Everi reports fourth quarter 2015 and full year results

17 March 2016

(PRESS RELEASE) -- Everi Holdings Inc. today reported financial results for the fourth quarter and full year ended December 31, 2015. As Everi completed the acquisition of Multimedia Games Holding Company, Inc. by way of a merger in December 2014, the three months ended December 31, 2015, referenced below include a full quarter of operating results. Unless otherwise noted, the results for the 2014 fourth quarter and 2014 full year referenced below include 13 days of operations from the Games segment that occurred after the closing of the Multimedia acquisition.

Consolidated Full Quarter Comparative Results (unaudited)

3 Months Ended Dec. 31, 2015 — 3 Months Ended Dec. 31, 2014
(in millions, except per share amounts)

Revenue: $204.4 — $152.1
Operating (loss) income: (1) $(68.9) — $0.4
Net loss: (1) $(86.6) — $(5.7)
Net loss per diluted share: (1) $(1.31) — $(0.09)
Diluted shares outstanding: 66.0 — 66.4
Adjusted EBITDA (2): $45.9 $24.0
Cash earnings (3): $6.8 $15.6
Cash earnings per share (4): $0.10 — $0.23

(1) Operating (loss) income, net loss, and net loss per diluted share includes a $75.0 million goodwill impairment charge for the quarter ended December 31, 2015, and $10.0 million of acquisition expenses and purchase accounting adjustments, and a $3.1 million asset impairment charge for the quarter ended December 31, 2014.
(2) Adjusted EBITDA is defined as operating (loss) income plus depreciation and amortization, non-cash stock compensation, goodwill and other asset impairment charges, accretion of contract rights, acquisition expenses, other merger related costs and purchase accounting adjustments.
(3) Cash Earnings is defined as net loss plus non-cash stock compensation, deferred income tax (benefit) expense, amortization, goodwill and other asset impairment charges, accretion of contract rights, acquisition expenses, other merger related costs and purchase accounting adjustments and loss on extinguishment of debt.
(4) Cash Earnings per Share (“Cash EPS”) is defined as Cash Earnings divided by the weighted average number of diluted shares of common stock outstanding.

Michael Rumbolz, Interim President and Chief Executive Officer of Everi, commented, “Our results for the 2015 full year reflect growth in both our Games and Payments businesses, which on a combined pro forma basis resulted in an annual increase in revenue and Adjusted EBITDA of approximately 4% and 7%, respectively. Our Payments business is benefiting from sustained improvements in gross gaming revenue as a result of a stronger consumer environment.”

Mr. Rumbolz concluded, “While 2016 is expected to be a year that reflects the continued transition in our business, we expect that investments initiated in 2015 will continue to improve the performance of our Games and Payments product portfolio. In addition, we expect our Games segment will benefit from both an increase in our distribution capabilities as we enter new jurisdictions and from the continued strength of our Class II gaming content. Throughout this transition, we will remain focused on identifying efficiencies across our entire enterprise in order to ensure that our costs reflect our current operating environment.”

Randy L. Taylor, Executive Vice President and Chief Financial Officer, added, “By the end of 2015, we had achieved run rate synergies of approximately $25 million, which exceeded our $24 million target and we continue to expect to achieve the entire $30 million in run rate synergies by the end of 2016. We remain committed to prioritizing the deployment of free cash flow to reduce debt.”

Fourth Quarter 2015 Results Overview

Revenues increased $52.3 million, or 34%, to $204.4 million in the fourth quarter of 2015 compared to the same period last year. Fourth quarter 2015 revenues included $50.5 million from the Games segment and a 6% year-over-year increase in the Payments segment to $153.9 million. The Company reported an operating loss of $68.9 million in the fourth quarter of 2015 compared to operating income of $0.4 million in the prior-year period. The 2015 fourth quarter operating loss includes a non-cash goodwill impairment charge of $75.0 million in the Games reporting unit. Operating income for the fourth quarter 2014 included $10.0 million of acquisition expenses and other merger related costs and an asset impairment charge of $3.1 million.

In connection with the annual goodwill impairment testing process completed in the fourth quarter of 2015, the Company determined that the carrying amount of its Games reporting unit exceeded the estimated fair value. This conclusion was primarily based upon the limited growth expectations as a result of capital expenditure constraints in the gaming industry, consolidation and increased competition in the gaming manufacturing space, volatility in the stock market, global and domestic economic uncertainty, and lower than expected operating profits and cash flows in 2015. Based on these indicators, the Company revised its estimates and assumptions for the Games reporting unit, which resulted in the reported goodwill impairment charge. The impairment charge has no impact on Everi’s operations, Adjusted EBITDA, cash flow or financial covenant compliance.

