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Investor Presentation Results of operations For the period ended June 30, 2017

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Page 1: Investor Presentations1.q4cdn.com/401000259/files/doc_presentations/2017/2Q17... · 2017. 8. 18. · Games Segment Overview Strong Recurring Revenue Base, Robust Margins • Revenue

Investor Presentation

Results of operations

For the period ended

June 30, 2017

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Disclaimer

2

Forward-Looking Statements; Non-GAAP Financial Measures Throughout this presentation we make forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. The forward-looking statements are generally accompanied by words such as ‘‘plan,’’ ‘‘estimate,’’ ‘‘expect,’’ ‘‘intend,’’ ‘‘believe,’’ ‘‘should,’’ ‘‘would,’’ ‘‘could,” “potential,” ‘‘anticipate,’’ “project” or other words that convey uncertainty of future events or outcomes. Everi Holdings Inc.’s (“Everi” or “our”) actual results could differ materially from those stated or implied by these forward-looking statements due to risks and uncertainties associated with Everi’s business. Factors which could cause Everi’s actual results to differ from those projected or contemplated in any such forward-looking statements include, but are not limited to, the following factors: (1) our ability to maintain a broad customer reach, cross selling opportunities and a combined sales force able to address customers’ needs; (2) our game development studios’ ability to increase the product library and develop new enhancements to include in newly developed content; (3) our ability to obtain approval of new products in new and existing gaming jurisdictions; (4) the failure of analytics for gaming operations to adequately predict or measure gaming operations; (5) our ability to identify the cost structure and capital spend required to operate at current business levels; (6) our ability to secure brand license arrangements and to complete development of games using these brands; (7) our ability to introduce new products and services; (8) expectations regarding customers’ preferences and demands for future gaming offerings; (9) expectations regarding timing for recognition of revenue from new markets; (10) our ability to leverage integrated games and payments products; and (11) expectations regarding product approvals for our games and our ability to introduce games into field trials. The foregoing review of important factors that could cause actual events to differ from expectations should not be construed as exhaustive and should be read in conjunction with statements that are included herein and elsewhere, including the risk factors included in Everi’s most recent Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission. Except as required by applicable law, Everi undertakes no obligation to publicly update any forward-looking statement, or to make any other forward-looking statements, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise. Readers are cautioned not to place undue reliance on forward-looking statements, which are based only on information currently available to Everi and speak only as of the date of this communication. Additional Notes This presentation contains industry market data, industry forecasts and other statistical information. Such information has been obtained from publicly available information and industry publications. Everi has not independently verified such information and makes no representations as to the accuracy of such information. Non-GAAP Financial Measures In order to enhance investor understanding of the underlying trends in our business and to provide for better comparability between periods in different years, we are providing in this presentation Adjusted EBITDA and Adjusted EBITDA Margin, which are not measures of our financial performance or position under United States Generally Accepted Accounting Principles (“GAAP”). Accordingly, these measures should not be considered in isolation or as a substitute for, and should be read in conjunction with, our net earnings (loss), operating income (loss), basic or diluted earnings (loss) per share and cash flow data prepared in accordance with GAAP. Everi defines Adjusted EBITDA as earnings (loss) before interest, taxes, loss on extinguishment of debt, depreciation and amortization, non-cash stock compensation expense, goodwill impairment charges, accretion of contract rights, write-down of note receivable and warrant, loss on the sale of the aircraft, acquisition and other costs related to mergers and purchase accounting adjustments, separation costs related to the Company’s former CEO, and manufacturing relocation costs less a benefit from one-time legal settlement proceeds. We present Adjusted EBITDA as we use this measure to manage our business and consider this measure to be supplemental to our operating performance. We also make certain compensation decisions based, in part, on our operating performance, as measured by Adjusted EBITDA; and our credit facility and existing senior unsecured notes require us to comply with a consolidated secured leverage ratio that includes performance metrics substantially similar to Adjusted EBITDA. We define Adjusted EBITDA Margin as Adjusted EBITDA divided by revenues. A reconciliation of Everi’s most directly comparable GAAP measure to Adjusted EBITDA and Adjusted EBITDA Margin is included in Everi’s earning releases located on Everi’s website at ir.everi.com. Additionally, a reconciliation of each segment’s operating income (loss) to Adjusted EBITDA is also included. On a segment level, operating income (loss) per GAAP, rather than net earnings (loss) per GAAP, is reconciled to Adjusted EBITDA as Everi does not report net earnings (loss) by segment. In addition, Adjusted EBITDA Margin is provided on a segment level. Management believes that this presentation is meaningful to investors in evaluating the performance of Everi’s segments.

