veri Holdings Inc. today reported financial results for the third quarter ended September 30, 2018.
Michael Rumbolz, President and Chief Executive Officer of Everi, commented, “Our third quarter results reflect the ongoing progress we are achieving through the execution of key initiatives, including the successful introduction of new products for our Games and Financial Technology Solutions businesses which are driving consistent growth. We generated our ninth consecutive quarter of year over year revenue and Adjusted EBITDA growth, with revenue increasing 17.3% to $120.3 million and Adjusted EBITDA rising 9.6% to $58.3 million. We also generated our third consecutive quarter of positive net income and earnings per share. Both business segments are contributing to this growth, with quarterly record FinTech revenue and Adjusted EBITDA of $54.5 million and $26.5 million, respectively, and Games revenue and Adjusted EBITDA of $65.8 million and $31.8 million, respectively, each reaching their second highest ever quarterly level. As a result of the continuing strength in both lines of business, we remain on track to achieve our outlook for full-year Adjusted EBITDA of $228 million to $231 million and to deliver on our expectation for near-term acceleration in free cash flow generation.”
Mr. Rumbolz added, “Growth in our Games segment continues to be driven by the successful introduction of new products. Electronic gaming machine unit sales rose 43% to 1,165 units, our largest quarterly total since we acquired the Games business. The primary driver of the unit sales growth was success with our E43 and mechanical reel games which both achieved their highest ever level of quarterly unit sales. Our mechanical reel product remains a key driver of unit sales growth given our position as an industry-leading provider for this segment of the slot floor. Our installed base rose 901 units year over year and our emphasis on introducing new, higher-yielding premium games and form factors, including our E43, while also expanding placements beyond our historical core market continues to drive growth in our gaming operations. Quarter-end premium unit placements, including our highest ever level of wide-area progressive placements of 535 units, now represent 20.1% of our total installed base, as compared to 17.8% a year ago. Growth in premium unit placements and the increase in unit placements in higher yielding markets drove a significant improvement in daily win per unit, which rose $2.32, or 8.6%, year over year.
“Our FinTech business continues to grow and expand on its market leading position with our focus on innovation driving further penetration of our solutions. We continue to provide our customers with a wide range of products that efficiently deliver the most cash to their gaming floor and provide them with actionable data that helps them manage their operations more proactively. Our differentiated and integrated products address all of our customers’ FinTech needs and have been a critical factor in our ability to grow our market share. FinTech results in the third quarter benefited from the ongoing strength in the domestic casino market and new market wins. This drove an increase in nearly all of the segment’s key performance metrics including growth in core cash access revenue, growth in transaction volumes, growth in overall dollars processed, and our highest level of kiosk sales and service revenue in twelve quarters. We also continue to work with several customers on trials of CashClub Wallet, our new digital wallet product. This is an important first step in the evolution of digital payments in the gaming industry, which we believe positions our FinTech business for future market success.
“It is clear that the investments we have made in our Games and FinTech portfolios have led to the creation of the new products that are helping drive consistent growth in our operating results. As we demonstrated at G2E last month, we have established a product development roadmap that will further expand the number of markets and segments of the casino floor our Games business can address, while we maintain and grow our FinTech market leadership. As a result, we continue to strengthen our foundation for growth and are confident in our ability to achieve our targets for revenue, Adjusted EBITDA and free cash flow growth going forward. We believe this will lead to significant improvements in our leverage profile. We are generating notable growth now and we are confident that we have the right plan in place to achieve even more success going forward as we continue to unlock value in the business.”
Third Quarter 2018 Results Overview
Revenues are presented herein on a comparable basis (see the Net Versus Gross Impacts on Revenues and Cost of Revenues disclosure at the end of this release for a reconciliation of 2017 amounts as reported to as adjusted).
Revenues for the third quarter of 2018 increased 17.3% to $120.3 million from $102.6 million in the third quarter of 2017. Revenues from the Games and FinTech segments were $65.8 million and $54.5 million, respectively, for the third quarter of 2018. The Company reported operating income of $21.5 million for the third quarter of 2018, compared to operating income of $19.8 million in the third quarter of 2017.
