AINSF (AINSF) Q2 2026 Earnings Report, Transcript and Summary

Good morning, and thank you for joining Ainsworth Game Technology's results presentation for the 6 months ended 30 June 2026. On the call today are Ryan Comstock, Chief Executive Officer; and Lynn Mah, Chief Financial Officer. Ryan and Lynn will take you through the presentation lodged with the ASX this morning, after which we will open the line for questions. Before we begin, I would draw your attention to the disclaimer on Slide 2. Today's discussion contains forward-looking statements that are subject to known and unknown risks and uncertainties, and actual results may differ materially. This presentation should be read together with the Appendix 4D and financial report lodged with the ASX today. I will now hand over to Ryan. Thank you, and over to you.

Thank you, and good morning, everyone. Let me start by framing the half honestly, because I think that's the most useful thing I can do for you. Trading conditions since the start of the year have been tough across all of our markets as a result of weak consumer sentiment and challenging macroeconomic conditions. In addition to the prevailing trading conditions, it is important to note that this has been a transitional period for Ainsworth. Revenue of $116.5 million was down 23% on the prior corresponding period and underlying profit before tax of $4.7 million was below the $13.9 million we delivered in the first half of last year. That is not the result we want, and I'm not going to dress it up. But underneath that headline, there are 3 things happening that I'd ask you to hold on to through this presentation. First, the decline is concentrated and explainable. It sits almost entirely in the North American unit sales and in Latin America. In North America, the cause is a product road map that was inconsistent. In Latin America, it is external market conditions, including the increase in Mexican gaming tax from 30% to 50% effective 1 January, which has directly reduced the capital available to operators. Second, the parts of the business we have already fixed are working. Asia Pacific grew revenue, grew units and grew segment profit on the back of the Raptor platform. Group's gross margin expanded 6 points to 62%, operating cash flow turned positive at $8.9 million against an outflow in the prior period, and we reduced net debt to $8.5 million. This is a business with improving underlying mechanics. Third, the product cycle has turned. The evidence for that arrived during this half, not as a forecast, but as third-party data. I'll come to it shortly. To summarize, the story of today is that while we faced a tough trading environment and reported weaker revenue for the half, we delivered disciplined cost management and operational efficiencies to support our profit margin, a much healthier balance sheet with a reduction in net debt, improved operating cash flows, a more resilient margin structure, and a product pipeline that is finally where it needs to be in order to establish a solid foundation for future success. The reason I have confidence in the direction of this business, despite the half we've just reported, is our ongoing commitment to R&D and innovation, which is critical to ensuring our products are competitive in the industry. From a strategic perspective, there are 3 pillars we've been building on, and they are our Historical Horse Racing business with more than 10,000 units connected to our system, generating recurring fees and significant system enhancements landing this year; our expanded Raptor Hardware Lineup, now 3 cabinets and with the A865, a genuine technical differentiator; and our disciplined AI adoption, which is expanding development capacity across the entire enterprise. Let me take you through the Raptor Hardware Lineup first. The Raptor family now has 3 cabinets in market. The A849 released in 2024 is our single-screen workhorse, a 49-inch J-curve portrait monitor with a 26-inch HD topper and more than 100 titles available globally. Top-performing families on it include Loot Express, Fortune Explorers, Xtension Link and Dragon Legacy. The A832 dual-screen, released in 2025, features triple 32-inch monitors, an 18.5-inch button deck and premium surround sound with more than 70 global titles. San Fa Fortune, Year of the Horse, Thunder Cash, and Double Dragons are among the strongest. And the A865 released this year is the one I draw your attention to. The A865 introduces Ainsworth's patent-pending Hybrid Technology, which allows both portrait and dual-screen game content to run on the same cabinet platform. That means the A865 has access to the full Raptor portrait and dual-screen libraries, every title we've built for the platform. For an operator, a cabinet that can run both content formats is a cabinet with a lower risk profile. If a portrait title underperforms on the box, the operator isn't stuck. They can convert to dual-screen content without a hardware change. It extends the useful life of the cabinet on the floor. It broadens the content library available to any single unit, and it gives us deployment flexibility across the Raptor family. The A865 launched in Australia in the first half, where early performance is sustaining, rollout into Latin America and North America is planned for the second half. Now let's turn to AI because a lot is often said about AI adoption, but we have tangible commercial output, which demonstrates why this is a significant strategic lever for our business. First, I would like to cover AI governance because that is critical. We are a regulated gaming supplier and AI adoption here is directed by a cross-functional executive AI steering committee that approves every tool before deployment. That committee owns tool evaluation and approval, data security and IP protection, regulatory alignment, and our responsible use policy and training. This is deliberate, governed adoption, not teams independently adopting whatever they find. The second point that I would like to emphasize is that our AI adoption is enterprise-wide. 100% of our developers are enabled with Agentic AI coding tools, our art, animation and video teams are running generative pipelines that compress concept to asset time lines. Sound design and original composition are AI-assisted, which is keeping audio production in-house. And our finance, HR and corporate functions are equipped to streamline reporting and analysis. The third point is the one that matters to you. This is about capacity and velocity, not headcount reduction. More titles, faster iteration, higher quality without proportional growth in cost base. In a business where the single largest determinant of revenue is the rate at which we can put quality content on the floors, this is the highest leverage investment we can make. And it's already producing commercial output. Just Chillin', developed using our latest AI tools, has been shortlisted for Product Innovation of the Year at the 2026 Global Gaming Awards. I'll now hand it over to Lynn for the financial summary, and I'll come back to walk you through the regions.

