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Everi Holdings Inc. (NYSE: EVRI) Third Quarter 2023 Earnings Call Transcript, November 8, 2023
Everi Holdings Inc. ne met earnings expectations. Reported EPS is $0. 29 in line with the stock, expectations were $0. 39.
Operator: Hello and thank you for being here. And welcome to Everi Holdings’ Q3 2023 earnings convention. In today’s presentation, all parties will be in listen-only mode. After the comments are ready, the call for a response session will open. As a reminder, this call is being recorded. Now, let me turn the floor over to Jennifer Hills, Vice President of Investor Relations. Please come in.
Jennifer Hills: Thank you, operator. Let me begin by reiterating that our Safe Harbor disclaimer, which covers today’s call and webcast, forward-looking statements involving dangers and uncertainties that may cause actual effects to differ materially from those discussed in today’s call. These dangers and uncertainties include, but are not limited to, those contained in our earnings release today and other SEC filings, which are posted in the Investors segment of our online corporate page in everi. com. Because of the potential dangers, you are cautioned not to place undue reliance on forward-looking statements. We do not intend or assume any obligation to update any forward-looking statements, which are made only as of today, November 8, 2023.
We will refer to certain non-GAAP monetary measures, such as Adjusted EBITDA, Adjusted EPS, Free Cash Flow, and Net Cash Position. A description of each of those non-GAAP measures and a reconciliation to the directly comparable maximum GAAP measure will likely be included in our earnings release and related 8-K today, as well as in the Investors segment of our website. This call is webcast and recorded. A link to the webcast and a replay of today’s call can be found in the Investors segment of our website. We’re joined today by Randy Taylor, President and CEO; Mark Labay, Chief Financial Officer; Kate Lowenhar-Fisher, General Counsel; Dean Ehrlich, director of game sales; and Darren Simmons, CEO of FinTech. Now I’ll turn the floor over to Randy.
Randy Taylor: Thank you, Jennifer. Hello and thank you all for joining us. For the quarter, we reported earnings of $206. 6 million, adjusted EBITDA of $96. 2 million and loose money of $34. 3 million. This raises our loose money so far this year. to $122. 1 million. During the third quarter, we returned $33. 9 million to shareholders through percentage repurchases, bringing the total percentage of repurchases since the launch of our program to $158 million. We have $106 million remaining in our existing assets with an additional $8 million for the repurchase authority. Our FinTech business continued to drive strong profit expansion in our Financial Access and Software and Other businesses. We reached another quarterly high in budget paid to casinos of more than $11. 9 billion.
While daily same-store sales expansion returned to pre-pandemic levels of low- to medium-digit single-digit year-over-year expansion, we continue to grow earnings at a faster pace. top thanks to our ability to upload new products. visitors, products and services. At the recent Global Gaming Show, G2E, our FinTech business continued to highlight our virtual community strategy, which aims to improve the player experience and operator efficiency. We are introducing new and updated products to our diverse portfolio of payments, casino and loyalty product solutions, as well as our mobile offerings that have demonstrated our unique position to capitalize on the convergence trends of gaming, hospitality and online in our main visitor. base, as well as expanding our success to adjacent locations and other business sectors.
Our CASHCLUB WALLET won the Payment Solution of the Year award. Introducing Buy, which combines our virtual features with intense gaming content and allows an operator to offer virtual games on the site. We have gained a great deal of interest in Buy and are moving forward with final agreements with several operators. We also introduced our BeOn mobile wallet, a virtual wallet that casino visitors will be able to use across multiple homes and jurisdictions, and which includes a comprehensive supply of our mobile wallet for money access, ticketing, gaming, mobile ordering, engagement, loyalty, rewards. and other amenities. Those new products, along with our existing cellular products, will continue to gain traction among our customers.