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Industry’s Only Games & Payments Provider

3

The Only Single Source Provider of Engaging Games and Robust Payment Solutions

Games Payments

• Everi is dedicated to providing state-of-the-art video and mechanical reel gaming content and technology solutions, integrated gaming payments solutions and compliance and efficiency software to casino operators

• LTM 2Q17 consolidated revenue of $919.5 million and consolidated Adjusted EBITDA of $209.3(1) million

• Only single source provider of complementary games and payments products

• Strong recurring revenues from substantial base of leased and participation gaming machines plus sales of gaming machines and related equipment

• Games provides the central determinant system for the ~18,700 video lottery terminals installed in the State of New York

• LTM 2Q17 revenue of $221.2 million, Adjusted EBITDA of $116.9(1) million and Adjusted EBITDA Margin of 52.8%(1)

• Provides cash access services (ATM, cash advance and check warranty), equipment for cash access and related services, and other information products (including credit reporting, compliance and marketing solutions)

• Long-term contracts provide base for strong recurring revenues for nearly all Payments revenue

• LTM 2Q17 revenue of $698.3 million, Adjusted EBITDA of $92.5(1) million and Adjusted EBITDA Margin of 13.2%(1)

1) Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP measures. Reconciliations to the most directly comparable GAAP measure can be found in applicable earnings releases located on Everi’s website at ir.everi.com

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Games Segment Overview

Strong Recurring Revenue Base, Robust Margins

• Revenue derived from revenue-sharing arrangements or daily fixed fee lease arrangements

• 12,942 gaming units (8,701 Class II and 4,241 Class III) installed as of June 30, 2017

• Recently entered into long-term placement arrangements covering nearly 50% of total Class II unit installed base for approximately 7 years

• Supplies central determinant system for ~18,700 video lottery terminals ("VLTs") in the State of New York

Expanding Proprietary Class II and Class III Offerings

• Broad portfolio of gaming machine products, including TournEvent and Wide-Area Progressive (“WAP”) games

• New slot themes based on licensed, branded content

$165.7

$204.2 $207.0 $214.4 $213.3 $221.2

23.7% 23.2%

1.4% 3.6%

-0.5%

6.9%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

$0.0

$50.0

$100.0

$150.0

$200.0

$250.0

2012 2013 2014 2015 2016 LTM 2Q17

Revenue

Revenue Revenue Growth %

4

Note: $ in millions; fiscal year ended December 31

$79.9

$106.6 $110.9 $116.0 $116.9

48.2% 52.2% 53.6%

57.3% 54.4% 52.8%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

$0.0

$25.0

$50.0

$75.0

$100.0

$125.0

$150.0

2012 2013 2014 2015(2) 2016 LTM 2Q17

Adjusted EBITDA(1)

Adjusted EBITDA Adjusted EBITDA Margin %

Premier Supplier of Exciting Games Across Multiple Platforms

1) Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP measures. Reconciliations to the most directly comparable GAAP measure can be found in applicable earnings releases located on Everi’s website at ir.everi.com

2) Adjusted EBITDA for 2015 includes a gain of approximately $4.0 million from the sale of certain assets of PokerTek, which was purchased by Multimedia Games in 2014. Excluding this gain, Adjusted EBITDA would have been $118.8 million and Adjusted EBITDA Margin would have been 55.4%.

