Transcript library.corporate

Deutsche Bank Leveraged
Finance Conference
George Gresham
September 24, 2008
Forward-Looking Statements
Statements in this presentation that are not reported financial results or other historical information are “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements
include: (1) our intent to grow our business by growing revenues with current customers, winning new customers, penetrating
new markets, innovating and leveraging our databases and marketing assets; (2) our plans to renew existing customers and
win new customers; (3) our plans to increase same-store sales; (4) our expectation of growth in gaming revenue and gaming
expansion in various markets; (5) our belief that providing cash access services on new platforms should enhance profitability
and margins; (6) our belief that higher margin platforms will increase their installed base in the future, (7) our belief that the
Arriva card should enhance profitability, (8) our guidance with respect to revenue, gross margin, operating expense and
operating income, and (9) our estimated future free cash flow and uses thereof. Such forward-looking statements are based
on current plans, estimates and expectations, and are not guarantees of future performance. They are subject to a number of
business risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or
implied by the forward-looking statements, including the following: (1) technical, competitive and regulatory impediments,
operational and resource limitations and gaming establishment acceptance of our value propositions; (2) competitive
pressures such as pricing, availability and breadth of offerings or gaming establishments replacing their outsourced cash
access services with in-house cash access services; (3) competitive pressures that require us to reduce our pricing or
changes in gaming establishment patron cash access behavior; (4) regulatory or social responsibility impediments, economic
downturns, a decline in the popularity of gaming or changes in the demographic profile of gaming patrons; (5) our failure to
obtain regulatory approval for our EDITH platform or our inability to enter into strategic relationships with providers of
redemption kiosks on favorable terms; (6) gaming patron preference for using traditional gaming establishment cashiers or
gaming establishment unwillingness to incur capital expenditures for unmanned platforms; (7) our failure to properly manage
the credit risk associated with the Arriva card; (8) our inability to control the demand for cash access services within gaming
establishments, competition from new and existing competitors and the incurrence of unplanned operating or capital
expenses; (9) our failure to achieve estimated future income levels, unanticipated capital expenditures, changes in tax rates
or position and the need to deploy cash flow to existing or new business development initiatives. Additional factors that could
cause actual results to differ materially are included under the heading “Risk Factors” in the Company’s Annual Reports on
Form 10-K and Quarterly Reports on Form 10-Q filed with the U.S. Securities and Exchange Commission from time to time.
The Company undertakes no obligation to publicly update or revise any forward-looking statement.
This presentation includes pro forma information, or non-GAAP financial measures, that are different from financial measures
calculated in accordance with GAAP and may be different from pro forma calculations made by other companies.
2
Company Overview
We are the world’s leading cash access provider to the gaming industry
 Industry Leader
•
•
Recent consolidation of the sector with two acquisitions of smaller competitors
Greater than 80% of the U.S. market
 Product Superiority
•
•
•
•
•
•
3-in-1 patent protected IP
Expansive data sources
Central Credit – Only gaming specific credit bureau in the world
Differentiated service offerings including in source/out source model for booth operations and
sophisticated help desk offerings
PowerCash and other cashless gaming products deployed or in development
Development relationships and or JVs with IGT and Bally’s
 Experienced Management Team
•
New team now in place to drive operating performance improvement
 Compelling Financial Model
•
•
•
•
Recurring revenue
Low capital expenditure, high free cash flow
Profits not currently subject to federal tax
Significant operating leverage
3
Leading Cash Access Provider To The Gaming Industry
At the Intersection of Consumers, Cash and Casinos
4
Gaming Industry and Cash Access
GCA drives Casino Profits, Efficiency and Customer Loyalty
 Cash access vendor is critical to the success of the casino customer
experience
 Consumers’ increasing use of debit and credit cards require casinos to
offer multiple options to allow customers access to cash
 Casinos need to put money on the floor quickly and efficiently
 Casinos want to reduce lines at the cage and check cashing booth and
allow customers to play longer
 Casinos want lower costs, increased customer play and enhanced
customer loyalty
5
Product Description
CASH ADVANCE
• Credit cash advances
ATM
• ATM services
• POS debit card
transactions
SEGMENT
DESCRIPTION:
• Largest category of
GCA's electronic
payments transactions,
• Patron repays the issuing
as measured by dollar
bank based on
and transaction volume
cardholder agreement
CHECK SERVICES
CENTRAL
CREDIT/OTHER
• Offers check verification
services
• Gaming patron
credit bureau
• Central Credit database,
used by gaming
establishments to make
credit issuing decisions
• Designed to allow
gaming
establishments to
improve their creditmaking decisions.
• Check warranty services
- gaming establishment
pays a fee for the
warranty service
• Other services
include money
transfer
% of 2007 REV
52.6%
40.0%
5.2%
2.2%
% of 2007 EBITDA
43.2%
40.4%
15.0%
1.4%
PRODUCTS
Casino Cash Plus 3-in-1
ATM
ACM
3-in-1 Enabled QuickJack
Plus
QuikCash
QuikCredit
QuikCash Plus Web
Ticket-Out Debit Device
EDITH
Casino Cash Plus 3-in-1
ATM
ACM
3-in-1 Enabled QuickJack
Plus
6
Check Verification
Check Warranty
Information Services
Money Transfer
The Original GCA Advantage: 3-in-1 Rollover
 Problem: the average ATM daily limit is $300-500
•
•
•
Insufficient for many gaming patrons
Friday/Saturday/Sunday is “one day”
Result 30% of ATM requests in casinos are declined
 Solution:
•
Debit Card Cash Advance: daily debit limit is 5-10x the
ATM limit
•
Credit Card Cash Advance: independent of how much
money is in the bank
 “3-in-1” rollover solution informs ATM patrons of
alternatives when they’ve been declined on ATM.
•
Without being informed, most patrons walk away
•
25% of declined ATM transactions converted to successful
cash advance transactions
o Higher average ticket
o Higher average fee
7
GCA 3-in-1: Proven to Put More Cash on the Floor
Large Native American + 16%
Companies have seen increases in
debit and credit cash to the floor
from switching to GCA 3-in-1
Atlantic City + 29%
Gulf Coast + 17%
8
Invaluable Information
The industry’s only credit
bureau for credit granted
by casinos.
The industry’s first and best
casino cashier automation tool.
Increased productivity and
accuracy.
GCA has the unique ability to tell casinos how
much cash their best customers are accessing
in competitors’ properties.
9
Major Casinos Rely on GCA
GCA’s breadth of products is unmatched by the competition
Top Customers
Cash Access Services
ATM
Information Services
Cash Advance Check Warranty
Central Credit Marketing



