Everi Reports 2016 First Quarter Results
Michael D. Rumbolz has been appointed as the Company’s President and Chief Executive Officer, effective immediately.
Consolidated Full Quarter Comparative Results (unaudited)
| Three Months Ended | Three Months Ended | ||||||||
| March 31, 2016 | March 31, 2015 | ||||||||
| (in millions, except per share amounts) | |||||||||
| Revenues | \\$ | 205.8 | \\$ | 207.5 | |||||
| Operating income (1) | \\$ | 3.8 | \\$ | 28.1 | |||||
| Net (loss) income (1) | \\$ | (13.2 | ) | \\$ | 0.5 | ||||
| Net (loss) income per diluted share (1) | \\$ | (0.20 | ) | \\$ | 0.01 | ||||
| Diluted shares outstanding | 66.0 | 66.5 | |||||||
| Adjusted EBITDA (2) | \\$ | 45.7 | \\$ | 50.6 | |||||
(1) Operating income, net (loss) income, and net (loss) income per diluted share for the three months ended
(2) For a reconciliation of Adjusted EBITDA, see the Unaudited Reconciliation of Operating (loss) income to EBITDA and Adjusted EBITDA provided at the end of this release.
Michael Rumbolz, President and Chief Executive Officer of
“Our financial results for the first quarter of 2016 were impacted by several previously identified factors including lower unit sales driven primarily by the timing of field trials for our new Core HDX cabinet late in the fourth quarter 2015 and first quarter 2016, lower year-over-year sales of Payments kiosks, and the removal of third party Class III games from our installed base. We believe our 2016 first quarter operating results will represent the low mark for quarterly performance this year as we expect to generate improvement in the second quarter and then in the second half of 2016 relative to operating results in the first half of the year. This expectation is based in part on our belief that quarterly unit sales will increase year over year for the balance of 2016 primarily reflecting the historically high levels of field unit trials for our games which should correlate to an increase in future unit sales. We also are actively managing our third party Class III unit removals with the expectation that we will be able to replace a portion of any removals with our Class II units and we continue to believe that our installed base will grow over the balance of the year and end 2016 relatively flat compared to the 2015 year-end installed base. In addition, the fraud losses and incremental processing costs experienced prior to the finalization of our implementation of the new card security features jointly-developed by Europay,
Mr. Rumbolz continued, “We have also identified opportunities in our cost structure and are implementing actions to reduce costs where appropriate. While it will take time to implement some of these changes, achieving success in these efforts is critical to driving performance improvements over the balance of 2016 and beyond in order to create value for shareholders.”
First Quarter 2016 Results Overview
Revenues for the first quarter of 2016 were
Adjusted EBITDA for the first quarter of 2016 was
The Company recorded a loss from operations before income tax provision of
Non-GAAP Measures
Historically, the Company has reported the non-GAAP measures of cash earnings and cash earnings per diluted share of common stock. These measures were established when the Company was a Payments only business. The calculation and definition of these non-GAAP measures varies within our industry as well as other industries and therefore are not always easily comparable between public companies. Senior management believes that the statement of cash flows, as presented in this release and in the Company’s quarterly and annual filings, provides the information that investors need regarding the Company’s ability to generate cash flow. As a result, these non-GAAP measures will no longer be used internally to evaluate the Company’s performance. Although the Company will not report cash earnings and cash earnings per diluted share of common stock, the information necessary to calculate these measures consistent with past reporting will be available within our earnings releases. Management continues to believe that Adjusted EBITDA enhances investor understanding of the underlying trends in our business and provides for better comparability between periods in different years, and will continue to report Adjusted EBITDA as in the past. See “Non-GAAP Financial Information” below.
Games Segment Full Quarter Comparative Results (unaudited)
| Three Months Ended | Three Months Ended | ||||||||
| March 31, 2016 | March 31, 2015 | ||||||||
| (in millions, except unit amounts and prices) | |||||||||
| Revenues | \\$ | 48.2 | \\$ | 55.1 | |||||
| Operating (loss) income (1) | \\$ | (3.2 | ) | \\$ | 0.6 | ||||
| Adjusted EBITDA (2) | \\$ | 28.4 | \\$ | 30.6 | |||||
| Units sold | 432 | 822 | |||||||
| Average sales price (ASP) | \\$ | 17,835 | \\$ | 16,498 | |||||
| Domestic participation installed units: | |||||||||
| Average | 13,185 | 13,169 | |||||||
| Quarter end | 12,957 | 13,172 | |||||||
| Premium participation units at quarter end | 1,740 | 1,614 | |||||||
| Third party Class III participation units at quarter end | 1,983 | 3,214 | |||||||
| Approximate daily win per unit | \\$ | 29.10 | \\$ | 29.68 | |||||
(1) Operating income for the three months ended
(2) For a reconciliation of Adjusted EBITDA, see the Unaudited Reconciliation of Operating (loss) income to EBITDA and Adjusted EBITDA provided at the end of this release.