3) Percentage growth represents growth for LTM 2Q17 versus LTM 2Q16

Gaming Operations,

17% Machine Sales, 7%

Payments Segment,

76%

LTM 2Q17 Consolidated Revenue

$4.0

$118.8

$122.8

(3)

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Payments Segment Overview

Dominant provider of gaming payments solutions in North America

Long-term contracts provide significant recurring revenue derived primarily from ATM cash withdrawal, cash advance and check service fees

• Processed 92.8 million transactions totaling $23.4 billion in cash to the floor in LTM 2Q17

Best-in-class provider of secure payments solutions enhanced by fully integrated kiosks, credit reporting services, compliance solutions and casino marketing services

• Allows casinos to reduce labor, coin handling and cage cash while enhancing compliance and security

$584.5 $582.4 $585.6 $612.6 $646.2 $698.3

7.4%

-0.3% 0.5%

4.6% 5.5%

11.5%

-15.0%

-5.0%

5.0%

15.0%

$0.0

$200.0

$400.0

$600.0

$800.0

2012 2013 2014 2015 2016 LTM 2Q17

Revenue

Revenue % Growth

5

1) Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP measures. Reconciliations to the most directly comparable GAAP measure can be found in applicable earnings releases located on Everi’s website at ir.everi.com

2) Percentage growth represents growth from LTM 2Q17 versus LTM 2Q16

$79.3 $71.2

$76.0 $77.6 $82.0

$92.5

13.6%

12.2% 13.0% 12.7% 12.7%

13.2%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

$0.0

$20.0

$40.0

$60.0

$80.0

$100.0

2012 2013 2014 2015 2016 LTM 2Q17

Adjusted EBITDA(1)

Adjusted EBITDA Adjusted EBITDA Margin %

Market Leading Provider of Cash Access and Compliance Products and Services

Note: $ in millions; fiscal year ending December 31

Games Segment, 24%

Check Services, 2%

Other, 5%

Cash Advance, 29%

ATM, 40%

LTM 2Q17 Consolidated Revenue

(2)

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Summary of Recent Financial Performance

6

1) Adjusted EBITDA is a non-GAAP measure. Reconciliations to the most directly comparable GAAP measure for historical periods can be found in applicable earnings releases located on Everi’s website at ir.everi.com

2) Games segment LTM 2Q16 Adjusted EBITDA of $113.2 million excludes a gain of approximately $4.0 million from the sale of certain assets of PokerTek, which was purchased by Multimedia Games in 2014. Including this gain, LTM 2Q16 Games segment Adjusted EBITDA would have been $117.2 million and would represent a decline of 0.3% to LTM 2Q17.

Revenue Adjusted EBITDA(1)

Note: $ in millions Note: $ in millions

$159.7 $187.1

$54.3 $55.1

$0.0

$50.0

$100.0

$150.0

$200.0

$250.0

2Q16 2Q17Payments Games

$626.0 $698.3

$207.0 $221.2

$0.0

$300.0

$600.0

$900.0

LTM 2Q16 LTM 2Q17

Payments Games

$21.2 $24.9

$30.0 $29.2

$0.0

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

2Q16 2Q17Payments Games

$77.2 $92.5

$113.2 $116.9

$0.0

$50.0

$100.0

$150.0

$200.0

$250.0

LTM 2Q16 LTM 2Q17

Payments Games

1.5% Y/Y Growth

17.2% Y/Y Growth

6.9% Y/Y Growth

11.6% Y/Y Growth

3.0% Y/Y Decline

17.5% Y/Y Growth

3.2% Y/Y Growth

19.8% Y/Y Growth

$214.0 $242.2

$832.9 $919.5

$51.2 $54.1

$194.4 $209.3

Note: $ in millions

Note: $ in millions

(2)

$4.0

(2)

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Key Recent Highlights & Wins

• Sold 886 units in 2Q17, up 8% Y/Y; fifth consecutive quarter of Y/Y unit sales growth

• Sold 1,904 units in 1H17, up 52% Y/Y

• 2Q17 represented the fifth consecutive quarter of Payments revenue and adjusted EBITDA growth

• Strong level of new Payments customer wins, including new casino openings and competitive take-outs, drive growth

• Eleventh consecutive quarter of same-store transactions and dollars processed growth

• Recently entered into agreement with largest customer in Oklahoma to consolidate and replace prior placement fee arrangements covering approximately 4,300 Class II units for period of 83 months beginning mid-July 2017

• Everi made $10.0 million cash payment in August 2017 and will pay approximately $5.6 million in placement fees per quarter from January 2018 to July 2019

• Secures placement of approximately 1/2 of Class II installed base and approximately 1/3 of total installed base

• Provides for greater visibility into future recurring revenue and adjusted EBITDA

• Initial 2Q17 launch of Casablanca™ themed game on WAP link for Class II markets

