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| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER
2022
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
FOR THE TRANSITION PERIOD FROM TO
file number: 001-32622
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Delaware | 20-0723270 | |||||||
| (State or other jurisdiction of | (I.R.S. Employer | |||||||
7250 S. | ||||||||
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Nevada | 89113 | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
(800) 833-7110
code)
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||||||
| Common Stock, $0.001 par value | EVRI | New York Stock Exchange | ||||||
| Large accelerated filer |
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Non-accelerated filer |
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| Smaller reporting company | ☐ | ||||||||||
Emerging growth company | ☐ | |||||||||||||
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| PART I: FINANCIAL INFORMATION | ||||||||||||||
Item 1: | ||||||||||||||
| 2021 | ||||||||||||||
Unaudited Condensed Consolidated Balance Sheets as of September 30, |
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| 2021 |
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Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2022 and 2021 | ||||||||||||||
| Notes to Unaudited Condensed Consolidated Financial Statements |
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Item 2: | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3: | Quantitative and Qualitative Disclosures |
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INCOME Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Revenues Games $ 55,452 $ 56,218 $ 165,832 $ 158,660 Payments 191,870 165,959 561,257 483,286 Total revenues 247,322 222,177 727,089 641,946 Costs and expenses Games cost of revenue (exclusive of depreciation and amortization) 13,820 15,467 39,503 36,871 Payments cost of revenue (exclusive of depreciation and amortization) 149,838 127,211 436,104 373,366 Operating expenses 29,463 26,996 87,235 87,735 Research and development 4,545 4,460 13,706 14,499 Depreciation 12,539 12,367 34,765 37,172 Amortization 17,322 24,104 52,086 70,887 Total costs and expenses 227,527 210,605 663,399 620,530 Operating income 19,795 11,572 63,690 21,416 Other expenses Interest expense, net of interest income 23,368 24,815 72,306 74,548 Loss on extinguishment of debt — — 14,615 — Total other expenses 23,368 24,815 86,921 74,548 Loss before income tax (3,573 ) (13,243 ) (23,231 ) (53,132 ) Income tax provision (benefit) 716 (4,989 ) 3,623 (20,930 ) Net loss (4,289 ) (8,254 ) (26,854 ) (32,202 ) Foreign currency translation 602 (394 ) 1,710 (1,314 ) Comprehensive loss $ (3,687 ) $ (8,648 ) $ (25,144 ) $ (33,516 ) Loss per share Basic $ (0.06 ) $ (0.12 ) $ (0.40 ) $ (0.49 ) Diluted $ (0.06 ) $ (0.12 ) $ (0.40 ) $ (0.49 ) Weighted average common shares outstanding Basic 66,897 66,049 66,449 66,041 Diluted 66,897 66,049 66,449 66,041 At September 30, At December 31, 2017 2016 ASSETS Current assets Cash and cash equivalents $ 108,471 $ 119,051 Settlement receivables 127,443 128,821 Trade and other receivables, net of allowances for doubtful accounts of $5,427 and $4,701 at September 30, 2017 and December 31, 2016, respectively 44,971 56,651 Inventory 23,790 19,068 Prepaid expenses and other assets 22,538 18,048 Total current assets 327,213 341,639 Non-current assets Property, equipment and leased assets, net 109,399 98,439 Goodwill 640,593 640,546 Other intangible assets, net 338,074 317,997 Other receivables 2,876 2,020 Other assets 7,450 7,522 Total non-current assets 1,098,392 1,066,524 Total assets $ 1,425,605 $ 1,408,163 LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities Settlement liabilities $ 197,494 $ 239,123 Accounts payable and accrued expenses 126,625 94,391 Current portion of long-term debt 8,200 10,000 Total current liabilities 332,319 343,514 Non-current liabilities Deferred tax liability 60,785 57,611 Long-term debt, less current portion 1,130,671 1,111,880 Other accrued expenses and liabilities 25,634 2,951 Total non-current liabilities 1,217,090 1,172,442 Total liabilities 1,549,409 1,515,956 Commitments and contingencies (Note 12) Stockholders’ deficit Common stock, $0.001 par value, 500,000 shares authorized and 91,918 and 90,952 shares issued at September 30, 2017 and December 31, 2016, respectively 92 91 Convertible preferred stock, $0.001 par value, 50,000 shares authorized and 0 shares outstanding at September 30, 2017 and December 31, 2016, respectively — — Additional paid-in capital 273,906 264,755 Accumulated deficit (221,152 ) (194,299 ) Accumulated other comprehensive loss (399 ) (2,109 ) Treasury stock, at cost, 24,872 and 24,867 shares at September 30, 2017 and December 31, 2016, respectively (176,251 ) (176,231 ) Total stockholders’ deficit (123,804 ) (107,793 ) Total liabilities and stockholders’ deficit $ 1,425,605 $ 1,408,163 Nine Months Ended September 30, 2017 2016 Cash flows from operating activities Net loss $ (26,854 ) $ (32,202 ) Adjustments to reconcile net loss to cash provided by operating activities: Depreciation and amortization 86,851 108,059 Amortization of financing costs 4,567 5,023 Loss on sale or disposal of assets 1,580 2,554 Accretion of contract rights 5,845 6,521 Provision for bad debts 7,946 7,192 Deferred income taxes 3,174 (22,259 ) Write-down of assets — 4,289 Reserve for obsolescence 46 942 Loss on extinguishment of debt 14,615 — Stock-based compensation 5,125 4,146 Changes in operating assets and liabilities: Settlement receivables 1,569 9,158 Trade and other receivables 2,767 (1,386 ) Inventory (5,314 ) 6,315 Prepaid and other assets (3,337 ) 2,912 Settlement liabilities (41,799 ) (22,000 ) Accounts payable and accrued expenses 12,981 6,544 Net cash provided by operating activities 69,762 85,808 Cash flows from investing activities Capital expenditures (70,057 ) (67,025 ) Acquisitions, net of cash acquired — (694 ) Proceeds from sale of fixed assets 4 4,608 Placement fee agreements (13,132 ) (11,187 ) Changes in restricted cash (149 ) 88 Net cash used in investing activities (83,334 ) (74,210 ) Cash flows from financing activities Repayments of new credit facility (2,050 ) — Repayments of prior credit facility (465,600 ) (21,900 ) Repayments of secured notes (335,000 ) — Proceeds from current credit facility 820,000 — Debt issuance costs and discounts (19,748 ) (480 ) Proceeds from exercise of stock options 4,046 — Purchase of treasury stock (21 ) (17 ) Net cash provided by (used in) financing activities 1,627 (22,397 ) Effect of exchange rates on cash 1,365 (743 ) Cash and cash equivalents Net decrease for the period (10,580 ) (11,542 ) Balance, beginning of the period 119,051 102,030 Balance, end of the period $ 108,471 $ 90,488 Nine Months Ended September 30, 2017 2016 Supplemental cash disclosures Cash paid for interest $ 59,894 $ 55,465 Cash paid for income tax $ 760 $ 1,124 Cash refunded for income tax $ 200 $ 92 Supplemental non-cash disclosures Accrued and unpaid capital expenditures $ 4,736 $ 1,427 Accrued and unpaid placement fees $ 39,074 $ — Accrued and unpaid contingent liability for acquisitions $ — $ (3,169 ) Transfer of leased gaming equipment to inventory $ 6,093 $ 6,222 time of evaluation will prove to be accurate predictions of the future. If our assumptions regarding business plans, competitive environments, or anticipated growth rates are not correct, we may be required to record non-cash impairment charges in future periods, whether in connection with our normal review procedures periodically, or earlier, if an indicator of an impairment is present prior to such evaluation. these instruments. The fair value of the long-term trade and loans receivable is estimated by discounting expected future cash flows using current interest rates at which similar loans would be made to borrowers with similar credit ratings and remaining maturities. The fair value of long-term accounts payable is estimated by discounting the total obligation using the appropriate interest rates. As of September 30, 2022 and December 31, 2021, the fair value of trade and loans receivable approximated the carrying value due to contractual terms generally being slightly ov Level of Hierarchy Fair Value Outstanding Balance September 30, 2017 Term loan 2 $ 826,130 $ 817,950 Senior unsecured notes 1 $ 378,875 $ 350,000 December 31, 2016 Term loan 1 $ 451,632 $ 465,600 Senior secured notes 3 $ 324,950 $ 335,000 Senior unsecured notes 1 $ 350,000 $ 350,000 We account for business combinations in accordance with ASC 805— Business Combinations, which requires that the identifiable assets acquired and liabilities assumed be recorded at their estimated fair values on the acquisition date separately from goodwill, which is the excess of the fair value of the purchase price over the fair values of these identifiable assets and liabilities. We include the results of operations of an acquired business as of the acquisition date.LOSSOPERATIONS AND COMPREHENSIVE LOSSlossearnings per share amounts) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Revenues Games revenues Gaming operations $ 74,979 $ 71,580 $ 219,311 $ 202,941 Gaming equipment and systems 37,500 24,220 103,766 68,298 Gaming other 41 33 126 82 Games total revenues 112,520 95,833 323,203 271,321 FinTech revenues Financial access services 53,296 46,421 154,051 129,973 Software and other 22,192 17,024 59,056 49,874 Hardware 16,310 9,024 40,846 28,829 FinTech total revenues 91,798 72,469 253,953 208,676 Total revenues 204,318 168,302 577,156 479,997 Costs and expenses Gaming operations 6,557 5,675 18,674 15,776 Gaming equipment and systems 22,545 13,503 62,721 39,058 Games total cost of revenues 29,102 19,178 81,395 54,834 Financial access services 2,760 1,830 7,405 4,863 Software and other 1,163 1,063 2,984 3,196 Hardware 10,771 5,380 27,074 17,078 FinTech total cost of revenues 14,694 8,273 37,463 25,137 Operating expenses 56,354 47,121 161,230 133,320 Research and development 16,803 9,598 43,386 26,799 Depreciation 17,444 14,463 48,342 46,571 Amortization 15,303 14,596 43,582 43,680 Total costs and expenses 149,700 113,229 415,398 330,341 Operating income 54,618 55,073 161,758 149,656 Other expenses Interest expense, net of interest income 14,880 14,257 38,522 50,488 Loss on extinguishment of debt — 34,389 — 34,389 Total other expenses 14,880 48,646 38,522 84,877 Income before income tax 39,738 6,427 123,236 64,779 Income tax provision (benefit) 10,329 (319) 29,784 1,285 Net income 29,409 6,746 93,452 63,494 Foreign currency translation loss (2,639) (442) (4,665) (335) Comprehensive income $ 26,770 $ 6,304 $ 88,787 $ 63,159 Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Earnings per share Basic $ 0.33 $ 0.07 $ 1.03 $ 0.72 Diluted $ 0.30 $ 0.07 $ 0.95 $ 0.64 Weighted average common shares outstanding Basic 90,014 90,322 91,039 88,688 Diluted 96,436 101,359 98,306 99,581 At September 30, At December 31, 2022 2021 ASSETS Current assets Cash and cash equivalents $ 258,627 $ 302,009 Settlement receivables 76,854 89,275 Trade and other receivables, net of allowances for credit losses of $5,977 and $5,161 at September 30, 2022 and December 31, 2021, respectively 116,843 104,822 Inventory 55,890 29,233 Prepaid expenses and other current assets 39,009 27,299 Total current assets 547,223 552,638 Non-current assets Property and equipment, net 130,545 119,993 Goodwill 707,214 682,663 Other intangible assets, net 230,928 214,594 Other receivables 24,777 13,982 Deferred tax assets, net 179 32,121 Other assets 28,657 19,659 Total non-current assets 1,122,300 1,083,012 Total assets $ 1,669,523 $ 1,635,650 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Settlement liabilities $ 232,147 $ 291,861 Accounts payable and accrued expenses 209,766 173,933 Current portion of long-term debt 6,000 6,000 Total current liabilities 447,913 471,794 Non-current liabilities Deferred tax liabilities, net 345 — Long-term debt, less current portion 972,877 975,525 Other accrued expenses and liabilities 29,669 13,831 Total non-current liabilities 1,002,891 989,356 Total liabilities 1,450,804 1,461,150 Commitments and contingencies (Note 13) Stockholders’ equity Convertible preferred stock, $0.001 par value, 50,000 shares authorized and no shares outstanding at September 30, 2022 and December 31, 2021, respectively — — Common stock, $0.001 par value, 500,000 shares authorized and 119,258 and 89,972 shares issued and outstanding at September 30, 2022, respectively, and 116,996 and 91,313 shares issued and outstanding at December 31, 2021, respectively 119 117 Additional paid-in capital 522,353 505,757 Accumulated deficit (48,303) (141,755) Accumulated other comprehensive loss (6,120) (1,455) Treasury stock, at cost, 29,286 and 25,683 shares at September 30, 2022 and December 31, 2021, respectively (249,330) (188,164) Total stockholders’ equity 218,719 174,500 Total liabilities and stockholders’ equity $ 1,669,523 $ 1,635,650 Nine Months Ended September 30, 2022 2021 Cash flows from operating activities Net income $ 93,452 $ 63,494 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 48,342 46,571 Amortization 43,582 43,680 Non-cash lease expense 3,599 3,400 Amortization of financing costs and discounts 2,140 3,234 Loss on sale or disposal of assets 420 1,616 Accretion of contract rights 7,367 6,966 Provision for credit losses 7,286 5,499 Deferred income taxes 28,042 (174) Reserve for inventory obsolescence 659 1,610 Loss on extinguishment of debt — 34,389 Stock-based compensation 15,012 12,404 Changes in operating assets and liabilities: Settlement receivables 12,251 10,056 Trade and other receivables (23,845) (25,522) Inventory (23,026) (5,569) Prepaid expenses and other assets (26,388) (8,068) Settlement liabilities (59,432) 4,371 Accounts payable and accrued expenses 17,453 45,543 Net cash provided by operating activities 146,914 243,500 Cash flows from investing activities Capital expenditures (92,225) (73,288) Acquisitions, net of cash acquired (33,250) (15,000) Proceeds from sale of property and equipment 115 215 Placement fee agreements (547) — Net cash used in investing activities (125,907) (88,073) Cash flows from financing activities Proceeds from new term loan — 600,000 Repayments of new term loan (4,500) — Repayments of prior term loan — (735,500) Repayments of prior incremental term loan — (124,375) Proceeds from 2021 unsecured notes — 400,000 Repayments of 2017 unsecured notes — (285,381) Fees associated with debt transactions - new debt — (19,797) Fees associated with debt transactions - prior debt — (20,828) Proceeds from exercise of stock options 1,586 14,012 Treasury stock - restricted share vestings and withholdings (11,815) (8,909) Treasury stock - repurchase of shares (49,351) — Payment of contingent consideration, acquisition — (9,875) Net cash used in financing activities (64,080) (190,653) Effect of exchange rates on cash and cash equivalents (1,106) (237) Cash, cash equivalents and restricted cash Net decrease for the period (44,179) (35,463) Balance, beginning of the period 303,726 252,349 Balance, end of the period $ 259,547 $ 216,886 Nine Months Ended September 30, 2022 2021 Supplemental cash disclosures Cash paid for interest $ 42,070 $ 45,167 Cash paid for income tax, net 846 975 Supplemental non-cash disclosures Accrued and unpaid capital expenditures $ 5,511 $ 32,999 Transfer of leased gaming equipment to inventory 7,758 5,636 Common Stock—
Series AAdditional Accumulated
OtherTotal Stockholders’ Number of
SharesAmount Paid-in
CapitalAccumulated
DeficitComprehensive
LossTreasury
StockEquity
Balance, January 1, 2021 111,872 $ 112 $ 466,614 $ (294,620) $ (1,191) $ (178,813) $ (7,898) Net income — — — 20,534 — — 20,534 Foreign currency translation — — — — (221) — (221) Stock-based compensation expense — — 3,005 — — — 3,005 Exercise of warrants 378 — — — — — — Exercise of options 561 1 2,284 — — — 2,285 Restricted share vestings and withholdings 41 — (1) — — (172) (173) Balance, March 31, 2021 112,852 $ 113 $ 471,902 $ (274,086) $ (1,412) $ (178,985) $ 17,532 Net income — — — 36,214 — — 36,214 Foreign currency translation — — — — 328 — 328 Stock-based compensation expense — — 5,447 — — — 5,447 Exercise of options 1,358 2 6,416 — — — 6,418 Restricted share vestings and withholdings 1,349 1 (3) — — (8,437) (8,439) Balance, June 30, 2021 115,559 $ 116 $ 483,762 $ (237,872) $ (1,084) $ (187,422) $ 57,500 Net income — — — 6,746 — — 6,746 Foreign currency translation — — — — (442) — (442) Stock-based compensation expense — — 3,952 — — — 3,952 Exercise of options 762 — 5,309 — — — 5,309 Restricted share vestings and withholdings 36 — (1) — — (296) (297) Balance, September 30, 2021 116,357 $ 116 $ 493,022 $ (231,126) $ (1,526) $ (187,718) $ 72,768 Common Stock—
Series AAdditional Accumulated
OtherTotal Stockholders’ Number of
SharesAmount Paid-in
CapitalAccumulated
DeficitComprehensive
LossTreasury
StockEquity Balance, January 1, 2022 116,996 $ 117 $ 505,757 $ (141,755) $ (1,455) $ (188,164) $ 174,500 Net income — — — 31,522 — — 31,522 Foreign currency translation — — — — 580 — 580 Stock-based compensation expense — — 4,811 — — — 4,811 Exercise of options 164 — 699 — — — 699 Restricted share vestings and withholdings 61 — — — — (400) (400) Balance, March 31, 2022 117,221 $ 117 $ 511,267 $ (110,233) $ (875) $ (188,564) $ 211,712 Net income — — — 32,521 — — 32,521 Foreign currency translation — — — — (2,606) — (2,606) Stock-based compensation expense — — 5,500 — — — 5,500 Exercise of options 5 — 20 — — — 20 Restricted share vestings and withholdings 1,883 2 (2) — — (11,182) (11,182) Repurchase of shares — — — — — (33,336) (33,336) Balance, June 30, 2022 119,109 $ 119 $ 516,785 $ (77,712) $ (3,481) $ (233,082) $ 202,629 Net income — — — 29,409 — — 29,409 Foreign currency translation — — — — (2,639) — (2,639) Stock-based compensation expense — — 4,701 — — — 4,701 Exercise of options 115 — 867 — — — 867 Restricted share vestings and withholdings 34 — — — — (233) (233) Repurchase of shares — — — — — (16,015) (16,015) Balance, September 30, 2022 119,258 $ 119 $ 522,353 $ (48,303) $ (6,120) $ (249,330) $ 218,719 Statements,Statements;” (ii) our Unaudited Condensed Consolidated Statements of LossOperations and Comprehensive LossIncome as our “Statements of Loss,Operations;” and (iii) our Unaudited Condensed Consolidated Balance Sheets as our “Balance Sheets,Sheets.” and our Unaudited Condensed Consolidated Statements of Cash Flows as our “Cash Flows.”1.BUSINESS(formerly known as Global Cash Access Holdings, Inc.) (“Everi Holdings,” “Holdings” or “Everi”) is a holding company, the assets of which are the issued and outstanding shares of capital stock of each of Everi Payments Inc. (“Everi FinTech” or “FinTech”) and Everi Games Holding Inc. (formerly known as Multimedia Games Holding Company, Inc.) (“Everi Games Holding”), which owns all of the issued and outstanding shares of capital stock of Everi Games Inc. (formerly known as Multimedia Games, Inc.) (“Everi Games” or “Games”) and Everi Payments Inc. (formerly known as Global Cash Access, Inc.) (“Everi Payments” or “Payments”). Unless otherwise indicated, the terms the “Company,” “we,” “us”“us,” and “our” refer to Everi Holdings together with its consolidated subsidiaries.dedicated to providing video and mechanical reel gaming contenta supplier of entertainment and technology solutions integratedfor the casino and digital gaming paymentsindustry. The Company develops game content and gaming machines, gaming systems and services for land-based and iGaming operators. The Company is also a provider of financial technology solutions that power the casino floor, including products and complianceservices that facilitate cash and efficiency softwarecashless financial transactions, self-service player loyalty tools and applications, and regulatory and intelligence software.operators. Everi Games provides: (a) comprehensive content, electronic gaming unitscustomers; (ii) providing and systems for Native American and commercial casinos, including both Wide-Area Progressive (“WAP”) systems and the TournEvent® slot tournament solution; and (b)maintaining the central determinant systemsystems for the video lottery terminals (“VLTs”) installed in the State of New York. York and similar technology in certain tribal jurisdictions; and (iii) business-to-business (“B2B”) digital online gaming activities.Payments provides: (a)FinTech provides gaming operators with financial technology products and services, including: (i) financial access and related services supporting digital, cashless and physical cash options across mobile, assisted and self-service channels; (ii) loyalty and marketing software and tools, regulatory and compliance (“RegTech”) software solutions, other information-related products and services, and hardware maintenance services; and (iii) associated casino patron self-service hardware that utilizes our financial access, software and other services. Our services operate as part of an end-to-end security suite to protect against cyber-related attacks and maintain the necessary secured environments to maintain compliance with applicable regulatory requirements. These solutions include: access to cash and cashless funding at gaming facilities via Automated Teller Machine (“ATM”) cashdebit withdrawals, credit card cashfinancial access transactions, and point of sale (“POS”) debit card transactions,purchases at casino cages, kiosk and mobile POS devices; accounts for the CashClub Wallet, check verificationwarranty services, self-service loyalty and warranty services; (b) fully integrated gaming industry kiosks that provide cash accesskiosk maintenance services; self-service loyalty tools and related services; (c) products and services that improve credit decision making, automate cashier operations and enhance patron marketing activities for gaming establishments; (d)promotion management software; compliance, audit, and data solutions;software; casino credit data and (e) online payment processing solutionsreporting services; marketing and promotional offering subscription-based services; and other ancillary offerings.operatorsindustry conditions have improved significantly compared to the start of the pandemic, it is unclear if customers’ industry capital allocations will fully return to and remain at pre-COVID levels. With macro-economic volatility and pandemic-related challenges still in stateseffect, we expect that offer intrastate, Internet-baseddemand and supply for our products and services could be tempered in the short-term, to the extent gaming activity decreases at our customers’ locations, or fails to increase at expected rates, and lottery activities.to the extent our customers decide to restrict their capital spending as a result of uncertainty in the industry, or that supply chain disruptions might impact customer deliveries, or otherwise.
