Everi Holdings Inc. (NYSE: EVRI) (“Everi” or the “Company”), a premier provider of land-based and digital casino gaming content and products, financial technology and player loyalty solutions, today announced results for the third quarter ended September 30, 2022. Reflecting the expectation for steady operating performance in the fourth quarter, the Company also narrowed its full-year guidance ranges for net income, Adjusted EBITDA and Free Cash Flow.

Third Quarter 2022 Highlights

• Revenues grew 21% to an all-time quarterly record of $204.3 million from $168.3 million in the 2021 third quarter, reflecting a 9% increase in recurring revenues to $143.6 million and a 64% increase in non-recurring revenues to $60.7 million, primarily for sales of gaming machines and FinTech hardware.
• FinTech segment revenues rose 27%, reflecting an 81% increase in hardware revenues, a 31% increase in software and other revenues, and a 15% rise in financial access revenues, which were driven by $10.9 billion of funds delivered to casino floors.
• Games segment revenues rose 17%, reflecting a 57% increase in shipments of gaming machines to 1,841 units, as well as a 5% increase in revenues from gaming operations, which included the benefit of a 1,314-unit year-over-year increase in the installed game base.
• Net income increased to $29.4 million, or $0.30 per diluted share, compared to $6.7 million, or $0.07 per diluted share, in the 2021 third quarter. The provision for income taxes increased $10.6 million in the 2022 third quarter related to the reversal of the deferred tax asset valuation allowance in the 2021 fourth quarter and the inclusion in the prior-year period of a pre-tax charge of $34.4 million for loss on extinguishment of debt.
• Adjusted EBITDA, a non-GAAP financial measure, increased 7% to an all-time quarterly record $96.6 million compared to $90.6 million in the 2021 third quarter.
• Free Cash Flow, a non-GAAP financial measure, was $43.9 million compared with $56.3 million in the 2021 third quarter, partly due to a change in the timing of the $10.0 million semi-annual interest payment on the Company’s 5% senior unsecured notes.
• Repurchased 0.9 million shares of stock for $16.0 million in the 2022 third quarter.

Randy Taylor, Chief Executive Officer of Everi, said, “The third quarter year-over-year increases in revenues, net income and Adjusted EBITDA and our consistent improvement in our financial results throughout 2022 reflect the operating momentum across each of our businesses due to the continued broad-based demand for our products. Our strong financial results this year have been driven by steady growth in our recurring revenue streams together with a record level of revenues from gaming machine and FinTech hardware sales. Our focus on top-line growth and operational excellence is delivering consistent year-over-year earnings growth and strong Free Cash Flow generation.

“We received tremendous positive customer response to the launch of our newest products displayed at the Global Gaming Expo (“G2E”) in early October, quite possibly our best-ever show. This favorable feedback combined with the growth prospects related to our recent acquisitions, fortifies our confidence for continued operating momentum and strong cash flow in 2023. Our capital allocation priorities remain directed toward extending the success we have achieved through investments in high-return internal product development to grow our core businesses and prudent acquisitions that extend our product and service capabilities to expand our addressable markets, as well as continuing to return capital to our shareholders. With our confidence in our long-term growth prospects and a belief that the current valuation of our Company does not fully reflect our underlying strength and growth opportunities, we have been returning capital to shareholders through opportunistic repurchases of our shares as part of our focus on creating additional long-term shareholder value.”

Consolidated Full Quarter Comparative Results (unaudited)        

Third Quarter 2022 Results Overview

Revenues for the three-month period ended September 30, 2022 increased 21% to $204.3 million compared to $168.3 million in the third quarter of 2021. Recurring revenues increased 9% driven by growth in both the Games and FinTech segments to $143.6 million from $131.2 million in the prior-year period.  Revenues from non-recurring sales increased 64% to $60.7 million compared with $37.1 million in the prior-year period.

