Everi Holdings Inc. (NYSE: EVRI) (“Everi” or the “Company”), today announced results for the second quarter ended June 30, 2023.

• Revenues increased 6% to $208.7 million from $197.2 million a year ago
  • FinTech segment revenues grew 13% to $95.6 million, reflecting a 26% increase in software and other revenues, a 9% rise in financial access revenues and a 6% increase in hardware revenues
  • Games segment revenues rose 1% to $113.1 million, reflecting a 5% rise in gaming operations partially offset by an 8% decline in gaming equipment and systems sales revenues
  • Recurring revenues grew 9% to $151.6 million and represented 73% of total revenues; non-recurring revenues declined 1% to $57.1 million
• Operating income of $53.3 million declined 2% from $54.5 million in the prior year; net income decreased 16% to $27.4 million, or $0.29 per diluted share, compared to $32.5 million, or $0.33 per diluted share, in the 2022 second quarter, primarily due to higher net interest costs of $7.8 million in the second quarter of 2023
• Adjusted EPS, a non-GAAP financial measure, was $0.41 per diluted share compared with $0.48 per diluted share in the prior year
• Adjusted EBITDA, a non-GAAP financial measure, increased 2% to $96.1 million compared with $94.4 million in the 2022 second quarter
• Free Cash Flow, a non-GAAP financial measure, was $47.7 million compared with $49.8 million in the 2022 second quarter
• Repurchased 2.7 million shares for $40.0 million in the 2023 second quarter under the $180 million share repurchase authorization, with $140.0 million available to repurchase
• Revised 2023 outlook, including net income range of $98 million to $106 million, Adjusted EBITDA range of $380 million to $386 million and Free Cash Flow range of $147 million to $153 million  

Randy Taylor, Chief Executive Officer of Everi, said, “Our second quarter results include 6% year over year revenue growth. Revenues for both our FinTech and Games segment grew as we continue to benefit from our investments in new product development as well as from several tuck-in acquisitions we completed since the beginning of 2022. Importantly, despite the impact from higher interest rates and inflationary pressures, we continued to generate strong Free Cash Flow, which positions the Company to invest in our growth initiatives and return capital to shareholders through share repurchases.

“Our FinTech segment continued to generate strong year-over-year gains across all of our product categories as revenue rose 13% to an all-time quarterly record, with operating income increasing 13% and Adjusted EBITDA growing 6% compared to the year-ago period. Player funding reached an all-time quarterly record of $11.7 billion, exceeding $11 billion for the second quarter in a row, which drove growth in financial access services revenues. We also achieved strong year-over-year growth in hardware sales, as well as software and other revenues.

“While Games segment revenue continued to grow, gaming operations revenues and unit sales were impacted by near-term challenges during a transition period as we roll-out new cabinets and content. Following several consecutive years of growth in our installed base and increased unit shipments, we expect our Games segment revenue will be flat to slightly down in the second half of the year as compared to the second half of 2022. With the expected launch of several new cabinets in the back half of this year and first half of 2024, we expect our Games segment will return to an attractive growth profile.

“We continue to generate strong Free Cash Flow and are on track to deliver approximately $150 million of Free Cash Flow in 2023. We expect to continue to invest in development initiatives to sustain longer-term growth while remaining active in share repurchases.  We are confident that we have the right product strategies and capital allocation priorities in place to continue creating value for shareholders.”

Second Quarter 2023 Results Overview

Revenues for the three-month period ended June 30, 2023 increased 6% to $208.7 million compared to $197.2 million in the year-ago quarter. Organic revenues rose 3% over the prior year, while revenues from acquisitions completed since July 1, 2022 contributed $5.3 million in the quarter. Recurring revenues increased 9% to $151.6 million from $139.7 million in the prior-year period driven by growth in both the Games and FinTech segments. Revenues from one-time sales declined 1% to $57.1 million from $57.5 million a year ago, driven by an 8% decrease in gaming equipment and systems sales partially offset by a 6% increase in FinTech hardware and one-time software sales.

Operating income of $53.3 million declined 2% from $54.5 million in the prior-year period as a result of higher costs. The year-over-year increases in operating expenses, research and development expense, and depreciation reflect higher labor costs, higher development costs and investment in growth initiatives.

Lower operating income and higher interest expense drove a 16% decline in net income to $27.4 million, or $0.29 per diluted share, compared to $32.5 million, or $0.33 per diluted share, in the second quarter of 2022. Higher interest expense partially offset by a lower provision for income tax and fewer weighted average diluted shares outstanding resulted in Adjusted EPS of $0.41 per diluted share compared with $0.48 per diluted share in the prior year.

Adjusted EBITDA increased 2% to $96.1 million from $94.4 million in the prior-year period.

Free Cash Flow was $47.7 million compared with $49.8 million in the year-ago period, primarily reflecting higher net cash interest paid and cash taxes, partially offset by lower capital expenditures.