We see new FinTech opportunities in 2024, adding to our plan to sell the smallest e-money kiosks in North American distributed gaming markets, in the first part of next year. Our first cellular projects utilize the assets we acquired from Venuetize and provide us with the opportunity to expand our recurring revenue base and expand our market to new adjacencies by adding sports, venues, entertainment, retail, hospitality, food and beverage, leveraging our pay. . and retention capabilities. Our Gaming business continues to experience short-term headwinds in the third quarter. We expect a similar effect in the fourth quarter of this year. However, at G2E we have highlighted new cabinets, new content and new market opportunities for 2024 onwards. Starting in 2022, over a 24-month period, we will launch seven new cabinets that will refresh our on-sale mechanical and video cabinets and our premium cabinets.
These cabinets incorporate newer parts and technologies and complement our existing cabinet portfolio. In addition to the new cabinets at G2E, we are showing a diverse portfolio of new games and are targeting the release of 25 new themes this quarter for the launch of our new cabinets and over 80 new themes in 2024. It is vital to note that this portfolio represents a diversity of content for our video offerings that incorporate gamer-favorite gaming features, never-before-seen cutting-edge themes and our new Everi content that is aimed at entertainment. and players. We actually introduced two new speakers at the end of the third quarter, Player Classic Reserve and Dynasty Dynamic. Customer reaction has been positive and, as of the end of October, we had installed approximately 50 of those cabinets in our installed base and another two hundred are expected to be installed by the end of the year.
We expect to roll out our new cabinets in the fourth quarter and over the next year to drive expansion in 2024. “As we move into 2024, we have more opportunities to fuel our expansion, expanding our presence in the historic horse racing market. , editing the video lottery terminal market in Illinois in the second quarter and expanding worldwide starting with Australia by the end of the year or early 2025. Despite some recent challenges, we continue to increase our market share in new casino openings and expansions. We estimate that our percentage will make up more than 10% of the slot fleet when new openings are made in the fourth quarter. Our virtual gaming business saw a 27% profit expansion and functionality of our bingo operations through the acquisition of Video King. Assets exceeded our expectations for the quarter and current year.
Now let me turn it over to Mark.
Mark Labay: Thank you, Randy. Let me start by adding a little more color to our third-quarter operating results. We delivered a quarterly profit expansion of 1% year-over-year, driven by a 4% expansion in FinTech earnings and partially offset through a 1% decline in gaming earnings. FinTech continued to see an expansion of profits forged from money access services, which rose to $4 million, or 7%. Software and other revenue increased 12%, reaping benefits from biological expansion and the contribution of sitelinks, needed in the fourth quarter of 2022. Hardware sales declined 20% year-over-year; However, the year-over-year quarter benefited from higher sales to more new openings and expansions than the current year.
Regarding the quarterly cadence of device sales in the FinTech sector, I remind you that they can be quite abnormal on a quarterly basis of five quarters. Long term, we continue to see opportunities to continue replacement sales of our monetary access kiosks and further market penetration for our loyalty hardware and other FinTech hardware. The FinTech segment’s adjusted EBITDA increased 1% year over year to 39. 8 million, adding an upside effect consistent with hard work costs and higher R&D spending in the profit segment. Adjusted EBITDA amounted to 56. 5 billion compared to 57. 2 million a year ago. Our install base and daily wind consistent with the unit decreased compared to the prior year and the second quarter. This was in line with our expectations as we continue the transition to our next generation of cabinets.
In the fourth quarter, we expect our installed base to decline slightly, in part due to seasonal influences. We also expect a sequential decline in pre-set wind configurations compared to the third quarter. As our new cabinets gain traction in the market, we will expect the decline in our installed base and the gain consistent with the unit to moderate before returning to growth. Sales of gaming devices decreased 4. 4 million from the prior year quarter, reflecting 392 fewer games sold, partially offsetting the decline in device sales of 1. 4 million new set sales following our acquisition of Video King in May and 2. 3 million game-themed acquisition transactions similar to our share of recurring earnings. of the HR business. At HHR, the platform provider has the right to repurchase certain game themes under certain conditions.