Thank you, Ryan, and good morning, everyone. Let me start with the headline numbers for the 6 months to 30 June 2026. Revenue was $116.5 million, down $35.6 million or 23% on the prior corresponding period and down $22.2 million on the prior half. Reported EBITDA was $10.2 million compared with $14.6 million in the PCP. Underlying EBITDA, which excludes foreign currency movements, transaction costs, the patent claim provision and impairments was $17.1 million, down from $26.9 million. There's an underlying EBITDA margin of 14.7% compressed from 17.7%. I'd like to note that margin compression is a function of a higher proportion of fixed costs against a lower revenue base. It is negative operating leverage, not cost indiscipline. Total operating costs actually fell $2.7 million on the PCP. We reported a loss before tax of $2.2 million against a profit of $1.6 million in the PCP. After a $3.3 million income tax benefit, reported profit after tax was $1.1 million. Underlying profit before tax, excluding currency and one-off items, was $4.7 million, down from $13.9 million. Underlying profit after tax was $6.2 million. Three further points on the summary. Gross margin improved despite the revenue decline. That's an important signal. Margin expansion was driven by the tariff refund received in the period and by higher average selling prices across both Asia Pacific and North America. We are selling fewer units, but we are selling them better. Recurring revenue contributed $43.3 million, including Historical Horse Racing, HHR, connection fees, compared with $50.7 million in the PCP. Gaming operation units totaled 5,644 units at period end, down from 6,091 units at 31 December 2025, a reduction, which Ryan will speak to in the regional discussion as the drivers differ by market. The balance sheet has strengthened. Net debt reduced to $8.5 million at 30 June 2026 from $11.8 million at 31 December 2025. Finally, on dividends. The Board has determined that dividends remain suspended to preserve available liquidity and to continue funding product development. I want to be direct that this is a capital allocation choice, not a liquidity constraint. We generated positive operating cash flow this half and met all financial covenants. The Board's view is that in the current phase of the product cycle, the highest return on each dollar is in the development pipeline. I'll hand back to Ryan for the regional and product review, and I'll return with the consolidated details.

Thank you, Lynn. North America represented 44% of group revenue in the half, and it is where the majority of the decline sits. Segment revenue was $51.9 million, down $31.2 million on the prior comparable period. On a constant currency basis, revenue was $57.5 million against $83.1 million. Unit volume fell to 492 from 1,357. I want to be candid about the cause because while trading conditions have been challenging, the issue in this market goes beyond that. There has been a product problem. Our single-screen road map in North America went too long without a compelling new release. Operator confidence in that road map eroded and unit sales followed. That is the honest diagnosis. Two things are worth noting alongside it. Segment profit margin actually improved to 54% from 43%, driven by higher margin from the tariff refund and better average selling prices, and segment profit of $28.2 million on revenue of $51.9 million tells you this remains a highly profitable business at the segment level once volumes return. Participation and lease revenue was $15.4 million against $20.9 million in the PCP, reflecting the reduction in installed base to 2,360 units. Average fee per day held broadly steady at $27. And HHR connection fees now contribute 36% of segment revenue, up from 22%. I'd caution against overreading that increase. It partly reflects the denominator falling, but the absolute business is stable with over 10,000 units connected. That is a resilient, high-quality recurring revenue stream. It's worth spending a moment on how North America is actually structured because it's underappreciated, and we have restructured the team to ensure we have constant focus on each of these verticals. HHR is our largest North American segment at approximately 49% of regional revenue. That is close to half of North America and roughly 1/5 of group revenue coming from a business with large recurring footprint plus system connection fees. We hold integration relationships with Aristocrat, IGT, Light & Wonder, Konami and Zitro. Every major supplier connects to our system, and we're launching our modernized HHR system, QuBet, this year. Class 3 is approximately 30% of North American revenue, and it is the largest addressable market and our key focus area for game development. Most titles originate as Class 3 and are ported to Class 2 and HHR shortly afterwards. Newly released Class 3 titles are performing above house average. Class 2 is approximately 12%, where we have a strong performing legacy footprint with faster delivery of Unity developed games flowing through from Class 3 and a system modernization underway this year. VLT is approximately 9%. The regional route markets of Louisiana, South Dakota and Montana, where strong game performance