Operating income for the 2022 third quarter was $54.6 million compared to $55.1 million in the prior-year period. The lower operating margin compared to the same period a year ago primarily reflects a change in the revenue mix, which resulted from the substantially greater growth in sales of gaming machines and FinTech hardware (that have lower margins) as the Company successfully increases its ship share and expands into new markets. Higher research and development expense that supports the step-up in the Company’s focus on internal new product development and increased depreciation and amortization also impacted the operating margin comparison. While operating costs increased year over year, largely attributable to recent acquisitions and increased legal costs, they declined slightly as a percentage of revenues in the 2022 third quarter compared to the prior-year period.

Net income increased 339% to $29.4 million, or $0.30 per diluted share, compared to $6.7 million, or $0.07 per diluted share, in the third quarter of 2021. The provision for income taxes increased $10.6 million in the 2022 third quarter and was attributable to the reversal of the full valuation allowance on certain deferred tax assets that occurred in the 2021 fourth quarter. The 2021 third quarter included a pre-tax charge of $34.4 million for the loss on extinguishment of debt related to the Company’s debt refinancing transactions.

Adjusted EBITDA increased 7% to an all-time quarterly record $96.6 million from $90.6 million in the prior-year period.

Free Cash Flow was $43.9 million compared with $56.3 million in the year-ago period. A change in the timing of the semi-annual interest payment on the Company’s 5% senior unsecured notes, attributable to the refinancing of the Company’s debt in 2021, resulted in a $10 million semi-annual interest payment in the 2022 third quarter while the comparable payment in the prior year occurred in the second quarter.

Outlook

Everi today tightened its full year 2022 guidance for net income to $112 million to $117 million, Adjusted EBITDA to $371 million to $376 million and Free Cash Flow to $190 million to $197 million.

The Company’s updated guidance does not contemplate any additional material macroeconomic impact, such as a pandemic-related setback, recessionary or inflationary influence on consumer spending, a material supply chain disruption, or other changes in global market conditions. A summary and reconciliation of the full year 2022 financial targets are included in a supplemental table at the end of this release.

Games Segment Full Quarter Comparative Results (unaudited)

2022 Third Quarter Games Segment Highlights

Games segment revenues grew 17% to $112.5 million compared to $95.8 million in the third quarter of 2021, primarily driven by a 57% increase in the number of gaming machines sold, as well as further growth in gaming operations revenues, including from digital gaming operations.

Operating income was $25.8 million compared to $30.2 million in the third quarter of 2021, reflecting higher revenues from gaming machine sales, offset by lower margins on machine sales due to increased supply chain costs as well as higher operating expenses, including increased costs associated with acquisitions and higher research and development expense, reflecting an increased investment in games development and engineering costs. Adjusted EBITDA was $57.2 million compared to $57.7 million in the third quarter of 2021. Revenues from the recent acquisition of Intuicode Gaming were $2.3 million in the 2022 third quarter.

Gaming operations revenues increased 5% to $75.0 million compared to $71.6 million a year ago.

• The installed base increased 8%, or by 1,314 units, year over year and increased by 271 units on a quarterly sequential base to 17,735 units as of September 30, 2022.
• The premium portion of the installed base increased by 19%, or 1,374 units, year over year and by 370 units on a quarterly sequential basis to 8,725 units. Growth was driven in part by continued placements of Cashnado™ and Smokin’ Hot Stuff Fire and Ice™ units, as well as the Company’s popular premium mechanical reel games, and its Wide-area Progressive (“WAP”) gaming machines.
• Daily Win per Unit (“DWPU”) was $39.56 in the third quarter of 2022 compared to $42.74 in the third quarter of 2021.
• Revenues from digital gaming rose 34% to $5.1 million in the third quarter of 2022 compared to $3.8 million in the third quarter of 2021. The increase in Digital revenues reflects an expansion in the number of Gaming operator sites featuring Everi’s games along with growth in the library of available slot content.

Gaming equipment and systems revenues generated from the sale of gaming machines, including historical horse racing (“HHR”) units and other related parts and equipment, increased 55% to $37.5 million in the third quarter of 2022 compared to $24.2 million in the third quarter of 2021.

• The Company sold 1,841 gaming machines at an average selling price (“ASP”) of $18,496 in the 2022 third quarter, up 665 units or 57%, from the 1,176 units sold at an ASP of $18,014 in the 2021 third quarter. The Company estimates its quarterly industry ship share expanded year over year, primarily driven by sales of the newly launched Player Classic Signature™ mechanical reel cabinet, ongoing sales of the Player Classic™ mechanical reel cabinet, and demand for the expanding game library supporting the Empire Flex™ video reel cabinet.

