Thank you for standing by, and welcome to the Ainsworth Game Technology Limited 2024 half year results general investor conference call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key, followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Harald Neumann, CEO. Please go ahead, sir.
Thank you. Good morning, everyone, and thank you for joining us this morning for the Ainsworth conference call to outline our financial results for the six months period ended, 30 June 2024 . Lynn Mah, our Chief Financial Officer, will also be on the line today. All the numbers Lynn and I quote throughout the call are denominated Australian dollars, unless otherwise specified. I will concentrate on the key points and the regional review, and Lynn will take you through the financials. At the end of the presentation, we will be pleased to answer any questions. Coming to page number five, results summary. The overall reported results show a profit before tax of AUD 15.7 million, which includes currency translation gains and a minor one-off item amounting to a net gain of AUD 1.4 million.
Excluding currency impacts and one-off items was AUD 14.3 million in the current period. The result was within the upper range of guidance provided in May 2024, which indicated an expected results within AUD 13-15 million. Revenue in the current period was AUD 121.4 million, a reduction of 15% to prior period. North America contributed 56% of total revenue, an increase on the 48% in prior period. As highlighted by the company in our trading update and guidance, the Latin America/Europe segment resided in the majority, 73% of the revenue shortfall experienced in the current period.
This revenue shortfall was a result of significant revenue contributions in calendar year 2023 within Argentina, relating to the securing of import licenses and resultant sales, which were not repeated, as well as import restrictions in Mexico, limiting sales in the current period. Underlying EBITDA for the period was AUD 26.8 million, a decline on the AUD 29.4 million reported last year, primarily as a result of the reduced revenue within Latin America in the period. Lynn will provide more details on this in her financial reviews. Let me turn to the results on page 8. International revenues of AUD 104.7 million, reflecting a reduction of 17% versus prior year and representing 86% of the group's total revenue.
Recurring revenues including historical horse racing, connection fees, continue to be a strong feature of AGT business models, increasing to AUD 48.9 million in H1 2024, an increase of 3% on the AUD 47.5 million last year. Total machines under operation at June 30, 2024, were 6,789, an increase on the 6,623 units at June 2023. However, a reduction on the 7,222 units noted at December 2023. The gross margin achieved in the period was 67%, an improvement from 60% in the prior period. The strong average selling price in North America and an increased proportion of high-margin recurring revenue compared to the prior period resulted in improved margins in the current period.
Coming to page number 10, reconciliation of profit before tax to EBITDA. As outlined on page ten, underlying EBITDA was AUD 26.8 million, compared to AUD 29.4 million in the prior period. Translational foreign currency gains in the current period were AUD 2 million, compared to losses of AUD 4.4 million in prior period. Other one-off items outside normal operations included restructuring cost of AUD 0.6 million, resulting from rationalization and the reduction overall group headcount, primarily within the APAC region. Page number 17, I'm coming now to the regionals. Page number 17, North America. North America revenue in the current period was AUD 67.9 million, consistent with the AUD 68.5 million in the prior period, representing 65% of total international revenue.
High-denomination games continue to exhibit strong performance in the United States, with multiple games consistently included in Top 25 index, supported by Eilers and ReelMetrics . Development initiatives and the release of the A-Star Raptor cabinet continue to be well received by operators, and after seven months, was ranked number three in Eilers Top Indexing Portrait upright cabinet report. The success within the low- and mid-denomination product groupings is expected to provide market share gains, with the San Fa range of titles being consistently reported in the Eilers Top 25 , indexing new games throughout the current period. MTD games in South Dakota and Louisiana continue to positively contribute to the North American segment, with strong performance being maintained on Gambler's Gold in these markets. The next generation of this product and in cooperation with the successful San Fa titles with additional Keno options.
are currently under development and are expected to provide further revenue opportunities. Machines under operations in North America at the reporting date were 3,330, relatively consistent with both the prior period and the prior half. Additional new placement opportunities within Kansas and Texas are expected following the introduction of legislation, as well as expansions in Alabama, New Hampshire, Wyoming, and Kentucky. Machines placed under participation and lease, including connection fees, which generate recurring revenue, contributed 54% of segment revenues. HHR products continue to perform and generate recurring revenue, with 8,543 units connected to AGT's HHR system on 24 June . Strong average selling price and increased recurring revenues, along with disciplined cost controls, resulted in a rise in segment profit to AUD 32.6 million versus AUD 29.5 million in the last period.