Outlook

Everi revised its full year 2023 guidance today.  Net income guidance is revised upward as a result of lower expected depreciation and amortization and income tax expense and is now expected to be in a range of $98 million to $106 million compared to the prior range of $92 million to $100 million. Adjusted EBITDA is now expected to be in a range of $380 million to $386 million compared to the prior outlook range of $384 million to $396 million, primarily due to lower gaming equipment sales in the second half of 2023 as compared to the second half of 2022.  Free Cash Flow is now expected to be in a range of $147 million to $153 million compared to the prior range of $150 million to $160 million. Earnings per diluted share is now expected in the range of $1.05 to $1.13 compared to the prior expectation of $0.97 to $1.06 and Adjusted EPS is now expected to be in a range of $1.62 to $1.67 compared to the prior expectation of between $1.58 to $1.66, with the new range inclusive of the higher net income and a lower-than-previously expected diluted share count.

A summary and reconciliation of the full year 2023 financial targets are included in a supplemental table at the end of this release.

2023 Second Quarter Games Segment Highlights

Games segment revenues increased 1% to $113.1 million compared to $112.3 million in the second quarter of 2022, reflecting a 5% increase in gaming operations revenues, inclusive of digital gaming operations, partially offset by an 8% decrease in revenues from gaming equipment and systems sales. The recent acquisition of Video King contributed $4.1 million in revenues in the 2023 second quarter.

Operating income was $24.4 million compared to $28.9 million in the second quarter of 2022, reflecting higher operating expenses including research and development expenditures, primarily due to higher labor costs, as well as increased depreciation and amortization associated with acquisitions.  Adjusted EBITDA was $58.1 million compared with $58.7 million in the second quarter of 2022.

Gaming operations revenues increased 5% to $77.8 million compared to $74.0 million a year ago.

• The installed base grew by 2% to 17,812 units from 17,464 units in the prior year. The premium portion of the installed base remained relatively flat at 48% when compared to the prior period.
• Daily Win per Unit (“DWPU”) was $37.22 in the second quarter of 2023 compared to $39.94 in the second quarter of 2022.
• Revenues from digital gaming rose 21% to $7.0 million compared to $5.8 million in the second quarter of 2022. The increase reflects new customer sites, including going live in Alberta, Canada, as well as the growth in the library of available slot content.

Gaming equipment and systems revenues generated from the sale of gaming machines and other related parts and equipment, declined 8% to $35.3 million compared to $38.3 million in the second quarter of 2022.

• The Company sold 1,597 gaming machines at an average selling price (“ASP”) of $20,512 in the 2023 second quarter, compared with 1,957 units sold at an ASP of $18,800 in the 2022 second quarter.

2023 Second Quarter Financial Technology Solutions (“FinTech”) Segment Highlights

FinTech revenues for the 2023 second quarter increased 13% to $95.6 million compared to $84.9 million in the second quarter of 2022, reflecting a 26% gain in software and other revenues, 9% growth in financial access services, and a 6% increase in hardware sales.

Operating income increased 12% to $28.9 million compared to $25.7 million in the prior-year period, reflecting higher revenues partially offset by higher operating expenses and increased research and development expense for new and enhanced products. Adjusted EBITDA rose 6% to $38.0 million compared to $35.7 million in the 2022 second quarter.

• Financial access services revenues, which include cashless and cash-dispensing debit and credit card transactions and check services, increased 9% to $55.7 million compared with the 2022 second quarter, reflecting higher same-store financial funding transactions, as well as continued growth from new customer additions. Funds delivered to casino floors increased 10% to an all-time quarterly record of $11.7 billion on a 9% increase in the number of financial transactions and an increase in average transaction size. Cashless transactions (including both digital wallet and the sale of paper gaming vouchers) increased 48% over the 2022 second quarter and 8% on a quarterly sequential basis, while still representing less than 5% of funding transactions. The Company’s CashClub Wallet technology is currently installed or being deployed across 22 jurisdictions at 45 properties.
• Software and other revenues, which include Loyalty and RegTech software, product subscriptions, kiosk maintenance services, and other revenues, rose 26% to $24.0 million in the second quarter of 2023 compared to $19.0 million in the second quarter of 2022. Approximately 77% and 78% of software and other revenues were of a recurring nature in the 2023 and 2022 second quarter periods, respectively.
• Hardware sales revenues increased 6% to $15.9 million compared to $15.0 million in the second quarter of 2022.