2016 First Quarter Games Segment Highlights:
- Revenues were
\\$48.2 million compared to\\$55.1 million in the prior-year period. Segment revenue for the first quarter of 2016 included\\$39.8 million from gaming operations and\\$8.4 million from product sales. Excluding\\$0.9 million in revenue in the prior-year period from the Company’s electronic table games operations which was divested in the third quarter of 2015, revenues from gaming operations were flat compared to the prior-year period. - The installed base at the end of the first quarter of 2016 was 12,957 units, a decline of 215 units compared to the prior-year period.
- The installed base of premium participation games increased 126 units year over year to 1,740 units.
- The estimated daily win per unit of the installed base decreased
\\$0.58 over the prior-year period to\\$29.10 . - Revenue from the New York Lottery business was
\\$4.5 million in the first quarter of 2016 compared to\\$4.2 million in the prior-year period. - Revenue from electronic game sales was
\\$8.4 million for the first quarter of 2016 compared to\\$14.6 million in the prior-year period, primarily driven by volume. The Company sold 432 units in the first quarter of 2016 compared to 822 units in the first quarter of 2015. - Sales of Everi’s premium-priced TournEvent slot tournament solution comprised 16% of total units sold in the first quarter of 2016 compared to 24% of units sold in the prior-year period.
Games Segment Recent Developments:
- The Company recently entered into an agreement with the
Alberta Gaming & Liquor Commission (“AGLC”) for the sale of 200 TournEvent® units and the placement of 50 premium participation units across 28 casino properties in the province.
Payments Segment Full Quarter Comparative Results (unaudited)
| Three Months Ended | Three Months Ended | ||||||
| March 31, 2016 | March 31, 2015 | ||||||
| (in millions, unless otherwise noted) | |||||||
| Revenues | \\$ | 157.6 | \\$ | 152.4 | |||
| Operating income (1) | \\$ | 7.0 | \\$ | 27.5 | |||
| Adjusted EBITDA (2) | \\$ | 17.3 | \\$ | 20.0 | |||
| Aggregate dollar amount processed (in billions): | |||||||
| Cash advance | \\$ | 1.3 | \\$ | 1.3 | |||
| ATM | \\$ | 3.8 | \\$ | 3.4 | |||
| Check warranty | \\$ | 0.3 | \\$ | 0.3 | |||
| Number of transactions completed (in millions): | |||||||
| Cash advance | 2.3 | 2.3 | |||||
| ATM | 18.9 | 17.3 | |||||
| Check warranty | 0.9 | 0.9 | |||||
(1) Operating income for the three months ended
(2) For a reconciliation of Adjusted EBITDA, see the Unaudited Reconciliation of Operating (loss) income to EBITDA and Adjusted EBITDA provided at the end of this release.
2016 First Quarter Payments Segment Highlights:
- Revenues increased approximately 3% to
\\$157.6 million in the first quarter of 2016 compared to\\$152.4 million in the prior-year period.
- Cash Advance revenues decreased approximately 2% to
\\$58.9 million in the first quarter of 2016 compared to\\$60.2 million in the prior-year period, primarily due to the loss of a corporate customer in the fourth quarter of 2015.
- ATM revenues increased approximately 12% year over year to
\\$84.1 million from\\$74.9 million in the prior-year period primarily reflecting higher transaction volume as a result of the acquisition of two ATM portfolios in the third and fourth quarters of 2015 as well as same store transaction growth. These increases were partially offset by the above noted loss of a corporate customer in the fourth quarter of 2015.
- Other revenues decreased 22%, or
\\$2.7 million , year over year to\\$9.5 million , primarily due to a year-over-year decline in revenue related to kiosk sales.
- Adjusted EBITDA margin for the Payments segment was 11.0% for the quarter ended
March 31, 2016 compared to 13.1% for the same period in 2015. Adjusted EBITDA for the three months endedMarch 31, 2016 includes approximately\\$1.0 million of cash advance incremental fraud losses and one-time processing expenses from the implementation of the Company’s end-to-end EMV solution.