When they exercise this right, we receive an upfront payment to compensate us for our long-term recurring profit loss percentage similar to the themes of the game. Consolidated gross margin increased by 110 issues to 79. 7%, primarily due to a change in the earnings mix. to higher-margin gaming businesses and monetary access earnings from sales of lower-margin gaming equipment and hardware. Consolidated adjusted EBITDA of $96. 2 million necessarily held steady year-over-year compared to $96. 6 million reported in the third quarter of the prior year. Adjusted EBITDA as a percentage of earnings was 46. 6%, compared to 47. 3% a year ago, primarily reflecting rising payroll and other prices as we continue to invest for long-term growth. We expect adjusted EBITDA as a percentage of earnings to remain in the mid-range of 40% in the fourth quarter.
Our percentage-adjusted earnings were $0. 44 in the third quarter, unchanged compared to the prior year. A reduction in income tax expense resulting from a reduction in the number of diluted percentages is primarily due to our percentage buyback activities. This was offset by the effect of minimizing the net source of income due to the minimization of the current source of income and the improvement in interest expense. Net interest expense for the quarter was $20 million, up from $15 million in the prior year. As a reminder, we have 400 million notable unsecured notes at a constant rate of 5% and 587 million term loans at variable interest rates. At the end of the quarter, the weighted average debt ratio was about 6. 7%. Fees for using cash in our ATM Vault money arrangements are also included in the interest charges.
Our estimated full-year spend on our vault money is expected to be around $21 million, up from just $9 million in 2022. We remain satisfied with our current point of debt and monetary interest expense. We ended the third quarter with overall net leverage of 2. 5 times adjusted EBITDA, which remains in line with our guidance of 2. 5 times to 3 times the loose money generated in a quarter of $34. 3 million compared to $44. 9 million a year ago. The reduction is the result of an accumulation of €5 million in net money interest expense and €5 million in higher capital expenditures, primarily similar to the discrete investment pieces we discussed for 2023, adding the new meeting plant in Las Vegas and other IT infrastructure investments. We will continue to focus our capital allocation strategy on reinvestment. in our business for growth.
This includes maintaining R expenses
We will continue to focus on expanding the market consistently with the percentage of new and existing consumers and expanding our product lines and geographic facilities to leverage our existing offerings. We will continue to compare generation and acquisition opportunities that help our product progression and expansion goals. Over the long term, given that our constant percentage value is well below what we reasonably value, we plan to relinquish priority in our capital allocation to return excess cash flows to consistent percentage holders through consistent percentage buybacks. As for our outlook, for FinTech, we continue to expect strong single-digit earnings expansion for the year. For the gaming sector, given the existing headwinds and until our new boxes and games have a chance to gain traction among consistent suppliers and their consumers, we will expect further tension. short-term increase in our unit sales and a decline in our installed base and daily earnings consistent with the unit.
We also expect relief in recurring earnings contributions from our HHR portfolio due to gaming theme buybacks in the third quarter. Overall, for gaming, we now expect a solid 1% profit decline for the full year. On a consolidated basis, basically due to our revised downward outlook for the gaming business. We now expect full-year 2023 consolidated adjusted EBITDA to be in line with last year. Net earnings stream, percentage-consistent GAAP earnings, free cash flow, and percentage-consistent adjusted earnings are now expected to be at the lower end of the guidance levels provided in August on our earnings call. second quarter. We expect our decrease in the current source of earnings to be offset by a decrease in net interest expense, a decrease in taxes and a decrease in capital expenditures. Our estimates for percentage consistent earnings and adjusted percentage consistent earnings are based on notable percentage consistent earnings at the end of the third quarter and do not reflect any potential benefit from long-term discounts on the number of consistent percentages resulting from any additional buybacks. activity.
As Randy highlighted, we continue to implement our roadmap for successful long-term expansion in our gaming and FinTech businesses. We are excited to start seeing our recent investments in other people and new studios be successful in casino ports in the coming quarters. This, combined with our expansion into the VLT market, will lead to a return to gaming expansion next year. And with that, I’ll conclude our ready comments and turn the call over to the operator if you have any questions.
Operator: Thank you. [Operator’s Instructions] The first comes from Jeff Stanial’s lineage with Stifel. Please go ahead.
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