Everi recorded income before income tax of $1.4 million in the third quarter of 2018 compared to a loss before income tax of $3.6 million in the third quarter of 2017. The Company reported net income of $2.1 million, or $0.03 per diluted share, for the third quarter of 2018 compared to a net loss of $4.3 million, or a diluted loss per share of $(0.06), in the prior-year period.
Adjusted EBITDA for the third quarter of 2018 increased approximately 9.6%, or $5.1 million, to a third quarter record $58.3 million from $53.2 million in the third quarter of 2017. Games and FinTech segment Adjusted EBITDA for the three months ended September 30, 2018 were $31.8 million and $26.5 million, respectively. Games and FinTech segment Adjusted EBITDA for the three months ended September 30, 2017 were $29.4 million and $23.8 million, respectively.
2018 Third Quarter Games Segment Highlights
On a comparable revenue basis, Games segment revenues were $65.8 million in the third quarter of 2018 compared to $55.3 million in the third quarter of 2017.
Revenues from gaming operations increased 15.4%, or $5.8 million, to $43.5 million in the third quarter of 2018 compared to $37.7 million in the prior-year period. The increase reflects year-over-year growth in both the installed base and estimated daily win per unit (“DWPU”).
• The installed base at September 30, 2018 increased 901 units year over year to 14,116 units and premium units increased 21%, or 492 units, year over year.
• DWPU in the third quarter of 2018 increased 8.6%, or $2.32, to $29.45, compared to $27.13 in the prior-year period. The increase reflects, in part, improvements in the unit performance following capital investments in new cabinets and games to update a portion of the installed base and an increase in the premium unit placements including wide-area progressive games. This was the fourth consecutive quarter of year-over-year growth in DWPU.
• Interactive revenue was $0.5 million in the third quarter of 2018 compared to $0.2 million in the prior-year period.
• Revenues from the New York Lottery business, which are included in gaming operations revenue, were $4.7 million in the third quarter of both 2018 and 2017.
Revenues generated from the sale of gaming units and other related parts and equipment totaled $21.1 million in the third quarter of 2018 compared to revenues of $16.3 million in the prior-year period. Gaming unit sales increased 43% to 1,165 units in the third quarter of 2018 compared to 817 units in the prior-year period.
Other gaming revenues, which include revenues from TournEvent of Champions qualifying events, generated $1.2 million in revenue in the third quarter of 2018 compared to $1.3 million in the prior-year period.
2018 Third Quarter Financial Technology Solutions Segment Highlights
On a comparable revenue basis, FinTech revenues increased approximately 15.2% to $54.5 million in the third quarter of 2018 compared to $47.3 million in the prior year period.
Revenues from cash access services, which include ATM, cash advance and check services, increased 8.0% or $2.9 million to $39.4 million in the third quarter of 2018 as compared to $36.5 million in the third quarter of 2017. The core cash access revenue growth was the result of increased same-store transactions and dollars processed, as well as the benefits from new customer wins from competitive bid processes and new casino openings.
Equipment Sales revenues increased 140% or $4.2 million to $7.2 million in the third quarter of 2018 as compared to $3.0 million in the third quarter of 2017. This increase is the result of higher sales of fully integrated kiosks in the third quarter of 2018 as compared to the prior-year period.
Revenues from information services and other, which includes compliance products, Central Credit and other service revenue, increased $0.1 million to $7.9 million in the third quarter of 2018 as compared to $7.8 million in the third quarter of 2017.
Reiterated 2018 Outlook
Everi today reiterated its expectation for 2018 full year Adjusted EBITDA to be in a range of $228 million to $231 million. The Company continues to expect full year capital expenditures and placement fees of $125 million to $130 million, reflecting capital expenditures of approximately $104 million to $109 million and placement fee payments of approximately $21 million.