The company advises that it has agreed to an extension of its exclusivity agreement for a further three-year term for VLT products within Montana. The exclusivity fee will be progressively co-recognized as revenue over the term. In addition to the exclusivity fee, the agreement provides for a commitment to purchase seventy-five VLT cabinets in the H2 of 2024, with ongoing software purchases each year over the term. Coming now to page 19, Latin America and Europe. Revenues of AUD 29.3 million were achieved in Latin America in calendar year 2024, a decrease of 36% compared to the prior period. This decrease was consistent with the company's trade update, indicating the benefits achieving in the prior period within Argentina to utilize import permits received prior to the introduction of changes in import regulations.
In the current period, minimal unit sales in the region's key market of Mexico were achieved and primarily represented conversions to sales of units under game operations due to ongoing changes in the new import regulations. These initial restrictions have resulted in the establishment of importation protocols, and it is expected approval should be progressively received over the H2, which should result in increased revenue for this region. Demand continues to grow for the A-STAR range of cabinets, with Xtension Link and Mighty Win being consistently within the top performing products in the region. Segment profit was AUD 13.7 million, and despite a reduced average sales price in the current period due to previous Argentina sales, was consistent at 47% of sales, compared to 49% in the prior period.
At June 30, 2024, a total of 3,760 units were under operation, generating AUD 12.2 million in recurring revenue, an increase of 8% on the prior period. This increase in recurring revenue was achieved despite a reduction in units under operation at June 30, 2024, from those reported at December 31, 2023. This reduction was primarily due to the removal of old products and the introduction of regulatory changes in Mexico. The average yield was maintained at $12 per day, with strong demand expected in the H2 of 2024, assisted by the planned release of the A-Star Raptor cabinet.
Initial installations of products within Europe are delivering strong performance results and are expected to positively contribute to this region in the coming periods. Page number 20, Asia Pacific. Asia Pacific, Australia, New Zealand, and Asia performance was impacted in the period as competitive market conditions continued. Revenue in the region was AUD 19.1 million, a reduction of 10% on the AUD 21.2 million in the prior period. The region achieved 553 new unit sales at an improved average sales price of AUD 25.9 thousand, despite these competitive market conditions. Segment profit improved to AUD 1.6 million, compared to a loss of AUD 0.2 million in prior period. This improvement was experienced to a higher gross margin and cost containment measures put in place throughout the current period.
Positive momentum with the A-STAR cabinet and the new games, Year of the Dragon and Fortune Bull Gold, have assisted to maintain improved product performance. Page 21, online. On page 21, we outline the digital segment, which reports revenue of AUD 5.1 million, a reduction on the prior period, reflecting the previously advised Game Account as a game contract amendment. This high-margin online revenue resulted in a segment profit of AUD 4.7 million in the current period, encompassing further investments in resources to ensure we can remain competitive. The expansion of omni-channel strategies is an increasingly important factor in the distribution and sales of the company's gaming products. This strategy integrates physical and digital gaming, land-based gaming within the Americas.
In the current period, we have progressed the release of our land-based games with casino operators throughout regulated online markets in the U.S., Canada, and Latin America. I will now ask Lynn to outline a summary on the financials.
Thank you, Harald. Turning to page eleven. Operating costs were carefully controlled in the current period, rising by 4% compared to the PCP. On a constant currency basis, operating costs were AUD 67.2 million, 2% higher compared to the PCP. Continued efforts to identify efficiencies and achieve cost reductions are in place across all the group's operations. Research and development expenses increased by 18% compared to the PCP, reflecting the company's continued focus on product development investment to produce competitive products. R&D expenses as a percentage of total revenue were 21% in the current period, an increase on the 15% in the PCP, primarily due to lower revenue.