Financial Technology Solutions Segment Full Quarter Comparative Results (unaudited)

2022 Third Quarter Financial Technology Solutions (“FinTech”) Segment Highlights

FinTech revenues for the 2022 third quarter increased 27% to $91.8 million compared to $72.4 million in the 2021 third quarter, reflecting a 15% increase in financial access services, a 31% increase in software and other revenues, and an 81% improvement in revenues from hardware sales. Revenues from the recent acquisition of ecash Holdings contributed $4.0 million in the 2022 third quarter.

Operating income increased 16% to $28.8 million in the 2022 third quarter compared to $24.9 million in the prior-year period, reflecting a benefit from higher revenues partially offset by higher legal costs and increased research and development expense in support of new and enhanced Loyalty products, the Company’s digital CashClub Wallet^®, new RegTech products, and other software and hardware offerings. Adjusted EBITDA rose 20% to an all-time, quarterly record of $39.4 million compared to $32.9 million in the 2021 third quarter.

• Financial access services revenues, which include cashless and cash-dispensing debit and credit card transactions and check services, increased 15% versus the 2021 third quarter to $53.3 million, reflecting continued strength in same-store financial funding transactions, as well as growth from new customer additions. Funds delivered to casino floors increased 10% to $10.9 billion on a 2% increase in the number of completed financial transactions together with an increase in average transaction size.  While representing less than 5% of funding transactions, cashless transactions (including both digital wallet and paper gaming voucher transactions) increased 58% year over year. The Company’s CashClub Wallet technology is currently deployed at or being deployed across 14 jurisdictions at 38 casinos.
• Software and other revenues, which include Loyalty and RegTech software, product subscriptions, kiosk maintenance services, and other revenues, rose 31% to $22.2 million in the third quarter of 2022 compared to $17.0 million in the third quarter 2021.  Approximately 69% and 77% of software and other revenues were of a recurring nature in the 2022 and 2021 third quarter periods, respectively.
• Hardware sales revenues increased 81% to $16.3 million compared to $9.0 million in the third quarter of 2021. The record level of self-service kiosks and other hardware products sold in the quarter reflect ongoing demand for the Company’s hardware and software solutions that deliver optimal performance and improved cost efficiencies to casino operators, including $2.8 million of revenues from ecash Holdings’ voucher redemption kiosks.

Balance Sheet and Liquidity

• As of September 30, 2022, the Company had $258.6 million of cash and cash equivalents, and its Net Cash Position was $103.3 million.
• The Company repurchased 0.9 million shares of its common stock for total consideration of $16.0 million during the quarter, and as of September 30, 2022, had $100.6 million remaining under the existing $150-million share repurchase program approved by the Board in the 2022 second quarter.
• Subsequent to end of the 2022 third quarter, the Company closed on its acquisition for substantially all of the assets of Venuetize Inc., paying $18.0 million with additional performance-based payments of $2 million to $6 million expected during the next 30 months.

Investor Conference Call and Webcast

The Company will host an investor conference call to discuss its 2022 third quarter results at 11:00 a.m. EST (8:00 a.m. PST) today. The conference call may be accessed live by phone by dialing (201) 689-8471. A replay of the call will be available beginning at 2:00 p.m. ET today and may be accessed by dialing (412) 317-6671; the PIN number is 13733645. A replay will be available until November 15, 2022. The call also will be webcast live and archived on www.everi.com (select “Investors” followed by “Events & Contact”).

Non-GAAP Financial Information

In order to enhance investor understanding of the underlying trends in our business, our cash balance, and cash available for our operating needs, and to provide for better comparability between periods in different years, we are providing in this press release Adjusted EBITDA, Free Cash Flow, Net Cash Position and Net Cash Available, which are not measures of our financial performance or position under United States Generally Accepted Accounting Principles (“GAAP”). Accordingly, Adjusted EBITDA and Free Cash Flow should not be considered in isolation or as a substitute for measures prepared in accordance with GAAP.  These measures should be read in conjunction with our net earnings, operating income, and cash flow data prepared in accordance with GAAP. With respect to Net Cash Position and Net Cash Available, these measures should be read in conjunction with cash and cash equivalents prepared in accordance with GAAP.