Adjusted EBITDA increased $21.9 million, or 91%, to $45.9 million for the fourth quarter of 2015 compared to $24.0 million in the fourth quarter of 2014. Adjusted EBITDA for the three months ended December 31, 2015, was comprised of $26.5 million and $19.4 million from the Games and Payments segments, respectively. Adjusted EBITDA for the three months ended December 31, 2014, was comprised of $19.9 million and $4.1 million from the Payments and Games segments, respectively. For the 2015 full year, the Company reported Adjusted EBITDA of $200.4 million which is within the previously provided guidance range of between $200 million to $205 million.

The Company recorded a loss from operations before income tax provision of $93.9 million for the fourth quarter of 2015 compared to a loss of $7.5 million in the prior-year period. Diluted loss per share from continuing operations was $(1.31) for the fourth quarter of 2015 compared to a diluted loss per share from continuing operations of $(0.09) for the same period last year. Cash EPS was $0.10 for the quarter ended December 31, 2015, compared to $0.23 for the quarter ended December 31, 2014.

Games Segment Full Quarter Comparative Results (unaudited)

The information set forth in the table below presents standalone historical data for Everi’s Games segment related to the three months ended December 31, 2014 (inclusive of the 79 days prior to the acquisition of Multimedia by the Company on December 19, 2014).

3 Months Ended Dec. 31, 2015 3 Months Ended Dec. 31, 2014 (in millions, except unit amounts and prices)

Revenue: $50.5 — $48.0
Operating loss (1): $(80.7) — $(7.4)
Adjusted EBITDA (2): $26.5 — $22.8
Units sold: 645 — 537
Average sales price (ASP): $16,648 — $16,318
Domestic participation installed units:(3)
Average: 13,197 — 13,157
Quarter end: 13,340 — 13,287
Premium participation units at quarter end: 1,747 — 1,541
Approximate daily win per unit: $27.68 — $27.01

(1) Operating loss includes a $75.0 million goodwill impairment charge for the quarter ended December 31, 2015 and $13.4 million of acquisition expenses and purchase accounting adjustments for the quarter ended December 31, 2014.
(2) Adjusted EBITDA is defined as operating loss plus depreciation and amortization, non-cash stock compensation, goodwill and other asset impairment charges, accretion of contract rights, acquisition expenses, other merger related costs and purchase accounting adjustments.
(3) The quarter-end installed base and the average installed base for the three month period ended December 31, 2015 reflect the reinstallation of 123 units at a customer’s facility in Oklahoma that were temporarily removed during a renovation. The units were initially removed from the installed base in October 2014.

2015 Fourth Quarter Games Segment Highlights:

Revenues increased approximately 5% to $50.5 million compared to $48.0 million in the prior-year period. The 2015 fourth quarter Games segment revenue included $38.3 million from gaming operations and $12.3 million from product sales. Excluding $0.9 million in revenue in the fourth quarter of 2014 from the Company’s electronic table games operations that was divested in third quarter of 2015, revenues from gaming operations increased 2% year over year.

The installed base at the end of the 2015 fourth quarter increased 53 units compared to the prior-year period. The installed base at the end of the 2015 fourth quarter included the reinstallation of 123 units that were temporarily removed at a customer’s facility in Oklahoma in the fourth quarter of 2014 to accommodate a renovation at that facility.

The installed base of premium participation games increased 206 units year over year to 1,747 units.

The estimated daily win per unit of the installed base increased $0.67 over the prior-year period to $27.68.

Revenue from the New York Lottery business was $4.3 million in the fourth quarter of 2015 compared to $4.2 million in the prior-year period.

Revenue from electronic game sales increased $2.6 million, or 27%, year over year to $12.3 million in the fourth quarter of 2015. The Company sold 645 units in the fourth quarter of 2015 compared to 537 units in the fourth quarter of 2014.

Sales of Everi’s premium-priced TournEvent slot tournament solution comprised 14% of total units sold in the fourth quarter of 2015 compared to 30% of units sold in the prior-year period.

Gross margin on unit sales was approximately 45.9% and 48.3% for the three-month periods ended December 31, 2015 and 2014, respectively. The 2015 fourth quarter gross margin includes a higher absorption rate of direct and indirect costs.

Games Segment Recent Developments:

In February 2016, the Company renewed placement agreements for approximately 1,600 units, or approximately 76% of the total units that were up for renewal with its largest customer in Oklahoma. Each of the approximately 500 units that were not renewed as part of this agreement are third-party Class III units.

Despite a delay in the release of production units of the Company’s new Core HDX video cabinet until late in the 2015 fourth quarter, field trials are accelerating and the Company expects to exit the first quarter of 2016 with its largest quantity of field trials at a quarter end in its history. Performance of the games offered on the Core HDX video cabinet that are currently on trial continues to be encouraging, including certain titles performing significantly above casino floor average.

