PlayAGS Inc (AGS) 2018 Q1 法說會逐字稿

Good day, and welcome to the AGS First Quarter 2018 Earnings Call. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to AGS' Chief Marketing Officer and Executive Vice President of Investor Relations, Julia Boguslawski. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to AGS' First Quarter 2018 Earnings Conference Call. With me today are David Lopez, CEO; and Kimo Akiona, CFO. We posted a slide presentation reviewing our key operational and financial highlights for the first quarter 2018, which can 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 Q1 2018 performance, in addition to our financial outlook. This conference call includes forward-looking statements. Any statement that refers to expectations, projections or other characterizations of future events, including financial projections or future or current 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 and our prospectus dated January 25, 2018, 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 David Lopez.

Thank you, Julia. Hello, everyone, and welcome to AGS' Q1 earnings call, our second call since going public at the end of January of this year. For those using the slide deck, please turn to Slide 3. I'll start by providing a brief overview of our first quarter operational highlights, along with an update of our progress executing against our various growth initiatives. After a financial overview from Kimo, I'll close out the call with an update of our annual guidance metrics. I'm pleased to announce that we achieved many records for the company in the first quarter, including revenue, adjusted EBITDA, recurring revenue, sales revenue, average sales price and table units, to name more than a few. Coming off a record-breaking fourth quarter, I was extremely proud of the team for delivering such amazing results.

Slide 3 shows that Q1 revenue of approximately $64.9 million was up 36% year-over-year and adjusted EBITDA grew to approximately $34.5 million, up 39% over last year. Although we achieved record sales revenue in the first quarter, I'm pleased to report that we also achieved record recurring revenue of $49.6 million, which grew 23% year-over-year and 10% sequentially. These double-digit gains in revenue and EBITDA were primarily driven by the continued performance of our Orion Portrait cabinet, which has become a proven staple on the casino floor. Additionally, first quarter performance was underscored by strong ICON perform placements and the inclusion of the Rocket Gaming and In Bet assets from our strategic acquisitions in the second half of 2017. With that, I'll now provide an update on our segment performance for the quarter.

Turning to our EGM segment on Slide 5. We ended Q1 with a total recurring EGM base of 24,033 units, up 13% year-over-year. In addition to the inclusion of the Rocket EGMs, recurring unit growth was bolstered by the Four Winds opening in Q1, where AGS received approximately 14% of the floor. Additionally, we benefitted from a couple of expansions in Oklahoma. We continue to execute on our yield optimization strategy, upgrading 1,650 of our legacy machines on a trailing 12-month basis with our latest high-performing products. This initiative serves to grow our recurring revenue and protect our base as well as support our loyal long-term customers by providing them with our newer, more profitable products. As of Q1, approximately $5.6 million of our recurring revenue came from our optimization efforts over the past 2 years. We sold 838 EGMs for a total of $15.2 million in sales revenue for the quarter, up 107% over the prior year period. Approximately 60% of sold units were the Orion Portrait cabinet. Like last quarter, sales were driven by placements across the entire country with nearly 60 different operators. 16% of orders went into Nevada, followed by California, Florida and Arizona, to name a handful of the 21 states where we sold EGMs in Q1.

Quarterly EGM performance was headlined by Orion Portrait, which continued to expand into new properties as well as current markets and properties that added more units to their existing Orion footprint. As the first quarter demonstrated, Orion Portrait has plenty of runway ahead in 2018 and beyond. As of Q1, we had more than 2,830 Orion Portraits installed with roughly 44% sold, 48% on lease and 8% on trial. Our trial conversion rate on Orion is over 99%, and our removal rate, of course, is under 1%, demonstrating the staying power of the cabinet due to its stunning hardware and industry-leading gain performance. River Dragons and Fu Nan Fu Nu are 2 of our top performers on Orion, and additionally, our Xtreme Jackpot titles have been building momentum. We've launched 8 new titles for the Orion this year, including the new Olympus Strikes, which is showing strong initial performance right out of the gate, and we plan to release even more games throughout the year.