has driven software conversion revenue. Here is the structural point, and I'd like you to weigh it carefully because titles cascade from Class 3 into Class 2 and HHR, fixing Class 3 game performance is the lever that moves roughly 91% of our North American revenue base. Class 3 itself plus HHR and Class 2 segments, those titles port into. That is why the Class 3 road map has had the development priority it has, and it is why the data on the next slide matters as much as it does. I'll now turn to Slide 12, North American highlights, which brings me to the most important slide in this presentation. The Dragon Legacy family launched into Class 3 markets in late May. On the June 2026 Eilers report, top 25 new core video, Dragon Legacy took the #1 and #2 positions, Dragon Legacy Metal at 2.12x house average and Dragon Legacy Wood at 1.96x. That is independent third-party performance data from the first full month in the market on the exact cabinet and the exact market segment where we have been underperforming. Two titles from 1 family taking both top positions is not a single outlier. It says the family works. The Dragon Legacy games have remained on the top 25 new core video in July and August. Dragon Legacy is expected to reach Class 2 and HHR market availability in September 2026. Given the segment mix I just walked through, that extends our best-performing content into the 2 segments that together represent about 61% of North American revenue. Alongside it, the Fa Cai family released in the Class 3 markets in June with encouraging early performance and Just Chillin' has been shortlisted for Product Innovation of the Year at the 2026 Global Gaming Awards. A few strong months does not rebuild a franchise, but it does tell us the product is right and the task now is cadence. So the second half plan in North America is straightforward, and it has 4 parts. One, rebuild operator trust through consistent cadence. On the single-screen A849, we have Train Heist, Bubble Up!, Digging for Dollars and Fortune Bull in Q3, followed by Five Fortunes: Duck & Cover, Five Fortunes: Fire in the Hole, and Shrine of the Guardian in Q4. The commitment we're making to operators and to you is consistency, not a single hit. Number two, launch a Raptor test bank program at participating partner properties to evaluate game performance and refine go-to-market launch strategies before broad release. Number three, penetrate the A832 dual-screen further. First installs were January 2026. Kaiju Cash, The Enforcer Reloaded, and Mustang arrive in Q3 with Thunder Cash, Mustang Money Blazing and Eagle Bucks Deluxe in Q4. Importantly, the majority of our original launch titles were geared to high-limit placements. The second half releases target the low-denomination segment where the placement opportunity is larger. And number four, leverage proven content from other regions. We have titles performing strongly in Latin America and Asia Pacific that have not yet been brought to North America. That's a low-risk source of content, and you'll see it in the second half. Asia Pacific was 32% of group revenue. Segment revenue grew to $36.9 million from $34.6 million. Unit volume grew to 1,087 units. Segment profit grew to $9.3 million with margins improving to 25% from 23%. Growth came primarily from Australia on the continued momentum of the A-Star dual-screen cabinet and the successful release of the single-screen cabinet in the period. Importantly, we achieved higher unit sales with strong average selling prices. On the product side, the A865 launched in the first half and early performance is sustaining. The Raptor portfolio expanded with Double Dragons and Loot Express, both of which launched at more than twice floor average and have consistently performed above floor average since. Year of the Horse also released in the half, and we have Thunder Diamonds, Mustang and Super San Fa coming in the second half. This is what the Raptor platform delivers when it's paired with a consistent content pipeline. In Latin America and Europe, it contributed 22% of group revenue with revenue of $25.4 million, down 20% on the PCP, primarily due to lower-than-expected sales in key markets in the region affected by geopolitical events. What I'd point to is how the business has been managed through it. Margin improved, segment profit margin to 26% from 23%, helped by lower price point cabinets, which carry higher percentage margins and contributed 55% of total unit sales in the period. Gaming operations units reduced to 3,284 in direct response to the gaming tax increase in Mexico. And through improved game performance and active management of the installed base, we delivered an 8% increase in average fee per day. In other words, we shrank the fleet and improved its quality. Revenue recovery remains a priority, but disciplined cost management and operational efficiencies are holding profit margins in a subdued market. The product performance data in this region is genuinely strong. The Raptor A849 ranks as the #1 cabinet in South America at 2.9x house average. The A-Star Curve is the #1 cabinet in Mexico and #5 in South America at 1.97x house average. Xtension Link continues to grow share, averaging twice house, and is the #1 game in