It is expected that a consistent level of investment in R&D will be maintained in the H2 , which includes expansion of the recently created studio in Monterrey, Mexico, and established development studios in Sydney, Las Vegas, Austin, and Reno. On page 12, AGT's global headcount was 525 employees at a reporting date, with 59% domiciled within the Americas. This represented a reduction of 5.4%, approximately 30 employees, primarily within Australia, compared to the PCP in 2023. However, an increase in R&D personnel in the Americas to more effectively align resources to revenue contributions. Following the departure of the former CTO, the organizational structure now has effectively aligned development activities to the geographical responsibilities for each region. This is already having the desired effects and ensuring sales can significantly influence the allocation and direction of relevant R&D resources.
The new product leadership has ensured clear lines of accountability to provide efficiencies and ongoing development of an exciting range of diverse and new product offerings. Management continues to implement measures focusing on technology, development, and culture to improve product performance, lift staff retention rates, and enhance AGT's ability to attract world-class development talent. As Harald has pointed out, it has been a key priority to ensure we maintain a strong balance sheet to protect the company and allow liquidity to pursue planned development initiatives. On page 14, you'll see net debt was AUD 11.1 million, following the drawdown of $15.9 million from established facilities to settle payments to the Mexican Tax Administration Services, SAT, in the current period.
The secured facility in place of $32 million has currently an undrawn and available amount of AUD 16.1 million. The receivables closing balance decreased to AUD 110 million, a reduction of 7.6% compared to AUD 119 million at 31 December 2023, reflecting the lower sales and improved cash collections in the current period. Inventory did increase to AUD 92.1 million at the reporting period, an increase on the AUD 72.6 million at the end of 2023, and this is expected to return to normal activity levels as forecasted sales are delivered within the H2 of calendar year 2024. On page 15, net operating cash flows in the period were AUD 28.4 million, compared to net cash inflows of AUD 12.1 million in the PCP.
This was reflective of the lower sales revenue, and as mentioned, the settlement with SAT in the period. Measures are in place to ensure prudent working capital management, particularly the reduction inventory holdings. We closed the current period with cash balances of AUD 13 million, compared to AUD 19.8 million at 31 December 2023. In conclusion, we have a strong capital base and are well-financed to go forward to execute on strategies established. Thank you, and I'll now hand you back to Harald for some concluding remarks.
Thank you, Lynn. To conclude, AGT enters the H2 of 2024 with a solid base and expects sustainable profitability. As we secure the remaining approvals of the A-STAR Raptor across additional jurisdictions and the progressive release of newly developed gaming titles, we expect the H2 to provide increased revenue opportunities. Despite the challenging market and economic conditions within Latin America, we continue to explore opportunities in this region, while we navigate the recent changes which have been introduced within these markets. As I have consistently said, for us to ensure continued growth and to sustain our performance, measures were introduced, and signs are evident that they are having the desired effect. We are starting to see improvement in the outputs of our R&D investments, which are expected to lift the competitiveness of our product and provide growth opportunities.
We have expanded our capability and talent within R&D through the establishment of additional game studios. These additional R&D studios are expected to provide more creativity and diversity in our current product offering. Quality initiatives are continually assessed to improve game designs, mathematics, and graphical arts, to create a more diverse and targeted range of product offerings to our customer. The product roadmap has been established and is expected to translate into improved and sustainable long-term results across global markets. The investments made underpin our commitment to ensure upgrades in technology and hardware, while maintaining the momentum of improving game performance. Management continues to pursue and implement measures focusing on technology, development, and culture to improve product performance, lift staff retention rates, and enhance AGT's ability to attract world-class development talents.
Before I close, I would like to finish by thanking all my colleagues at Ainsworth for their contribution to the progress made and their dedication to our customers. I am pleased to report that the strategies are well advanced to ensure AGT is recognized as a leading provider within the gaming industry sector and improve our financial performance over coming periods. Thank you for your time, and I will now hand over back to the operator to open the lines for questions. Thank you, operator.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. Ladies and gentlemen, we will wait for a moment while we poll for questions. Our first question is from the line of James Devlin, with Henley & Company. Please go ahead.
Yes. Hi, good morning. Yeah, so the quarter has been put out and, you know, pre-announced, but looking at, like, the four major social media outlets, YouTube, Facebook, Instagram, and then the company's own LinkedIn accounts, I mean, we've seen Ainsworth win business with Fontainebleau, Caesars, Station Casinos, Cosmopolitan, Wynn Resorts, an uncountable amount of tribal casinos, and, you know, we're seeing the games installed all across the United States. When do we suspect that all of these installations will catch up in the sales revenue and earnings power of the company?