The impact of the COVID-19 pandemic also exacerbates the risks disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “Annual Report”), including, but not limited to: our ability to generate revenues and, earn profits, our ability to service existing and attract new customers and maintain our overall competitiveness in the market; the potential for significant fluctuations in demand for our products and services; overall trends in the gaming industry impacting our business, and potential volatility in our stock price, among other concerns.2.BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES20172022 are not necessarily indicative of results to be expected for the full fiscal year. The Financial Statements should be read in conjunction with the consolidated financial statements and notes thereto included in the most recently filed Annual Report.Annual Reportrevenues to maintain compliance with SEC Regulation S-X Section 210.5-3, which requires us to separately present certain categories of revenues that exceed the quantitative threshold on Form 10-Kour Statements of Operations.2022 2021 Balance at January 1 - current $ 9,927 $ 9,240 Balance at January 1 - non-current 5,294 8,321 Total 15,221 17,561 Balance at September 30 - current 12,223 9,728 Balance at September 30 - non-current 10,589 5,647 Total 22,812 15,375 Increase (decrease) $ 7,591 $ (2,186) Balance at January 1 - current $ 36,238 $ 26,980 Balance at January 1 - non-current 377 289 Total 36,615 27,269 Balance at September 30 - current 44,460 36,503 Balance at September 30 - non-current 2,246 493 Total 46,706 36,996 Increase $ 10,091 $ 9,727 fiscal yearthree and nine months ended December 31, 2016.ThereSeptember 30, 2022, respectively, and $49.2 million and $141.6 million for the three and nine months ended September 30, 2021, respectively.Classification on our Balance Sheets At September 30, 2022 At December 31, 2021 Cash and cash equivalents Cash and cash equivalents $ 258,627 $ 302,009 Restricted cash - current Prepaid expenses and other current assets 819 1,616 Restricted cash - non-current Other assets 101 101 Total $ 259,547 $ 303,726 nodetermined to have a high risk of uncollectability, which represents our best estimates of the current expected credit losses to be incurred in the future. To derive our estimates, we analyze historical collection trends and changes in our customer payment patterns, current and expected conditions and market trends along with our operating forecasts, concentration, and creditworthiness when evaluating the adequacy of our allowance for credit losses. In addition, with respect to our check warranty receivables, we are exposed to risk for the losses associated with warranted items that cannot be collected from patrons issuing these items. We evaluate the collectability of the outstanding balances and establish a reserve for the face amount of the current expected credit losses related to these receivables. Account balances are charged against the provision when the Company believes it is probable the receivable will not be recovered. The provision for doubtful accounts receivable is included within operating expenses and the check warranty loss reserves are included within financial access services cost of revenues in the Statements of Operations.of presentation and significant accounting policies sinceat the most recent filingbeginning of our Annual Reportfourth fiscal quarter and between annual tests if events and circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The annual impairment test is completed using either: a qualitative “Step 0” assessment based on Form 10-Kreviewing relevant events and circumstances; or a quantitative “Step 1” assessment, which determines the fair value of the reporting unit, using both an income approach that discounts future cash flows based on the estimated future results of our reporting units and a market approach that compares market multiples of comparable companies to determine whether an impairment exists. To the extent the carrying amount of a reporting unit is less than its estimated fair value, an impairment charge is recorded.fiscal year ended December 31, 2016.receivables,and other receivables, settlement liabilities, accounts payable, and accrued expenses approximatesapproximate fair value due to the short-term maturities ofareis estimated based on various inputs to determine a market price, such as: market demand and supply, size of tranche, maturity, and similar instruments trading in more active markets. The estimated fair value and outstanding balances of our borrowings are as follows (in(dollars in thousands).: Level of Hierarchy Fair Value Outstanding Balance September 30, 2022 $600 million New Term Loan 2 $ 572,972 $ 594,000 $400 million 2021 Unsecured Notes 2 $ 329,984 $ 400,000 December 31, 2021 $600 million New Term Loan 2 $ 598,171 $ 598,500 $400 million 2021 Unsecured Notes 2 $ 404,000 $ 400,000 The term loan facility was reported atvaluevalues were determined using a Level 2 inputinputs based on quoted market prices for these securities.Standard Description Date of Adoption Effect on Financial Statements This ASU amends the lease classification requirements for lessors to align them with practice under ASC Topic 840 January 1, 2022 The adoption of this ASU did not have a material effect on our Financial Statements or on our disclosures. were quoted prices in marketsis a transfer of title or purchase option reasonably certain to be exercised.considered activematerial.Classification on our Balance Sheets At September 30, 2022 At December 31, 2021 Assets Operating lease ROU assets Other assets, non-current $ 18,426 $ 12,692 Liabilities Current operating lease liabilities Accounts payable and accrued expenses $ 6,436 $ 5,663 Non-current operating lease liabilities Other accrued expenses and liabilities $ 16,281 $ 11,869 Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Cash paid for: Long-term operating leases $ 1,855 $ 1,660 $ 5,165 $ 5,030 Short-term operating leases $ 398 $ 400 $ 1,205 $ 1,219 Right-of-use assets obtained in exchange for lease obligations: $ 997 $ 396 $ 7,448 $ 1,063 At September 30, 2022 At December 31, 2021 Weighted Average Remaining Lease Term (in years): Operating leases 3.57 3.52 Weighted Average Discount Rate: Operating leases 4.71 % 5.04 % Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Operating Lease Cost: Operating lease cost $ 1,663 $ 1,276 $ 4,492 $ 4,192 Variable lease cost $ 259 $ 311 $ 902 $ 946 2017. The senior unsecured notes were reported2022 (in thousands):Year Ending December 31, Amount 2022 (excluding the nine months ended September 30, 2022) $ 1,750 2023 7,293 2024 6,747 2025 5,834 2026 2,137 Thereafter 967 Total future minimum lease payments 24,728 Less: Amount representing interest 2,011 Present value of future minimum lease payments 22,717 Less: Current operating lease obligations 6,436 Long-term lease obligations $ 16,281 fair value usingcustomer facilities. We receive recurring revenues based on a Level 1 input as there were quoted prices in markets that were considered active aspercentage of September 30, 2017.The term loan was reported at fair value usingthe net win per day generated by the leased gaming equipment or a Level 1 input as there were quoted prices in markets that were considered active as of December 31, 2016. The senior secured notes were reported at fair value using a Level 3 input as there was no market activity or observable inputs as of December 31, 2016. The senior unsecured notes were reported at fair value using a Level 1 input as there were quoted prices in markets that were considered active as of December 31, 2016.Reclassification of Prior Year BalancesReclassifications were madefixed daily fee. Such revenues are generated daily and are limited to the prior-period Financial Statements to conform tolesser of the current period presentation.Recent Accounting GuidanceRecently Adopted Accounting GuidanceIn January 2017,net win per day generated by the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-04, which provides updated guidance onleased gaming equipment or the goodwill impairment testfixed daily fee and the method by which an entity recognizes an impairment charge. These amendments eliminate Step 2lease payments that have been collected from the current goodwill impairment processlessee. Certain of our leases have terms and requireconditions with options for a lessee to purchase the underlying assets. Refer to an entity recognize an impairment charge equal to the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. Additionally, a company should also take into consideration income tax effects from tax deductible goodwill on the carrying amount of a reporting unit when recording an impairment loss. The new standard is effectivequalified for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. This guidance will be applied using a prospective approach. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We adopted this guidance in the current period. As no indicators of impairment were identified for our goodwillsales-type lease accounting treatment during the three and nine months ended September 30, 2017, this ASU did not impact our Financial Statements.In March 2016, the FASB issued ASU No. 2016-09, which simplifies several aspects of the accounting for share-based payment transactions, including the accounting for2022 and 2021taxes, statutory tax withholding requirements and classification on the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. This guidance will be applied either prospectively, retrospectively or using a modified retrospective transition method, depending on the area covered in this update. Early adoption is permitted. We adopted this guidance in the current period on a prospective basis. As of September 30, 2017, the adoption of ASU No. 2016-09 has not materially impacted our Financial Statements. With respect to forfeitures, the Company will continue to estimate the number of awards expected to be forfeited in accordance with our existing accounting policy. In addition, our Cash Flows present excess tax benefits as operating activities in the current period, as the prior period was not adjusted.In July 2015, the FASB issued ASU No. 2015-11, which provides guidance on the measurement of inventory value. The amendments require an entity to measure in scope inventory at the lower of cost and net realizable value. Net realizablevalue is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Subsequent measurement is unchanged for inventory measured using last-in, first-out (“LIFO”) or the retail inventory method. The amendments do not apply to inventory that is measured using LIFO or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (“FIFO”) or average cost. The pronouncement is effective for annual periods beginning after December 15, 2016, and interim periods within those fiscal years, and early adoption is permitted. We adopted this guidance in the current period. This ASU did not have a material impact on our Financial Statements.Recent Accounting Guidance Not Yet AdoptedIn May 2017, the FASB issued ASU No. 2017-09 to clarify which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. An entity is required to account for the effects of a modification unless all of the following conditions are met: (i) the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or value using an alternative measurement method) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification; (ii) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and (iii) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The new standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted in the first period of the year this guidance is adopted. We are currently evaluating the impact of adopting this guidance on our Financial Statements.In January 2017, the FASB issued ASU No. 2017-01, which clarifies the definition of a business. The amendments affect all companies and other reporting organizations that must determine whether they have acquired or sold a business. The amendments are intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. This guidance will be applied using a prospective approach as of the beginning of the first period of adoption. Early adoption is permitted for acquisitions, or disposals that occur before the issuance date or effectiveness date of the amendments when the transaction has not been reported in financial statements that have been issued or made available for issuance. We are currently evaluating the impact of adopting this guidance on our Financial Statements.In October 2016, the FASB issued ASU No. 2016-18, which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments do not provide a definition of restricted cash or restricted cash equivalents. The new standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. This guidance will be applied using a retrospective approach to each period presented. Early adoption is permitted and adoption in an interim period should reflect adjustments as of the beginning of the fiscal year that includes that interim period. We are currently evaluating the impact of adopting this guidance on our Financial Statements.In October 2016, the FASB issued ASU No. 2016-16, which provides updated guidance on the recognition of the income tax consequences of intra-entity transfers of assets other than inventory when the transfer occurs, and this eliminates the exception for an intra-entity transfer of such assets. The new standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. This guidance will be applied using a modified retrospective approach through a cumulative-effective adjustment directly to retained earnings as of the beginning of the period of adoption. Early adoption is permitted during the first interim period of the year this guidance is adopted. We are currently evaluating the impact of adopting this guidance on our Financial Statements.In August 2016, the FASB issued ASU No. 2016-15, which provides updated guidance on the classification of certain cash receipts and cash payments in the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. This guidance will be applied using aretrospective approach. If it is impracticable to apply the amendments retrospectively for some of the issues within this ASU, the amendments for those issues would be applied prospectively as of the earliest date practicable. Early adoption is permitted including adoption in an interim period. We are currently evaluating the impact of adopting this guidance on our Financial Statements.In June 2016, the FASB issued ASU No. 2016-13, which provides updated guidance on credit losses for financial assets measured at amortized cost basis and available-for sale debt securities. The new standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. This guidance will be applied using a modified retrospective approach for the cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective and using a prospective approach for debt securities for which any other-than-temporary impairment had been recognized before the effective date. Early adoption is permitted for fiscal years beginning after December 15, 2018. We are currently evaluating the impact of adopting this guidance on our Financial Statements.In February 2016, the FASB issued ASU No. 2016-02, which provides guidance on the accounting treatment of leases. The ASU establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years and early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. While we are currently assessing the impact of this ASU on our Financial Statements, we expect the primary impact to our consolidated financial position upon adoption will be the recognition, on a discounted basis, of our minimum commitments under noncancelable operating leases on our Balance Sheets, which will result in the recording of right of use assets and lease obligations and are currently discussed in “Note 12 — Commitments and Contingencies.”In May 2014, the FASB issued ASU No. 2014-09, which creates FASB Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” and supersedes ASC Topic 605, “Revenue Recognition”. The guidance replaces industry-specific guidance and establishes a single five-step model to identify and recognize revenue. The core principle of the guidance is that an entity should recognize revenue upon transfer of control of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Additionally, the guidance requires the entity to disclose further quantitative and qualitative information regarding the nature and amount of revenues arising from contracts with customers, as well as other information about the significant judgments and estimates used in recognizing revenues from contracts with customers. The guidance in ASU 2014-09 was further updated by ASU 2016-08 in March 2016, which provides clarification on the implementation of the principal versus agent considerations in ASU 2014-09. In April 2016, the FASB issued ASU 2016-10, which provides clarification on the implementation of performance obligations and licensing in ASU 2014-09. In May 2016, the FASB issued ASU 2016-11, which amends guidance provided in two SEC Staff Announcements at the March 3, 2016 Emerging Issues Task Force meeting over various topics relating to ASU 606. In May 2016, the FASB issued ASU 2016-12, which clarified various topics in ASU 606. In December 2016, the FASB issued ASU 2016-20, which clarified additional topics in ASU 606. This guidance was originally effective for interim and annual reporting periods beginning after December 15, 2016. However, in August 2015, the FASB issued ASU No. 2015-14, which extended the effective date to interim and annual periods beginning after December 15, 2017. Early application is permitted only as of annual reporting periods beginning after December 15, 2015, including interim reporting periods within that reporting period. This guidance may be adopted retrospectively or under a modified retrospective method where the cumulative effect is recognized at the date of initial application.We have performed a review of the requirements of the standard and identified our major revenue streams and the anticipated impact to each of them:Major Revenue StreamPreliminary Expected Impact Upon AdoptionGames Segment:Game SalesWe expect revenue recognition to be consistent with our current practices, however, there may be some differences as we continue to evaluate the implications.Game OperationsWe expect revenue recognition to be consistent with our current practices, however, with respect to our WAP offering(s), for which we initiated this year, we will be required to net the direct costs with Games revenues as opposed to our existing practice of recording those amounts to Games cost of revenues. WAP jackpot expense was approximately $0.1 million and $0.3 million for the three and nine months ended September 30, 2017, respectively.Payments Segment:Cash Advance, ATM and Check ServicesWe generally expect revenue recognition to be consistent with our current practices, however, there may potentially be significant differences as we continue to evaluate the implications specifically related to our reporting these revenues on a gross versus net basis. As such, there will be no effect on operating income, net loss, cash flows or the timing of revenues recognized and costs incurred. In addition, there may be changes to the Kiosk Sales and Services and Compliance Sales and Services offerings that impact cash advance, ATM and check services revenue streams as we continue to evaluate the revenue recognition standard.Central CreditWe expect revenue recognition to be consistent with our current practices, however, there may be differences as we continue to evaluate the implications.Kiosk Sales and ServicesWe expect to encounter some level of change to our revenue recognition practices for these revenue streams under the new guidance, however, the amounts are not anticipated to be material as we continue to evaluate the implications.Compliance Sales and ServicesWe expect to encounter some level of change to our revenue recognition practices for these revenue streams under the new guidance, however, the amounts are not anticipated to be material as we continue to evaluate the implications.Currently, we do not expect our Games or certain of our Payments revenues to be materially impacted by the implementation of this guidance; however, we continue to evaluate certain of our other Payments-related revenue streams as there may be a potentially significant impact, depending on our final interpretation of the accounting guidance. More specifically, based on the transition guidance related to the new revenue recognition standard, we are in the process of determining if our cash advance, ATM and check services revenue streams will be required to be reported “net of transaction price” rather than our current gross revenue presentation basis. Under the existing Topic 605, certain factors that supported our gross reporting position have been eliminated in the new Topic 606. In addition, our understanding of the new transition guidance, as it specifically pertains to payments from customers, may further require us to report certain of these Payments-related revenue streams on a net presentation basis. If our conclusions, in accordance with GAAP, support a net reporting of these specific revenue streams, this will have a significant impact on our revenues, cost of revenues and margins for the affected revenue streams, however, there will be no effect on operating income, net loss, cash flows or the timing of revenues recognized and costs incurred.As we continue to take the necessary measures of preparedness in connection with sales-type leases executed in the adoption of the new revenue recognition standard, we continue to do the following:Evaluate our revenue streams to determine the extent, if any, of the changes to the timing and amount of revenue recorded in each reporting period.Review our existing accounting policies, procedures and internal controls to further determine the impact of the new standard on our Financial Statements.Prepare the enhanced disclosures and updatesSupplemental balance sheet information related to our revenue recognition policies to identify performance obligations to customers and that will require significant judgment in both measurement and recognition.Review in detail our sales contract terms and conditions to determine the necessary adjustments, if any.Classification on our Balance Sheets At September 30, 2022 At December 31, 2021 Assets Net investment in sales-type leases - current Trade and other receivables, net $ 366 $ 1,331 Monitor the activity of the FASB and the transition resource group as it relates to specific interpretive guidance that may impact us.We may identify other impacts from the implementation of this guidance as we continue our assessment. We expect to adopt this guidance using the modified retrospective method beginning in the first quarter of 2018.3.BUSINESS COMBINATIONS We had no material acquisitions
|
| ||||
| Amount in USD | |||||
| Purchase consideration | |||||
| Cash consideration paid at closing | $ | 14,980 | |||
| Cash consideration post-closing | 15,905 | ||||
| Total purchase consideration | $ | 30,885 | |||
Contract
Our Contract Cash Solutions Agreementconsideration to be paid is comprised of a short-term component that is recorded in accounts payable and accrued expenses and a long-term component payable within two years recorded in other accrued expenses and liabilities of our Balance Sheets.
| Amount in USD* | |||||
| Current assets | $ | 12,850 | |||
| Property and equipment | 1,218 | ||||
| Other intangible assets | 11,600 | ||||
| Goodwill | 11,861 | ||||
| Other assets | 726 | ||||
| Total Assets | 38,255 | ||||
| Accounts payable and accrued expenses | 7,160 | ||||
| Other accrued expenses and liabilities | 210 | ||||
| Total liabilities | 7,370 | ||||
| Net assets acquired | $ | 30,885 | |||
| Useful Life (Years) | Estimated Fair Value (USD) | ||||||||||
| Other Intangible Assets | |||||||||||
| Trade name | 3 | $ | 700 | ||||||||
| Developed technology | 3 | 3,600 | |||||||||
| Customer relationships | 9 | 7,300 | |||||||||
| Total other intangible assets | $ | 11,600 | |||||||||
| Amount in USD | |||||
| Purchase consideration | |||||
| Cash consideration paid at closing | $ | 12,500 | |||
| Cash consideration post-closing | 1,595 | ||||
| Total cash consideration | 14,095 | ||||
| Contingent consideration (at fair value) | 12,150 | ||||
| Total purchase consideration | $ | 26,245 | |||
| Amount in USD | |||||
| Current assets | $ | 3,944 | |||
| Other intangible assets | 18,757 | ||||
| Goodwill | 10,422 | ||||
| Total Assets | 33,123 | ||||
| Accounts payable and accrued expenses | 2,407 | ||||
| Deferred tax liabilities | 4,471 | ||||
| Total liabilities | 6,878 | ||||
| Net assets acquired | $ | 26,245 | |||
| Useful Life (Years) | Estimated Fair Value (USD) | ||||||||||
| Other Intangible Assets | |||||||||||
| Trade name | 10 | $ | 400 | ||||||||
| Developed technology | 2 | 3,357 | |||||||||
| Customer relationships | 9 | 15,000 | |||||||||
| Total other intangible assets | $ | 18,757 | |||||||||
rates increase.