The Company’s new EveriBet solution, which allows operators to dynamically tailor wager denominations to optimize performance on the casino floor, is receiving initial gaming approvals, with three game titles currently approved and a fourth expected to be approved by the end of the 2016 first quarter. The Company currently expects to have approvals for more than 40 EveriBet supported games by 2016 year end.
Payments Segment Full Quarter Comparative Results (unaudited)


3 Months Ended Dec. 31, 2015 — 3 Months Ended Dec. 31, 2014
(in millions, unless otherwise noted)

Revenue: $153.9 — $144.6
Operating income (1): $11.8 — $1.8
Adjusted EBITDA (2): $19.4 — $19.9

Aggregate dollar amount processed (in billions):
Cash advance: $1.2 — $1.2
ATM: $3.5 — $3.1
Check warranty: $0.3 — $0.3

Number of transactions completed (in millions):
Cash advance: 2.1 — 2.1
ATM: 17.5 — 15.9
Check warranty: 0.8 — 0.9

(1) Operating income for the fourth quarter 2014 includes $8.5 million of acquisition expenses and other merger related costs and a $3.1 million asset impairment charge.
(2) Adjusted EBITDA is defined as operating income plus depreciation and amortization, non-cash stock compensation, goodwill and other asset impairment charges, accretion of contract rights, acquisition expenses, other merger related costs and purchase accounting adjustments.

2015 Fourth Quarter Payments Segment Highlights:

Revenues increased approximately 6% to $153.8 million in the fourth quarter of 2015 compared to $144.6 million in the prior-year period.

Cash Advance revenues decreased 1% to $55.9 million compared to $56.8 million in the prior-year quarter, primarily due to the loss of a corporate customer in the fourth quarter of 2015.

ATM revenues increased 13% year over year to $77.0 million from $68.3 million in the prior-year period primarily reflecting higher transaction volume as a result of the acquisition of an ATM portfolio late in the 2015 third quarter and the acquisition of a separate ATM portfolio during the fourth quarter of 2015. These increases were partially offset by the above noted loss of a corporate customer in the fourth quarter of 2015.

Other revenues increased 8%, or $1.1 million, year over year to $15.7 million. The increase in other revenues reflects a $0.9 million year-over-year increase in revenue related to sales of the Company’s compliance solutions and related support services and a $0.2 million year-over-year increase in revenue related to kiosk sales and service.

Adjusted EBITDA margin for the Payments segment was 12.6% for the quarter ended December 31, 2015, compared to 13.8% for the same period in 2014. Excluding approximately $1.5 million of patent litigation costs incurred in the fourth quarter of 2015, Adjusted EBITDA margin for the Payments segment was approximately 13.6%.
Payments Segment Recent Developments:

Everi recently became the first company in the casino industry to offer an EMV solution for signature-based transactions performed on either ATM devices or fully integrated kiosks. The Company is now fully end-to-end EMV-compliant with all its financial transaction devices, platforms, and systems.

The Company has completed the integration of the assets acquired from Resort Advantage, and has begun to develop enhancements to its Everi Compliance product suite for Anti-Money Laundering compliance which will allow casino operators to more easily meet their Title 31 requirements.
2016 Outlook

The Company does not expect Adjusted EBITDA growth in 2016. The 2016 outlook reflects a range of factors including that the year will continue to be one of transition for the Games business. The Company expects to continue with measured investment in game content and hardware solutions. In addition, the Company expects the introduction of the new Core HDX video cabinet, new game content, and its entrance into several new markets to occur later in the year. The Company believes this may result in a modest year-over-year increase in unit sales, with the increases principally occurring later in 2016. The installed base at December 31, 2016, is expected to be relatively flat compared to the installed base at December 31, 2015, which reflects new placements of proprietary Class II and Class III units, offset by the anticipated loss of third-party Class III games in Oklahoma. These third-party unit losses will principally occur in the first half of 2016.

The Company’s Payments business is expected to benefit in 2016 from the continuing improvement in gross gaming revenue. In addition, the Company expects new, enhanced Payments solutions, such as its compliance suite and improvements in the core cash access products to offer opportunities for revenue growth and, potentially, further cost reductions.

Investor Conference Call and Webcast

The Company will host an investor conference call to discuss its fourth quarter 2015 results today at 5 p.m. ET. The conference call may be accessed live over the phone by dialing (888) 801-6492 or for international callers by dialing (913) 312-0422. A replay will be available beginning at 8 p.m. ET today and may be accessed by dialing (877) 870-5176 or (858) 384-5517 for international callers; the PIN number is 7271455. The replay will be available until March 22, 2016. The call will be webcast live from the Company’s website (select “Investors” followed by “Events & Presentations”).


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