Partially, which is quite usual in the U.S., you have to leave the cabinet, leave the slots for approximately three months, just for what do you call this, for trial.
On trial.
On trial before they are, before they are buying this. We have, h ow many we have?
Hundred and fifty.
We have 150 currently still on trial, which we want to change to sales in the next months. Yeah, so, the next point is that you need also more games, where we had just one game, which was quite successful, the San Fuego, for the last eight months, but at the end, you need every quarter new games to keep up with the operators, because each operator is buying maybe two to four games of two to four slots of new games, but then you have to provide them with additional games, and this is much better planned for next year, and for the H2 of 2024 to improve our sales.
Okay. So, to that point, there was an interview with Sean Evans in Tribal Gaming and Hospitality, where he said that the company was on track to distribute 11 new titles in the H2 of the year. Is that still the case?
No, it's not, it's not 11, it's too many. We have two new San Fa games, we have two Triple Troves, we have Rocket Link. I'd say it's maybe seven games for the H2 .
Maybe Sean is referring to these games.
Yeah, but this is only Raptor. If you include the old A-STAR cabinet, where we are also changing games, then maybe you are coming up with 10, 11.
Okay, and those should impact positively, you would think, the inflection into the business, right?
Yes.
Okay. Then, my last question, I guess on the last call, we discussed that you thought the company was close to an agreement with Greentube for the Omni media, the omni-channel approach, really, the internet gambling business. How is that going, if you can discuss that?
Yeah, we have a contract with Greentube that we are developing six games, six online games, which is currently in progress. So the contract is existing, and we are developing games for Novomatic because of for Greentube.
Okay. All right. Yeah, I mean, it's frustrating because we have a stock price now that's kind of trading at the same price it was at when, because all the casinos in the world were closed, the stock's right back to COVID pricing, and I, you know, just following the business online, you know, whoever does the social media for your LinkedIn page does a really wonderful job to be able to follow the business. It. You can see the momentum. I just, you know, I don't know when it inflects into the business plan.
Yeah. As far as I remember, the stock price at COVID was at AUD 0.30, and now we are at AUD 0.90, so it's a little bit of improvement. But I agree with you. I'm also not satisfied with the current stock performance. We simply have to improve our performance of our games to increase sales and profitability.
Do you anticipate going to any investor conferences in the coming quarters, year, anything like that, to talk about the company, drum up some investor support for the company, anything like that?
It's possible, but currently there are no clear plans for this.
Okay. All right, thank you.
Thank you.
Thank you. Your next question is from the line of Ajay Mariswamy with Macquarie. Please go ahead.
Hi there. Question: How are you thinking about your outright volumes in Australia and North America? You've been increasing R&D investment there. When do you expect to be rewarded with an uptick in volumes?
In the H2 of 2024 and in 2025.
Thank you. And second question, will the import restrictions into Latin America ease from here, and as such, can we start to see a recovery in outright sales in that region?
As we had impact of two countries. One was Argentina, that based on the change in the political situation and the inflation by 50%, approximately.
Yep, in December, the
We are invoicing our machines in pesos, in US dollar, but get paid in pesos. Based on this inflation, we decided to stop the sales to Argentina. In comparison to last year, we sold based on this import licenses several hundred units. This was one impact. The second impact was that the first six months in Mexico, there were no imports, but not only for Ainsworth, for all the manufacturers, there were no imports approved by the government, which changed beginning of July. We currently have the approval of three import licenses, or however you call this, import approvals, and we have applied now for eight additional.
But currently it seems that they have implemented a process in Mexico which is allowing to get import approvals.
Thank you very much.
Thank you. Ladies and gentlemen, a reminder, if you wish to ask a question, please press star and one. As there are no further questions, I now hand the conference back to Mr. Neumann for his closing remarks.
I again want to thank for your participation and for the question you ask. Yeah, I hope I can give you better and improved information next time when we talk. Once again, thank you for the participation and yeah, we stay in contact.
Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now disconnect your line.