The result of the Q1 Eilers-Fantini Slot Survey shown on Slide 6 highlighted AGS' casino-owned game performance, maintaining its industry-leading 1.7x house average position, leading not only the Big 4 but all suppliers. This quarter marks the sixth consecutive quarter that we have held this position. Our leased game performance grew to approximately 2.4x house average, taking the second spot after Aristocrat. It's always hard to predict exactly how we think we'll fare in any given quarter on these surveys, but I can tell you that we remain committed to releasing high-performing content, which should help us maintain a strong position in both of these categories.

Moving on to our table segment on Slide 7. In the first quarter, we achieved record revenue of $1.7 million, up 164% year-over-year due to strong placements of Buster Blackjack, Bonus Spin and the inclusion of the In Bet assets. As I mentioned last quarter, we are now EBITDA positive in our table segment and we saw 205% EBITDA growth over the prior year period. Units climbed to new highs of more than 2,630 different table products in the marketplace, ranging from premium games, side bets, progressives and table signage. Buster Blackjack and Bonus Spin were the largest installed contributors in the first quarter, in addition to the launch of Jackpot Blackjack, our new side bet we acquired as part of the In Bet assets. In the quarter alone, we placed more than 160 Blackjack side bets, which speak to the depth and the popularity of our side bet offerings. With 44 new placements, we installed a record number of Bonus Spins in the quarter, bringing the total to 170 units. Our premium games continue to grow, with a total installed base of nearly 140 units, up 97% year-over-year, driven by strong Dai Bacc, Chase the Flush and Criss Cross Poker placements.

In the interactive segment on Slide 8, we reported $1.9 million in revenue in the quarter, which was nearly all recurring and which was down 9% year-over-year. However, this was our first full quarter of being EBITDA positive in the interactive segment, with EBITDA growth of 108% year-over-year. The main drivers of our EBITDA gains interactive were expansions in our B2B business and moderate stability in our B2C business due to the optimized marketing spend. In Q1, average revenue per daily active user, or ARPDAU, decreased to $0.51, primarily driven from higher daily active users related to a shift in marketing spend to lower cost channels. We continue to focus on improving our ARPDAU through our VIP player initiatives and player engagement strategies as well as launching premium AGS land-based content across all platforms.

New online slot games launched in the quarter include Lion Storm, Longhorn Jackpots and Tiger! Tiger! In addition, we recently won an RFP with our -- with a large operator in the northeast to provide our B2B white-label casino solution, and we are nearing the final stages of contract execution. We continue to meet with our land-based customers who are looking for social casino solutions, and we have a few larger, more meaningful agreements in the works that we believe will materialize throughout the year.

With that, I will now hand it over to Kimo for discussions of our financial results.

Thanks, David, and good afternoon, everyone. As David noted earlier, our results for the quarter were impressive yet again, and Slide 14 and the appendix provide a comprehensive operational summary.

For the first quarter of 2018, total revenues were up 36% to $64.9 million of which $61.3 million were from EGMs, $1.7 million from table products and $1.9 million from interactive. The increase in revenues were fueled primarily by a substantial increase in EGM equipment sales, an increase in our EGM installed base as well as an increase in our domestic revenue per day, or RPD. Revenue for the first quarter also included approximately $4.1 million of EGM recurring revenue from our recent Rocket Gaming asset acquisition that was completed in December.

Total adjusted EBITDA for the first quarter of 2018 increased by $9.6 million or 39% to $34.5 million, a company record. The increase was primarily from our EGM segment, which grew $9.1 million on increased revenues. Table products and interactive also increased by approximately $0.4 million and $0.1 million, respectively, on increased revenue in the table products segment and optimized user acquisition spend for interactive. Total adjusted EBITDA margin for the first quarter 2018 was 53%, a slight increase over 52% in the prior year period.