• Introduction of additional Class II video and mechanical reel WAP link content featuring licensed brands expected beginning in 3Q17

• Over 200 units WAP-connected titles deployed as of August 2017

7

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Key Recent Highlights & Wins (continued)

• Expanded ATM services in Canada at 29 properties in 3 provinces

• Growth in ATM business also includes surcharge increases at several large corporate customers

• Class III launch of Casablanca™ themed game in July 2017

• Introduced at multiple locations operated by major commercial casino company; targeted marketing to patron base by casino company will occur later in the quarter

• Similar launch plan for Penn & Teller expected in 3Q17 with second major commercial operator

• Company won Payments business for the last three major new casino openings (ilani, MGM National Harbor, del Lago Resort)

• Everi Compliance revenues have increased 52% in 1H17 compared to 1H16

• Indicative of growing need for Anti-Money Laundering (“AML”) and tax compliance solutions

8

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Recently Completed Refinancing Transaction • $820 million First Lien Term Loan (due May 2024) and $35 million revolving credit facility (due May

2022)

• Springing maturity feature accelerates maturity to 3-4 months inside of existing Senior Unsecured Notes if the Senior Unsecured Notes are not refinanced before maturity in January 2022

• Proceeds used to repay $335 million in former Senior Secured Notes and $462.3 million former Term Loan

• Priced at LIBOR plus 450 basis points, with 1% LIBOR floor

• Represents 75 basis point reduction from former Term Loan variable rates and nearly 175 basis point benefit to fixed rate provided by former Senior Secured Notes

• Results in approximately $8 million of annual cash interest savings based upon interest rates in effect on the closing of the refinance transaction (i.e. May 8, 2017)

• Maximum covenant compliance ratio increased to 5x Adjusted EBITDA through September 30, 2018

• Definition of Consolidated Adjusted EBITDA amended to add back interest expense paid as part of Vault Cash arrangement

• Consolidated Secured Leverage Ratio at June 30, 2017 under new facility and terms is approximately 3.67x compared to maximum senior leverage of 5.0x

• Provides significant cushion as TTM Adjusted EBITDA through September 2018 needs to be approximately $154 million or greater to remain in compliance

9

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Extensive Reach and Scale

10

Everi is Now Licensed in Over 200 Jurisdictions and Serves Over 1,000 Gaming Properties Globally

Core Cash Access

Gaming Segment

• Installed base of leased and participation games includes 12,942 units as of June 30, 2017

• Licensed in every major jurisdiction in North America

• Recently expanded Games and Payments presence to multiple provinces in Canada

• Newer premium game installations have ramped to 16% of installed base

• New WAP platform expected to accelerate further premium installations

Payments Segment

• Dominant, best-in-class provider of integrated gaming payments solutions in North America

• Processed 92.8 million transactions totaling $23.4 billion in dollar volume in LTM 2Q17

• Standard ATM

• 3-in-1 ATM

• Cash Advance

• Check Warranty

Everi Has Significantly Expanded its Footprint and Diversified its Geographic Reach

Equipment/Kiosks

• Fully Integrated 3-in-1 Kiosks

• Jackpot Processing

• Stand-Alone Kiosks

• Mobile Tablets

Information Services

• Central Credit

• Marketing

• Anti-Money Laundering and Tax Compliance Software

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Strong Record of Technology Innovation

11

TournEvent

• Industry leading, award-winning slot tournament system cited as the market’s best slot tournament solution with 61% share(1)

State of New York VLT System

• Developed one-of-a-kind central determinant system for the NY Lottery, which interfaces with, provides outcomes to, and manages approximately ~18,700 VLTs

Wide-area Progressive

• Development of WAP platform to support branded and proprietary game links in the Class II and Class III markets

Game Development Studios

• Strong game development capabilities, with studios in Austin, Chicago and Reno

• Strategically targeting third-party content such as Casablanca, Penn & Teller and Fruit Ninja, which lend themselves to player appeal and innovative game play

Premium Products

• Introduced HD dual screens, LCD panels and new top box technology, growing premium cabinets to 16% of installed base

• Developed Everi Bet™, a new bet configuration software that was named to Casino Journal’s Most Innovative Gaming Technology Products for 2015

Games

1) EILERS-FANTINI Slot Survey – 4Q16.