Cashless Gaming
QCP
Harrah's/Caesars


MGM MIRAGE


Boyd/Coast




Penn National



Foxwoods


Mohegan Sun


Station Casinos



Wynn





Trump






Pechanga






Pinnacle






Thunder Valley





EDITH
KIOSK



















10





GCA’s History
New management team recruited to
improve business performance
1998 Founded
• Formation of Global Cash Access, LLC:
First Data 58%, Bank of America 21%,
M&C International 21%
• Scott Betts, CEO (Oct 2007)
• George Gresham, CFO (Feb 2008)
• Mari Ellis, CIO (Feb 2008)
1999 – 2001 Significant Transactions
• First Data and M&C buyout of Bank of
America interest
• Central Credit purchase
• Purchase of Wells Fargo gaming ATM
business
2004 Re-capitalization/Re-structuring
• Buyout of First Data interest by M&C
International
• Private equity co-investment by Summit
Stock Price Chart - LTM
Partners
2005 IPO
11
Experienced Management Team
Payments/Gaming
Experience – Years
 Scott Betts - President, Chief Executive Officer, Secretary and Treasurer
•
•
Joined GCA in late 2007
FDC, Payments industry consultant
 George W. Gresham - Executive Vice President and Chief Financial Officer
•
•
22
Joined GCA in December 2000
Circus Circus Enterprises, Inc.
 Mari Ellis - Executive Vice President, Technology
•
•
6
Joined GCA in 2002
Deloitte & Touche, LLP.
 Kurt Sullivan - Executive Vice President, Check Services and Central Credit
•
•
7
Joined GCA in September 2005
Practiced gaming law/regulation at Brownstein, Hyatt, Farber, and Shreck LP
 Mark Labay - Senior Vice President, Product Management
•
•
6
Joined GCA in February 2008
EFD – eFunds Corporation, Deloitte & Touche, LLP.
 Kathryn S. Lever - Executive Vice President and General Counsel
•
•
7
11
Joined GCA in February 2008
FDC, Blackhawk, Concord EFS
12
Competition in the U.S. Gaming Cash Access Market
Today
2006
13
Attractive Business Model With Significant Growth
GCA has significant growth opportunities
 Long-term contracts with high retention rate
 Modest fixed cost structure with significant operating leverage
 Short-term opportunities
• Integration of acquisitions
• Cost rationalization
• Define an integrated product and technology roadmap
 Long-term growth opportunities
• International
• Leverage technology innovation to drive margins
14
Transaction Growth
GCA volumes have been growing at 10-15% per year for the last six years
GCA 2007 Transactions