TheOur primary commercial arrangement, the Contract Cash Solutions Agreement, as amended, is with Wells Fargo, N.A. (“Wells Fargo”). Wells Fargo provides us with cash inup to $300 million with the maximumability to increase the amount of $425.0 million duringas defined within the agreement or otherwise permitted by the vault cash provider. The term of the agreement which expires on June 30, 2019.
2024 and will automatically renew for additional one-year periods unless either party provides a ninety-day written notice of its intent not to renew.
Site-Funded ATMs
We operate ATMs at certain customer gaming establishments where the gaming establishment provides the cash required for the ATM operational needs. We are required to reimburse the customer for the amount of cash dispensed from these site-funded ATMs. The site-funded ATM liability included within settlement liabilities in the accompanying Balance Sheets was $134.1 million and $151.0 million as of September 30, 2017 and December 31, 2016, respectively.
Prefunded Cash Access Agreements
Due to certain regulatory requirements, some international gaming establishments require prefunding of cash to cover all outstanding settlement amounts in order for us to provide cash access services to their properties. We enter into agreements with these operators for which we supply our cash access services for their properties. Under these agreements, we maintain sole discretion to either continue or cease operations as well as discretion over the amounts prefunded to the properties and may request amounts to be refunded to us, with appropriate notice to the operator, at any time. The initial prefunded amounts and subsequent amounts from the settlement of transactions are deposited into a bank account that is to be used exclusively for cash access services, and we maintain the right to monitor all transaction activity in that account. The total amount of prefunded cash outstanding was approximately $9.3 million and $8.5 million at September 30, 2017 and December 31, 2016, respectively, and is included in prepaid expenses and other assets on our Balance Sheets.
|
|
|
| At September 30, |
|
| At December 31, |
| At September 30, | At December 31, | |||||||||||
|
| 2017 |
|
| 2016 |
| 2022 | 2021 | |||||||||||
Trade and other receivables, net |
|
|
|
|
|
|
|
| Trade and other receivables, net | ||||||||||
Games trade and loans receivables |
| $ | 36,837 |
|
| $ | 44,410 |
| Games trade and loans receivables | $ | 83,329 | $ | 77,053 | ||||||
Payments trade and loans receivables |
|
| 10,214 |
|
|
| 12,337 |
| |||||||||||
| FinTech trade and loans receivables | FinTech trade and loans receivables | 32,118 | 21,504 | ||||||||||||||||
Contract assets(1) | Contract assets(1) | 22,812 | 15,221 | ||||||||||||||||
Other receivables |
|
| 796 |
|
|
| 1,924 |
| Other receivables | 2,995 | 3,695 | ||||||||
| Net investment in sales-type leases | Net investment in sales-type leases | 366 | 1,331 | ||||||||||||||||
Total trade and other receivables, net |
| $ | 47,847 |
|
| $ | 58,671 |
| Total trade and other receivables, net | 141,620 | 118,804 | ||||||||
Less: non-current portion of receivables |
|
| 2,876 |
|
|
| 2,020 |
| |||||||||||
| Non-current portion of receivables | Non-current portion of receivables | ||||||||||||||||||
| FinTech trade and loans receivables | FinTech trade and loans receivables | 12,165 | 7,340 | ||||||||||||||||
| Games trade and loans receivables | Games trade and loans receivables | 2,023 | 1,348 | ||||||||||||||||
Contract assets(1) | Contract assets(1) | 10,589 | 5,294 | ||||||||||||||||
| Total non-current portion of receivables | Total non-current portion of receivables | 24,777 | 13,982 | ||||||||||||||||
Total trade and other receivables, current portion |
| $ | 44,971 |
|
| $ | 56,651 |
| Total trade and other receivables, current portion | $ | 116,843 | $ | 104,822 | ||||||
At least quarterly, we evaluate
Prepaid and other assets include the balance of prepaid expenses, deposits, debt issuance costs on our Revolving Credit Facility (defined herein), restricted cash and other assets. The current portion of these assets is included in prepaid and other assets and the non-current portion is included in other assets, both of which are contained within the Balance Sheets.
The balance of the current portion of prepaid and other assets consisted of the followingfollows (in thousands):
|
| At September 30, |
|
| At December 31, |
| ||
|
| 2017 |
|
| 2016 |
| ||
Prepaid expenses and other assets |
|
|
|
|
|
|
|
|
Deposits |
| $ | 9,971 |
|
| $ | 8,622 |
|
Prepaid expenses |
|
| 7,870 |
|
|
| 5,937 |
|
Other |
|
| 4,697 |
|
|
| 3,489 |
|
Total prepaid expenses and other assets |
| $ | 22,538 |
|
| $ | 18,048 |
|
| Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Beginning allowance for credit losses | $ | (5,161) | $ | (3,689) | |||||||
| Provision | (7,286) | (5,499) | |||||||||
| Charge-offs and recoveries | 6,470 | 4,400 | |||||||||
| Ending allowance for credit losses | $ | (5,977) | $ | (4,788) | |||||||
The balance of the non-current portion of other assets consisted of the following (in thousands):
|
| At September 30, |
|
| At December 31, |
| ||
|
| 2017 |
|
| 2016 |
| ||
Other assets |
|
|
|
|
|
|
|
|
Prepaid expenses and deposits |
| $ | 3,464 |
|
| $ | 3,399 |
|
Debt issuance costs of revolving credit facility |
|
| 898 |
|
|
| 689 |
|
Other |
|
| 3,088 |
|
|
| 3,434 |
|
Total other assets |
| $ | 7,450 |
|
| $ | 7,522 |
|
|
|
value.
|
| At September 30, |
|
| At December 31, |
| ||
|
| 2017 |
|
| 2016 |
| ||
Inventory |
|
|
|
|
|
|
|
|
Raw materials and component parts, net of reserves of $1,523 and $2,155 at September 30, 2017 and December 31, 2016, respectively |
| $ | 15,974 |
|
| $ | 12,570 |
|
Work-in-progress |
|
| 3,516 |
|
|
| 1,502 |
|
Finished goods |
|
| 4,300 |
|
|
| 4,996 |
|
Total inventory |
| $ | 23,790 |
|
| $ | 19,068 |
|
|
| At September 30, | At December 31, | ||||||||||
| 2022 | 2021 | ||||||||||
| Inventory | |||||||||||
| Component parts, net of reserves of $2,582 and $2,422 at September 30, 2022 and December 31, 2021, respectively | $ | 40,063 | $ | 22,490 | |||||||
| Work-in-progress | 5,019 | 554 | |||||||||
| Finished goods | 10,808 | 6,189 | |||||||||
| Total inventory | $ | 55,890 | $ | 29,233 | |||||||
Property, equipment
|
|
|
| At September 30, 2017 |
|
| At December 31, 2016 |
| ||||||||||||||||||
|
| Useful Life |
|
|
|
|
| Accumulated |
|
| Net Book |
|
|
|
|
|
| Accumulated |
|
| Net Book |
| ||||
|
| (Years) |
| Cost |
|
| Depreciation |
|
| Value |
|
| Cost |
|
| Depreciation |
|
| Value |
| ||||||
Property, equipment and leased assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental pool - deployed |
| 2-4 |
| $ | 149,895 |
|
| $ | 73,623 |
|
| $ | 76,272 |
|
| $ | 123,812 |
|
| $ | 59,188 |
|
| $ | 64,624 |
|
Rental pool - undeployed |
| 2-4 |
|
| 19,829 |
|
|
| 10,874 |
|
|
| 8,955 |
|
|
| 13,456 |
|
|
| 5,721 |
|
|
| 7,735 |
|
ATM equipment |
| 5 |
|
| 17,154 |
|
|
| 11,992 |
|
|
| 5,162 |
|
|
| 16,537 |
|
|
| 11,189 |
|
|
| 5,348 |
|
Leasehold and building improvements |
| Lease Term |
|
| 10,723 |
|
|
| 4,820 |
|
|
| 5,903 |
|
|
| 10,023 |
|
|
| 3,698 |
|
|
| 6,325 |
|
Cash advance equipment |
| 3 |
|
| 8,492 |
|
|
| 5,544 |
|
|
| 2,948 |
|
|
| 8,590 |
|
|
| 4,499 |
|
|
| 4,091 |
|
Machinery, office and other equipment |
| 2-5 |
|
| 33,217 |
|
|
| 23,058 |
|
|
| 10,159 |
|
|
| 30,424 |
|
|
| 20,108 |
|
|
| 10,316 |
|
Total |
|
|
| $ | 239,310 |
|
| $ | 129,911 |
|
| $ | 109,399 |
|
| $ | 202,842 |
|
| $ | 104,403 |
|
| $ | 98,439 |
|
| At September 30, | At December 31, | ||||||||||
| 2022 | 2021 | ||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Prepaid expenses | $ | 22,632 | $ | 14,389 | |||||||
| Deposits | 13,353 | 7,709 | |||||||||
Restricted cash(1) | 819 | 1,616 | |||||||||
| Other | 2,205 | 3,585 | |||||||||
| Total prepaid expenses and other current assets | $ | 39,009 | $ | 27,299 | |||||||
| At September 30, | At December 31, | ||||||||||
| 2022 | 2021 | ||||||||||
| Other assets | |||||||||||
| Operating lease ROU assets | $ | 18,426 | $ | 12,692 | |||||||
| Prepaid expenses and deposits | 8,531 | 4,789 | |||||||||
| Debt issuance costs of revolving credit facility | 1,473 | 1,760 | |||||||||
| Other | 227 | 418 | |||||||||
| Total other assets | $ | 28,657 | $ | 19,659 | |||||||
| At September 30, 2022 | At December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||
| Useful Life (Years) | Cost | Accumulated Depreciation | Net Book Value | Cost | Accumulated Depreciation | Net Book Value | |||||||||||||||||||||||||||||||||||
| Property and equipment | |||||||||||||||||||||||||||||||||||||||||
| Rental pool - deployed | 2-4 | $ | 273,117 | $ | 181,886 | $ | 91,231 | $ | 248,958 | $ | 166,075 | $ | 82,883 | ||||||||||||||||||||||||||||
| Rental pool - undeployed | 2-4 | 30,833 | 24,456 | 6,377 | 23,284 | 18,285 | 4,999 | ||||||||||||||||||||||||||||||||||
| FinTech equipment | 1-5 | 36,820 | 25,267 | 11,553 | 32,802 | 21,257 | 11,545 | ||||||||||||||||||||||||||||||||||
| Leasehold and building improvements | Lease Term | 13,227 | 10,320 | 2,907 | 12,598 | 9,234 | 3,364 | ||||||||||||||||||||||||||||||||||
| Machinery, office, and other equipment | 1-5 | 51,539 | 33,062 | 18,477 | 45,277 | 28,075 | 17,202 | ||||||||||||||||||||||||||||||||||
| Total | $ | 405,536 | $ | 274,991 | $ | 130,545 | $ | 362,919 | $ | 242,926 | $ | 119,993 | |||||||||||||||||||||||||||||
|
|
We have the following reporting units: (i) Games; (ii) Financial Access Services; (iii) Kiosk Sales and Services; (iv) Central Credit Services; (v) Compliance Sales and Services; and (vi) Loyalty Sales and Services.
No impairment wascharge is recorded.
|
|
| At September 30, 2017 |
|
| At December 31, 2016 |
| |||||||||||||||||||
|
| Useful Life |
|
|
|
|
| Accumulated |
|
| Net Book |
|
|
|
|
|
| Accumulated |
|
| Net Book |
| ||||
|
| (years) |
| Cost |
|
| Amortization |
|
| Value |
|
| Cost |
|
| Amortization |
|
| Value |
| ||||||
Other intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract rights under placement fee agreements |
| 1-7 |
| $ | 59,605 |
|
| $ | 1,782 |
|
| $ | 57,823 |
|
| $ | 17,742 |
|
| $ | 6,281 |
|
| $ | 11,461 |
|
Customer contracts |
| 7-14 |
|
| 50,975 |
|
|
| 42,768 |
|
|
| 8,207 |
|
|
| 50,975 |
|
|
| 40,419 |
|
|
| 10,556 |
|
Customer relationships |
| 8-12 |
|
| 231,100 |
|
|
| 58,412 |
|
|
| 172,688 |
|
|
| 231,100 |
|
|
| 42,688 |
|
|
| 188,412 |
|
Developed technology and software |
| 1-6 |
|
| 244,151 |
|
|
| 152,706 |
|
|
| 91,445 |
|
|
| 224,265 |
|
|
| 126,721 |
|
|
| 97,544 |
|
Patents, trademarks and other |
| 1-17 |
|
| 28,834 |
|
|
| 20,923 |
|
|
| 7,911 |
|
|
| 27,771 |
|
|
| 17,747 |
|
|
| 10,024 |
|
Total |
|
|
| $ | 614,665 |
|
| $ | 276,591 |
|
| $ | 338,074 |
|
| $ | 551,853 |
|
| $ | 233,856 |
|
| $ | 317,997 |
|
| At September 30, 2022 | At December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||
| Useful Life (Years) | Cost | Accumulated Amortization | Net Book Value | Cost | Accumulated Amortization | Net Book Value | |||||||||||||||||||||||||||||||||||
| Other intangible assets | |||||||||||||||||||||||||||||||||||||||||
| Contract rights under placement fee agreements | 2-7 | $ | 57,946 | $ | 10,042 | $ | 47,904 | $ | 58,837 | $ | 4,237 | $ | 54,600 | ||||||||||||||||||||||||||||
| Customer relationships | 3-14 | 324,598 | 226,164 | 98,434 | 303,238 | 206,273 | 96,965 | ||||||||||||||||||||||||||||||||||
| Developed technology and software | 1-6 | 383,716 | 301,164 | 82,552 | 342,309 | 280,412 | 61,897 | ||||||||||||||||||||||||||||||||||
| Patents, trade names and other | 2-18 | 22,050 | 20,012 | 2,038 | 20,547 | 19,415 | 1,132 | ||||||||||||||||||||||||||||||||||
| Total | $ | 788,310 | $ | 557,382 | $ | 230,928 | $ | 724,931 | $ | 510,337 | $ | 214,594 | |||||||||||||||||||||||||||||
We enter into placement fee agreements to provide financing for new gaming facilitiesan asset or for the expansion or improvement of existing facilities. The funding under placement fee agreements isasset group may not reimbursed. In return for the fees under these agreements, each facility dedicates a percentage of its floor space, or an agreed upon unit count, for the placement of our electronic gaming machines (“EGMs”) over the term of the agreement, generally 12 to 83 months, and we receive a fixed percentage or flat fee of those machines’ hold per day. Certain of the agreements contain EGM performance standards that could allow the respective facility to reduce a portion of our guaranteed floor space.
Placement fees and amounts advanced in excess of those to be reimbursed by the customer for real property and land improvements are allocated to intangible assets and are generally amortized over the term of the contract, which is recorded as a reduction of revenue generated from the facility. In the past we have, and in the future, we may, by mutual agreement, amend these agreements to reduce our floor space at the facilities. Any proceeds received for the reduction of floor space are first applied against the intangible asset for that particular placement fee agreement, if any, and the remaining net book value of the intangible asset is prospectively amortized on a straight-line method over the remaining estimated useful life. In July 2017, we entered into a placement fee agreement with a customer for certain of its locations for approximately $49.1 million, net of $10.1 million of unamortized fees related to superseded contracts.recoverable. During the three and nine months ended September 30, 2017,2022 and 2021, there we paid approximately $10.1 million and $13.1 million, respectively, in placement fees primarily related to this agreement. For the nine months ended September 30, 2016, $11.2 million was paid to extend the term
|
| At September 30, |
|
| At December 31, |
| ||
|
| 2017 |
|
| 2016 |
| ||
Accounts payable and accrued expenses |
|
|
|
|
|
|
|
|
Trade accounts payable |
| $ | 62,422 |
|
| $ | 55,352 |
|
Placement fees(1) |
|
| 16,746 |
|
|
| — |
|
Accrued interest |
|
| 7,650 |
|
|
| 82 |
|
Payroll and related expenses |
|
| 10,207 |
|
|
| 12,305 |
|
Deferred and unearned revenues |
|
| 9,981 |
|
|
| 9,222 |
|
Cash access processing and related expenses |
|
| 7,682 |
|
|
| 7,001 |
|
Accrued taxes |
|
| 2,734 |
|
|
| 2,587 |
|
Other |
|
| 9,203 |
|
|
| 7,842 |
|
Total accounts payable and accrued expenses |
| $ | 126,625 |
|
| $ | 94,391 |
|
|
|
|
|
| At September 30, | At December 31, | ||||||||||
| 2022 | 2021 | ||||||||||
| Accounts payable and accrued expenses | |||||||||||
| Customer commissions payable | $ | 63,012 | $ | 57,515 | |||||||
| Contract liabilities | 44,460 | 36,238 | |||||||||
| Accounts payable - trade | 38,336 | 25,453 | |||||||||
| Payroll and related expenses | 25,646 | 29,125 | |||||||||
Contingent consideration and acquisition-related liabilities(1) | 10,712 | — | |||||||||
| Financial access processing and related expenses | 6,782 | 3,619 | |||||||||
| Operating lease liabilities | 6,436 | 5,663 | |||||||||
| Accrued interest | 4,316 | 9,273 | |||||||||
| Accrued taxes | 3,821 | 2,756 | |||||||||
| Other | 6,245 | 4,291 | |||||||||
| Total accounts payable and accrued expenses | $ | 209,766 | $ | 173,933 | |||||||
|
| At September 30, |
|
| At December 31, |
| ||
|
| 2017 |
|
| 2016 |
| ||
Long-term debt |
|
|
|
|
|
|
|
|
Senior secured term loan |
| $ | 817,950 |
|
| $ | 465,600 |
|
Senior secured notes |
|
| — |
|
|
| 335,000 |
|
Senior unsecured notes |
|
| 350,000 |
|
|
| 350,000 |
|
Total debt |
|
| 1,167,950 |
|
|
| 1,150,600 |
|
Less: debt issuance costs and discount |
|
| (29,079 | ) |
|
| (28,720 | ) |
Total debt after debt issuance costs and discount |
|
| 1,138,871 |
|
|
| 1,121,880 |
|
Less: current portion of long-term debt |
|
| (8,200 | ) |
|
| (10,000 | ) |
Long-term debt, less current portion |
| $ | 1,130,671 |
|
| $ | 1,111,880 |
|
| Maturity | Interest | At September 30, | At December 31, | |||||||||||||||||||||||
| Date | Rate | 2022 | 2021 | |||||||||||||||||||||||
| Long-term debt | ||||||||||||||||||||||||||
| $600 million New Term Loan | 2028 | LIBOR+2.50% | $ | 594,000 | $ | 598,500 | ||||||||||||||||||||
| $125 million New Revolver | 2026 | LIBOR+2.50% | — | — | ||||||||||||||||||||||
| Senior secured credit facilities | 594,000 | 598,500 | ||||||||||||||||||||||||
| $400 million 2021 Unsecured Notes | 2029 | 5.00% | 400,000 | 400,000 | ||||||||||||||||||||||
| Total debt | 994,000 | 998,500 | ||||||||||||||||||||||||
| Debt issuance costs and discount | (15,123) | (16,975) | ||||||||||||||||||||||||
| Total debt after debt issuance costs and discount | 978,877 | 981,525 | ||||||||||||||||||||||||
| Current portion of long-term debt | (6,000) | (6,000) | ||||||||||||||||||||||||
| Total long-term debt, net of current portion | $ | 972,877 | $ | 975,525 | ||||||||||||||||||||||
Refinancing
On May 9, 2017
Our New Revolver remained fully undrawn as of September 30, 2022.