Payments Segment Recent Developments:
Everi became the first company in the casino industry to offer end-to-end compliant cash access payment solutions that utilize chip-enabled card acceptance or EMV. The Company is now fully end-to-end EMV-compliant with all its financial transaction devices, platforms and systems.
Michael Rumbolz Appointed President and CEO; Lin Fox Appointed to the Board of Directors
Michael D. Rumbolz was today named President and Chief Executive Officer, effective immediately. Mr. Rumbolz has served as Interim President and Chief Executive Officer since
Linster (Lin) W. Fox, former Executive Vice President, Chief Financial Officer and Secretary of
Fred C. Enlow, who retired from the Board on
Mr. Rumbolz has been a member of Everi’s Board of Directors since
Mr. Fox served as EVP, CFO and Secretary of
“The Board of Directors is extremely pleased that Michael has agreed to serve as the Chief Executive Officer on a permanent basis,” commented
E. Miles Kilburn, Chairman of the Board of Everi. “Mike is unique in his experience and knowledge of our Games and Payments businesses and the Board is confident in his abilities to execute upon our strategy to drive results. In addition, I want to welcome
Lin Fox to the Board of Directors. We believe Lin’s gaming industry and public company experience make him an ideal addition to the Board and we are looking forward to the benefit of his counsel and insights going forward. On behalf of the Board, I also want to thank Fred for his nearly ten years of service as a Director, during which time he helped guide
2016 Outlook Update
Overall, the Company continues to expect that 2016 Adjusted EBITDA will not grow compared to reported 2015 Adjusted EBITDA. Management expects sequential improvement in Adjusted EBITDA in the second quarter of 2016 and also expects Adjusted EBITDA in the second half of 2016 will be higher compared to the first half of 2016. Factors considered in the Company’s outlook for the balance of the year include:
- The introduction of the new Core HDX video cabinet has resulted in an acceleration of units on field trials. The increase in field trials, the introduction of new game content, and the entrance into new markets, such as the recently announced agreement with the AGLC and expectations for initial Games segment revenue from the
Colorado andMissouri markets in the second half of the year, provide the basis for the Company’s expectation that unit sales for the Games segment will exceed prior-year sales in every quarter over the balance of 2016.
- The installed base is expected to grow from the 2016 first quarter period end installed base. As a result, the Company expects the installed base at
December 31, 2016 will be relatively flat compared to the installed base atDecember 31, 2015 , reflecting new placements of proprietary Class II and Class III units. The Company will continue to manage third party Class III unit removals with the expectation that it will be able to replace a portion of any removals with proprietary Class II units.
- The Company’s Payments business is expected to benefit in 2016 from the continuing improvement in cash to the floor in the gaming industry. In addition, the Company expects quarterly kiosk sales over the balance of the year will grow from 2016 first quarter levels. The implementation of Everi’s end-to-end EMV solution in the first quarter of 2016 is expected to result in a reduction of the incremental fraud loss experienced in the first quarter of 2016.
Investor Conference Call and Webcast
The Company will host an investor conference call to discuss its first quarter 2016 results today at
Non-GAAP Financial Information
In order to enhance investor understanding of the underlying trends in our business and to provide for better comparability between periods in different years, we are providing in this press release Adjusted EBITDA. We define Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, non-cash stock compensation expense, accretion of contract rights, acquisition and other costs related to mergers and purchase accounting adjustments and accrued executive severance costs less a benefit from one-time legal settlement proceeds. We present Adjusted EBITDA as we use this measure to manage our business and consider this measure to be supplemental to our operating performance. We also make certain compensation decisions based, in part, on our operating performance, as measured by Adjusted EBITDA; and our credit facility, senior secured notes and senior unsecured notes require us to comply with a consolidated secured leverage ratio that includes performance metrics substantially similar to Adjusted EBITDA. Reconciliations between our actual results prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”) and Adjusted EBITDA are provided at the end of this press release. Adjusted EBITDA is not a measure of financial performance under GAAP. Accordingly, it should not be considered in isolation or as a substitute for, and should be read in conjunction with, our net (loss) income, operating income, basic or diluted (loss) earnings per share or cash flow data prepared in accordance with GAAP.