$228 average transaction

Almost 1 billion $20 bills

161 transactions per minute

Enough to wrap Earth 3.7 times

$37,000 disbursed per minute

3.9 billion hands of $5 blackjack
15
Financial Performance
Revenues
Operating Income
($ in millions)
($ in millions)
1
$600.9
1
Excludes non-cash compensation expense
16
Financial Performance
STATEMENT OF OPERATIONS
For the Six
Months Ended
June 30,
For the Three
Months Ended
June 30,
Revenue
Cost of revenue
2007
2008
$ 166.8 $ 150.8
107.8
122.2
2007
2008
11% $ 310.3 $ 299.0
213.6
225.5
4%
Gross margins
Gross margin %
Operating expenses
Non-cash equity compensation
44.7
26.8%
18.4
2.4
43.0
28.5%
13.2
3.3
4%
84.8
27.3%
34.4
5.1
85.4
28.6%
27.6
6.2
-1%
EBITDA
Depreciation and amortization
23.8
3.2
26.5
2.8
-10%
45.3
6.4
51.6
5.5
-12%
Operating Income
Net interest expense
20.6
7.1
23.7
8.7
-13%
38.9
13.8
46.1
17.5
-16%
Earnings before tax
Provision for income tax
13.6
5.2
15.0
5.7
25.1
10.6
28.6
10.8
8.4
0.0
9.2
0.1
14.5
0.1
17.8
0.1
8.5
9.3
14.6
17.9
0.2
(0.7)
(4.2)
(1.4)
Minority ownership
Earnings from continuing operations
Income (loss) from discontinued
operations, net of tax
-9%
-18%
Net income
$
8.7 $
8.6
2% $
10.4 $
16.5
-37%
Earnings per share from
continuing operations
$
0.11 $
0.11
0% $
0.14 $
0.20
-30%
76.7
82.1
-7%
76.8
82.0
-6%
26.2
15.7
29.8
23.9
-12%
-34%
50.4
28.2
57.8
35.1
-13%
-20%
Shares - Diluted
OTHER OPERATING DATA:
ADJ EBITDA (excludes equity expense)
Free Cash Flow
17
Cash Flow
For the Three
Months Ended
June 30,
Net income
Depreciation and amortization
Provision for bad debt
Deferred income taxes
Stock based compensation
Working capital
All other
Cash flow from operations
Acquisiton of CGS
Capital expenditures
Other
Cash flow from investing activitied
Net borrowings under credit facilities
Purchase of treasury stock
Other
Cash flow from financing activities
For the Six
Months Ended
June 30,
2008
2007
$ 8.7 $ 8.6
3.2
2.8
2.7
2.5
5.2
5.0
2.4
3.3
(10.7)
(0.5)
2.3
0.2
13.7
2008
2007
$ 10.4 $ 16.5
6.4
5.5
11.7
3.6 *
8.1
9.4
4.3
6.2
(10.6)
(3.6)
2.4
0.4
21.8
32.8
38.0
(24.8)
(2.8)
0.9
(1.1)
(0.3)
(24.8)
(4.7)
0.9
(3.0)
(0.8)
(26.7)
(1.4)
(28.7)
(3.8)
(52.0)
(0.1)
-
(10.3)
(1.5)
1.0
31.8
(9.4)
-
(10.5)
(3.6)
1.3
(52.0)
(10.8)
22.4
(12.8)
$(65.0) $ 9.7
$ 26.5
18
$ 21.4
* In the first quarter of 2008, GCA
discontinued the Arriva business
resulting in a $5.5 million bad debt
reserve adjustment.
Balance Sheet
ACTUAL
IN THOUSANDS
31-Dec-06
31-Dec-07
31-Mar-08
30-Jun-08
ASSETS
Cash and cash equivalents
Restricted cash and cash equivalents
Settlement receivables
Other receivables, net
Prepaid and other assets
Assets held for sale
Property, equipment and leasehold improvements,
Goodwill, net
Other intangibles, net
Deferred income taxes, net
$
40,919
1,350
137,091
12,848
9,488
20,454
156,755
18,001
191,741
$
71,063
1,380
60,638
27,170
7,492
23,523
156,889
13,941
177,227
$
163,234
1,383
40,606
8,483
7,545
6,053
23,617
156,855
12,307
174,282
$
98,094
385
48,466
19,878
9,859
3,610
28,860
169,700
23,545
169,117
TOTAL ASSETS
$
588,647
$
539,323
$
594,365
$
571,514
$
138,242
26,282
17,383
274,480
$
93,727
22,463
21,222
263,480
$
71,159
26,993
15,438
347,230
$
77,833
31,905
21,984
295,250
Total liabilities
$
456,387
$
400,892
$
460,820
$
426,972
MINORITY INTEREST
$
103
$
135
$
62
$
STOCKHOLDERS EQUITY
$
132,157
$
138,296
$
133,483
$
144,542
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
$
588,647
$
539,323
$
594,365
$
571,514
LIABILITIES AND STOCKHOLDERS EQUITY
LIABILITIES
Settlement liabilities
Accounts payable
Accrued expenses
Borrowings
19
-
Summary
 Industry Leader
 Attractive Business Model
•
Long-term contracts with high retention rate
•
Contractual linkage to customer expansion
•
Low capital and labor intensity
 Significant Growth Opportunities
•
United States
•
Asia
•
Europe
 New Product Leadership
•
Competitive differentiation
•
Margin improvement
•
One-to-one relationship with gaming patrons
 Robust Free Cash Flow
20