Secured Notes due 2021 in the aggregate original principal amount of $335.0 million (the “Refinanced Secured Notes”); and (ii) pay related transaction fees and expenses.
In connection with the refinancing, we recorded a non-cash charge of approximately $14.6 million during the second quarter of 2017 related to the unamortized deferred financing fees and discounts related to the extinguished term loan under the Prior Credit Facility and the redeemed Refinanced Secured Notes. No prepayment penalties were incurred.
New Credit Facilities
The New Term Loan Facility matures seven years after the Closing Date (the “Stated Term Maturity Date”); provided that, if on the date that is 91 days prior to the maturity date (the “Unsecured Notes Maturity Date”) for the Everi Payments 10.00% Senior Unsecured Notes due 2022 in the aggregate original principal amount of $350.0 million (the “Unsecured Notes”), any Unsecured Notes remain outstanding and the Unsecured Notes Maturity Date has not been extended to a date that is at least six months after the Stated Term Maturity Date, then the New Term Loan Facility shall mature on the date that is 91 days before the Unsecured Notes Maturity Date. The New Revolving Credit Facility matures five years after the Closing Date; provided, that, if on the date that is 121 days prior to the Unsecured Notes Maturity Date, any Unsecured Notes remain outstanding and the Unsecured Notes Maturity Date has not been extended to a date that is at least six months after the Stated Term Maturity Date, then the New Revolving Credit Facility shall mature on the date that is 121 days before the Unsecured Notes Maturity Date. The New Revolving Credit Facility is available for general corporate purposes, including permitted acquisitions, working capital and the issuance of letters of credit.
The interest rate per annum applicable to loans under the New Revolving Credit Facility will be, at Everi Payments’ option, the base rate or the Eurodollar Rate (defined to be the London Interbank Offered Rate or a comparable or successor rate) (the “Eurodollar Rate”) plus, in each case, an applicable margin. The interest rate per annum applicable to the New Term Loan Facility will also be, at Everi Payments’ option, the base rate or the Eurodollar Rate plus, in each case, an applicable margin. The Eurodollar Rate will be reset at the beginning of each selected interest period based on the Eurodollar Rate then in effect; provided that, if the Eurodollar Rate is below 1.0%, then such rate will be equal to 1.0% plus the applicable margin. The base rate is a fluctuating interest rate equal to the highest of: (i) the prime lending rate announced by the administrative agent; (ii) the federal funds effective rate from time to time plus 0.50%; and (iii) the Eurodollar Rate (after taking account of any applicable floor) applicable for an interest period of one month plus 1.00%. The applicable margins for both the New Revolving Credit Facility and the New Term Loan Facility are: (i) 4.50% in respect of Eurodollar Rate loans and (ii) 3.50% in respect of base rate loans.
Voluntary prepayments of the term loan and the revolving loans and voluntary reductions in the unused commitments are permitted in whole or in part, in minimum amounts as set forth in the New Credit Agreement governing the New Credit Facilities, with prior notice but without premium or penalty, except that certain refinancings of the term loans within six months after the Closing Date will be subject to a prepayment premium of 1.00% of the principal amount repaid.
Subject to certain exceptions, the obligations under the New Credit Facilities are secured by substantially all of the present and subsequently acquired assets of each of Everi Payments, Holdings and the subsidiary guarantors party thereto including: (i) a perfected first priority pledge of all the capital stock of Everi Payments and each domestic direct, wholly owned material restricted subsidiary held by Holdings, Everi Payments or any such subsidiary guarantor; and (ii) a perfected first priority security interest in substantially all other tangible and intangible assets of Holdings, Everi Payments, and such subsidiary guarantors (including, but not limited to, accounts receivable, inventory, equipment, general intangibles, investment property, real property, intellectual property and the proceeds of the foregoing). Subject to certain exceptions, the New Credit Facilities are unconditionally guaranteed by Holdings and such subsidiary guarantors.
The New Credit Agreement governing the New Credit Facilities contains certain covenants that, among other things, limit Holdings’ ability, and the ability of certain of its subsidiaries, to incur additional indebtedness, sell assets or consolidate or merge with or into other companies, pay dividends or repurchase or redeem capital stock, make certain investments, issue capital stock of subsidiaries, incur liens, prepay, redeem or repurchase subordinated debt, and enter into certain types of transactions with its affiliates. The New Credit Agreement governing the New Credit Facilities also requires Holdings, together with its subsidiaries, to comply with a consolidated secured leverage ratio. At
September 30, 2017, our consolidated secured leverage ratio was 3.63 to 1.00, with a maximum allowable ratio of 5.00 to 1.00. Our maximum consolidated secured leverage ratio will be 5.00 to 1.00, 4.75 to 1.00, and 4.50 to 1.00 as of December 31, 2017, 2018, and 2019 and thereafter, respectively.
We were in compliance with the terms of the New Credit Facilities as of September 30, 2017.
Events of default under the New Credit Agreement governing the New Credit Facilities include customary events such as a cross-default provision with respect to other material debt. In addition, an event of default will occur if Holdings undergoes a change of control. This is defined to include the case where Holdings ceases to own 100% of the equity interests of Everi Payments, or where any person or group acquires a percentage of the economic or voting interests of Holdings’ capital stock of 35% or more (determined on a fully diluted basis).
We are required to repay the New Term Loan Facility in an amount equal to 0.25% per quarter of the initial aggregate principal, with the final principal repayment installment on the maturity date. Interest is due in arrears on each interest payment date applicable thereto and at such other times as may be specified in the New Credit Agreement. As to any loan other than a base rate loan, the interest payment dates shall be the last day of each interest period applicable to such loan and the maturity date (provided, however, that if any interest period for a Eurodollar Rate loan exceeds three months, the respective dates that fall every three months after the beginning of such interest period shall also be interest payment dates). As to any base rate loan, commencing on the last business day of December 2021, the interest payment dates shall be last business day of each of March, June, September and December and the maturity date.
For the quarter ended September 30, 2017,
At September 30, 2017, we had $818.0 million of borrowings outstanding under the New Term Loan Facility and no borrowings outstanding under the New Revolving Credit Facility. We had $35.0 million of additional borrowing availability under the New Revolving Credit Facility as of September 30, 2017.
Refinanced Senior Secured Notes
In connection with entering into the New Credit Agreement, on May 9, 2017, Everi Payments redeemed in full $335.0 million face value (plus accrued interest) of the Refinanced Secured Notes. As a result of the redemption, the Company recorded $1.7 million, which consisted of unamortized deferred financing fees of $0.2 million and discounts of $1.5 million. These fees are included in the total $14.6 million non-cash charge.
Senior Unsecured Notes
In December 2014, we issued $350.0 million in aggregate principal amount of 10.00% Unsecured Notes due 2022 (the “Unsecured Notes”). The fees associated with the Unsecured Notes included original issue discounts of approximately $3.8 million and debt issuance costs of approximately $14.0 million.
Interest is due semi-annually in arrears each January and July.
The Unsecured Notes were acquired by the initial purchasers pursuant to the terms of a purchase agreement. Under the terms of the purchase agreement, during a one-year period following the closing and upon prior notice from the initial purchasers, the Company was required to use commercially reasonable efforts to aid the purchasers in the resale of the Unsecured Notes, including by preparing an updated offering memorandum and participating in reasonable marketing efforts including road shows, to the extent required therein. The Unsecured Notes were resold by the initial purchasers to third parties in the second quarter of 2015.
In December 2015, we completed an exchange offer in which all of the unregistered Unsecured Notes were exchanged for a like amount of Unsecured Notes that had been registered under the Securities Act.
We were in compliance with the terms of the Unsecured Notes as of September 30, 2017 and December 31, 2016.
The following transactions have resulted in a change in our commitments under contractual obligations as compared to those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016:
In May 2017, we entered into the New Credit Agreement, which provides for the $35.0 million New Revolving Credit Facility and the $820.0 million New Term Loan Facility. Under the New Credit Agreement, we are required to make principal payments of 1% annually of $2.0 million in 2017, $8.2 million in years 2018 through 2021 and $783.1 million thereafter. We also have required interest payments, computed using a weighted average interest rate at September 30, 2017 of 5.74%, of $12.0 million, $46.6 million, $46.1 million, $45.7 million, $45.3 million and $104.5 million from 2017 through 2021 and thereafter, respectively.
In July 2017, we extended the term of our placement fee agreements to 6 years and 11 months with our largest customer in Oklahoma. Under the terms of the agreement, we made a $10.0 million cash payment in August 2017 and will pay approximately $5.6 million per quarter in placement fees, beginning in January 2018 and ending in July 2019.
We are involved in various investigations, claims and lawsuits in the ordinary course of our business. In addition, various legal actions, claims and governmental inquiries and proceedings are pending or may be instituted or asserted in the future against us and our subsidiaries. Although the outcome of our legal proceedings cannot be predicted with certainty and no assurances can be provided, based upon current information, we do not believe the liabilities, if any, which may ultimately result from the outcome of such matters, individually or in the aggregate, will have a material adverse impact on our financial position, liquidity or results of operations.
|
|
Preferred Stock. Our amended and restated certificate of incorporation, as amended, allows our Board of Directors, without further action by stockholders, to issue up to 50,000,000 shares of preferred stock in one or more series and to fix the designations, powers, preferences, privileges and relative participating, optional, or special rights as well as the qualifications, limitations or restrictions of the preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences. As of September 30, 2017 and December 31, 2016, we had no shares of preferred stock outstanding.
Common Stock. Subject to the preferences that may apply to shares of preferred stock that may be outstanding at the time, the holders of outstanding shares of common stock are entitled to receive dividends out of assets legally available at the times and in the amounts as our Board of Directors may from time to time determine. All dividends are non-cumulative. In the event of the liquidation, dissolution or winding up of Everi, the holders of common stock are entitled to share ratably in all assets remaining after the payment of liabilities, subject to the prior distribution rights of preferred stock, if any, then outstanding. Each stockholder is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. Cumulative voting for the election of directors is not provided for. The common stock is not entitled to preemptive rights and is not subject to conversion or redemption. There are no sinking fund provisions applicable to the common stock. Each outstanding share of common stock is fully paid and non-assessable. As of September 30, 2017 and December 31, 2016, we had 91,918,086 and 90,952,185 shares of common stock issued, respectively.
Treasury Stock. Employees may direct us to withhold vested shares of restricted stock to satisfy the minimum statutory withholding requirements applicable to their restricted stock vesting. We withheld from restricted stock awards 1,365 and 4,394 shares of common stock for the three and nine months ended September 30, 2017, respectively, at an aggregate purchase price of $10,115 and $20,706, respectively, and 2,223 and 7,135 shares of common stock for the three and nine months ended September 30, 2016, respectively, at an aggregate purchase price of $3,879 and $16,894, respectively, to satisfy the minimum applicable tax withholding obligations related to the vesting of such restricted stock awards.
The weighted average number of shares of common stock outstanding used in the computation of basic and diluted loss per share is as follows (in thousands):
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Weighted average shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic |
|
| 66,897 |
|
|
| 66,049 |
|
|
| 66,449 |
|
|
| 66,041 |
|
Potential dilution from equity awards(1) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Weighted average number of common shares outstanding - diluted |
|
| 66,897 |
|
|
| 66,049 |
|
|
| 66,449 |
|
|
| 66,041 |
|
|
|
|
|
Equity Incentive Awards
Our 2014 Equity Incentive Plan (as amended and restated effective May 23, 2017, the “Amended and Restated 2014 Plan”) and our 2012 Equity Incentive Plan (as amended, the “2012 Plan”) are used to attract and retain the best available personnel, to provide additional incentives to employees, directors and consultants and to promote the success of our business. The Amended and Restated 2014 Plan superseded the then current 2005 Stock Incentive Plan (the “2005 Plan”). The 2012 Plan was assumed in connection with our acquisition of Everi Games Holding and conformed to include similar provisions to those as set forth in the Amended and Restated 2014 Plan. Our equity incentive plans are administered by the Compensation Committee of our Board of Directors, which has the authority to select individuals who are to receive equity incentive awards and to specify the terms and conditions of grants of such awards, including, but not limited to, the vesting provisions and exercise prices.
Generally, we grant the following award types: (a) time-based options, (b) market-based options and (c) restricted stock. These awards have varying vesting provisions and expiration periods. For the three and nine months ended September 30, 2017, we granted time- and market-based options.
Our time-based stock options granted under our equity plans generally vest at a rate of 25% per year on each of the first four anniversaries of the option grant dates. These options expire after a ten-year period. We estimate forfeiture amounts based on historical patterns.
Our market-based options granted in 2017 vest at a rate of 25% per year on each of the first four anniversaries of the grant date, provided that as of the vesting date for each vesting tranche, the closing price of the Company’s shares on the New York Stock Exchange is at least a specified price hurdle, defined as a 25% premium to the closing stock price on the grant date. If the price hurdle is not met as of the vesting date for a vesting tranche, then the vested tranche shall vest and become vested shares on the last day of a period of 30 consecutive trading days during which the closing price is at least the price hurdle. These options expire after a ten-year period.
Our market-based options granted in 2016 vest at a rate of 25% per year on each of the first four anniversaries of the grant date, provided that as of the vesting date for each vesting tranche, the closing price of the Company’s shares on the New York Stock Exchange is at least a specified price hurdle, defined as a 50% premium to the closing stock price on the grant date. If the price hurdle is not met as of the vesting date for a vesting tranche, then the vested tranche shall vest and become vested shares on the last day of a period of 30 consecutive trading days during which the closing price is at least the price hurdle. These options expire after a ten-year period.
A summary of award activity is as follows (in thousands):
|
| Stock Options |
|
| Restricted Stock |
| ||
|
| Granted |
|
| Granted |
| ||
Outstanding, December 31, 2016 |
|
| 18,233 |
|
|
| 80 |
|
Granted |
|
| 4,107 |
|
|
| 40 |
|
Exercised options or vested shares |
|
| (950 | ) |
|
| (16 | ) |
Cancelled or forfeited |
|
| (358 | ) |
|
| — |
|
Outstanding, September 30, 2017 |
|
| 21,032 |
|
|
| 104 |
|
The maximum number of shares available for future equity awards, both under the Amended and Restated 2014 Plan and the 2012 Plan, is approximately 4.6 million shares of our common stock. There are no shares available for future equity awards under the 2005 Plan.
Stock Options
The fair values of our standard time-based options were determined as of the date of grant using the Black-Scholes option pricing model with the following assumptions:
|
| Nine months ended |
|
| ||||||
|
| September 30, |
|
| ||||||
|
| 2017 |
|
|
| 2016 |
|
| ||
Risk-free interest rate |
|
| 2 |
| % |
|
| 1 |
| % |
Expected life of options (in years) |
|
| 6 |
|
|
|
| 5 |
|
|
Expected volatility |
|
| 54 |
| % |
|
| 51 |
| % |
Expected dividend yield |
|
| — |
| % |
|
| — |
| % |
For the nine months ended September 30, 2016, certain executive and director grants were valued under the Black-Scholes option pricing model that utilized different assumptions from those used for our standard time-based options. For the time-based options granted on February 25, 2016, the assumptions were: (a) risk-free interest rate of 1%; (b) expected term of five years; (c) expected volatility of 49%; and (d) no expected dividend yield. For the time-based options granted on February 13, 2016, the assumptions were: (a) risk-free interest rate of 1%; (b) expected term of six years; (c) expected volatility of 49%; and (d) no expected dividend yield.
The fair values of our market-based options were determined as of the date of grant using a lattice-based option valuation model with the following assumptions:
|
| Nine months ended |
|
| ||||||
|
| September 30, |
|
| ||||||
|
| 2017 |
|
|
| 2016 |
|
| ||
Risk-free interest rate |
|
| 3 |
| % |
|
| 2 |
| % |
Measurement period (in years) |
|
| 10 |
|
|
|
| 10 |
|
|
Expected volatility |
|
| 70 |
| % |
|
| 68 |
| % |
Expected dividend yield |
|
| — |
| % |
|
| — |
| % |
For the market-based options granted during the third quarter of 2016, the assumptions were: (a) risk-free interest rate of 2%; (b) expected term of ten years; (c) expected volatility of 69% and (d) no expected dividend yield.
The following tables present the options activity:
|
|
|
|
|
|
|
|
|
| Weighted |
|
|
|
|
| |
|
| Number of |
|
| Weighted Average |
|
| Average Life |
|
| Aggregate |
| ||||
|
| Common Shares |
|
| Exercise Price |
|
| Remaining |
|
| Intrinsic Value |
| ||||
|
| (in thousands) |
|
| (per share) |
|
| (years) |
|
| (in thousands) |
| ||||
Outstanding, December 31, 2016 |
|
| 18,233 |
|
| $ | 6.02 |
|
|
| 6.4 |
|
| $ | 2,387 |
|
Granted |
|
| 4,107 |
|
|
| 3.38 |
|
|
|
|
|
|
|
|
|
Exercised |
|
| (950 | ) |
|
| 4.29 |
|
|
|
|
|
|
|
|
|
Canceled or forfeited |
|
| (358 | ) |
|
| 5.99 |
|
|
|
|
|
|
|
|
|
Outstanding, September 30, 2017 |
|
| 21,032 |
|
| $ | 5.58 |
|
|
| 6.5 |
|
| $ | 48,106 |
|
Vested and expected to vest, September 30, 2017 |
|
| 18,401 |
|
| $ | 5.71 |
|
|
| 6.3 |
|
| $ | 40,291 |
|
Exercisable, September 30, 2017 |
|
| 10,539 |
|
| $ | 6.85 |
|
|
| 4.8 |
|
| $ | 13,298 |
|
There were 45,750 and 4.1 million options granted for the three and nine months ended September 30, 2017, respectively, and 0.2 million and 4.2 million options granted for the three and nine months ended September 30, 2016, respectively. The weighted average grant date fair value per share of options granted was $3.85 and $1.86 for the three and nine months ended September 30, 2017, respectively, and $0.89 and $0.81 for the three and nine months ended September 30, 2016, respectively. The total intrinsic value of options exercised was $0.8 million and $2.8 million for the three and nine months ended September 30, 2017, respectively. No options were exercised during the three and nine months ended September 30, 2016.
There was $11.7 million in unrecognized compensation expense related to options expected to vest as of September 30, 2017. This cost is expected to be recognized on a straight-line basis over a weighted average period of 2.3 years. We recorded $4.8 million in non-cash compensation expense related to options granted that were expected to vest as of September 30, 2017. We received $2.2 million and $4.0 million in cash from the exercise of options for the three and nine months ended September 30, 2017, respectively.
There was $13.5 million in unrecognized compensation expense related to options expected to vest as of September 30, 2016. This cost was expected to be recognized on a straight-line basis over a weighted average period of 2.3 years. We recorded $3.8 million in non-cash compensation expense related to options granted that were expected to vest as of September 30, 2016. There were no proceeds received from the exercise of options as no exercises occurred for the three and nine months ended September 30, 2016.
Restricted Stock
The following is a summary of non-vested share awards for our time-based restricted stock:
|
|
|
|
|
| Weighted |
| |
|
| Shares |
|
| Average Grant |
| ||
|
| Outstanding |
|
| Date Fair Value |
| ||
|
| (in thousands) |
|
| (per share) |
| ||
Outstanding, December 31, 2016 |
|
| 80 |
|
| $ | 7.12 |
|
Granted |
|
| 40 |
|
|
| 6.66 |
|
Vested |
|
| (16 | ) |
|
| 6.91 |
|
Forfeited |
|
| — |
|
|
| — |
|
Outstanding, September 30, 2017 |
|
| 104 |
|
| $ | 6.97 |
|
There were no shares and 40,000 shares of restricted stock granted for the three and nine months ended September 30, 2017, respectively, and there were no shares of restricted stock granted for the three and nine months ended September 30, 2016. The total fair value of restricted stock vested was $37,958 and $121,979 for the three and nine months ended September 30, 2017, respectively, and $23,393 and $74,100 for the three and nine months ended September 30, 2016, respectively.