Positively impacting adjusted EBITDA margin in the quarter were 2 items. First, the better-than-expected operating results from the Rocket Gaming asset acquisition due to the timing of certain expenses which we anticipate to be recognized in the balance of the year. On a go-forward basis, we expect margins from the Rocket Gaming machines to be more in line with our existing gaming operations business. Second, we recorded a positive adjustment of just under $1 million in the quarter related to prior state and local tax positions that have rolled off.

Turning to our EGM segment. Gaming operations revenue increased 22% in the first quarter to a record $46 million. The year-over-year increase primarily reflects a larger domestic installed base that grew by over 2,500 units, or 18%. Approximately 1,500 of the unit increase was from the Rocket Gaming asset acquisition and the remaining organic increase was led by increases in Texas, Nevada, Florida and California. Also in the first quarter, we saw the installed base grow in Indiana and Oklahoma by nearly 500 units from new casino openings and expansions notably the Four Winds property in Indiana where we installed nearly 250 units in the quarter. Domestic RPD for the first quarter also increased by 3% to $26.72 compared to the first quarter of 2017, driven primarily by our optimization initiative as well as the rollout of our newer premium Orion Portrait cabinet.

Our international installed base also grew by over 300 units or 4% year-over-year contributing to the growth in revenue, with our international RPD remaining relatively stable at $8.27. Sequentially, the international installed base decreased by 247 units as certain leases reached the end of their contractual terms. These units are still in the field but are no longer recognized in our installed base. Revenue from EGM equipment sales grew approximately $7.9 million or 107% to $15.2 million, another company record. We sold 838 units at an average sales price of $17,758 compared to 453 units sold in the first quarter of last year at an average sales price of $15,695. Unit sales were led by our premium Orion Portrait cabinet as well as the continued success of our ICON cabinet. Both cabinets have contributed to our ongoing success at penetrating the Class III market in which many customers prefer to buy rather than lease EGMs. The increase in average sales price was driven by the pricing of our premium Orion Portrait cabinet.

Gross margin for gaming operations increased to 82.9% in the first quarter, compared to 82.3% in the prior year period, primarily due to the increase in RPD. Equipment sales gross margin also increased to 51.4% to 47.5% due to the proportionally high amount of our premium Orion Portrait cabinet sales in the quarter.

Now turning to table products. Revenues increased by over $1 million year-over-year, primarily due to $0.7 million in revenues from our In Bet acquisition as well as growth in both progressives and side bets. The table products installed base increased by 940 units to 2,631 at the end of the quarter, driven by the acquisition of approximately 500 In Bet units as well as organic growth, primarily in side bets, most notably Buster Blackjack as well as our Bonus Spin progressive. For the second quarter in a row, the table products segment contributed positive adjusted EBITDA of nearly $0.2 million, which was an increase of nearly $0.4 million year-over-year.

For interactive, revenues decreased $0.2 million to $1.9 million for the quarter as we continued to optimize user acquisition spend in our B2C business. This optimization initiative allowed us to achieve positive EBITDA for the quarter, which is also a first for this segment.

During the quarter, and as a result of our initial public offering, we recognized several significant transactions. Most notably, the IPO impacted our equity structure and the number of common shares outstanding, as you will see in our recently filed Form 10-Q. Also, in connection with the IPO, we recorded an initial charge of $8 million of noncash stock-based compensation expense. Going forward, we expect to recognize approximately $0.3 million of noncash stock-based compensation expense each quarter based on current awards outstanding. SG&A and R&D expense, adjusted to exclude the initial charge of $8 million of noncash stock-based compensation expense, would have been $10.5 million and $7 million respectively.

Moving on to our capital structure update on Slide 9. Total net debt, which is the principal amount of total debt less cash and cash equivalents, was $487.7 million at March 31, 2018. As a result of the IPO, the exercise in full of the underwriters' allotment option and the settlement of our HoldCo PIK notes during the quarter, our net debt decreased by $161 million, which also significantly improved our net leverage to 4.2x at March 31, 2018, from 6.1x at December 31, 2017.