Balance Sheet, Liquidity and Cash Flow

• As of June 30, 2023, the Company had $210.6 million of cash and cash equivalents compared with $293.4 million as of December 31, 2022. The Net Cash Position was $28.4 million compared with $89.2 million as of December 31, 2022.
• Total debt decreased to $986.5 million at June 30, 2023, from $992.5 million as of December 31, 2022, as the Company paid $6.0 million on its secured term loan during the 2023 first quarter.
• Cash paid for interest, net of interest income, was $14.4 million in the 2023 second quarter compared with $7.6 million in the year-ago period. The increase in net interest paid was primarily due to the impact of rising interest rates. In addition to the Company’s variable-rate term debt and notes outstanding, interest expense also includes the impact of rising rates on third-party commercial cash arrangements associated with certain of the Company’s funding of financial access services. These fees were $5.9 million for the 2023 second quarter on a daily average balance of $310.7 million compared to $1.7 million on a daily average balance of $382.8 million for the 2022 second quarter.
• In May 2023, the Company completed the acquisition of the assets of VKGS LLC (“Video King”), a privately-owned provider of integrated electronic bingo gaming tablets, video gaming content, instant win games, and systems for cash consideration of approximately $61.3 million, inclusive of estimated customary net working capital adjustments of which $59.2 million was paid in the quarter.
• During the quarter, the Company repurchased 2.7 million shares of its common stock for total consideration of $40.0 million under the current 18-month, $180 million share repurchase authorization.  Currently $140.0 million is remaining under this authorization.

Investor Conference Call and Webcast

The Company will host an investor conference call to discuss its 2023 second 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 13739295. A replay will be available until August 16, 2023. 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, Adjusted EPS, 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, these measures 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, of debt, non-cash stock compensation expense, accretion of contract rights, non-recurring litigation costs net of settlements and insurance proceeds received, facilities consolidation costs, asset acquisition expense, non-recurring professional fees, debt amendment costs and other one-time charges and benefits. 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 net of cash received for interest income, 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. 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 Adjusted EPS as earnings per diluted share before non-cash stock compensation expense, accretion of contract rights, amortization of acquired intangible assets, non-recurring litigation costs net of settlements and insurance proceeds received, facilities consolidation costs, asset acquisition expense, non-recurring professional fees, and one-time charges and benefits. We consider Adjusted EPS as a supplemental measure to our operating performance and believe it provides investors with another indicator of our operating performance. A reconciliation of the Company’s earnings per diluted share per GAAP to Adjusted EPS is included in the Unaudited Reconciliation of Earnings per Diluted Share to Adjusted EPS provided at the end of this release.

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. We undertake no obligation to update or publicly revise any forward-looking statements as a result of new information, future developments or otherwise.

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 2023 financial and operational metrics, such as maintaining revenue, earnings and Free Cash Flow momentum; sustaining our growth; driving growth of the gaming operations installed base and DWPU; 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 performing obligations required by acquisition agreements; and creating incremental value for our shareholders, as well as statements regarding our expectations for the industry environment and mitigating potential challenges created by macroeconomic uncertainties and conditions; 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: macro-economic impacts on consumer discretionary spending, interest rates and interest expense; global supply chain disruption; inflationary impact on supply chain costs; inflationary impact on labor costs and retention; equity incentive activity and compensation expense; our ability to maintain revenue, earnings, and cash flow momentum or lack thereof; changes in global market, business and regulatory conditions whether as a result of a pandemic or other economic or geopolitical developments around the world, including 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 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 benefits from the release of new products, new product features, product enhancements, or product extensions; regulatory approvals and changes; gaming, financial regulatory, 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; borrowings and debt repayments; goodwill impairment charges; international expansion or lack thereof; resolution of litigation or government investigations; our share repurchase and dividend policy; new customer contracts and contract renewals or lack thereof; and financial performance and results of operations (including revenue, expenses, margins, earnings, cash flow, and capital expenditures).

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 economic slowdowns, inflationary and other economic 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; our ability to withstand direct and indirect impacts of a pandemic outbreak or other public health crisis of uncertain duration on our business and the businesses of our customers and suppliers, including as a result of actions taken in response to governments, regulators, markets and individual consumers; changes in global market, business, and regulatory conditions arising as a result of economic, geopolitical and other developments around the world, including a global pandemic, increased conflict and political turmoil, capital market disruptions and instability of financial institutions; climate change or currently unexpected crises or natural disasters; our leverage and the related covenants that restrict our operations; our ability to comply with our debt covenants and our ability to generate sufficient cash to service all of our indebtedness, fund working capital, and capital expenditures; our ability to withstand the loss of revenue during a closure of our customers’ facilities; our ability to maintain our current customers; our ability to replace revenue associated with terminated contracts or margin degradation from contract renewals: expectations regarding customers’ preferences and demands for future product and service offerings; 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; the overall growth or contraction of the gaming industry; anticipated sales performance; our ability to prevent, mitigate, or timely recover from cybersecurity breaches, attacks, and compromises or other security vulnerabilities; national and international economic and industry conditions including the prospect of a shutdown of the U.S. federal government; changes in gaming regulatory, financial regulatory, legal, card association, and statutory requirements; the impact of evolving legal and regulatory requirements, including emerging environmental, social and governance requirements;  regulatory and licensing difficulties, competitive pressures and changes in the competitive environment; operational limitations; 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; 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, 2022 (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, 2022, 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.