Everi Holdings Inc.

First-quarter consolidated gross margin expanded approximately 80 basis points to 80.9%. Adjusted EBITDA was $80.3 million, down from $92.5 million in the prior-year quarter. Games adjusted EBITDA was $46.6 million versus $53.7 million a year ago, and Fintech adjusted EBITDA was $33.7 million versus $38.8 million. Net interest expense was $18.8 million, weighted average borrowing rate was about 6.7%, and free cash flow was $14 million versus $40 million a year ago. Fintech financial access services revenue grew 2.1% year over year, with a record 39 million transactions and a record $12.4 billion of funding to customers' operations. Management expects revenue growth to return in the back half of 2024, Fintech revenues to return to growth over the remainder of the year, adjusted EBITDA to decline for full-year 2024, capital expenditures to be flat to up slightly from $145.1 million in 2023, effective tax rate to be 22% to 25%, and full-year cash taxes to be between $15 million and $20 million.

Randy Taylor framed the quarter as a transition period but said he remains confident in Everi's strategy. He emphasized that the merger with IGT's Global Gaming and PlayDigital businesses should expand product reach, accelerate entry into new jurisdictions, and create a more stable long-term growth profile. He also said the Games business is seeing “green shoots” from new cabinets and content, and that growth initiatives should improve mainly in the second half of 2024.

Mark Labay said the quarter reflected Games headwinds from the cabinet transition and lower unit sales, as well as higher operating and R&D spending. He noted $15.7 million of one-time merger-related professional fees, retention awards, and other costs, and said net leverage ended at 2.6x trailing adjusted EBITDA, at the low end of the 2.5x to 3x target range. He also cited $400 million of unsecured notes at 5%, about $581 million of variable-rate term loan debt, a $4.8 million bulk cash expense versus $4.3 million last year, and said free cash flow was hurt by $13 million more cash capital expenditures and the $12 million drop in adjusted EBITDA.

Analysts pressed on higher Fintech operating expenses, and management said labor and headcount remain the main cost drivers, with Q1 levels described as the right investment level for now. Questions also focused on whether the pending merger is affecting sales; management said customer feedback on the deal is positive, but it is too early to quantify any impact and the businesses are still operating independently. On the Games side, management said the new Sol cabinet and new themes are beginning to show traction, while the Dynast Vue rollout has lagged initially because of limited content but should improve as more titles are deployed.