Capital expenditures were approximately $15 million for the first quarter of 2018, which comprised of $10.1 million for growth machine CapEx, $3.1 million for intangible CapEx, $1.1 million for corporate CapEx and $0.7 million for maintenance CapEx. As we previously mentioned, our capital allocation strategy will continue to prioritize our free cash flow to pursue opportunities to grow our EGM installed base, optimize our existing EGM installed base as well as invest in one of our key strategic advantages, which is our R&D team.

With that, I will now turn the call back over to David for closing remarks.

Thank you, Kimo. As evidenced by the first quarter, 2018 is already off to a great start, and we feel very good about our growth prospects across all of our business segments for the balance of the year.

On our Q4 call, I outlined our high-level growth drivers for 2018 and beyond, and we've included that again in the deck on Slide 10. I won't go into as much detail as I did on the last call, but I'll highlight the most important updates.

One of the most significant opportunities for AGS that continues to be a big part of the growth story is further penetration of the Orion Portrait cabinet. Looking at our performance this past quarter, it is apparent that Orion Portrait shows no signs of slowing down. We believe we're only in the second inning with this product, as we are now starting to reap even more benefits from its reputation and proven performance. Additionally, both Orion and ICON continue to drive our yield optimization story, building our recurring revenues by serving as profit-enhancing upgrades to some of our legacy units in the field.

Slide 11 shows that we continue to grow our footprint in North America with these 2 key products, and as of Q1, we have about 2.3% of market share, up from 1.8% in Q1 of last year. That is a considerable gain for AGS, resulting in over 4,500 new units in the domestic marketplace. There's a significant opportunity to increase penetration in Nevada, California, Canada, Mississippi, Louisiana and Maryland, to name more than a few. Based on the most recent data from the Eilers-Fantini report, which highlighted our most recent ship share at approximately 6%, we believe that we are on a very achievable path to 5% market share.

New market entry for EGMs and tables is our second initiative, and in Q1, we received our Ohio license, which was a significant milestone for the company. Both the EGM and table teams have been busy visiting key contacts in that market, and we believe we'll be shipping Orions and ICONs into several properties in the coming months. More jurisdictions coming online in 2018 are outlined in Slide 10, and as we witnessed with Ohio, we believe that there is pent-up demand in all these markets, given that there's much more familiarity with the AGS story and products at this point.

The third initiative centers on new products, and I'm pleased to provide an update on Orion Slant, which has been on trial in several locations since March. We're evaluating performance on these initial 36 units, and so far, we've been very satisfied with the feedback. The games on average are doing about 2x house average, and the best is yet to come in terms of game launches that we have planned for this cabinet. Customers have been happy with the performance, and we are on track to commence our official rollout this month.

And finally, we mentioned international expansion as a key lever for growth. We mentioned last call our initial Alora video bingo units had touched ground in the Philippines. We expect that these units will go live within the quarter, and based on performance, we should be in a position to make a bigger push into the market within the second half of the year.

If you turn to Slide 12, you'll see that given our progress executing against these growth initiatives on slides 10 and 11 in the first quarter, and due to our strong momentum right out of the gate, we are revising guidance upwards. We believe that we are in position to both tighten our range and raise our adjusted EBITDA guidance in 2018 to $126 million to $131 million. That lifts the bottom end by $2 million and raises the top end by $1 million. Based on our greater visibility that we now have for Orion Portrait throughout the year, we feel confident with this revised range. We maintain our CapEx range of $55 million to $60 million and believe based on our growth opportunities we will be on the higher end of this range.

From our first 3 months' results and our commentary today, it should be clear that fiscal 2018 is off to a great start, and we have the appropriate strategies, products and people to ensure long-term meaningful growth.