There was $0.7 million in unrecognized compensation expense related to shares of time based restricted stock expected to vest as of September 30, 2017. This cost is expected to be recognized on a straight-line basis over a weighted average period of 1.2 years. There were 16,071 shares of restricted stock that vested and we recorded $0.3 million in non-cash compensation expense related to the restricted stock granted that was expected to vest during the nine months ended September 30, 2017.
There was $1.3 million in unrecognized compensation expense related to shares of time-based restricted shares expected to vest as of September 30, 2016. This cost was expected to be recognized on a straight-line basis over a weighted average period of 1.9 years. There were 30,000 shares of time-based restricted shares vested and we recorded $0.3 million in non-cash compensation expense related to the restricted stock granted that was expected to vest during the nine months ended September 30, 2016.
|
|
The income tax provision reflected an effective income tax rate of negative 20.0% and negative 15.6% for the three and nine months ended September, 30, 2017, respectively, which was less than the statutory federal rate of 35.0%, primarily due to an increase in our valuation allowance for deferred tax assets, partially offset by state taxes, and the benefit from a research credit. The income tax benefit reflected an effective income tax rate of 37.7% and 39.4% for the three and nine months ended September 30, 2016, respectively, which was higher than the statutory federal rate of 35.0%, primarily due to state taxes, the lower foreign tax rate applicable to our foreign source income, and the benefit from a research credit, partially offset by non-statutory stock options that expired in the year.
During the third quarter of 2017, we increased our valuation allowance by approximately $2.4 million for our deferred tax assets.
We have analyzed filing positions in all of the federal, state and foreign jurisdictions where we are required to file income tax returns, as well as all open tax years in these jurisdictions. As of September 30, 2017, the Company recorded $0.8 million of unrecognized tax benefits, all of which would impact our effective tax rate, if recognized. We do not anticipate that our unrecognized tax benefits will materially change within the next 12 months. The Company has not accrued any penalties and interest for its unrecognized tax benefits. Other than the unrecognized tax benefit recorded, we believe that our income tax filing positions and deductions will be sustained upon audit, and we do not anticipate any other adjustments that will result in a material change to our financial position. We may, from time to time, be assessed interest or penalties by tax jurisdictions, although any such assessments historically have been minimal and immaterial to our financial results. Our policy for recording interest and penalties associated with audits and unrecognized tax benefits is to record such items as a component of income tax in our Statements of Loss.
|
|
Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-making group in deciding how to allocate resources and in assessing performance. Our chief operating decision-making group consists of the Chief Executive Officer and the Chief Financial Officer. This group manages the business, allocates resources and measures profitability based on our operating segments. Our operating segments are managed and reviewed separately, as each represents products that can be sold separately to our customers.
Our chief operating decision-making group has determined the following to be the operating segments for which we conduct business: (a) Games and (b) Payments. We have reported our financial performance based on our segments in both the current and prior periods. Each of these segments is monitored by our management for performance against its internal forecast and is consistent with our internal management reporting.
The Games segment provides solutions directly to gaming establishments to offer their patrons gaming entertainment-related experiences including: leased gaming equipment; sales and maintenance related services of gaming equipment; gaming systems; and ancillary products and services.
Corporate overhead expenses have been allocated to the segments either through specific identification or based on a reasonable methodology. In addition, we record depreciation and amortization expenses to the business segments.
Our business is predominantly domestic with no specific regional concentrations and no significant assets in foreign locations.
The accounting policies of the operating segments are generally the same as those described in the summary of significant accounting policies.
The following tables present segment information (in thousands):
|
| For the Three Months Ended September 30, |
|
| For the Nine Months Ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games |
| $ | 55,452 |
|
| $ | 56,218 |
|
| $ | 165,832 |
|
| $ | 158,660 |
|
Payments |
|
| 191,870 |
|
|
| 165,959 |
|
|
| 561,257 |
|
|
| 483,286 |
|
Total revenues |
| $ | 247,322 |
|
| $ | 222,177 |
|
| $ | 727,089 |
|
| $ | 641,946 |
|
Operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games |
| $ | 1,787 |
|
| $ | (4,183 | ) |
| $ | 9,301 |
|
| $ | (14,638 | ) |
Payments |
|
| 18,008 |
|
|
| 15,755 |
|
|
| 54,389 |
|
|
| 36,054 |
|
Total operating income |
| $ | 19,795 |
|
| $ | 11,572 |
|
| $ | 63,690 |
|
| $ | 21,416 |
|
|
| At September 30, 2017 |
|
| At December 31, 2016 |
| ||
Total assets |
|
|
|
|
|
|
|
|
Games |
| $ | 927,888 |
|
| $ | 894,213 |
|
Payments |
|
| 497,717 |
|
|
| 513,950 |
|
Total assets |
| $ | 1,425,605 |
|
| $ | 1,408,163 |
|
Major Customers. For the three and nine months ended September 30, 2017 and 2016, no single customer accounted for more than 10% of our revenues. Our five largest customers accounted for approximately 25% and 26% for the three and nine months ended September 30, 2017, respectively, and 30% and 31% for the three and nine months ended September 30, 2016, respectively.
|
|
We conduct substantially all of our business through our U.S. and foreign subsidiaries. Everi Payments’ (“Subsidiary Issuer”) obligations under the Unsecured Notes are fully and unconditionally guaranteed, subject to certain customary release provisions, on a joint and several basis by Holdings (“Parent”) and substantially all of our 100%-owned U.S. subsidiaries other than Subsidiary Issuer (the “Guarantor Subsidiaries” and, together with Parent, the “Guarantors” and each a “Guarantor”). The guarantees of our Unsecured Notes will be released under the following customary circumstances: (i) the sale or disposition of all or substantially all of the assets of the Guarantor (by way of merger, consolidation, or otherwise) to a person that is not (either before or after giving effect to such transaction) Parent, Subsidiary Issuer or a restricted subsidiary; (ii) the sale or disposition of sufficient capital stock of the Guarantor to a person that is not (either before or after giving effect to such transaction) Parent, Subsidiary Issuer or a restricted subsidiary and the Guarantor ceases to be a restricted subsidiary of Subsidiary Issuer as a result of the sale or other disposition; (iii) the designation of the Guarantor as an unrestricted subsidiary in accordance with the indenture
governing the Unsecured Notes; or (iv) the legal or covenant defeasance of the Unsecured Notes or the satisfaction and discharge of the indenture governing the Unsecured Notes.
Presented below is condensed consolidating financial information for (a) Parent, (b) Subsidiary Issuer, (c) the Guarantor Subsidiaries and (d) our U.S. subsidiaries that are not Guarantor Subsidiaries and our foreign subsidiaries (collectively, the “Non-Guarantor Subsidiaries”) as of September 30, 2017 and December 31, 2016 and for the three and nine months ended September 30, 2017 and 2016. The condensed consolidating financial information has been presented to show the nature of assets held and the results of operations and cash flows of Parent, Subsidiary Issuer, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries assuming that the guarantee structure of the Unsecured Notes had been in effect at the beginning of the periods presented.
|
| Three Months Ended September 30, 2017 |
| |||||||||||||||||||||
|
| Parent |
|
| Subsidiary Issuer |
|
| Guarantor Subsidiaries |
|
| Non- Guarantor Subsidiaries |
|
| Eliminations |
|
| Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games |
| $ | — |
|
| $ | — |
|
| $ | 55,331 |
|
| $ | 1,739 |
|
| $ | (1,618 | ) |
| $ | 55,452 |
|
Payments |
|
| — |
|
|
| 175,793 |
|
|
| 7,841 |
|
|
| 9,040 |
|
|
| (804 | ) |
|
| 191,870 |
|
Total revenues |
|
| — |
|
|
| 175,793 |
|
|
| 63,172 |
|
|
| 10,779 |
|
|
| (2,422 | ) |
|
| 247,322 |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games cost of revenue (exclusive of depreciation and amortization) |
|
| — |
|
|
| — |
|
|
| 13,857 |
|
|
| 1,106 |
|
|
| (1,143 | ) |
|
| 13,820 |
|
Payments cost of revenue (exclusive of depreciation and amortization) |
|
| — |
|
|
| 140,299 |
|
|
| 2,478 |
|
|
| 7,061 |
|
|
| — |
|
|
| 149,838 |
|
Operating expenses |
|
| — |
|
|
| 18,519 |
|
|
| 10,365 |
|
|
| 1,858 |
|
|
| (1,279 | ) |
|
| 29,463 |
|
Research and development |
|
| — |
|
|
| — |
|
|
| 4,542 |
|
|
| 3 |
|
|
| — |
|
|
| 4,545 |
|
Depreciation |
|
| — |
|
|
| 1,615 |
|
|
| 10,740 |
|
|
| 184 |
|
|
| — |
|
|
| 12,539 |
|
Amortization |
|
| — |
|
|
| 2,260 |
|
|
| 14,579 |
|
|
| 483 |
|
|
| — |
|
|
| 17,322 |
|
Total costs and expenses |
|
| — |
|
|
| 162,693 |
|
|
| 56,561 |
|
|
| 10,695 |
|
|
| (2,422 | ) |
|
| 227,527 |
|
Operating income |
|
| — |
|
|
| 13,100 |
|
|
| 6,611 |
|
|
| 84 |
|
|
| — |
|
|
| 19,795 |
|
Other expenses (income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (income) expense, net |
|
| — |
|
|
| (292 | ) |
|
| 23,406 |
|
|
| 254 |
|
|
| — |
|
|
| 23,368 |
|
Income (loss) from subsidiaries |
|
| 4,289 |
|
|
| (2,898 | ) |
|
| (39 | ) |
|
| — |
|
|
| (1,352 | ) |
|
| — |
|
Total other expenses (income) |
|
| 4,289 |
|
|
| (3,190 | ) |
|
| 23,367 |
|
|
| 254 |
|
|
| (1,352 | ) |
|
| 23,368 |
|
(Loss) income before income tax |
|
| (4,289 | ) |
|
| 16,290 |
|
|
| (16,756 | ) |
|
| (170 | ) |
|
| 1,352 |
|
|
| (3,573 | ) |
Income tax (benefit) provision |
|
| — |
|
|
| (1,055 | ) |
|
| 1,708 |
|
|
| 63 |
|
|
| — |
|
|
| 716 |
|
Net (loss) income |
|
| (4,289 | ) |
|
| 17,345 |
|
|
| (18,464 | ) |
|
| (233 | ) |
|
| 1,352 |
|
|
| (4,289 | ) |
Foreign currency translation |
|
| 602 |
|
|
| — |
|
|
| — |
|
|
| 602 |
|
|
| (602 | ) |
|
| 602 |
|
Comprehensive (loss) income |
| $ | (3,687 | ) |
| $ | 17,345 |
|
| $ | (18,464 | ) |
| $ | 369 |
|
| $ | 750 |
|
| $ | (3,687 | ) |
|
| Three Months Ended September 30, 2016 |
| |||||||||||||||||||||
|
| Parent |
|
| Subsidiary Issuer |
|
| Guarantor Subsidiaries |
|
| Non- Guarantor Subsidiaries |
|
| Eliminations |
|
| Total |
| ||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games |
| $ | — |
|
| $ | — |
|
| $ | 56,218 |
|
| $ | — |
|
| $ | — |
|
| $ | 56,218 |
|
Payments |
|
| — |
|
|
| 153,145 |
|
|
| 7,519 |
|
|
| 5,417 |
|
|
| (122 | ) |
|
| 165,959 |
|
Total revenues |
|
| — |
|
|
| 153,145 |
|
|
| 63,737 |
|
|
| 5,417 |
|
|
| (122 | ) |
|
| 222,177 |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games cost of revenue (exclusive of depreciation and amortization) |
|
| — |
|
|
| — |
|
|
| 15,467 |
|
|
| — |
|
|
| — |
|
|
| 15,467 |
|
Payments cost of revenue (exclusive of depreciation and amortization) |
|
| — |
|
|
| 122,316 |
|
|
| 2,206 |
|
|
| 2,689 |
|
|
| — |
|
|
| 127,211 |
|
Operating expenses |
|
| — |
|
|
| 16,491 |
|
|
| 10,148 |
|
|
| 479 |
|
|
| (122 | ) |
|
| 26,996 |
|
Research and development |
|
| — |
|
|
| — |
|
|
| 4,460 |
|
|
| — |
|
|
| — |
|
|
| 4,460 |
|
Depreciation |
|
| — |
|
|
| 1,892 |
|
|
| 10,447 |
|
|
| 28 |
|
|
| — |
|
|
| 12,367 |
|
Amortization |
|
| — |
|
|
| 3,128 |
|
|
| 20,439 |
|
|
| 537 |
|
|
| — |
|
|
| 24,104 |
|
Total costs and expenses |
|
| — |
|
|
| 143,827 |
|
|
| 63,167 |
|
|
| 3,733 |
|
|
| (122 | ) |
|
| 210,605 |
|
Operating income |
|
| — |
|
|
| 9,318 |
|
|
| 570 |
|
|
| 1,684 |
|
|
| — |
|
|
| 11,572 |
|
Other expenses (income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income |
|
| — |
|
|
| 1,371 |
|
|
| 23,399 |
|
|
| 45 |
|
|
| — |
|
|
| 24,815 |
|
Loss (income) from subsidiaries |
|
| 8,254 |
|
|
| (4,306 | ) |
|
| — |
|
|
| — |
|
|
| (3,948 | ) |
|
| — |
|
Total other expenses (income) |
|
| 8,254 |
|
|
| (2,935 | ) |
|
| 23,399 |
|
|
| 45 |
|
|
| (3,948 | ) |
|
| 24,815 |
|
(Loss) income before income tax |
|
| (8,254 | ) |
|
| 12,253 |
|
|
| (22,829 | ) |
|
| 1,639 |
|
|
| 3,948 |
|
|
| (13,243 | ) |
Income tax provision (benefit) |
|
| — |
|
|
| 3,849 |
|
|
| (9,261 | ) |
|
| 423 |
|
|
| — |
|
|
| (4,989 | ) |
Net (loss) income |
|
| (8,254 | ) |
|
| 8,404 |
|
|
| (13,568 | ) |
|
| 1,216 |
|
|
| 3,948 |
|
|
| (8,254 | ) |
Foreign currency translation |
|
| (394 | ) |
|
| — |
|
|
| — |
|
|
| (394 | ) |
|
| 394 |
|
|
| (394 | ) |
Comprehensive (loss) income |
| $ | (8,648 | ) |
| $ | 8,404 |
|
| $ | (13,568 | ) |
| $ | 822 |
|
| $ | 4,342 |
|
| $ | (8,648 | ) |
|
| Nine Months Ended September 30, 2017 |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| Non- |
|
|
|
|
|
|
| ||||||
|
|
|
|
| Subsidiary |
|
| Guarantor |
|
| Guarantor |
|
|
|
|
|
|
| ||||||
|
| Parent |
|
| Issuer |
|
| Subsidiaries |
|
| Subsidiaries |
|
| Eliminations |
|
| Total |
| ||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games |
| $ | — |
|
| $ | — |
|
| $ | 165,551 |
|
| $ | 5,445 |
|
| $ | (5,164 | ) |
| $ | 165,832 |
|
Payments |
|
| — |
|
|
| 515,853 |
|
|
| 23,323 |
|
|
| 25,409 |
|
|
| (3,328 | ) |
|
| 561,257 |
|
Total revenues |
|
| — |
|
|
| 515,853 |
|
|
| 188,874 |
|
|
| 30,854 |
|
|
| (8,492 | ) |
|
| 727,089 |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games cost of revenue (exclusive of depreciation and amortization) |
|
| — |
|
|
| — |
|
|
| 39,659 |
|
|
| 2,945 |
|
|
| (3,101 | ) |
|
| 39,503 |
|
Payments cost of revenue (exclusive of depreciation and amortization) |
|
| — |
|
|
| 410,038 |
|
|
| 7,167 |
|
|
| 18,899 |
|
|
| — |
|
|
| 436,104 |
|
Operating expenses |
|
| — |
|
|
| 53,413 |
|
|
| 32,463 |
|
|
| 6,750 |
|
|
| (5,391 | ) |
|
| 87,235 |
|
Research and development |
|
| — |
|
|
| — |
|
|
| 13,676 |
|
|
| 30 |
|
|
| — |
|
|
| 13,706 |
|
Depreciation |
|
| — |
|
|
| 5,057 |
|
|
| 29,292 |
|
|
| 416 |
|
|
| — |
|
|
| 34,765 |
|
Amortization |
|
| — |
|
|
| 7,756 |
|
|
| 42,885 |
|
|
| 1,445 |
|
|
| — |
|
|
| 52,086 |
|
Total costs and expenses |
|
| — |
|
|
| 476,264 |
|
|
| 165,142 |
|
|
| 30,485 |
|
|
| (8,492 | ) |
|
| 663,399 |
|
Operating income |
|
| — |
|
|
| 39,589 |
|
|
| 23,732 |
|
|
| 369 |
|
|
| — |
|
|
| 63,690 |
|
Other expenses (income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income |
|
| — |
|
|
| 2,216 |
|
|
| 69,455 |
|
|
| 635 |
|
|
| — |
|
|
| 72,306 |
|
Loss (income) from subsidiaries |
|
| 26,854 |
|
|
| (8,884 | ) |
|
| (121 | ) |
|
| — |
|
|
| (17,849 | ) |
|
| — |
|
Loss on extinguishment of debt |
|
| — |
|
|
| 14,615 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14,615 |
|
Total other expenses (income) |
|
| 26,854 |
|
|
| 7,947 |
|
|
| 69,334 |
|
|
| 635 |
|
|
| (17,849 | ) |
|
| 86,921 |
|
(Loss) income before income tax |
|
| (26,854 | ) |
|
| 31,642 |
|
|
| (45,602 | ) |
|
| (266 | ) |
|
| 17,849 |
|
|
| (23,231 | ) |
Income tax (benefit) provision |
|
| — |
|
|
| (1,701 | ) |
|
| 5,108 |
|
|
| 216 |
|
|
| — |
|
|
| 3,623 |
|
Net (loss) income |
|
| (26,854 | ) |
|
| 33,343 |
|
|
| (50,710 | ) |
|
| (482 | ) |
|
| 17,849 |
|
|
| (26,854 | ) |
Foreign currency translation |
|
| 1,710 |
|
|
| — |
|
|
| — |
|
|
| 1,710 |
|
|
| (1,710 | ) |
|
| 1,710 |
|
Comprehensive (loss) income |
| $ | (25,144 | ) |
| $ | 33,343 |
|
| $ | (50,710 | ) |
| $ | 1,228 |
|
| $ | 16,139 |
|
| $ | (25,144 | ) |
|
| Nine Months Ended September 30, 2016 |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| Non- |
|
|
|
|
|
|
| ||||||
|
|
|
|
| Subsidiary |
|
| Guarantor |
|
| Guarantor |
|
|
|
|
|
|
| ||||||
|
| Parent |
|
| Issuer |
|
| Subsidiaries |
|
| Subsidiaries |
|
| Eliminations |
|
| Total |
| ||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games |
| $ | — |
|
| $ | — |
|
| $ | 158,660 |
|
| $ | — |
|
| $ | — |
|
|
| 158,660 |
|
Payments |
|
| — |
|
|
| 447,762 |
|
|
| 22,622 |
|
|
| 13,769 |
|
|
| (867 | ) |
|
| 483,286 |
|
Total revenues |
|
| — |
|
|
| 447,762 |
|
|
| 181,282 |
|
|
| 13,769 |
|
|
| (867 | ) |
|
| 641,946 |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games cost of revenue (exclusive of depreciation and amortization) |
|
| — |
|
|
| — |
|
|
| 36,871 |
|
|
| — |
|
|
| — |
|
|
| 36,871 |
|
Payments cost of revenue (exclusive of depreciation and amortization) |
|
| — |
|
|
| 359,265 |
|
|
| 6,754 |
|
|
| 7,347 |
|
|
| — |
|
|
| 373,366 |
|
Operating expenses |
|
| — |
|
|
| 53,912 |
|
|
| 33,230 |
|
|
| 1,460 |
|
|
| (867 | ) |
|
| 87,735 |
|
Research and development |
|
| — |
|
|
| — |
|
|
| 14,499 |
|
|
| — |
|
|
| — |
|
|
| 14,499 |
|
Depreciation |
|
| — |
|
|
| 6,376 |
|
|
| 30,707 |
|
|
| 89 |
|
|
| — |
|
|
| 37,172 |
|
Amortization |
|
| — |
|
|
| 9,370 |
|
|
| 59,830 |
|
|
| 1,687 |
|
|
| — |
|
|
| 70,887 |
|
Total costs and expenses |
|
| — |
|
|
| 428,923 |
|
|
| 181,891 |
|
|
| 10,583 |
|
|
| (867 | ) |
|
| 620,530 |
|
Operating income (loss) |
|
| — |
|
|
| 18,839 |
|
|
| (609 | ) |
|
| 3,186 |
|
|
| — |
|
|
| 21,416 |
|
Other expenses (income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income |
|
| — |
|
|
| 4,880 |
|
|
| 69,500 |
|
|
| 168 |
|
|
| — |
|
|
| 74,548 |
|
Loss (income) from subsidiaries |
|
| 32,202 |
|
|
| (11,120 | ) |
|
| — |
|
|
| — |
|
|
| (21,082 | ) |
|
| — |
|
Total other expenses (income) |
|
| 32,202 |
|
|
| (6,240 | ) |
|
| 69,500 |
|
|
| 168 |
|
|
| (21,082 | ) |
|
| 74,548 |
|
(Loss) income before income tax |
|
| (32,202 | ) |
|
| 25,079 |
|
|
| (70,109 | ) |
|
| 3,018 |
|
|
| 21,082 |
|
|
| (53,132 | ) |
Income tax provision (benefit) |
