The Federal Reserve Board’s decision to cut debit card interchange effective Oct. 1 will provide a “kick start” for growth at Global Cash Access Holdings Inc., but other events, including contracts with new casinos opening up, also with help drive revenues over the next 12 to 18 months, the company’s top executive told analysts Aug. 9 during a conference call to discuss second-quarter earnings.
“In the last quarter, we’ve opened up the Rivers Casino in Chicago as well as the Galaxy Casino in Macau,” Scott Betts, Global Cash Access president and CEO, said during the call. “Both of these properties have experienced terrific success in the early months and promise to be top-20 accounts for us.”
The Las Vegas-based company, which provides cash access and related products to casinos through ATMs, point-of-sale debit card transactions, credit card cash advances and check-warranty services, on Aug. 9 reported revenues of $135.1 million for the quarter ended June 30, down 14.1%, from $157.2 million during the same period last year. Net income attributable to the company and its subsidiaries was down 83.1%, to $1 million from $5.9 million. The loss of the company’s biggest casino client late last year contributed heavily to the reductions in revenue and profit (
During the call, Betts noted various themes that emerged from the first half of this year that will propel Global Cash moving forward, including stability and predictability in the company’s core business, and greater visibility into the effects of the changes in debit card interchange.
“We believe each of these will have a positive impact on our financial performance for the remainder of 2011 and into 2012,” he said.
The Fed in June reduced the debit interchange fee cap to 21 cents per transaction, but it gave banks some leeway to charge even more if they meet certain fraud-prevention standards (
Mary Beth Higgins, the company’s chief financial officer, said the Fed’s decision to reduce debit card interchange, as directed by the so-called Durbin amendment to the Dodd-Frank Act, will have a “material impact” on Global Cash’s earnings beginning in the fourth quarter.
“We estimate that in the fourth quarter of 2011, the Durbin amendment impact could be approximately 100 basis points of improvement to our full 2011 total gross profit margins, and in excess of 400 basis points of improvement to our total gross profit margin for 2012,” she said. A basis point is one-hundredth of a percentage point.
Asked by Michael Chapman, an analyst at Private Capital Management, to confirm his calculation that the company next year could net $20 million more in cash because of the reduction in debit interchange, Higgins replied, “That’s the math.”
As a caveat, she cited the potential for the card networks to implement other fees that may offset a portion of those savings. “That having been said, we fully believe this legislation will be implemented as described by the Federal Reserve and that it will have a material impact on our financial performance for the foreseeable future,” Higgins added.
In late morning trading Aug. 10, shares of Global Cash stock were selling for $2.81, unchanged from the previous day’s closing price.
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