And last thing before we move to Q&A, I want to thank all of our shareholders for their continued support and confidence in AGS as well as the entire AGS team, now more than 600 strong. We are proud of the fact that our one-of-a-kind unique corporate culture is a huge competitive advantage for us, and it just keeps getting better every day.

With that, we'll move to the Q&A portion of the call.

(Operator Instructions) The first question comes from Brad Boyer with Stifel.

First one out of the box here, I assume a lot of people are thinking this at this point, but you beat the quarter by about $4 million, if I compare where EBITDA came in relative to consensus, yet you're taking the midpoint of the EBITDA guidance range up a little less than that. Just curious if there's anything to that other than just some conservatism around the revised guidance, and just kind of how you think about that?

Thanks, Brad. So we're early in the year still. It's May. It's early May. Clearly, first quarter was amazing, bullish for the rest of the year, but taking -- or we're being prudent on the guidance. I think we'll be patient here and we'll talk again at the end of Q2. But definitely confident in the year. As you can see, we moved -- we took a couple off the bottom end of guidance and raised the top end by $1 million, so we feel really good about it, but again, just a little bit of prudence, and I think it's wise for us to just talk to you at the end of Q2. But obviously we're confident in the year.

Sounds good. And then my second question is just the bigger-picture question around Class II gaming. It seems like, based on your comments around some expansions in Oklahoma, some operators' comments recently about expansions in California, that as the mechanical play of the Class II units improves and the content that you guys and your competitors are rolling out there and the Class II side improves, that the travel operators are looking to add Class II units, whether that's at the expense of Class III or whether that's just a pure expansion of the floor. Just curious if you're seeing that on your end from a demand perspective, and if that's providing any lift on the Class II side of the business?

Yes, so that's some good recon there. So we've been talking about this probably for a couple of years now. And we don't have a crystal ball, but we thought we saw some of this coming, and now it is -- some of it is coming to fruition. I think directionally, we're seeing a number of tribes that are going this way, and I'm speaking specifically about California, where they're willing to either expand and add Class II or maybe make the transition from Class III to Class II on a piece of their floor. And they're going to dabble and they're going to test in that, but I think what's been clear to them, and I can't speak for them all, clearly, but I think what is clear to them is that if you look at Class II machines 10 years ago, we just turn back time and go back to 2008, compared to now, these -- it's night and day. The quality of play on a 2018 machine versus 2008 is amazing. Now you go back even further to when some of these things -- these compacts were negotiated, that was a completely different machine, one that none of us would want to play these days. But now not only do the games look the same, do they sort of feel the same, the play quality is amazing, the graphics are great, a lot of it -- as I always like to say, a lot of CEOs from these vendors probably couldn't tell the difference if you sat them down in front of their own games and said, tell me the difference between a Class II and a Class III game. And I think customers are voting with their money, and it's the same thing. We do see that this effort's out there, and we've challenged our team in a big way to get out there and be a big part of it, and I think we're getting, in many cases, when we say fair share of the floor, our ship share is 6%, but in many of these cases we're getting 10%, 15% and 20% of those floors when they expand or they make the switch to Class II.

That's great perspective there, appreciate that. And then just to my last question here, it's just around M&A. Since Cadillac Jack in 2014, you guys have kind of just been nipping around the edges, so to speak, whether that's acquiring table game product, acquiring Class II routes, that sort of stuff. Just curious how you're thinking about M&A today and if there's anything out there that piques your interest? And then, how you prioritize it, I assume it's -- you're just pursuing whatever kind of presents the highest return to you and your shareholders, but just curious your current thoughts around M&A? And that's all from me.