We define Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, loss on extinguishment of debt, non-cash stock compensation expense, accretion of contract rights, litigation settlement received net of legal costs, office consolidation costs, asset acquisition expense, certain non-recurring professional fees, certain litigation costs, and one-time charges. 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 and senior unsecured notes require us to comply with a consolidated secured leverage ratio that includes performance metrics substantially similar to Adjusted EBITDA.

We define Free Cash Flow as Adjusted EBITDA less cash paid for interest, cash paid for capital expenditures, cash paid for placement fees, and cash paid for taxes net of refunds.  We present Free Cash Flow as a measure of performance and believe it provides investors with another indicator of our operating performance. It should not be inferred that the entire Free Cash Flow amount is available for discretionary expenditures.

A reconciliation of the Company’s net income per GAAP to Adjusted EBITDA and Free Cash Flow is included in the Unaudited Reconciliation of Selected Financial GAAP to Non-GAAP Measures provided at the end of this release. Additionally, a reconciliation of each segment’s operating income to EBITDA and Adjusted EBITDA is also included. On a segment level, operating income per GAAP, rather than net earnings per GAAP, is reconciled to EBITDA and Adjusted EBITDA as the Company does not report net earnings by segment. Management believes that this presentation is meaningful to investors in evaluating the performance of the Company’s segments.

We define Net Cash Position as cash and cash equivalents plus settlement receivables less settlement liabilities and Net Cash Available as Net Cash Position plus undrawn amounts available under our revolving credit facility. We present Net Cash Position because our cash position, as measured by cash and cash equivalents, depends upon changes in settlement receivables and the timing of payments related to settlement liabilities. As such, our cash and cash equivalents can change substantially based upon the timing of our receipt of payments for settlement receivables and payments we make to customers for our settlement liabilities.  We present Net Cash Available as management monitors this amount in connection with its forecasting of cash flows and future cash requirements.

A reconciliation of the Company’s cash and cash equivalents per GAAP to Net Cash Position and Net Cash Available is included in the Unaudited Reconciliation of Cash and Cash Equivalents to Net Cash Position and Net Cash Available provided at the end of this release.

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. Forward-looking statements are neither historical facts nor assurances of future performance, but instead are based only on our current beliefs, expectations, and assumptions regarding the future of our business, plans and strategies, projections, anticipated events and trends, the economy, and other future conditions, as of the date this press release is issued. Forward-looking statements often, but do not always, contain words such as “expect,” “anticipate,” “aim to,” “designed to,” “intend,” “plan,” “believe,” “goal,” “target,” “future,” “assume,” “estimate,” “indication,” “seek,” “project,” “may,” “can,” “could,” “should,” “favorably positioned,” or “will” and other words and terms of similar meaning.  Readers are cautioned not to place undue reliance on the forward-looking statements contained herein, which are based only on information currently available to us and only as of the date hereof.

Examples of forward-looking statements include, among others, statements regarding our ability to execute on key initiatives and deliver ongoing operating and financial improvements, including guidance related to 2022 financial and operational metrics; maintain revenue, earnings and Free Cash Flow momentum; sustain our overall growth; drive growth of the gaming operations installed base and DWPU; continue expanding the portions of the gaming floor the Company’s games address, including into the Historical Horse Racing category of gaming devices and the Company’s overall targeted ship share of gaming machines sold; successfully perform obligations required by acquisition agreements; and create incremental value for our shareholders, as well as statements regarding our expectations for the industry environment and the adoption of our products and technologies.