Latin America across multiple categories. By market, in Mexico, our new launch strategy focused on maximizing performance is yielding good results with Rising Series, Coin Kingdom and Five Fortunes. In Peru, the recent A-Zone launch, a mix of cabinets and games under a single jackpot, is off to a strong start with Quick Spin Electric Pots at 1.8x, Neon's Bonus Blast at 1.6x and Dragon Legacy at 1.5x house. In Argentina, the Pan Chang relaunch is performing at twice house. And in the Caribbean, Puerto Rico has launched an exclusive wide area progressive with Coin Kingdom Link. Two growth initiatives to flag. We are preparing to launch the value-focused A832L cabinet into price-sensitive markets, which should expand our total addressable market and which is well timed against the capital constraints operators are facing. And we have also signed a Playboy licensing agreement, which strengthens the premium content road map for this region. So a difficult revenue environment, a market-leading product position and a value cabinet arriving precisely when the market needs one. Interactive was 2% of group revenue at $2.3 million against $2.8 million in the PCP. Competitive market conditions and game performance continue to affect this segment. I'll be straightforward. This segment has not yet delivered and increasing the speed and efficiency of game development without compromising quality remains a critical requirement for recovery. The strategy is to combine high-performing omnichannel content with direct distribution to Tier 1 operators. Our omnichannel approach leverages proven land-based mathematics and scales it across North American and international iGaming markets. Direct North American distribution working directly with operators, including BetMGM, DraftKings and FanDuel positions us to build exclusive content. Beyond real money gaming, we're unlocking value in social casino through our exclusive partner, Zynga. It's a small segment today, and it runs at an 83% segment profit margin. The reason we continue to invest is that the marginal cost of taking a proven land-based title into digital is low and the upside is significant. I'll now hand back to Lynn for the consolidated results.

Thank you, Ryan. Turning to the consolidated profit and loss on Slide 20. Domestic revenue increased $4 million to $34.8 million following the release of the A-Star Raptor single-screen cabinet in February 2026. International revenue fell $39.6 million to $81.7 million, driven by North America and Latin America and Europe. Gross profit was $72.7 million, down $12.1 million, but gross profit margin expanded to 62% from 56% for the reasons already covered, the tariff refund and higher average selling prices. Reported EBITDA of $10.2 million was affected by the decrease in gross profit and by the recognition of a $2.3 million provision for patent claims, including legal fees. That was partially offset by materially lower currency translation losses of $3.5 million against $8.6 million in the PCP. We recorded a loss before tax of $2.2 million, an income tax benefit of $3.3 million and reported profit after tax of $1.1 million. Diluted earnings per share was $0.003 against $0.014 in the PCP. I would like to draw attention to the R&D at 22% of revenue, up from 16%. That ratio is elevated partly because revenue fell, but the absolute spend also rose. We have consciously not cut development spend into a soft revenue half because the product pipeline is the recovery mechanism. The reconciliation is on Slide 21. From a reported loss before tax of $2.2 million, we add back depreciation and amortization of $12.7 million and exclude net interest income of $0.3 million to which reported EBITDA of $10.2 million. We then adjust foreign currency losses of $3.5 million, transaction costs of $1.1 million relating to the terminated scheme of arrangement and off-market takeover offers and the $2.3 million patent claim provision, giving an underlying EBITDA of $17.1 million. For comparison, the PCP recorded a $2.1 million impairment adjustment relating to the online CGU and the prior half recorded $43.1 million for the North American CGU. There's no impairment charge in the current period. On operating costs, the key message is that the cost base is being managed. Total operating costs fell $2.7 million on the PCP to $68.7 million and $7.5 million on the prior half. Cost of goods sold fell $23.5 million, tracking lower unit volumes. Sales, service and marketing fell $4.3 million, reflecting lower variable selling costs, personnel and commissions, marketing, royalties and discounts. As a percentage of revenue, it rose to 25% from 22%, again, thematic of a lower revenue base. R&D increased $1.6 million to $25.8 million, driven primarily by higher evaluation and testing costs with smaller contribution from external consultants and license fees. That increase is deliberate. Administration was flat in dollar terms at $14.2 million, rising to 12% of revenue, negative operating leverage rather than a cost growth. I would like to note the 2 right-hand columns within Slide 22, which restate current period cost at PCP and prior half currency. On a constant currency basis, total operating costs would have been $73.7 million. So