Thanks, Brad. So we're very confident on all of our divisions. We've talked in the past about where we might focus if we're to make some investments, that it may be -- it might be around interactive, just to beef it up a little bit. Tables, we've been active in the space. We sort of -- we do a lot of tuck-ins, but in the table game space, just about everything is a tuck-in. It's something that we can just grab and run with it, and it fits right in our infrastructure really well. And the slot division, we're very confident in our team. We're confident in our ability to recruit. We talked about, in the prepared remarks, talked about the culture and how we think it affects our ability to recruit. So we want to stay focused in the slot division. If something comes up, once again, we'll evaluate it. You saw we did that at the end of last year with Rocket. But we're going to be smart, we're going to be prudent. We're going to really focus on the returns, and is it a distraction to the current success of the business, and does it fit our culture? So there's a bunch of sort of building blocks when we do our M&A. We're always active. We're always looking. We're always thinking. But I think that probably sums it up for you.

The next question comes from Chad Beynon with Macquarie.

Another quarter with nice product performance, sounds like mainly from the Orion, and you kind of mentioned how diversified your placements were just in terms of the number of operators. Outside of Four Winds in the quarter, could you kind of help us think about if you were able to break down some doors with some new operators and if the results from Orion continue to kind of build around the edges with maybe some players who weren't using the product in their property?

Thanks. So I think that when you look at our installs for the quarter, I'll sort of answer, and I think Julia's got some -- might have some detail here as well. But if you look at the way we're rolling out and sort of how we attack the white space and how we get into new jurisdictions, it's a good mix between getting into a property for the first time with Orion, going to an existing property that's already -- has Orion cabinets and sort of going for that second or even third order at this point. So I think you're talking about, specifically, about Four Winds, which was a big win for us. Things went very well there. But generally speaking, when you look at the quarter, a great deal of our units that are placed are going into new properties that we haven't been into before with the Orion. We were probably in there with ICON. And I think, again, if we go back to some of what we say in the prepared remarks, the beauty of where we're at right now, as opposed to 4 crazy years ago, is that people didn't know who AGS was, and they even weren't sure where our address was or where our home office was or any of the above, unless they were in Oklahoma, Florida, or, let's say, Alabama. Now as we get approved in new jurisdictions like a Pennsylvania, like an Ohio, an Ontario, they've been the (inaudible) maybe 2 or 3 times prior to that approval. They know exactly who we are. They know exactly the product that they've been really pining for, and they're able to get that into the casino.

Yes. Chad, so just to give a little bit more color on some of the specific operators and some of the good success stories we had in the quarter, you mentioned the 60 different operators across sort of 21 different states, and we've got a few things we like to highlight. One is Norwegian: We placed about 70 units there. And that was a great story. We started with a trial bank of just one ship, and that went really, really well, and so now they've expanded based on that trial, and we're sort of just kind of getting started there. Another great example from the quarter is MGM. MGM purchased their first units in our company's history. This is a great relationship. We think there's a lot of long-term opportunity there. Pechanga and a number of different tribal customers re-upped with us basically based on the strong performance of Orion, so a lot of what you see in this quarter is that we had a lot of different operators, maybe they just had 4 Orions, now they're moving that to 12 to 16 to 20. They're really expanding their floor based on performance. We've made placements with Caesars, Landry's, [Winland], Ontario, Penn. Just a lot of great, as David said, new customer relationships or situations where now we've proven ourselves and we're able to get more of the floor.

I'm more excited, honestly, Chad, about re-buys than I am about the first install, because it really speaks to, like -- when someone takes the product, it doesn't matter really what product it is, whether it's our product or any consumer product. When you go for the rebuy it means that you really like the product. And that -- clearly, in this case, the products are playing well, and again, that the actual players are voting with their money for AGS product.

Great. And then my follow-up, just kind of going back to guidance, you mentioned the Philippines launch and there's a number of different -- a number of your different segments, I think, are punching above their weight at this point. Did anything with respect to the Philippines launch, I guess, come in at ahead or behind expectations? And is everything still kind of in the same place in terms of how you're thinking about this short term, medium term and long term? Just the overall value of that business.

