After meeting with top executives from Everi Holdings (formerly Global Cash Access), Truist Securities analyst Barry Jonas came away favorably impressed, particularly with regard to the acceptance of Everi’s cashless-gaming technology. The latter has been embraced by Penn National Gaming, which is rolling it out in Pennsylvania, with a view toward a gradually wider application. Already it had been adopted by the Jack Cleveland and Jack Thistledown casinos in Ohio, compared to “piecemeal, iterative, tribal implementations” such as WinStar casino in Oklahoma.
Jonas observed that despite a rise in COVID caseloads, Everi’s business had not been impacted and, should current trends hold firm, the company will close out the year at the high end of its earnings guidance. The Penn deal is particularly important, because it will test Everi’s technology against regulations in multiple states, as opposed to one jurisdiction here and another there, as has been the case so far.
Also working in Everi’s favor, according to Jonas’ way of thinking, is Everi’s business model. It involves not only collecting a per-transaction fee for processing cash access, but also upfront software fees and annual maintenance levies. While allowing that it was early in the cashless game, Jonas is encouraged by the level of customer acceptance among older players, and “higher volumes and ticket sizes for early adopters. Interestingly, management had expected more hesitancy around the older cohort to use the mobile wallet, but adoption has been greater than expected.”
As an incumbent cashless-gaming provider, Everi could accrue 60 percent of North American market share, Jonas projects, as well as being able to cross-sell synergistic services, such as protection against money laundering. Also, by being an early mover, Everi is thought to be well positioned to capture customer loyalty.
“While cashless drives investor attention, management noted the expected endurance of cash and highlighted a recent technological failure at the all-cashless Allegiant Stadium” (not an Everi client).
Citing the more than $800 million Everi collected in cash-access service fees in 2019, management “discussed the potential down the road to sell its cashless solutions to non-gaming customers (e.g., hotels and other leisure businesses), especially around their loyalty capabilities, which could dramatically increase the total addressable market.” It also said it had a “robust” number of premium and wide-area-progressive games in the pipeline.
The new-game segment currently represents approximately 10 percent of Everi’s business and leadership was confident they could get that up to 15 percent “at some point.”
Everi executives told Jonas “payment-processing volumes have continued to hold strong and steady,” despite the resurgence of COVID-19 cases due to the delta variant. Customers are believed to be habituated to wearing masks and thus not inclined to lessen their casino patronage. Noting the Chinook Winds casino closing in Oregon, management highlighted that such incidents, however isolated, posted a bigger risk to business than regular COVID-related restrictions.
While not ruling out mergers and acquisitions, Everi management stressed that they were likelier to be in the nature of small “tuck-in” deals in the financial-technology realm, rather than major transactions. Should cash flow increase and leverage be lowered to management’s preferred ratio (2.5 times to three times equity), bigger deals could be back on the table.
“We see build-versus-buy decisions for new product offerings … as well as international expansion,” wrote Jonas, citing historical horse racing and video lottery terminals as potential areas of growth.
