Everi Holdings Inc (EVRI) 2004 Q4 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Cash Systems Incorporated fourth-quarter 2004 earnings conference call. (OPERATOR INSTRUCTIONS) I would now like to turn the conference over to Mr. Dave Clifford, Chief Financial Officer of Cash Systems Incorporated. Please go ahead, sir.

Thank you, Lisa, and good afternoon, everyone. Welcome to Cash Systems’ fourth-quarter 2004 earnings conference call. With me on today's call is Mike Rumbolz, our CEO, and Chris Larson, our COO.

Before we start today's call, we need to make you aware that certain statements in this conference call that do not describe historical facts, including without limitation statements concerning future financial operating performance, the impact of partnerships, alliances and future strategies or general market conditions that constitute forward-looking statements. Such statements are based on current beliefs and are subject to a number of risks and uncertainties that may cause actual results to differ materially from those made in such statements.

Any forward-looking statements should be considered in light of the risk factors that appear in today's press release, as well as our 2004 10-K and other documents filed with the Securities and Exchange Commission. We undertake no obligation to update any forward-looking statements that we make today.

With that said, today I will take you through our full-year fourth-quarter financial results, 2005 guidance, and then Mike will discuss our growth strategy before we go to Q&A.

For the full year, revenues increased 47.9% to 48.4 million and was driven by increases in ATM surcharges, credit card cash advance fees and check cashing fees. We expanded the number of ATM units in the field from 120 to in excess of 200, driven primarily by new contracts. Income from operations increased over 62.2% to 3.8 million as we continue to further leverage our cost structure. Net income for the year was 2.1 million or $0.14 per share.

Moving on to the fourth quarter, revenues increased 45.7% to 12.8 million. The increase in revenues is due to the continued expansion of products and services to new gaming clients, including new markets and geographical areas. Our fourth-quarter revenue was impacted by implementation delays of new contract wins. We completed the year with installs in over 90 casinos.

Operating expenses reflect costs associated with greater transaction volumes such as commissions paid, credit card processing costs, expansion of our check cashing operations, depreciation and expensing of non-employee stock options. Income from operations for the fourth quarter of 2004 grew over 95.8% to 1.1 million. It is worth noting that we had over $380,000 of income tax expense during the fourth quarter for a rate of 38.5% compared to 142,000 in taxes in the fourth quarter of 2003.

Net income in the fourth quarter was 705,000 or $0.04 per diluted share, which included SG&A expense due to the termination of merger and acquisition cost of approximately a penny a share. That includes 16.1 million diluted shares and compares to net income of approximately 330,000 last year or $0.03 per diluted share using a diluted share count of 13.5 million.

From a balance sheet perspective, we finished the fourth quarter with nearly 13 million in cash and no long-term debt. We also spent approximately 2.3 million on capital expenditures during 2004.

In late 2004 we began to transition from an entrepreneurial management team to a more seasoned management team, with a Board of Directors that has significant backgrounds in business and the gaming industry. We will continue to make additions to our management team and the Board of Directors in 2005. This is part of our overall plan to make incremental investments in certain areas to create a substantial platform for long-term growth.

In 2005 we continued to expect revenue of 64 to 66 million and diluted earnings per share of $0.25 to $0.26. We are not changing our guidance, primarily because we remain conservative with our forecasting. This includes remaining conservative with regards to several larger contracts until they fully deploy.

We continue to evaluate the impact of stock options expensing as we expand our management team as well. Our guidance does not include any such impact. We do not have to start expensing our options until the third quarter of this year.

I would now like to turn the call over to Mike to discuss our future strategies.

Thanks, Dave, and thank you, everyone, for joining us today. I want to begin my remarks by sharing some of the observations I have made over the last 80 days of the Company and its business.

First and foremost, I have confirmed that Cash Systems is a dynamic and innovative company that is committed to providing superior products and service to its customers. I have been impressed with the commitment of both staff and management to providing leading-edge products and systems designed to enhance customer profitability. In short, I believe the Company is well positioned to move forward and aggressively pursue new opportunities.

The tremendous past growth of Cash Systems has been the result of the Company's success in focusing on emerging and underserved gaming markets. These markets have provided the Company with its bread and butter and will continue to be a strong part of our focus.