Thanks, Chad. So on a Philippines front, I think there's 2 ways -- I'll sort of answer the question from a unit and a revenue and EBITDA. We talk about sort of normally when we're going to enter a market and when we're going to get our first units on the ground, and maybe when we'll see our "first revenue," and we may be a smidge behind. When I say behind, 30 days, something like that, in the realm of 30 days behind there. From a true revenue or an EBITDA perspective, we're probably right on track, still, because we take a very conservative approach on that end. Again, when we talk about expansions, international, acquisitions, whatever it may be, if we have a very strong core business, we don't need to depend on that stuff to grow the company. The very organic white-space growth that we have in North America, and even what we're doing in Mexico, is very good for us, so we don't heavily depend on that. So we're probably just a hair behind on national unit installs. From a revenue perspective, we're right on track. And nothing in that market has sort of swayed us either way at this point. What I can say is that once we get the units in and we really monitor how they perform, and I expect them to perform well, we'll probably have some additional excitement because we're very confident in the cabinet, we're confident in the games that we've designed for that jurisdiction, and we actually see that that market that we're attacking is pretty hot.

The next question comes from Barry Jonas with Bank of America.

Just a few questions. First, 6% ship share, another very solid quarter. David, just curious how you're thinking about what levels of ship share and maybe the cadence we should expect to see in future quarters on that road to a 5% market share.

Boy, again, crystal ball work here, a little bit. So hard to say. I expect that this year, we'll be in our range of ship share. And I think that all -- when they calculate this, and when you sort of look at it across -- you get this from the Eilers report or however you calculate it. It's interesting because when you look at any given market, we might be tearing the cover off the wall in a particular market. I know I've said this before on calls that maybe we're shipping at 15% or 18% into our particular market at any given time. So it's really how that ebbs and flows. We can end up in a quarter or a couple consecutive quarters where we blast that 6% and it -- we're just knocking the cover off the wall. And then there might be another quarter where it's just sort of back in that 5% to 6% range. So from my perspective, I'd say, let's expect it to sort of stay around that range. With a little bit of positive turbulence, not necessarily going the other way, but a little bit of positive turbulence when all things are lined up, maybe the stars align in a few jurisdictions in any given quarter, and I think that just comes down to timing. We expect it to be around what it's been maybe plus a percent here or there, but rather consistent. We're confident, obviously, with the performance that we've seen.

Great. And next question, maybe you could just comment what your government relations folks are saying about Brazil. Any updates there?

So our government relations folks or basically the team here, so we've -- we're obviously all over this. We've got a team on the ground in Brazil. I think there's something -- there's -- this is always the case in Brazil. Everyone sounds like a broken record, right, when they answer this question. It's like, hey, there's some stuff that could break here in the next sort of -- I guess I'm going to calculate in my head -- about 45 days that could be altering the path of an approval in Brazil, but it really does look like it's going to be something in the later year for the approval to come through. Again, I'll sort of answer this one the way I always do in any jurisdiction. Follow the need for the money. I think that there's a need for the tax dollars. I believe there's a will. I believe there's a way, meaning that there's going to be a method to get the approval. I don't think that much stands in the way. I think that there was maybe, on the part of those trying to get it approved late last year, there's a couple hiccups in the way that they approached it, but I still expect it to happen this year. It would be fantastic, obviously, leading into 2019. Again, when you look at our 2018, we don't really have anything in there from our budgetary perspective. We're ready for it. Yes, we're ready for it if it happens, but it would be [offsite] if it were to happen in 2018, and obviously if it happens in 2019 that's fantastic.

Great. And then last one, just a question about free cash flow. Maybe you could help sort of identify some of the one-timers, nonrecurring stuff, and -- so we can kind of think about a normalized number for the quarter.

I think Kimo would probably be best to answer.

