• Revenue: Declined year over year for both gaming operations and gaming equipment and systems.

• Net Income: Not specifically mentioned, but adjusted EBITDA declined to $80.3 million from $92.5 million in the prior year quarter.

• Earnings Per Share (EPS): Not explicitly mentioned.

• Free Cash Flow: Generated $14 million in the quarter, down from $40 million a year ago.

• Gross Margin: Expanded by approximately 80 basis points to 80.9%.

• Same-Store Sales: Not explicitly mentioned, but same-store growth in financial access services was low to mid-single digit.

• Market Capitalization: Not mentioned.

• Store Locations: Not applicable as Everi Holdings does not operate retail locations.

• Warning! GuruFocus has detected 3 Warning Signs with EVRI.

Release Date: May 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Everi Holdings Inc (NYSE:EVRI) is progressing with its planned merger with IGT's global gaming and play digital businesses, aiming to close in late 2024 or early 2025, which is expected to accelerate revenue growth and expand into new jurisdictions.

• The company has increased investment in research and development, leading to the approval of 34 new games in the last four months of 2023 and an additional 18 year-to-date, which are beginning to show positive market recognition.

• Everi Holdings Inc (NYSE:EVRI) reported strong performance in its Player Classic signature cabinet and is optimistic about the newly introduced game themes.

• The company's core fintech cash access services business continues to grow, processing more transactions and delivering more dollars to customers' operations than in any previous quarter.

• Everi Holdings Inc (NYSE:EVRI) anticipates a special dividend to shareholders prior to the merger close, reflecting the company's strong free cash flow generation.

Negative Points

• The transition to new family cabinet and game content has been challenging and slower than expected, impacting business performance in the first quarter.

• Revenue from both gaming operations and gaming equipment and systems declined year over year, with a notable decline in installed base by 595 units from year-end.

• The early performance of the Dynasty View cabinet was not as strong as anticipated, although improvements are expected with the rollout of additional game themes.

• Financial access services experienced some weakness in January due to weather issues, although there was some recovery in February and March.

• The company incurred $15.7 million in one-time professional fees, employee retention awards, and other costs related to the planned merger, which impacted the reported operating expense trends.

Q & A Highlights

Q: Could you give some color on what's driving the increase in operating expenses in the fintech business, and how should we think about the right R&D and OpEx levels heading into the remainder of 2024? A: (Mark Labay, CFO) The increase in operating expenses is largely due to labor and headcount, influenced by a tight labor market and annual reviews. The current levels are appropriate for the long-term growth of the business, and as revenue rebounds, particularly in the second half of the year, we expect these expenses to align better with revenue levels.

Q: To what extent do you think the announcement of the merger is impacting sales or creating confusion among customers regarding long-term strategy? A: (Randy Taylor, CEO) It's hard to quantify the direct impact of the merger announcement on sales. However, the introduction of new products like the Dynasty Sol cabinet is progressing as expected, and we anticipate growth in the next quarter.

Q: What gives you confidence that new cabinet momentum will show up in the financials in the second half of the year? A: (Randy Taylor, CEO) The investment in new cabinets and content is expected to replace older units initially, which should improve performance metrics. The introduction of new themes has shown promising early results, indicating potential improvement in the second half of the year.

Q: Are there any early integration works or ways for the two companies to work together between now and the deal close? A: (Randy Taylor, CEO) Currently, there are significant limitations on what can be done before the deal closes, so no specific integration efforts can be discussed at this stage.

Q: Can you provide an update on the digital side of the business, particularly with the expansion into the UK, Europe, and Latin American markets? A: (Mark Labay, CFO) The digital segment continues to grow, with revenues increasing year-over-year. The company is now live in the UK and looking to expand further in Europe. This segment represents a significant growth opportunity for Everi.

Q: How are you managing the decision not to replace cabinets in lower-performing areas? Is this an ongoing strategy? A: (Mark Labay, CFO) The decision to not replace cabinets in low-volume locations is ongoing, focusing on maximizing yield and return on investment. This strategy involves evaluating each location's performance and making financially prudent decisions.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.