Cautionary Note Regarding Forward-Looking Statements
This press release contains “forward-looking statements” as defined in the U.S. Private Securities Litigation Reform Act of 1995. In this context, forward-looking statements often address our expected future business and financial performance, and often contain words such as “goal,” “target,” “future,” “estimate,” “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “project,” “may,” “should,” or “will” and similar expressions to identify forward-looking statements. Examples of forward-looking statements include, among others, statements we make regarding our ability to leverage our product portfolio, industry expertise and compliance infrastructure to accelerate and maximize long-term company-wide growth opportunities, our Games performance in the second quarter of 2016 and for the remainder of the year, the reduction of fraud losses, processing costs and operating costs from implementation of an end-to-end EMV solution, the expected benefits from our Core HDX video cabinet, the outcome of field trials, our entrance into new markets creating an overall increase in unit sales, the size of our installed base and placements of Class II and Class III content, the expected continued improvement in cash to the floor in the gaming industry and our ability to increase kiosk sales over the balance of the year.
The forward-looking statements in this press release are subject to additional risks and uncertainties, including those set forth under the heading “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our filings with the
These cautionary statements qualify our forward-looking statements, and you are cautioned not to place undue reliance on these forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
This press release should be read in conjunction with our most recent reports on Form 10-K and Form 10-Q, and the information included in our other press releases, reports and other filings with the
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EVERI HOLDINGS INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND COMPREHENSIVE LOSS
(In thousands, except earnings per share amounts)
| Three Months Ended March 31, | |||||||||||
| 2016 | 2015 | ||||||||||
| Revenues | |||||||||||
| Games | \\$ | 48,178 | \\$ | 55,045 | |||||||
| Payments | 157,591 | 152,428 | |||||||||
| Total revenues | 205,769 | 207,473 | |||||||||
| Costs and expenses | |||||||||||
| Games cost of revenue (exclusive of depreciation and amortization) | 8,436 | 12,077 | |||||||||
| Payments cost of revenue (exclusive of depreciation and amortization) | 122,657 | 114,946 | |||||||||
| Operating expenses | 30,005 | 15,841 | |||||||||
| Research and development | 5,368 | 5,436 | |||||||||
| Depreciation | 12,335 | 10,377 | |||||||||
| Amortization | 23,183 | 20,655 | |||||||||
| Total costs and expenses | 201,984 | 179,332 | |||||||||
| Operating income | 3,785 | 28,141 | |||||||||
| Other expenses | |||||||||||
| Interest expense, net of interest income | 24,992 | 25,655 | |||||||||
| Total other expenses | 24,992 | 25,655 | |||||||||
| (Loss) income from operations before tax | (21,207 | ) | 2,486 | ||||||||
| Income tax (benefit) provision | (8,056 | ) | 2,017 | ||||||||
| Net (loss) income | (13,151 | ) | 469 | ||||||||
| Foreign currency translation | (485 | ) | (873 | ) | |||||||
| Comprehensive loss | \\$ | (13,636 | ) | \\$ | (404 | ) | |||||
| (Loss) earnings per share | |||||||||||
| Basic | \\$ | (0.20 | ) | \\$ | 0.01 | ||||||
| Diluted | \\$ | (0.20 | ) | \\$ | 0.01 | ||||||
| Weighted average common shares outstanding | |||||||||||
| Basic | 66,034 | 65,623 | |||||||||
| Diluted | 66,034 | 66,492 | |||||||||
EVERI HOLDINGS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
| Three Months Ended March 31, | ||||||||||
| 2016 | 2015 | |||||||||
| Cash flows from operating activities | ||||||||||
| Net (loss) income | \\$ | (13,151 | ) | \\$ | 469 | |||||
| Adjustments to reconcile net (loss) income to cash provided by operating activities: | ||||||||||
| Depreciation and amortization | 35,518 | 31,032 | ||||||||
| Amortization of financing costs | 1,672 | 2,072 | ||||||||
| Loss on sale or disposal of assets | 611 | 2 | ||||||||