If you focus in, I think, Barry, on operating cash, I think if you look at the statement for the quarter, a couple of things to note in there that are anomalies. So when we settled our HoldCo PIK notes in the quarter, you can see there's a large amount up in operating cash related to the PIK interest that settled. If you look down at accounts receivable and inventory, so working capital, a couple of timing-related things going on there. I think AR, with some of the ramp in sales, I think that was a little bit of a drain this quarter, but obviously we fully expect to collect that probably in the subsequent quarter. Inventory, we had a little bit of a ramp there. That's timing-related, as we get ready to launch Slant. And then also just build to support, I think, the ramp in sales that you can see. There's another short-term drain there in the quarter. So if you normalize those out, I think we would have been at a level that was obviously better than last year. Last year, operating cash was about $7 million. We would have been a couple of million above that if you normalize those items out. If you look on the CapEx side, I think the guidance that we put out was $55 million to $60 million. We commented that we expect to be on the high side. So for the quarter, you'll see we used about $15 million. So I think if you use that run rate, it'll get you to about the $60 million level that we put out. So I think if you use those data points you can sort of circle around how free cash flow will start to look for the rest of the year, again barring Brazil or anything large and different happening in there.

Yes, if it were to fall into (inaudible).

But that's not in our projections and not in our numbers. But yes, that would be different if that were to change.

(Operator Instructions) The next question comes from David Katz with Jefferies LLC.

We've covered a lot of topics, and I just wanted to -- I think the merits and the opportunities in the slot business are very, very clear. So I wanted to ask about the table game business which has turned positive. And I know you made some comments about it, but if you could paint us a vision for how big that could become on a longer-term basis, and what the sort of spending and pieces are around that, so we could envision our -- how large a leg of the stool does that become, please?

Yes. I think that the table games business at this point, I think we're really beginning to hit our stride. To give you a sort of a road map or a vision of, say, hey, how big can this get? When I think about that business, I always go back to my history of being in the business before and saying, how much did that business generate at the company I worked for many, many years ago, right? And I think that it's fair to say that we can get a nice piece of the pie, right? That there's room for 2 or 3 players in that table games space. We believe that we're one of the major players, and I think that when you look at Bonus Spin or you look at Stacks, and we're looking at numbers historically here in Q1 right now, but really, as we look out at the year, we see a lot of nice positive momentum in that space for us. So I see some very positive things happen in 2018, but we know what the shuffle business did many years ago. Can we get a big slice of the pie? Yes, a considerable slice of the pie. I think the challenge in this space is that it doesn't happen like a rocket ship. It just is going to be slow and steady and it's going to be consistent. And I think that yes, hey, do we want it to be a $10-million EBITDA contributor in the near future? Would love to see that. Do I think it can grow to be $15 million and $20 million in EBITDA? Of course I can. We have some wild cards in that space right now. We've got all this hardware that I just mentioned, between Stacks and Bonus Spin, and we have a shuffler that we're releasing. There's a lot of, like, optionality in that space. Without giving you specific numbers about where we think the business is going to go, because we haven't given that guidance yet, I think you can look at the size of the businesses that exist out there and what it could mean to us should we see success with these products. I know that I'm sort of dancing around a specific number, but because we haven't given a lot of guidance there, we're going to sort of stay away from real specifics.

And just one more if I may: With respect to stock comp, and apologize if you've covered this already, but what we saw in the quarter: Is that an appropriate run rate that we might use going forward?

I'll tell you no, and then I can get -- and then Kimo can explain it, because I think there's a catchup in there, yes.

So in my prepared remarks, we mentioned that -- so we took a total charge of about $8.2 million in the quarter. Of that, call it about $8 million, or $7.9 million of that was an initial charge, sort of a catchup accounting-wise, related to previously not recognized expense. So on a go-forward basis, about $0.3 million, so $300,000 a quarter is what you should expect. And that's based on current awards that we have outstanding. So $300,000 per quarter is how you should model it going forward or think about it going forward.

This concludes our question-and-answer session as well as AGS' First Quarter 2018 Earnings Call. Thank you for attending today's session. You may now disconnect.