However, the opportunity for our future growth is even greater if we can penetrate the multi casino operators and large-cap gaming companies. We believe that our recent success in acquiring the contracts to provide services to the 14 casino operations of the Chickasaw Nation and the 19 casinos aboard Carnival cruise ships is just the beginning of the Company's growth into this market segment.

I have also noted that if Cash Systems is going to have continued long-term success it has to enhance its business model. In particular, the cash access market is not just about developing products. It requires a coordinated effort with other parties, including gaming and regulatory authorities, to get those innovative products into the marketplace.

As a former regulator and CEO of Anchor Gaming, I believe my experience can be leveraged to better assist our Cash Systems team in managing our ideas from the development stage into commercially viable products.

I've spent most of my career working in and selling to the large-cap gaming markets. I'm optimistic that we're in a unique position to execute strategies and to provide innovative cash access solutions through relationships and new partnerships that will focus on the future of technology and its potential impact on the casino floor. Our intention is to provide integrated products and cash access solutions that become part of the fabric of a casino customer's experience, and in addition provide more casino profitability.

While I'm not comfortable elaborating on the details of this strategy, as I'm sure you can understand for competitive reasons, I can report that we are making advances in both the products and the relationships that will be a key part of our long-term growth plan.

However, these kinds of changes don't happen overnight. We're committed to executing our strategy as expeditiously as possible, but we are ever mindful that our innovations and inventions need to be protected and nurtured in order to achieve their highest value. With success in these efforts, we will continue to build market share, improve our financial performance and drive enhanced shareholder value for all of us.

That concludes our prepared remarks for today, so I would ask our operator, would you please open the lines for questions?

(OPERATOR INSTRUCTIONS) Traci Mangini, ThinkEquity Partners.

Hello. I've got a question for both of you. Dave, can you just go over and clarify for me what is in the guidance for next year? I know you mentioned it, but I just want to make sure I have it correct as far as new contracts and the recently announced contracts, etc.

And then also, Mike, maybe if you could just speak to the pricing pressure out there that you are seeing in going out and pitching new contracts. While I know you said you cannot comment on particular initiatives that you have going, could you give us a sense maybe of the timing and when we might expect to see some of those come to fruition?

Traci, as I have mentioned to you before, we continue to stay comfortable with our guidance of 64 to 66 million. All of the contracts that we have announced are contracts that were in those numbers.

Okay.

With respect to your pricing pressure, you know I don't think the landscape has changed significantly at this point. Certainly there are lots of rumors out there of significant pressures, but at this point, we have not seen or at least been able to confirm any significant pressures. So as a result, pricing continues to be the principal basis upon which these are bid.

With respect to our initiatives, you know it's very difficult when you deal with new partners and when you deal with potentially regulatory agencies to give any kind of clear guidance as to timing that you may be bringing things to fruition. But I can tell you that our intention is to do it quickly, and I would anticipate that we will be making some announcements in 2005 with respect to those initiatives.

Okay. And then just lastly, prior management had made some statements about some market share expectation goals by the end of '07 of about 30%. Is that the way you are looking at things now, or should we not focus on it that way? Or would that still be a goal?

Well, Traci, as a member of new management, I can tell you I'm not -- I would not suggest you focus on '07.

Okay, thank you. I just wanted to clarify it.

It would be nice though.

Yes.

David Bain, Merriman Curhan Ford & Company.

I know you probably don't want to give specific names of casinos, but can you quantify the RFPs collectively over the next, call it, 12 to 18 months?

Well, there are several out there. I mean the MGM RFP, the Harrah's RFP, Isle of Capri RFP. There are several out there, Dave. It is not like it is a published list. We're being invited to the RFP process more than we were last year I will tell you that.

Is there a quantifiable number that if you collectively took all those just as a potential revenue number out into the future that could add up to?

Well, I mean Harrah's and MGM are 50 million apiece, so that would significantly change our environment.

We have not put together -- I understand what you're asking for, David, but we really have not put together a list to actually put a number to everything that is coming up in the next 12 months.

Okay. And on the Chickasaw deal, can you give us a sense maybe of timing, when the first install takes place, and the ramp-up amongst the 14 casinos; and maybe compare it to one of your contracts out there in terms of size?

