Global Cash Access Loses Largest Customer (GCA, GPN)

Global Cash Access Holdings, Inc. (NYSE: GCA) just became Global Cashless Access if you look at the trading volume today.  A death spiral volume alert was seen at VSInvestor.com this morning.  The company issued an SEC filing showing that it has received notice from Harrah’s Operating Company of its intent NOT TO RENEW ITS AGREEMENTS with it for the provision of automated teller machine services, point-of-sale debit services, and credit card cash access services.  The agreement will expire on November 30, 2010.  Global Payments Inc. (NYSE: GPN) is the top competitor, yet there is no benefit seen there.

There is a huge discrepancy over what the company says versus the implications in the stock reaction.  Global Cash Access Holdings said in the SEC filing that it does not believe the expiration of the Harrah’s Cash Access Agreements will have a material impact on results of operations for calendar year 2010.  If the terms are left the same under the agreement as is stated, then of course only one month won’t be the end of the world.  The problem is that this leaves a huge void for 2011 and beyond.

We broke out the annual report data from March and saw the exact relationship:

• “Our five largest customers accounted for approximately 34.4%, 34.2% and 40.6% of our total revenue in 2009, 2008 and 2007, respectively, collectively and our largest customer, Harrah’s Operating Company, Inc. and its subsidiaries and affiliates accounted for approximately 14.1%, 16.1% and 19.3% of our total revenue in 2009, 2008 and 2007, respectively. No other single customer accounted for more than 10% of our total revenue in 2009, 2008 or 2007, respectively.”

In short, GCA just lost its largest customer.  To make matters worse, what happens when other customers see the news and realize that they might be able to strike a better deal with more favorable terms?  GCA probably does not want to lose any more large customers.  If customers press, the company may be far more flexible on terms than before.

GCA plans to discuss this matter in more detail on its 2010 second quarter earnings call on August 4.  After seeing the drop of this size maybe it should consider discussing its solid merits ahead of time.

At 11:00 AM EST we have seen 6.15 million shares trade hands and the stock is down 39.2%at $4.25.  The market cap is now $279 million and the low was recorded as being $3.46 today.  That $3.46 looks under the market, but that marks a new 52-week low versus a high of $9.26.

The company notes in the Annual Report that Global Payments Inc. (NYSE: GPN) is its largest competitor, although it worth noting a monster size difference as Global Payments Inc. has a market cap of over $3 billion.  Oddly, its shares are also lower but only 0.5% at $37.21.

Behold a man on a pale horse…

JON C. OGG