|
| — |
|
|
| 5,785 |
|
|
| (27,642 | ) |
|
| 927 |
|
|
| — |
|
|
| (20,930 | ) |
Net (loss) income |
|
| (32,202 | ) |
|
| 19,294 |
|
|
| (42,467 | ) |
|
| 2,091 |
|
|
| 21,082 |
|
|
| (32,202 | ) |
Foreign currency translation |
|
| (1,314 | ) |
|
| — |
|
|
| — |
|
|
| (1,314 | ) |
|
| 1,314 |
|
|
| (1,314 | ) |
Comprehensive (loss) income |
| $ | (33,516 | ) |
| $ | 19,294 |
|
| $ | (42,467 | ) |
| $ | 777 |
|
| $ | 22,396 |
|
| $ | (33,516 | ) |
|
| At September 30, 2017 |
| |||||||||||||||||||||
|
| Parent |
|
| Subsidiary Issuer |
|
| Guarantor Subsidiaries |
|
| Non- Guarantor Subsidiaries |
|
| Eliminations |
|
| Total |
| ||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | — |
|
| $ | 85,633 |
|
| $ | 6,587 |
|
| $ | 16,251 |
|
| $ | — |
|
| $ | 108,471 |
|
Settlement receivables |
|
| — |
|
|
| 112,879 |
|
|
| — |
|
|
| 14,564 |
|
|
| — |
|
|
| 127,443 |
|
Trade and other receivables, net |
|
| — |
|
|
| 6,370 |
|
|
| 35,415 |
|
|
| 3,186 |
|
|
| — |
|
|
| 44,971 |
|
Inventory |
|
| — |
|
|
| 5,550 |
|
|
| 18,240 |
|
|
| — |
|
|
| — |
|
|
| 23,790 |
|
Prepaid expenses and other assets |
|
| — |
|
|
| 6,078 |
|
|
| 6,691 |
|
|
| 9,769 |
|
|
| — |
|
|
| 22,538 |
|
Intercompany balances |
|
| — |
|
|
| 167,488 |
|
|
| 207,021 |
|
|
| 1,531 |
|
|
| (376,040 | ) |
|
| — |
|
Total current assets |
|
| — |
|
|
| 383,998 |
|
|
| 273,954 |
|
|
| 45,301 |
|
|
| (376,040 | ) |
|
| 327,213 |
|
Non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, equipment and leased assets, net |
|
| — |
|
|
| 13,987 |
|
|
| 93,258 |
|
|
| 2,154 |
|
|
| — |
|
|
| 109,399 |
|
Goodwill |
|
| — |
|
|
| 151,417 |
|
|
| 488,511 |
|
|
| 665 |
|
|
| — |
|
|
| 640,593 |
|
Other intangible assets, net |
|
| — |
|
|
| 20,330 |
|
|
| 314,348 |
|
|
| 3,396 |
|
|
| — |
|
|
| 338,074 |
|
Other receivables |
|
| — |
|
|
| 1,220 |
|
|
| 1,656 |
|
|
| — |
|
|
| — |
|
|
| 2,876 |
|
Investment in subsidiaries |
|
| (123,760 | ) |
|
| 182,365 |
|
|
| 1,007 |
|
|
| 79 |
|
|
| (59,691 | ) |
|
| — |
|
Deferred tax asset |
|
| — |
|
|
| 34,386 |
|
|
| — |
|
|
| — |
|
|
| (34,386 | ) |
|
| — |
|
Other assets |
|
| — |
|
|
| 4,632 |
|
|
| 2,635 |
|
|
| 183 |
|
|
| — |
|
|
| 7,450 |
|
Intercompany balances |
|
| — |
|
|
| 1,148,223 |
|
|
| — |
|
|
| — |
|
|
| (1,148,223 | ) |
|
| — |
|
Total non-current assets |
|
| (123,760 | ) |
|
| 1,556,560 |
|
|
| 901,415 |
|
|
| 6,477 |
|
|
| (1,242,300 | ) |
|
| 1,098,392 |
|
Total assets |
| $ | (123,760 | ) |
| $ | 1,940,558 |
|
| $ | 1,175,369 |
|
| $ | 51,778 |
|
| $ | (1,618,340 | ) |
| $ | 1,425,605 |
|
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EARNINGS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement liabilities |
| $ | — |
|
| $ | 189,738 |
|
| $ | 202 |
|
| $ | 7,554 |
|
| $ | — |
|
| $ | 197,494 |
|
Accounts payable and accrued expenses |
|
| — |
|
|
| 77,194 |
|
|
| 46,314 |
|
|
| 3,117 |
|
|
| — |
|
|
| 126,625 |
|
Current portion of long-term debt |
|
| — |
|
|
| 8,200 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,200 |
|
Intercompany balances |
|
| — |
|
|
| 204,387 |
|
|
| 154,489 |
|
|
| 17,164 |
|
|
| (376,040 | ) |
|
| — |
|
Total current liabilities |
|
| — |
|
|
| 479,519 |
|
|
| 201,005 |
|
|
| 27,835 |
|
|
| (376,040 | ) |
|
| 332,319 |
|
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability |
|
| — |
|
|
| — |
|
|
| 95,171 |
|
|
| — |
|
|
| (34,386 | ) |
|
| 60,785 |
|
Long-term debt, less current portion |
|
| — |
|
|
| 1,130,671 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,130,671 |
|
Other accrued expenses and liabilities |
|
| — |
|
|
| 2,973 |
|
|
| 22,661 |
|
|
| — |
|
|
| — |
|
|
| 25,634 |
|
Intercompany balances |
|
| — |
|
|
| — |
|
|
| 1,148,223 |
|
|
| — |
|
|
| (1,148,223 | ) |
|
| — |
|
Total non-current liabilities |
|
| — |
|
|
| 1,133,644 |
|
|
| 1,266,055 |
|
|
| — |
|
|
| (1,182,609 | ) |
|
| 1,217,090 |
|
Total liabilities |
|
| — |
|
|
| 1,613,163 |
|
|
| 1,467,060 |
|
|
| 27,835 |
|
|
| (1,558,649 | ) |
|
| 1,549,409 |
|
Stockholders’ (deficit) equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
| 92 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 92 |
|
Additional paid-in capital |
|
| 273,906 |
|
|
| 93,091 |
|
|
| 6,841 |
|
|
| 21,109 |
|
|
| (121,041 | ) |
|
| 273,906 |
|
(Accumulated deficit) retained earnings |
|
| (221,152 | ) |
|
| 234,659 |
|
|
| (297,969 | ) |
|
| 4,279 |
|
|
| 59,031 |
|
|
| (221,152 | ) |
Accumulated other comprehensive loss |
|
| (355 | ) |
|
| (355 | ) |
|
| (563 | ) |
|
| (1,445 | ) |
|
| 2,319 |
|
|
| (399 | ) |
Treasury stock, at cost |
|
| (176,251 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (176,251 | ) |
Total stockholders’ (deficit) equity |
|
| (123,760 | ) |
|
| 327,395 |
|
|
| (291,691 | ) |
|
| 23,943 |
|
|
| (59,691 | ) |
|
| (123,804 | ) |
Total liabilities and stockholders’ (deficit) equity |
| $ | (123,760 | ) |
| $ | 1,940,558 |
|
| $ | 1,175,369 |
|
| $ | 51,778 |
|
| $ | (1,618,340 | ) |
| $ | 1,425,605 |
|
|
| At December 31, 2016 |
| |||||||||||||||||||||
|
| Parent |
|
| Subsidiary Issuer |
|
| Guarantor Subsidiaries |
|
| Non- Guarantor Subsidiaries |
|
| Eliminations |
|
| Total |
| ||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | — |
|
| $ | 88,648 |
|
| $ | 9,103 |
|
| $ | 21,300 |
|
| $ | — |
|
| $ | 119,051 |
|
Settlement receivables |
|
| — |
|
|
| 122,222 |
|
|
| — |
|
|
| 6,599 |
|
|
| — |
|
|
| 128,821 |
|
Trade and other receivables, net |
|
| — |
|
|
| 9,001 |
|
|
| 41,743 |
|
|
| 5,907 |
|
|
| — |
|
|
| 56,651 |
|
Inventory |
|
| — |
|
|
| 6,009 |
|
|
| 13,059 |
|
|
| — |
|
|
| — |
|
|
| 19,068 |
|
Prepaid expenses and other assets |
|
| — |
|
|
| 5,359 |
|
|
| 3,807 |
|
|
| 8,882 |
|
|
| — |
|
|
| 18,048 |
|
Intercompany balances |
|
| — |
|
|
| 106,729 |
|
|
| 188,028 |
|
|
| 1,461 |
|
|
| (296,218 | ) |
|
| — |
|
Total current assets |
|
| — |
|
|
| 337,968 |
|
|
| 255,740 |
|
|
| 44,149 |
|
|
| (296,218 | ) |
|
| 341,639 |
|
Non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, equipment and leased assets, net |
|
| — |
|
|
| 15,144 |
|
|
| 81,993 |
|
|
| 1,302 |
|
|
| — |
|
|
| 98,439 |
|
Goodwill |
|
| — |
|
|
| 151,417 |
|
|
| 488,512 |
|
|
| 617 |
|
|
| — |
|
|
| 640,546 |
|
Other intangible assets, net |
|
| — |
|
|
| 23,901 |
|
|
| 289,338 |
|
|
| 4,758 |
|
|
| — |
|
|
| 317,997 |
|
Other receivables |
|
| — |
|
|
| 2,019 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 2,020 |
|
Investment in subsidiaries |
|
| (107,751 | ) |
|
| 171,979 |
|
|
| 1,293 |
|
|
| 86 |
|
|
| (65,607 | ) |
|
| — |
|
Deferred tax asset |
|
| — |
|
|
| 37,578 |
|
|
| — |
|
|
| — |
|
|
| (37,578 | ) |
|
| — |
|
Other assets |
|
| — |
|
|
| 4,940 |
|
|
| 2,286 |
|
|
| 296 |
|
|
| — |
|
|
| 7,522 |
|
Intercompany balances |
|
| — |
|
|
| 1,143,115 |
|
|
| 7,851 |
|
|
| — |
|
|
| (1,150,966 | ) |
|
| — |
|
Total non-current assets |
|
| (107,751 | ) |
|
| 1,550,093 |
|
|
| 871,273 |
|
|
| 7,060 |
|
|
| (1,254,151 | ) |
|
| 1,066,524 |
|
Total assets |
| $ | (107,751 | ) |
| $ | 1,888,061 |
|
| $ | 1,127,013 |
|
| $ | 51,209 |
|
| $ | (1,550,369 | ) |
| $ | 1,408,163 |
|
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement liabilities |
| $ | — |
|
| $ | 225,170 |
|
| $ | 268 |
|
| $ | 13,685 |
|
| $ | — |
|
| $ | 239,123 |
|
Accounts payable and accrued expenses |
|
| — |
|
|
| 64,192 |
|
|
| 28,970 |
|
|
| 1,229 |
|
|
| — |
|
|
| 94,391 |
|
Current portion of long-term debt |
|
| — |
|
|
| 10,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,000 |
|
Intercompany balances |
|
| — |
|
|
| 189,488 |
|
|
| 101,387 |
|
|
| 5,343 |
|
|
| (296,218 | ) |
|
| — |
|
Total current liabilities |
|
| — |
|
|
| 488,850 |
|
|
| 130,625 |
|
|
| 20,257 |
|
|
| (296,218 | ) |
|
| 343,514 |
|
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability |
|
| — |
|
|
| — |
|
|
| 95,189 |
|
|
| — |
|
|
| (37,578 | ) |
|
| 57,611 |
|
Long-term debt, less current portion |
|
| — |
|
|
| 1,111,880 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,111,880 |
|
Other accrued expenses and liabilities |
|
| — |
|
|
| 2,583 |
|
|
| 368 |
|
|
| — |
|
|
| — |
|
|
| 2,951 |
|
Intercompany balances |
|
| — |
|
|
| — |
|
|
| 1,143,116 |
|
|
| 7,850 |
|
|
| (1,150,966 | ) |
|
| — |
|
Total non-current liabilities |
|
| — |
|
|
| 1,114,463 |
|
|
| 1,238,673 |
|
|
| 7,850 |
|
|
| (1,188,544 | ) |
|
| 1,172,442 |
|
Total liabilities |
|
| — |
|
|
| 1,603,313 |
|
|
| 1,369,298 |
|
|
| 28,107 |
|
|
| (1,484,762 | ) |
|
| 1,515,956 |
|
Stockholders’ (deficit) equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
| 91 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 91 |
|
Additional paid-in capital |
|
| 264,755 |
|
|
| 85,499 |
|
|
| 5,314 |
|
|
| 21,093 |
|
|
| (111,906 | ) |
|
| 264,755 |
|
(Accumulated deficit) retained earnings |
|
| (194,299 | ) |
|
| 201,316 |
|
|
| (247,273 | ) |
|
| 5,168 |
|
|
| 40,789 |
|
|
| (194,299 | ) |
Accumulated other comprehensive loss |
|
| (2,067 | ) |
|
| (2,067 | ) |
|
| (326 | ) |
|
| (3,159 | ) |
|
| 5,510 |
|
|
| (2,109 | ) |
Treasury stock, at cost |
|
| (176,231 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (176,231 | ) |
Total stockholders’ (deficit) equity |
|
| (107,751 | ) |
|
| 284,748 |
|
|
| (242,285 | ) |
|
| 23,102 |
|
|
| (65,607 | ) |
|
| (107,793 | ) |
Total liabilities and stockholders’ (deficit) equity |
| $ | (107,751 | ) |
| $ | 1,888,061 |
|
| $ | 1,127,013 |
|
| $ | 51,209 |
|
| $ | (1,550,369 | ) |
| $ | 1,408,163 |
|
|
| Nine Months Ended September 30, 2017 |
| |||||||||||||||||||||
|
| Parent |
|
| Subsidiary Issuer |
|
| Guarantor Subsidiaries |
|
| Non- Guarantor Subsidiaries |
|
| Eliminations |
|
| Total |
| ||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
| $ | (26,854 | ) |
| $ | 33,343 |
|
| $ | (50,710 | ) |
| $ | (482 | ) |
| $ | 17,849 |
|
| $ | (26,854 | ) |
Adjustments to reconcile net (loss) income to cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| — |
|
|
| 12,813 |
|
|
| 72,177 |
|
|
| 1,861 |
|
|
| — |
|
|
| 86,851 |
|
Amortization of financing costs |
|
| — |
|
|
| 4,567 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,567 |
|
Loss on sale or disposal of assets |
|
| — |
|
|
| 347 |
|
|
| 1,233 |
|
|
| — |
|
|
| — |
|
|
| 1,580 |
|
Accretion of contract rights |
|
| — |
|
|
| — |
|
|
| 5,845 |
|
|
| — |
|
|
| — |
|
|
| 5,845 |
|
Provision for bad debts |
|
| — |
|
|
| (136 | ) |
|
| 8,082 |
|
|
| — |
|
|
| — |
|
|
| 7,946 |
|
Deferred income taxes |
|
| — |
|
|
| 3,193 |
|
|
| (19 | ) |
|
| — |
|
|
| — |
|
|
| 3,174 |
|
Reserve for obsolescence |
|
| — |
|
|
| 265 |
|
|
| (219 | ) |
|
| — |
|
|
| — |
|
|
| 46 |
|
Loss on extinguishment of debt |
|
| — |
|
|
| 14,615 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14,615 |
|
Equity in loss (income) of subsidiaries |
|
| 26,854 |
|
|
| (8,884 | ) |
|
| (121 | ) |
|
| — |
|
|
| (17,849 | ) |
|
| — |
|
Stock-based compensation |
|
| — |
|
|
| 3,684 |
|
|
| 1,441 |
|
|
| — |
|
|
| — |
|
|
| 5,125 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net settlement receivables and liabilities |
|
| — |
|
|
| (26,089 | ) |
|
| (66 | ) |
|
| (14,075 | ) |
|
| — |
|
|
| (40,230 | ) |
Other changes in operating assets and liabilities |
|
| — |
|
|
| (35,336 | ) |
|
| 34,422 |
|
|
| 8,011 |
|
|
| — |
|
|
| 7,097 |
|
Net cash provided by (used in) operating activities |
|
| — |
|
|
| 2,382 |
|
|
| 72,065 |
|
|
| (4,685 | ) |
|
| — |
|
|
| 69,762 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| — |
|
|
| (7,191 | ) |
|
| (61,474 | ) |
|
| (1,392 | ) |
|
| — |
|
|
| (70,057 | ) |
Proceeds from sale of fixed assets |
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4 |
|
Placement fee agreements |
|
| — |
|
|
| — |
|
|
| (13,132 | ) |
|
| — |
|
|
| — |
|
|
| (13,132 | ) |
Changes in restricted cash |
|
| — |
|
|
| 96 |
|
|
| (245 | ) |
|
| — |
|
|
| — |
|
|
| (149 | ) |
Intercompany investing activities |
|
| (4,025 | ) |
|
| 3,996 |
|
|
| 270 |
|
|
| (76 | ) |
|
| (165 | ) |
|
| — |
|
Net cash used in investing activities |
|
| (4,025 | ) |
|
| (3,095 | ) |
|
| (74,581 | ) |
|
| (1,468 | ) |
|
| (165 | ) |
|
| (83,334 | ) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of new credit facility |
|
| — |
|
|
| (2,050 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,050 | ) |
Repayments of prior credit facility |
|
| — |
|
|
| (465,600 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (465,600 | ) |
Repayments of secured notes |
|
| — |
|
|
| (335,000 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (335,000 | ) |
Proceeds from current credit facility |
|
| — |
|
|
| 820,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 820,000 |
|
Debt issuance costs and discounts |
|
| — |
|
|
| (19,748 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (19,748 | ) |
Proceeds from exercise of stock options |
|
| 4,046 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,046 |
|
Purchase of treasury stock |
|
| (21 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (21 | ) |
Intercompany financing activities |
|
| — |
|
|
| 96 |
|
|
| — |
|
|
| (261 | ) |
|
| 165 |
|
|
| — |
|
Net cash provided by (used in) financing activities |
|
| 4,025 |
|
|
| (2,302 | ) |
|
| — |
|
|
| (261 | ) |
|
| 165 |
|
|
| 1,627 |
|
Effect of exchange rates on cash |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,365 |
|
|
| — |
|
|
| 1,365 |
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease for the period |
|
| — |
|
|
| (3,015 | ) |
|
| (2,516 | ) |
|
| (5,049 | ) |
|
| — |
|
|
| (10,580 | ) |
Balance, beginning of the period |
|
| — |
|
|
| 88,648 |
|
|
| 9,103 |
|
|
| 21,300 |
|
|
| — |
|
|
| 119,051 |
|
Balance, end of the period |
| $ | — |
|
| $ | 85,633 |
|
| $ | 6,587 |
|
| $ | 16,251 |
|
| $ | — |
|
| $ | 108,471 |
|
|
| Nine Months Ended September 30, 2016 |
| |||||||||||||||||||||
|
| Parent |
|
| Subsidiary Issuer |
|
| Guarantor Subsidiaries |
|
| Non- Guarantor Subsidiaries |
|
| Eliminations |
|
| Total |
| ||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
| $ | (32,202 | ) |
| $ | 19,294 |
|
| $ | (42,467 | ) |
| $ | 2,091 |
|
| $ | 21,082 |
|
| $ | (32,202 | ) |
Adjustments to reconcile net (loss) income to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| — |
|
|
| 15,746 |
|
|
| 90,537 |
|
|
| 1,776 |
|
|
| — |
|
|
| 108,059 |
|
Amortization of financing costs |
|
| — |
|
|
| 5,023 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,023 |
|
Loss on sale or disposal of assets |
|
| — |
|
|
| 1,349 |
|
|
| 1,205 |
|
|
| — |
|
|
| — |
|
|
| 2,554 |
|
Accretion of contract rights |
|
| — |
|
|
| — |
|
|
| 6,521 |
|
|
| — |
|
|
| — |
|
|
| 6,521 |
|
Provision for bad debts |
|
| — |
|
|
| 18 |
|
|
| 7,174 |
|
|
| — |
|
|
| — |
|
|
| 7,192 |
|
Deferred income taxes |
|
| — |
|
|
| 10,546 |
|
|
| (32,805 | ) |
|
| — |
|
|
| — |
|
|
| (22,259 | ) |
Write-down of assets |
|
| — |
|
|
| — |
|
|
| 4,289 |
|
|
| — |
|
|
| — |
|
|
| 4,289 |
|
Reserve for obsolescence |
|
| — |
|
|
| 484 |
|
|
| 458 |
|
|
| — |
|
|
| — |
|
|
| 942 |
|
Equity in loss (income) of subsidiaries |
|
| 32,202 |
|
|
| (11,120 | ) |
|
| — |
|
|
| — |
|
|
| (21,082 | ) |
|
| — |
|
Stock-based compensation |
|
| — |
|
|
| 2,910 |
|
|
| 1,236 |
|
|
| — |
|
|
| — |
|
|
| 4,146 |
|
Other non-cash items |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net settlement receivables and liabilities |
|
| — |
|
|
| (16,538 | ) |
|
| 6 |
|
|
| 3,690 |
|
|
| — |
|
|
| (12,842 | ) |
Other changes in operating assets and liabilities |
|
| 1 |
|
|
| (27,155 | ) |
|
| 41,544 |
|
|
| (5 | ) |
|
| — |
|
|
| 14,385 |
|
Net cash provided by operating activities |
|
| 1 |
|
|
| 557 |
|
|
| 77,698 |
|
|
| 7,552 |
|
|
| — |
|
|
| 85,808 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| — |
|
|
| (7,330 | ) |
|
| (59,622 | ) |
|
| (73 | ) |
|
| — |
|
|
| (67,025 | ) |
Acquisitions, net of cash acquired |
|
| — |
|
|
| (694 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (694 | ) |
Proceeds from sale of fixed assets |
|
| — |
|
|
| 4,608 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,608 |
|
Placement fee agreements |
|
| — |
|
|
| — |
|
|
| (11,187 | ) |
|
| — |
|
|
| — |
|
|
| (11,187 | ) |
Changes in restricted cash |
|
| — |
|
|
| 88 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 88 |
|
Intercompany investing activities |
|
| 10 |
|
|
| 499 |
|
|
| 175 |
|
|
| (67 | ) |
|
| (617 | ) |
|
| — |
|
Net cash provided by (used in) investing activities |
|
| 10 |
|
|
| (2,829 | ) |
|
| (70,634 | ) |
|
| (140 | ) |
|
| (617 | ) |
|
| (74,210 | ) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of prior credit facility |
|
| — |
|
|
| (21,900 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (21,900 | ) |
Debt issuance costs and discounts |
|
| — |
|
|
| (480 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (480 | ) |
Purchase of treasury stock |
|
| (17 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (17 | ) |
Intercompany financing activities |
|
| — |
|
|
| 68 |
|
|
| — |
|
|
| (685 | ) |
|
| 617 |
|
|
| — |
|
Net cash (used in) provided by financing activities |
|
| (17 | ) |
|
| (22,312 | ) |
|
| — |
|
|
| (685 | ) |
|
| 617 |
|
|
| (22,397 | ) |
Effect of exchange rates on cash |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (743 | ) |
|
| — |
|
|
| (743 | ) |
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase for the period |
|
| (6 | ) |
|
| (24,584 | ) |
|
| 7,064 |
|
|
| 5,984 |
|
|
| — |
|
|
| (11,542 | ) |
Balance, beginning of the period |
|
| 6 |
|
|
| 87,078 |
|
|
| 3,900 |
|
|
| 11,046 |
|
|
| — |
|
|
| 102,030 |
|
Balance, end of the period |
| $ | — |
|
| $ | 62,494 |
|
| $ | 10,964 |
|
| $ | 17,030 |
|
| $ | — |
|
| $ | 90,488 |
|
|
|
As of the filing date, we had not identified, and were not aware of, any subsequent event for the period.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
In this filing, we refer to: (i) our unaudited condensed consolidated financial statements and notes thereto as our “Financial Statements,” (ii) our Unaudited Condensed Consolidated Statements of Loss and Comprehensive Loss as our “Statements of Loss,” (iii) our Unaudited Condensed Consolidated Balance Sheets as our “Balance Sheets,” and (iv) our unaudited condensed consolidated results of operations as our “Results of Operations.”
