.5 million, translating to a net loss of $7.6 million, or $0.21 per share. Adjusted for one-time items -- specifically a $3.5 million goodwill impairment charge during the quarter related to its real-money gaming business within the interactive segment -- AGS would have incurred a narrower net loss of $0.07 per share.

But even then, these results were far below analysts' expectations for adjusted net income of $0.14 per share on revenue closer to $83 million.

Plunging yellow arrow chart with grey charts in the background.


So what

Within AGM's top line, revenue from its electronic gaming machine (EGM) segment grew 2.4%, to just under $71 million; table products sales increased 35% (albeit from a much smaller base), to $2.4 million; and interactive-products revenue decreased by a third, to $1.1 million.

AGM CEO David Lopez said their results were "mixed," with modest revenue growth overshadowed by a slight decline in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), to $35.7 million.

"The decrease was related to increased operating expenses as we continue to invest in strategic areas of our business, particularly in R&D [research and development], to capitalize on the vast whitespace in front of us," Lopez elaborated. "With our many upcoming product launches, including the Orion Upright and three new slot innovations which we'll showcase at [Global Gaming Expo 2019], we remain confident in the many opportunities for sustainable growth in the back half of 2019 and beyond."

Now what

Still, AGM followed by lowering its full-year 2019 outlook to call for adjusted EBITDA of $145 million to $150 million (or growth of 6% to 10% year over year), down from its previous guidance for a range of $160 million to $164 million. In this case, the company blamed the reduction on lower expectations for gaming operations revenue within the EGM and Interactive segments, driven by a combination of product underperformance in Oklahoma, softness from certain corporate customers, and delayed entries into New Jersey and select markets in Europe and Latin America.

In the end, management may be excited by the company's future growth potential. But it doesn't seem like the reasons for its adjusted EBITDA weakness in the second quarter mesh with the disparate culprits for its guidance reduction. And much like the gamblers frequenting AGM's gaming offerings, our markets hate being told to hurry up and wait, leaving the stock to respond in kind today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.