Absolutely, but I want to introduce to everyone the silent partner of our group, Chris Larson.

The good news is we actually today took our first step towards the installation of WinStar. So we fully expect our first booth operation in the WinStar Casino to be opened today, tomorrow or the next couple of days.

So we are very excited about that opportunity. So we are aggressively approaching the WinStar installation. I think there is huge opportunity there with the 14 installs, and we will be putting our service group to work very quickly.

Okay. And then comparing it to some of the other deals you have, would that be the largest deal that you have gotten to date?

There has definitely been a shuffling of our top accounts with some of the new announcements that you have seen. That is going to be one of our top five accounts on a go-forward basis.

Okay. And then just finally, just as a wrap-up, 9% operating margins for Q4, should we be forecasting that kind of operating margin going forward?

You know, Dave, that is a difficult question to answer because we still -- you know we have not given any impact of Sarbanes-Oxley in '05. As well as I mentioned earlier we have -- we're still going to evaluate the expensing of options for this year. So I just hesitate to jump on that yet. Remember Mike and I have only been on board roughly 80 days. So --

I got you.

The short answer I think is no.

Okay. All right. Thanks, guys.

(OPERATOR INSTRUCTIONS) Chris Krueger, Miller Johnson Steichen Kinnard.

I don't know if you provide this type of a figure, but do you track any sort of a, like a same-store sales type figure for your accounts that have been around for a full year?

No.

Any kind of figure that is kind of tracked, just a trend toward plastic, anything like that, things like that?

I mean overall retail environment is driving plastic, but we're not tracking same-store revenue growth right now.

What we are seeing, though, is a transition from our check cashing model to more of a credit card cash advance model. So it is a beneficial transition for us.

What we're also seeing in our credit card cash advance model is that debit cards are becoming more and more prevalent. The limits that are placed on ATM transactions are just not effective for the gaming environment anymore, which is really driving more business to our credit card cash advance platform. So as time goes, we think we will continue to see growth with our credit card cash advance product.

Okay. You just mentioned Sarbanes-Oxley. Can you put a dollar figure on the expense for that in the fourth quarter and what you expect in the first quarter?

Not yet.

Okay.

Fourth-quarter expense was internal, but we have not got a solid number for the first quarter, or for full-year '05.

How about (ph) with just a week to go in the quarter, can you give any indication on like a sales guidance or any kind of guidance for the first quarter?

No, we have never made a practice to give quarter by quarter guidance, and at this time, Mike and I just are not comfortable with doing that until we get through this year.

All right one last question. What is a good tax rate to use for '05?

Well, '04 was 38.5. I would assume that would be a good number going forward.

Okay. Sounds good. That is it. Thanks.

Tim Horton, Sterne Agee.

I wanted to see if you could offer any guidance to what your experience is with Carnival? I believe is it 19 boats you're working with there?

It is 19 boats, yes.

Can you say anything as to what your experience has been with the business there?

Not yet. We are right now in the implementation phase.

Okay. Thanks a lot.

Peter Martin, Presidio Management.

I wanted to ask a quick balance sheet clarification. The current portion of loans receivable, who is that loan receivable from?

We had $1 million loan out to a gaming operator, a short-term loan that is due April 1st.

Okay. And then any progress on paperwork in managing your own cash in the machines as opposed to having to pay fees on filling those?

Peter, I have not. I wanted to wait to get the year-end done and the audit before I attack that process. And so now that we are -- hopefully the audit is final on the 28th. I will start moving aggressively towards that, but not now.

But we are effectively using the cash that is on our balance sheet, and we're trying to put that cash to work for us to generate the fees.

So you have been less dependent on other sources for those machines, so the cost will come down a little bit?

Correct.

Correct.

Gentlemen, at this time, we have no further questions. I would like to turn the conference back to Mr. Rumbolz for concluding remarks.

Well, thank you, operator, and thank you, everybody, for joining us today. We all look forward to reporting to you on our progress at our first-quarter conference call, which is going to be on as soon as we anticipate it. Thanks, everyone.

Ladies and gentlemen, this concludes today's conference call. We thank you for your participation, and you may disconnect your phone lines at this time.