Cautionary Information Regarding Forward-Looking Statements
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains “forward-looking statements” as defined in the U.S. Private Securities Litigation Reform Act of 1995. In this context, forward-looking statements often address our expected future business and financial performance, and often contain words such as “anticipate,” “believe,” “expect,” “intend,” “estimate,” “project,” “may,” “should,” “will,” “likely,” “will likely result,” “will continue,” “future,” “plan,” “target,” “forecast,” “goal,” “observe,” “seek,” “strategy” and other words and terms of similar meaning. These forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those projected or assumed, including, but not limited to, the following: our ability to generate profits in the future; our ability to execute on mergers, acquisitions and/or strategic alliances, including our ability to integrate and operate such acquisitions consistent with our forecasts; expectations regarding our existing and future installed base and win per day; expectations regarding placement fee arrangements; inaccuracies in underlying operating assumptions; expectations regarding customers’ preferences and demands for future gaming offerings; expectations regarding our product portfolio; the overall growth of the gaming industry, if any; our ability to replace revenue associated with terminated contracts; margin degradation from contract renewals; our ability to comply with the Europay, MasterCard and Visa global standard for cards equipped with security chip technology; our ability to introduce new products and services, including third-party licensed content; gaming establishment and patron preferences; expenditures and product development; anticipated sales performance; employee turnover; national and international economic conditions; changes in gaming regulatory, card association and statutory requirements; regulatory and licensing difficulties; competitive pressures; operational limitations; gaming market contraction; changes to tax laws; uncertainty of litigation outcomes; interest rate fluctuations; business prospects; unanticipated expenses or capital needs; technological obsolescence; our ability to comply with our debt covenants and service outstanding debt; employee turnover and other statements that are not historical facts. If any of these assumptions prove to be incorrect, the results contemplated by the forward-looking statements regarding our future results of operations are unlikely to be realized.
These cautionary statements qualify our forward-looking statements, and you are cautioned not to place undue reliance on these forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
This Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and the information included in our other press releases, reports and other filings with the Securities and Exchange Commission (the “SEC”). Understanding the information contained in these filings is important in order to fully understand our reported financial results and our business outlook for future periods.
Overview
Everi Holdings Inc. (formerly known as Global Cash Access Holdings, Inc.) (“Everi Holdings,” “Holdings” or “Everi”) is a holding company, the assets of which are the issued and outstanding shares of capital stock of each of Everi Games Holding Inc. (formerly known as Multimedia Games Holding Company, Inc.) (“Everi Games Holding”), which owns all of the issued and outstanding shares of capital stock of Everi Games Inc. (formerly known as Multimedia Games, Inc.) (“Everi Games” or “Games”) and Everi Payments Inc. (formerly known as Global Cash Access, Inc.) (“Everi Payments” or “Payments”). Unless otherwise indicated, the terms the “Company,” “we,” “us” and “our” refer to Holdings together with its consolidated subsidiaries.
Everi is dedicated to providing video and mechanical reel gaming content and technology solutions, integrated gaming payments solutions and compliance and efficiency software to casino operators. Everi Games provides: (a) comprehensive content, electronic gaming units and systems for Native American and commercial casinos, including both Wide-Area Progressive systems and the award winning TournEvent® slot tournament solution; and (b) the central determinant system for the video lottery terminals installed in the State of New York. Everi Payments provides:
(a) access to cash at gaming facilities via Automated Teller Machine (“ATM”) cash withdrawals, credit card cash access transactions, point of sale (“POS”) debit card transactions, and check verification and warranty services; (b) fully integrated gaming industry kiosks that provide cash access and related services; (c) products and services that improve credit decision making, automate cashier operations and enhance patron marketing activities for gaming establishments; (d) compliance, audit and data solutions; and (e) online payment processing solutions for gaming operators in states that offer intrastate, Internet-based gaming and lottery activities.
Trends and Developments Impacting our Business
Our strategic planning and forecasting processes include the consideration of economic and industry wide trends that may impact our Games and Payments businesses. We have identified the more material positive and negative trends affecting our business as the following:
Casino gaming is dependent upon discretionary consumer spending, which is typically the first type of spending that is restrained by consumers when they are uncertain about their jobs and income. Global economic uncertainty in the marketplace may have an impact on casino gaming and ultimately the demand for new gaming equipment.
The total North American installed slot base in the third quarter of 2017 remained relatively flat to the same period in 2016. We expect flat to moderate growth in the forward replacement cycle for electronic gaming machines (“EGMs”).
The volume of new casino openings and new market expansions have slowed from previous years. The reduced demand as a result of fewer new market expansions could reduce the overall demand for slot machines.
We face continued competition from smaller competitors in the gaming cash access market and face additional competition from larger gaming equipment manufacturers and systems providers. This increased competition has resulted in pricing pressure for both our Games and Payments businesses.
Governmental oversight related to the cost of transaction processing and related fees to the consumer has increased in recent years. We expect the financial services and payments industry to respond to these legislative acts by changing other fees and costs, which may negatively impact our Payments business in the future.
Casino operators continue to try to broaden their appeal by focusing on investments in the addition of non-gaming amenities to their facilities, which could impact casino operator’s capital allocation for games.
Impact of ASC Topic 606 on the Comparability of Our Results of Operations in Future Periods
As discussed in detail in “Note 2 — Basis of Presentation and Summary of Significant Accounting Policies – Recent Accounting Guidance – Recent Accounting Guidance Not Yet Adopted,” in Item 1: Financial Statements, we are, and have been, assessing the potential impact on our financial statements of ASC Topic 606, “Revenue from Contracts with Customers,” which will initially apply to us beginning with the fiscal year ending December 31, 2018. Based on the transition guidance related to ASC Topic 606, we are in the process of determining if our cash advance, ATM and check services revenue streams will be required to be reported “net of transaction price” rather than on a gross revenue presentation basis, as has been our practice to date. In this regard, ASC Topic 606 eliminates certain factors that appear in the existing governing standard, ASC Topic 605, and that supported our position of reporting these Payments-related revenue streams on a gross revenue basis. In addition, the new revenue recognition standard, as it specifically pertains to payments from customers, may also require us to report certain of these Payments-related revenue streams on a net presentation basis. If, upon the conclusion of our assessment and adoption of ASC Topic 606, we determine that we are required to report these Payments-related revenue streams on a “net of transaction price” basis rather than on a gross revenue presentation basis, this will have a significant impact on our Payments-related revenues, cost of revenues and margins. In particular, our “Payments revenue” would be reduced by the “Payments cost of revenue (exclusive of depreciation and amortization)” associated with the Payments-related revenue streams affected by the new standard, our “Payments cost of revenue (exclusive of depreciation and amortization)” would be reduced by a similar amount, and, correspondingly, our Payments operating margin will remain unchanged. The new revenue standard would not impact our operating income, net loss, cash flows or the timing of revenues recognized and costs incurred under generally accepted accounting principles in the United States (“GAAP”).
Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-making group in deciding how to allocate resources and in assessing performance. Our chief operating decision-making group consists of the Chief Executive Officer and the Chief Financial Officer. This group manages the business, allocates resources and measures profitability based on our operating segments. The operating segments are managed and reviewed separately, as each represents products that can be sold separately to our customers.
Our chief operating decision-making group has determined the following to be the operating segments for which we conduct business: (a) Games and (b) Payments. We have reported our financial performance based on our segments in both the current and prior periods. Each of these segments is monitored by our management for performance against its internal forecast and is consistent with our internal management reporting.
The Games segment provides solutions directly to gaming establishments to offer their patrons gaming entertainment related experiences including: leased gaming equipment; sales and maintenance related services of gaming equipment; gaming systems; and ancillary products and services.
The Payments segment provides solutions directly to gaming establishments to offer their patrons cash access related services and products including: access to cash at gaming facilities via ATM cash withdrawals, credit card cash access transactions and POS debit card cash access transactions; check-related services; fully integrated kiosks and maintenance services; compliance, audit and data software; casino credit data and reporting services and other ancillary offerings.
Corporate overhead expenses have been allocated to the segments either through specific identification or based on a reasonable methodology. In addition, we record depreciation and amortization expenses to the business segments.
Our business is predominantly domestic, with no specific regional concentrations and no significant assets in foreign locations.
Three months ended September 30, 2017 compared to three months ended September 30, 2016
The following table presents our Results of Operations (in thousands)*:
|
| Three Months Ended |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
| September 30, 2017 |
|
|
| September 30, 2016 |
|
|
| 2017 vs 2016 |
|
| |||||||||||||||
|
| $ |
|
| % |
|
|
| $ |
|
| % |
|
|
| $ Variance |
|
| % Variance |
|
| ||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games |
| $ | 55,452 |
|
|
| 22 |
| % |
| $ | 56,218 |
|
|
| 25 |
| % |
| $ | (766 | ) |
|
| (1 | ) | % |
Payments |
|
| 191,870 |
|
|
| 78 |
| % |
|
| 165,959 |
|
|
| 75 |
| % |
|
| 25,911 |
|
|
| 16 |
| % |
Total revenues |
|
| 247,322 |
|
|
| 100 |
| % |
|
| 222,177 |
|
|
| 100 |
| % |
|
| 25,145 |
|
|
| 11 |
| % |
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games cost of revenue (exclusive of depreciation and amortization) |
|
| 13,820 |
|
|
| 5 |
| % |
|
| 15,467 |
|
|
| 7 |
| % |
|
| (1,647 | ) |
|
| (11 | ) | % |
Payments cost of revenue (exclusive of depreciation and amortization) |
|
| 149,838 |
|
|
| 61 |
| % |
|
| 127,211 |
|
|
| 57 |
| % |
|
| 22,627 |
|
|
| 18 |
| % |
Operating expenses |
|
| 29,463 |
|
|
| 12 |
| % |
|
| 26,996 |
|
|
| 12 |
| % |
|
| 2,467 |
|
|
| 9 |
| % |
Research and development |
|
| 4,545 |
|
|
| 2 |
| % |
|
| 4,460 |
|
|
| 2 |
| % |
|
| 85 |
|
|
| 2 |
| % |
Depreciation |
|
| 12,539 |
|
|
| 5 |
| % |
|
| 12,367 |
|
|
| 6 |
| % |
|
| 172 |
|
|
| 1 |
| % |
Amortization |
|
| 17,322 |
|
|
| 7 |
| % |
|
| 24,104 |
|
|
| 11 |
| % |
|
| (6,782 | ) |
|
| (28 | ) | % |
Total costs and expenses |
|
| 227,527 |
|
|
| 92 |
| % |
|
| 210,605 |
|
|
| 95 |
| % |
|
| 16,922 |
|
|
| 8 |
| % |
Operating income |
|
| 19,795 |
|
|
| 8 |
| % |
|
| 11,572 |
|
|
| 5 |
| % |
|
| 8,223 |
|
|
| 71 |
| % |
Other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income |
|
| 23,368 |
|
|
| 9 |
| % |
|
| 24,815 |
|
|
| 11 |
| % |
|
| (1,447 | ) |
|
| (6 | ) | % |
Total other expenses |
|
| 23,368 |
|
|
| 9 |
| % |
|
| 24,815 |
|
|
| 11 |
| % |
|
| (1,447 | ) |
|
| (6 | ) | % |
Loss before income tax |
|
| (3,573 | ) |
|
| (1 | ) | % |
|
| (13,243 | ) |
|
| (6 | ) | % |
|
| 9,670 |
|
|
| (73 | ) | % |
Income tax provision (benefit) |
|
| 716 |
|
|
| (1 | ) | % |
|
| (4,989 | ) |
|
| (2 | ) | % |
|
| 5,705 |
|
|
| (114 | ) | % |
Net loss |
| $ | (4,289 | ) |
|
| (2 | ) | % |
| $ | (8,254 | ) |
|
| (4 | ) | % |
| $ | 3,965 |
|
|
| (48 | ) | % |
|
|
Revenues
Total revenues increased by $25.1 million, or 11%, to $247.3 million for the three months ended September 30, 2017, as compared to the same period in the prior year. This was attributable to higher Payments revenues, slightly offset by lower Games revenues.
Games revenues decreased by $0.8 million, or 1%, to $55.4 million for the three months ended September 30, 2017, as compared to the same period in the prior year. This was primarily related to the timing of the TournEvent of Champions® slot tournament that occurred in the fourth quarter of 2017 as compared to the third quarter of 2016 and, to a lesser extent, the decrease in leased units and a lower daily win per unit on these games, partially offset by higher unit sales.
Payments revenues increased by $25.9 million, or 16%, to $191.9 million for the three months ended September 30, 2017, as compared to the same period in the prior year. This was primarily associated with higher dollar and transaction volumes and fees earned from our cash access services, expansion in Canada for our ATM operations as well as growth in the segment.
Games cost of revenues (exclusive of depreciation and amortization) decreased by $1.6 million, or 11%, to $13.8 million for the three months ended September 30, 2017, as compared to the same period in the prior year. This was primarily due to a decline in cost of revenues as a result of the timing of the TournEvent of Champions® slot tournament that occurred in the fourth quarter of 2017 as compared to the third quarter of 2016.
Payments cost of revenues (exclusive of depreciation and amortization) increased by $22.6 million, or 18%, to $149.8 million for the three months ended September 30, 2017, as compared to the same period in the prior year. This was primarily related to the costs associated with the increase in cash access services volumes.
Operating expenses increased by $2.5 million, or 9%, to $29.5 million for the three months ended September 30, 2017, as compared to the same period in the prior year. This was primarily attributable to higher payroll and related expenses.
Research and development for the three months ended September 30, 2017 remained relatively consistent with the same period in the prior year.
Depreciation for the three months ended September 30, 2017 remained relatively consistent with the same period in the prior year.
Amortization decreased by $6.8 million, or 28%, to $17.3 million for the three months ended September 30, 2017, as compared to the same period in the prior year. This was primarily associated with certain intangible assets being fully amortized related to our acquisition of the Games business.
Primarily as a result of the factors described above, operating income increased by $8.2 million, or 71%, to $19.8 million for the three months ended September 30, 2017, as compared to the same period in the prior year. The operating margin increased from 5% for the three months ended September 30, 2016 to 8% for the three months ended September 30, 2017.
Interest expense, net of interest income decreased by $1.4 million, or 6%, to $23.4 million for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016. This was primarily due to lower interest expense as a result of our debt refinancing in May 2017.
Income tax provision was $0.7 million for the three months ended September 30, 2017, as compared to an income tax benefit of $5.0 million for the same period in the prior year. This was primarily due to an increase in the valuation allowance for deferred tax assets. The income tax provision reflected an effective income tax rate of negative 20.0% for the three months ended September 30, 2017, which was less than the statutory federal rate of 35.0% primarily due to an increase in our valuation allowance for deferred tax assets, partially offset by state taxes and the benefit from a research credit. The income tax benefit reflected an effective income tax rate of 37.7% for the same period in the prior year, which was higher than the statutory federal rate of 35.0% primarily due to state taxes, the lower foreign tax rate applicable to our foreign source income and the benefit from a research credit, partially offset by non-statutory stock options that expired in the year.