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Strong Record of Technology Innovation

12

Dedication to Network Infrastructure and Security

• Strategic investments in infrastructure and security make Everi a best-in-class provider of secure payments solutions

• First casino industry payments provider to be fully end-to-end Europay, MasterCard® and Visa® (“EMV”) compliant

Innovative Solutions and Enhancements

• Developed 3-in-1 Rollover ATM technology which drives incremental cash to the casino floor

• UniversalXchange with Universal Integrated Management provides enhanced platform for Everi’s fully integrated kiosk solutions

• Jackpot Xpress™, recognized as one of Casino Journal’s Top 20 Most Innovative Technology Products for 2016, allows for efficient mobile-based slot jackpot processing

• CageXchange™ and RecyclerXchange™ cash management solutions designed to accelerate transaction speed and efficiency, improve cage count accuracy and enhance the overall customer experience

• Everi Cares™ Giving Module creates opportunity for patrons to give to charities while reducing coin handling on the casino floor

Evolving Digital Capacity

• CashClub Wallet™ decentralizes payments throughout the gaming enterprise and offers an enhanced, streamlined player experience and reduced cash footprint for operators

Payments

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Successfully Executing on Business Plan

13

Leveraging Long-Term Customer Relationships Across Games and Payments

2015

Scarlett Pearl

• New customer

• 3Q15

• Cash Access product suite

• 76 games sold and/or leased

Desert Diamond Casinos & Entertainment

• New Payments / existing Games customer

• 3Q15

• Cash Access product suite

• 214 games sold and/or leased

2016

Alberta Gaming & Liquor Commission

• New Games / existing Payments customer

• 3Q16

• 248 games sold and/or leased

MGM National Harbor

• New casino / existing customer

• 3Q16

• Cash Access product suite

• 80 Games sold and/or leased

2017

Ilani

• New customer

• 1Q17

• Cash Access product suite

• 150 Games sold and/or leased

Expanding the Product Offering

• Expansion of Games offering to include new hardware options (e.g. Core HDX and Empire HDX cabinets), licensed and branded premium game content, WAP products and digital / interactive offerings

• New Payments products to complement existing core cash access services including CageXchange™ and RecyclerXchange™ cash management solution, Jackpot Xpress™, CashClub Wallet™ and the Everi Cares™ Giving Module

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Current 2017 Outlook

• 2017 Adjusted EBITDA(1) expected to be $209 million - $212 million

• Factors in Company’s 2017(2) outlook include: • 2017 unit sales expected to increase approximately 12% to 15% Y/Y with unit sales for 2H17

expected to be less than the 1,703 units sold in 2H16, which included nonrecurring sales of approximately 370 units related to a larger order in Canada and new casino openings

• Installed base at December 31, 2017 is expected to grow Y/Y

• Company expects to benefit from continued rollout of Jackpot Lockdown™ Class II WAP product, which includes the introduction of two Class II video reel games featuring Casablanca™ and Penn & Teller™, as well as from new premium licensed brands that will be introduced over the remainder of 2017

• Potential shift by certain CA tribal customers moving to Class III units from Class II could result in loss of up to 200 units from installed base over remainder of 2017

• Growth expectation assumes no material change in the remaining third party Class III units in the installed base

• Company expects improvement in the daily win per unit (“DWPU”) in 2H17 and expects revenue from the installed base portion of gaming operations in 2H17 will exceed the installed base revenue generated in 1H17

• Payments quarterly revenue and Adjusted EBITDA expected to grow Y/Y for the balance of 2017; Payments segment revenues expected to grow in the mid-single digits and Adjusted EBITDA(1) in the low single digits compared to the second half of 2016

14 1) Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP measures. Reconciliations to the most directly comparable GAAP measure can be found in applicable earnings releases

located on Everi’s website at ir.everi.com

2) The Company provided additional financial metrics for 2017 as part of the Second Quarter earnings press release, which is available on Everi’s website at ir.everi.com

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Investment Highlights

15

Successfully Executing on Business Plan

Experienced and Seasoned Leadership

Extensive Reach and Scale

Highly Differentiated, Complementary Products

Strong Track Record of Technology Innovation

Stable and Diversified Recurring Revenue Business

Powerful, Long-Term Customer Relationships

Significant Barriers to Entry

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Q&A