| Accretion of contract rights | 2,097 | 2,104 | ||||||||
| Provision for bad debts | 2,444 | 2,266 | ||||||||
| Reserve for obsolescence | 119 | 73 | ||||||||
| Stock-based compensation | 1,061 | 1,793 | ||||||||
| Other non-cash items | (38 | ) | 231 | |||||||
| Changes in operating assets and liabilities: | ||||||||||
| Trade and other receivables | 5,749 | (4,716 | ) | |||||||
| Settlement receivables | 16,634 | 13,208 | ||||||||
| Inventory | (497 | ) | 4,082 | |||||||
| Prepaid and other assets | 2,047 | (547 | ) | |||||||
| Deferred income taxes | (8,343 | ) | 1,769 | |||||||
| Settlement liabilities | (29,603 | ) | 22,765 | |||||||
| Accounts payable and accrued expenses | 8,384 | 9,213 | ||||||||
| Net cash provided by operating activities | 24,704 | 85,816 | ||||||||
| Cash flows from investing activities | ||||||||||
| Capital expenditures | (23,613 | ) | (12,616 | ) | ||||||
| Proceeds from sale of fixed assets | 10 | 1 | ||||||||
| Advances under development agreements | (1,000 | ) | (1,255 | ) | ||||||
| Repayments under development agreements | — | 1,217 | ||||||||
| Changes in restricted cash and cash equivalents | 44 | 59 | ||||||||
| Net cash used in investing activities | (24,559 | ) | (12,594 | ) | ||||||
| Cash flows from financing activities | ||||||||||
| Repayments of credit facility | (2,500 | ) | (17,500 | ) | ||||||
| Debt issuance costs | (480 | ) | (252 | ) | ||||||
| Proceeds from exercise of stock options | — | 1,048 | ||||||||
| Purchase of treasury stock | (9 | ) | (20 | ) | ||||||
| Net cash used in financing activities | (2,989 | ) | (16,724 | ) | ||||||
| Effect of exchange rates on cash | 148 | (580 | ) | |||||||
| Cash and cash equivalents | ||||||||||
| Net (decrease) increase for the period | (2,696 | ) | 55,918 | |||||||
| Balance, beginning of the period | 102,030 | 89,095 | ||||||||
| Balance, end of the period | \\$ | 99,334 | \\$ | 145,013 | ||||||
EVERI HOLDINGS INC. AND SUBSIDIARIES
UNAUDITED SELECTED BALANCE SHEET INFORMATION
(In thousands)
| At March 31, | At December 31, | |||||||||
| 2016 | 2015 | |||||||||
| Cash and cash equivalents | \\$ | 99,334 | \\$ | 102,030 | ||||||
| Settlement receivables | 28,321 | 44,933 | ||||||||
| Settlement liabilities | (110,361 | ) | (139,819 | ) | ||||||
| Net available cash | \\$ | 17,294 | \\$ | 7,144 | ||||||
| Current portion of long-term debt | \\$ | 10,000 | \\$ | 10,000 | ||||||
| Long-term debt, less current portion(1) | 1,128,930 | 1,129,899 | ||||||||
| Total debt | \\$ | 1,138,930 | \\$ | 1,139,899 | ||||||
(1) For the year ended December 31, 2015, we reclassified \\$23.7 in debt issuance costs related to our outstanding debt from other assets, non-current to long-term debt. This reclassification in consistent with our implementation of the Financial Accounting Standards Board Accounting Standard Update No. 2015-03 and 2015-15.
EVERI HOLDINGS INC. AND SUBSIDIARIES
UNAUDITED RECONCILIATION OF OPERATING (LOSS) INCOME TO EBITDA AND ADJUSTED EBITDA
| Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||||||||||
| 2016 | 2015 | |||||||||||||||||||||||
| Games | Payments | Total | Games | Payments | Total | |||||||||||||||||||
| Operating (loss) income | \\$ | (3,245 | ) | \\$ | 7,030 | \\$ | 3,785 | \\$ | 613 | \\$ | 27,528 | \\$ | 28,141 | |||||||||||
| Plus: depreciation and amortization | 29,182 | 6,336 | 35,518 | 26,298 | 4,734 | 31,032 | ||||||||||||||||||
| EBITDA | \\$ | 25,937 | \\$ | 13,366 | \\$ | 39,303 | \\$ | 26,911 | \\$ | 32,262 | \\$ | 59,173 | ||||||||||||
| Non-cash stock compensation expense | 362 | 699 | 1,061 | 119 | 1,674 | 1,793 | ||||||||||||||||||
| Accretion of contract rights | 2,097 | — | 2,097 | 2,104 | — | 2,104 | ||||||||||||||||||
| Accrued executive severance | — | 3,274 | 3,274 | — | — | — | ||||||||||||||||||
| Acquisition and other costs related to mergers and purchase accounting adjustments | — | — | — | 1,459 | 534 | 1,993 | ||||||||||||||||||
| Legal settlement proceeds | — | — | — | — | (14,440 | ) | (14,440 | ) | ||||||||||||||||
| Adjusted EBITDA | \\$ | 28,396 | \\$ | 17,339 | \\$ | 45,735 | \\$ | 30,593 | \\$ | 20,030 | \\$ | 50,623 | ||||||||||||
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