Forward-looking statements are subject to inherent risks, uncertainties, and changes in circumstances that are often difficult to predict and many of which are beyond our control, including, but not limited to, statements regarding: trends, developments, and uncertainties impacting our business, including our ability to withstand: global supply chain disruption; inflationary impact on supply chain costs; changes in global market, business and regulatory conditions arising as a result of the COVID-19 global pandemic, including any related public health confidence and availability of discretionary spending income of casino patrons, as well as expectations for the closing or re-opening of casinos; product innovations that address customer needs in a new and evolving operating environment; to regain or maintain revenue, earnings, and cash flow momentum, and to enhance shareholder value in the long-term; trends in gaming establishment and patron usage of our products; benefits realized by using our products and services; benefits and/or costs associated with mergers, acquisitions, and/or strategic alliances; product development, including the release of new game features, additional games, and system releases in the future; regulatory approvals; gaming and financial regulatory and legal, card association, and statutory compliance and changes; the implementation of new or amended card association and payment network rules or interpretations; consumer collection activities; competition (including consolidations); tax liabilities; goodwill impairment charges; international expansion; resolution of litigation or government investigations; our dividend policy; new customer contracts and contract renewals; financial performance and results of operations (including revenues, expenses, margins, earnings, cash flow, and capital expenditures); inflationary impact on labor costs and retention; interest rates and interest expense; borrowings and debt repayments; and equity incentive activity and compensation expense.

Our actual results and financial condition may differ materially from those indicated in forward-looking statements, and important factors that could cause them to do so include, but are not limited to, the following: our ability to generate profits in the future and to create incremental value for shareholders; our ability to withstand inflationary and other factors that pressure discretionary consumer spending; our ability to execute on mergers, acquisitions and/or strategic alliances, including our ability to integrate and operate such acquisitions or alliances consistent with our forecasts in order to achieve future growth; our ability to execute on key initiatives and deliver ongoing improvements; expectations regarding growth for the Company’s installed base and daily win per unit; expectations regarding placement fee arrangements; inaccuracies in underlying operating assumptions; the impact of the COVID-19 and its subsequent variations global pandemic on our business, operations and financial condition, including (i) actions taken by international, federal, state, tribal and municipal governmental and regulatory agencies to contain the COVID-19 public health emergency or mitigate its impact, (ii) the direct and indirect economic effects of COVID-19 and measures to contain it, including directives, orders or similar actions by international, federal, state, tribal and municipal governmental and regulatory agencies to regulate freedom of movement and business operations such as travel restrictions, border closures, business closures, limitations on public gatherings, quarantines and shelter-in-place orders as well as re-opening safety protocols; changes in global market, business, and regulatory conditions arising as a result of the COVID-19 global pandemic; our history of net losses and our ability to generate profits in the future; our leverage and the related covenants that restrict our operations; our ability to withstand unanticipated impacts of a pandemic outbreak of uncertain duration; our ability to withstand the loss of revenue during the closure of our customers’ facilities; our ability to generate sufficient cash to service all of our indebtedness, fund working capital, and capital expenditures; our ability to maintain our current customers; expectations regarding customers’ preferences and demands for future product and service offerings; growth of the gaming industry, if any; our ability to replace revenue associated with terminated contracts; margin degradation from contract renewals; our ability to comply with the Europay, MasterCard, and Visa global standard for cards equipped with security chip technology; our ability to successfully introduce new products and services, including third-party licensed content; gaming establishment and patron preferences; failure to control product development costs and create successful new products; anticipated sales performance; our ability to prevent, mitigate, or timely recover from cybersecurity breaches, attacks, and compromises; national and international economic and industry conditions; changes in gaming regulatory, card association, and statutory requirements; regulatory and licensing difficulties, competitive pressures and changes in the competitive environment; operational limitations; gaming market contraction; changes to tax laws; uncertainty of litigation outcomes; interest rate fluctuations; business prospects; unanticipated expenses or capital needs; technological obsolescence and our ability to adapt to evolving technologies; our ability to comply with our debt covenants and service outstanding debt; employee hiring, turnover, and retention; our ability to comply with regulatory requirements under the Payment Card Industry (“PCI”) Data Security Standards and maintain our certified status; and those other risks and uncertainties discussed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021 (the “Annual Report”). Given these risks and uncertainties, there can be no assurance that the forward-looking information contained in this press release will in fact transpire or prove to be accurate.

This press release should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021, and with the information included in our other press releases, reports and other filings with the SEC. Understanding the information contained in these filings is important in order to fully understand our reported financial results and our business outlook for future periods.