there's a favorable translation benefit of approximately $5 million embedded in the reported cost line, a one that's visible to you rather than being varied. The bridge on Slide 23 walks from $4.9 million net profit after tax in the prior corresponding period to $1.1 million in the current period. Three items account for the decline. Product sales were down $26.5 million on lower volumes in North America and Latin America and Europe, partially offset by growth in Asia Pacific. Gaming operations revenue was down $7.6 million on a reduced installed base and license revenue was down $2.5 million. Against that, cost of sales, excluding D&A was $23.3 million favorable, tracking those same volumes with gross margins improving to 62% from 56% on the tariff refund and higher average selling prices. Favorable FX movement compared to PCP contributed $5.1 million, predominantly lower losses on balance sheet translation of our American investments. The absence of impairment previously recognized in the prior period contributed $2.7 million. Overheads were $1.9 million favorable and the service revenue $1 million higher. Partially offsetting other expenses were $1.8 million at worse, that's principally the patent claim provision. The balance sheet remains conservative. Total assets of $399.9 million and net assets of $226.2 million. Net assets decreased slightly, primarily from lower trade receivables, reflecting lower revenue and reductions in noncurrent assets, partially offset by lower payables, borrowings and tax payable. Total debt reduced to $20.8 million from $23.5 million and net debt reduced to $8.5 million from $11.8 million. The debt ratio improved to 18% from 22% and debt to equity to 23% from 28%. Cash flow to debt ratio moved to a positive 12% from negative 7% in the prior half, a meaningful swing. The Western Alliance Bank facility of $27 million remains in place and all financial covenants were met during the period. Finally, cash flow, and this is where I'd like to point anyone concerned about the earnings decline. Net cash generated from operating activities was positive $8.9 million against an outflow of $4.7 million in the PCP and an outflow of $6.5 million in the prior period. That is a $13.6 million year-on-year improvement, primarily reflecting working capital improvements and the IEEPA duty refund. Investing outflows were $3.4 million, broadly stable. Financing outflows were $4.7 million, reflecting net repayment of borrowings, $6.4 million repaid against a $4.3 million drawn. Closing cash was $12.3 million. The simple summary is that this business generated cash, used it to repay debt and maintain full covenant compliance to its weakest revenue half in recent periods. I will now hand over to Ryan for some concluding remarks.

Thank you, Lynn. Let me close by summarizing where we stand and what we expect. Four numbers define this half: underlying profit before tax of $4.7 million; a net debt position of $8.5 million, improved from $11.8 million; positive operating cash flow of $8.9 million and 37% of revenue is recurring, driven by market-leading HHR system. That is a soft revenue half delivered alongside a stronger balance sheet, better margins and positive cash generation. On outlook, here is how we see the second half. In North America, we are executing a consistent release cadence off the back of the Dragon Legacy result. Dragon Legacy reaches Class 2 and HHR availability in September, extending our best-performing content into the segments that make up around 61% of regional revenue. The A865 rolls into the region and the A832 low denomination titles open placement opportunities we haven't been able to access. This is the region with the most recovery leverage. In Asia Pacific, we expect continued momentum. The platform is working, the content pipeline is full and the A865 is performing. In Latin America, we are planning for continued subdued conditions, which is why we are launching the A832L value cabinet into price-sensitive markets and continuing to prioritize yield over fleet size, as we did in this half. In Interactive, the focus is development velocity and direct operator integration. Across the group, we will maintain R&D investment, continue to expand development capacity through governed AI adoption, and continue to prioritize debt reduction and liquidity over distributions until the product cycle has turned into revenue. I'd finish on this. We were candid this morning about a product road map in North America that we let flip. We were equally candid that the fix is underway and that we have independent third-party evidence it is working. Between the #1 and #2 new core games on the Eilers report, the #1 cabinet in South America, the #1 cabinet in Mexico and 2 Australian launches at over twice floor average. The product is competitive. What we owe you now is consistency and conversion. Thank you. Operator, we'll now take questions.

[Operator Instructions] There are no questions at this time. I will now hand back to Mr. Comstock for closing remarks.

Thank you. Thank you, everyone, for joining us on today's H1 Calendar Year '26 results call, and we appreciate your continued support. Have a great day.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.