Nine months ended September 30, 2017 compared to nine months ended September 30, 2016
The following table presents our Results of Operations (in thousands)*:
|
| Nine Months Ended |
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
| September 30, 2017 |
|
|
| September 30, 2016 |
|
|
| 2017 vs 2016 |
|
| |||||||||||||||
|
| $ |
|
| % |
|
|
| $ |
|
| % |
|
|
| $ Variance |
|
| % Variance |
|
| ||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games |
| $ | 165,832 |
|
|
| 23 |
| % |
| $ | 158,660 |
|
|
| 25 |
| % |
| $ | 7,172 |
|
|
| 5 |
| % |
Payments |
|
| 561,257 |
|
|
| 77 |
| % |
|
| 483,286 |
|
|
| 75 |
| % |
|
| 77,971 |
|
|
| 16 |
| % |
Total revenues |
|
| 727,089 |
|
|
| 100 |
| % |
|
| 641,946 |
|
|
| 100 |
| % |
|
| 85,143 |
|
|
| 13 |
| % |
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games cost of revenue (exclusive of depreciation and amortization) |
|
| 39,503 |
|
|
| 5 |
| % |
|
| 36,871 |
|
|
| 6 |
| % |
|
| 2,632 |
|
|
| 7 |
| % |
Payments cost of revenue (exclusive of depreciation and amortization) |
|
| 436,104 |
|
|
| 60 |
| % |
|
| 373,366 |
|
|
| 58 |
| % |
|
| 62,738 |
|
|
| 17 |
| % |
Operating expenses |
|
| 87,235 |
|
|
| 12 |
| % |
|
| 87,735 |
|
|
| 14 |
| % |
|
| (500 | ) |
|
| (1 | ) | % |
Research and development |
|
| 13,706 |
|
|
| 2 |
| % |
|
| 14,499 |
|
|
| 2 |
| % |
|
| (793 | ) |
|
| (5 | ) | % |
Depreciation |
|
| 34,765 |
|
|
| 5 |
| % |
|
| 37,172 |
|
|
| 6 |
| % |
|
| (2,407 | ) |
|
| (6 | ) | % |
Amortization |
|
| 52,086 |
|
|
| 7 |
| % |
|
| 70,887 |
|
|
| 11 |
| % |
|
| (18,801 | ) |
|
| (27 | ) | % |
Total costs and expenses |
|
| 663,399 |
|
|
| 91 |
| % |
|
| 620,530 |
|
|
| 97 |
| % |
|
| 42,869 |
|
|
| 7 |
| % |
Operating income |
|
| 63,690 |
|
|
| 9 |
| % |
|
| 21,416 |
|
|
| 3 |
| % |
|
| 42,274 |
|
|
| 197 |
| % |
Other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income |
|
| 72,306 |
|
|
| 10 |
| % |
|
| 74,548 |
|
|
| 12 |
| % |
|
| (2,242 | ) |
|
| (3 | ) | % |
Loss on extinguishment of debt |
|
| 14,615 |
|
|
| 2 |
| % |
|
| — |
|
|
| — |
| % |
|
| 14,615 |
|
|
| — |
| % |
Total other expenses |
|
| 86,921 |
|
|
| 12 |
| % |
|
| 74,548 |
|
|
| 12 |
| % |
|
| 12,373 |
|
|
| 17 |
| % |
Loss before income tax |
|
| (23,231 | ) |
|
| (3 | ) | % |
|
| (53,132 | ) |
|
| (8 | ) | % |
|
| 29,901 |
|
|
| 56 |
| % |
Income tax provision (benefit) |
|
| 3,623 |
|
|
| (1 | ) | % |
|
| (20,930 | ) |
|
| (3 | ) | % |
|
| 24,553 |
|
|
| 117 |
| % |
Net loss |
| $ | (26,854 | ) |
|
| (4 | ) | % |
| $ | (32,202 | ) |
|
| (5 | ) | % |
| $ | 5,348 |
|
|
| 17 |
| % |
|
|
Revenues
Total revenues increased by $85.1 million, or 13%, to $727.1 million for the nine months ended September 30, 2017, as compared to the same period in the prior year. This was primarily attributable to higher Games and Payments revenues.
Games revenues increased by $7.2 million, or 5%, to $165.8 million for the nine months ended September 30, 2017, as compared to the same period in the prior year. This was primarily related to an increase in unit sales, which were partially offset by a lower average outstanding number of leased units combined with lower daily win per unit on these games. In addition, revenues were also impacted as a result of the timing of the TournEvent of Champions® slot tournament that occurred in the fourth quarter of 2017 as compared to the third quarter of 2016.
Payments revenues increased by $78.0 million, or 16%, to $561.3 million for the nine months ended September 30, 2017, as compared to the same period in the prior year. This was primarily associated with higher dollar and transaction volumes and fees earned from our cash access services, expansion in Canada for our ATM operations as well as growth in the segment.
Costs and Expenses
Games cost of revenues (exclusive of depreciation and amortization) increased by $2.6 million, or 7%, to $39.5 million for the nine months ended September 30, 2017, as compared to the same period in the prior year. This was primarily due to higher variable costs associated with the increase in unit sales, partially offset by a decline in the cost of revenues as a result of the timing of the TournEvent of Champions® slot tournament that occurred in the fourth quarter of 2017 as compared to the third quarter of 2016.
Payments cost of revenues (exclusive of depreciation and amortization) increased by $62.7 million, or 17%, to $436.1 million for the nine months ended September 30, 2017, as compared to the same period in the prior year. This was primarily related to the costs associated with the increase in cash access services volumes.
Operating expenses decreased by $0.5 million, or 1%, to $87.2 million for the nine months ended September 30, 2017, as compared to the same period in the prior year. This was primarily attributable to higher costs in the prior-year period for the write down of an acquired note receivable and a warrant associated with Bee Cave Games, Inc. and severance costs related to a former executive, partially offset by higher payroll and related expenses and non-cash stock compensation costs.
Research and development decreased by $0.8 million, or 5%, to $13.7 million for the nine months ended September 30, 2017, as compared to the same period in the prior year. This was primarily due to a higher capitalization of certain development costs.
Depreciation decreased by $2.4 million, or 6%, to $34.8 million for the nine months ended September 30, 2017, as compared to the same period in the prior year. This was primarily associated with certain fixed assets being fully depreciated, partially offset by higher expense associated with new assets placed in service.
Amortization decreased by $18.8 million, or 27%, to $52.1 million for the nine months ended September 30, 2017, as compared to the same period in the prior year. This was primarily associated with certain intangible assets being fully amortized related to our acquisition of the Games business.
Primarily as a result of the factors described above, operating income increased by $42.3 million, or 197%, to $63.7 million for the nine months ended September 30, 2017, as compared to the same period in the prior year. The operating margin increased from 3% for the nine months ended September 30, 2016 to 9% for the nine months ended September 30, 2017.
Interest expense, net of interest income decreased by $2.2 million, or 3%, to $72.3 million for the nine months ended September 30, 2017, as compared to $74.5 million for the nine months ended September 30, 2016. This was primarily due to lower interest expense as a result of our debt refinancing in May 2017.
Loss on extinguishment of debt was $14.6 million for the nine months ended September 30, 2017 as a result of our debt refinancing in May 2017.
Income tax provision was $3.6 million for the nine months ended September 30, 2017, as compared to an income tax benefit of $20.9 million for the same period in the prior year. This was primarily due to an increase in the valuation allowance for deferred tax assets. The income tax provision reflected an effective income tax rate of negative 15.6% for the nine months ended September 30, 2017, which was less than the statutory federal rate of 35.0% primarily due to an increase in our valuation allowance for deferred tax assets, partially offset by state taxes and the benefit from a research credit. The income tax benefit reflected an effective income tax rate of 39.4% for the same period in the prior year, which was higher than the statutory federal rate of 35.0% primarily due to state taxes, the lower foreign tax rate applicable to our foreign source income, and the benefit from a research credit, partially offset by non-statutory stock options that expired in the year.
Games Revenues and Leased Units
The following tables include the revenues from our Games segment and the related leased units (amounts in thousands, except for EGMs):
|
| Three Months Ended |
|
|
|
|
| ||||||||||||||||||||||||
|
| September 30, 2017 |
| September 30, 2016 |
|
|
|
|
| ||||||||||||||||||||||
|
| Total |
|
|
|
|
|
| % of Games |
| Total |
|
|
|
|
|
| % of Games |
| 2017 vs 2016 | |||||||||||
|
| EGMs |
|
| Revenue |
|
| Revenue |
| EGMs |
|
| Revenue |
|
| Revenue |
| % Variance | |||||||||||||
Games revenues and leased units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual agreement(1) |
|
| 4,994 |
|
| $ | 7,130 |
|
|
| 13 |
| % |
|
| 5,249 |
|
| $ | 8,649 |
|
|
| 15 |
| % |
|
| (18 | ) | % |
Participation revenue(2) |
|
| 8,221 |
|
|
| 25,842 |
|
|
| 47 |
| % |
|
| 8,038 |
|
|
| 24,789 |
|
|
| 44 |
| % |
|
| 4 |
| % |
Sales |
|
| — |
|
|
| 16,292 |
|
|
| 29 |
| % |
|
| — |
|
|
| 14,795 |
|
|
| 27 |
| % |
|
| 10 |
| % |
NY Lottery(3) |
|
| — |
|
|
| 4,667 |
|
|
| 8 |
| % |
|
| — |
|
|
| 4,594 |
|
|
| 8 |
| % |
|
| 2 |
| % |
Other |
|
| — |
|
|
| 1,521 |
|
|
| 3 |
| % |
|
| — |
|
|
| 3,391 |
|
|
| 6 |
| % |
|
| (55 | ) | % |
Total |
|
| 13,215 |
|
| $ | 55,452 |
|
|
| 100 |
| % |
|
| 13,287 |
|
| $ | 56,218 |
|
|
| 100 |
| % |
|
| (1 | ) | % |
|
|
|
|
|
|
|
| Nine Months Ended |
|
|
|
|
| ||||||||||||||||||||||||
|
| September 30, 2017 |
| September 30, 2016 |
|
|
|
|
| ||||||||||||||||||||||
|
| Total |
|
|
|
|
|
| % of Games |
| Total |
|
|
|
|
|
| % of Games |
| 2017 vs 2016 | |||||||||||
|
| EGMs |
|
| Revenue |
|
| Revenue |
| EGMs |
|
| Revenue |
|
| Revenue |
| % Variance | |||||||||||||
Games revenues and leased units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual agreement(1) |
|
| 4,994 |
|
| $ | 20,552 |
|
|
| 12 |
| % |
|
| 5,249 |
|
| $ | 27,694 |
|
|
| 17 |
| % |
|
| (26 | ) | % |
Participation revenue(2) |
|
| 8,221 |
|
|
| 76,452 |
|
|
| 46 |
| % |
|
| 8,038 |
|
|
| 74,135 |
|
|
| 47 |
| % |
|
| 3 |
| % |
Sales |
|
| — |
|
|
| 52,574 |
|
|
| 32 |
| % |
|
| — |
|
|
| 38,718 |
|
|
| 24 |
| % |
|
| 36 |
| % |
NY Lottery(3) |
|
| — |
|
|
| 13,715 |
|
|
| 8 |
| % |
|
| — |
|
|
| 13,788 |
|
|
| 9 |
| % |
|
| (1 | ) | % |
Other |
|
| — |
|
|
| 2,539 |
|
|
| 2 |
| % |
|
| — |
|
|
| 4,325 |
|
|
| 3 |
| % |
|
| (41 | ) | % |
Total |
|
| 13,215 |
|
| $ | 165,832 |
|
|
| 100 |
| % |
|
| 13,287 |
|
| $ | 158,660 |
|
|
| 100 |
| % |
|
| 5 |
| % |
|
|
|
|
|
|
Critical Accounting Policies
The preparation of our Financial Statements in conformity with generally accepted accounting principles in the United States requires us to make estimates and assumptions that affect our reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities in our Financial Statements. The SEC has defined critical accounting policies as the ones that are most important to the portrayal of the financial condition and results of operations, and which require management to make its most difficult and subjective judgments, often as a result of the need to make estimates about matters that are inherently uncertain.
For the three and nine months ended September 30, 2017, there were no material changes to the critical accounting policies and estimates discussed in our audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.
For a description of our recently adopted accounting guidance and recent accounting guidance not yet adopted, see “Note 2 — Basis of Presentation and Summary of Significant Accounting Policies — Recent Accounting Guidance” of our Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for a description of recent accounting guidance.
LIQUIDITY AND CAPITAL RESOURCES
Overview
The following table presents selected balance sheet information and an unaudited reconciliation of cash and cash equivalents per GAAP to net cash position and net cash available (in thousands):
|
| At September 30, |
|
| At December 31, |
|
| ||
|
| 2017 |
|
| 2016 |
|
| ||
Balance sheet data |
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 1,425,605 |
|
| $ | 1,408,163 |
|
|
Total long-term debt |
| $ | 1,138,871 |
|
| $ | 1,121,880 |
|
|
Total stockholders’ deficit |
| $ | (123,804 | ) |
| $ | (107,793 | ) |
|
Cash available |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 108,471 |
|
| $ | 119,051 |
|
|
Settlement receivables |
|
| 127,443 |
|
|
| 128,821 |
|
|
Settlement liabilities |
|
| (197,494 | ) |
|
| (239,123 | ) |
|
Net cash position(1) |
|
| 38,420 |
|
|
| 8,749 |
|
|
Undrawn revolving credit facility |
|
| 35,000 |
|
|
| 50,000 |
|
|
Net cash available(1) |
| $ | 73,420 |
|
| $ | 58,749 |
|
|
|
|
Cash Resources
Our cash balance, cash flows and line of credit are expected to be sufficient to meet our recurring operating commitments and to fund our planned capital expenditures for the foreseeable future. Cash and cash equivalents at September 30, 2017 included cash in non-U.S. jurisdictions of approximately $16.3 million. Generally, these funds are available for operating and investment purposes within the jurisdiction in which they reside, but are subject to taxation in the U.S. upon repatriation.
We provide cash settlement services to our customers related to our cash access products. These services involve the movement of funds between the various parties associated with cash access transactions. These activities result in a balance due to us at the end of each business day for the face amount provided to patrons plus the service fee charged to those patrons that we recoup over the next few business days and classify as settlement receivables. These activities also result in a balance due to our customers at the end of each business day for the face amount provided to patrons that we remit over the next few business days and classify as settlement liabilities. As of September 30, 2017, we had $127.4 million in settlement receivables, for which we generally receive payment within one week. As of September 30, 2017, we had $197.5 million in settlement liabilities due to our customers for these settlement services that are generally
paid within the next few business days. As the timing of cash received from settlement receivables and payment of settlement liabilities may differ, the total amount of cash held by us will fluctuate throughout the year.
Our cash and cash equivalents were $108.5 million and $119.1 million as of September 30, 2017 and December 31, 2016, respectively. Our net cash position after considering the impact of settlement receivables and settlement liabilities was $38.4 million and $8.7 million as of September 30, 2017 and December 31, 2016, respectively. Our net cash available after considering the net cash position and undrawn amounts available under our Revolving Credit Facility was approximately $73.4 million and $58.7 million as of September 30, 2017 and December 31, 2016, respectively.
Sources and Uses of Cash
The following table presents a summary of our cash flow activity (in thousands):
|
| Nine Months Ended September 30, |
|
| 2017 vs 2016 |
| ||||||
|
| 2017 |
|
| 2016 |
|
| Change |
| |||
Cash flow activities |
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
| $ | 69,762 |
|
| $ | 85,808 |
|
| $ | (16,046 | ) |
Investing activities |
|
| (83,334 | ) |
|
| (74,210 | ) |
|
| (9,124 | ) |
Financing activities |
|
| 1,627 |
|
|
| (22,397 | ) |
|
| 24,024 |
|
Effect of exchange rates on cash |
|
| 1,365 |
|
|
| (743 | ) |
|
| 2,108 |
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease for the period |
|
| (10,580 | ) |
|
| (11,542 | ) |
|
| 962 |
|
Balance, beginning of the period |
|
| 119,051 |
|
|
| 102,030 |
|
|
| 17,021 |
|
Balance, end of the period |
| $ | 108,471 |
|
| $ | 90,488 |
|
| $ | 17,983 |
|
Cash flows provided by operating activities decreased by $16.0 million for the nine months ended September 30, 2017, as compared to the same period in the prior year. This was primarily attributable to the impact of the change in settlement receivables and settlement liabilities for the period.
Cash flows used in investing activities increased by $9.1 million for the nine months ended September 30, 2017, as compared to the same period in the prior year. This was primarily attributable to lower proceeds from the sale of fixed assets and higher placement fees and capital expenditures.
Cash flows provided by financing activities increased by $24.0 million for the nine months ended September 30, 2017, as compared to the same period in the prior year. This was primarily attributable to repayments of our Prior Credit Facility (defined below) that were not applicable in the current period and additional proceeds from exercise of stock options.
We expect that our cash provided by operating activities will be sufficient for our operating and debt servicing needs during the next 12 months. If not, we have sufficient borrowings available under the New Credit Facilities to meet additional funding requirements. On occasion, we monitor the financial strength of our lenders associated with certain of our debt instruments using publicly-available information. Therefore, we believe it is more likely than not that our lenders will be able to honor their commitments under the New Credit Agreement.
The following table summarizes our outstanding indebtedness (in thousands):
|
| At September 30, |
|
| At December 31, |
| ||
|
| 2017 |
|
| 2016 |
| ||
Long-term debt |
|
|
|
|
|
|
|
|
Senior secured term loan |
| $ | 817,950 |
|
| $ | 465,600 |
|
Senior secured notes |
|
| — |
|
|
| 335,000 |
|
Senior unsecured notes |
|
| 350,000 |
|
|
| 350,000 |
|
Total debt |
|
| 1,167,950 |
|
|
| 1,150,600 |
|
Less: debt issuance costs and discount |
|
| (29,079 | ) |
|
| (28,720 | ) |
Total debt after debt issuance costs and discount |
|
| 1,138,871 |
|
|
| 1,121,880 |
|
Less: current portion of long-term debt |
|
| (8,200 | ) |
|
| (10,000 | ) |
Long-term debt, less current portion |
| $ | 1,130,671 |
|
| $ | 1,111,880 |
|
Refinancing
On May 9, 2017 (the “Closing Date”), Everi Payments, as borrower, and Holdings entered into a credit agreement with the lenders party thereto and Jefferies Finance LLC, as administrative agent, collateral agent, swing line lender, letter of credit issuer, sole lead arranger and sole book manager (the “New Credit Agreement”). The New Credit Agreement provides for: (i) a $35.0 million, five-year senior secured revolving credit facility (the “New Revolving Credit Facility”); and (ii) an $820.0 million, seven-year senior secured term loan facility (the “New Term Loan Facility,” and together with the New Revolving Credit Facility, the “New Credit Facilities”). The fees associated with the New Credit Facilities included discounts of approximately $4.1 million and debt issuance costs of approximately $15.5 million. All borrowings under the New Credit Facilities are subject to the satisfaction of customary conditions, including the absence of defaults and the accuracy of representations and warranties.
The proceeds from the New Term Loan Facility incurred on the Closing Date were used to: (i) refinance: (a) the Everi Payments existing credit facility with an outstanding balance of approximately $462.3 million with Bank of America, N.A., as administrative agent, collateral agent, swing line lender and letter of credit issuer, Deutsche Bank Securities Inc., as syndication agent, and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Deutsche Bank Securities Inc., as joint lead arrangers and joint book managers (the “Prior Credit Facility”); and (b) the Everi Payments 7.25% Senior Secured Notes due 2021 in the aggregate original principal amount of $335.0 million (the “Refinanced Secured Notes”); and (ii) pay related transaction fees and expenses.
In connection with the refinancing, we recorded a non-cash charge of approximately $14.6 million during the second quarter of 2017 related to the unamortized deferred financing fees and discounts related to the extinguished term loan under the Prior Credit Facility and the redeemed Refinanced Secured Notes. No prepayment penalties were incurred.
New Credit Facilities
The New Term Loan Facility matures seven years after the Closing Date (the “Stated Term Maturity Date”); provided that, if on the date that is 91 days prior to the maturity date (the “Unsecured Notes Maturity Date”) for the Everi Payments 10.00% Senior Unsecured Notes due 2022 in the aggregate original principal amount of $350.0 million (the “Unsecured Notes”), any Unsecured Notes remain outstanding and the Unsecured Notes Maturity Date has not been extended to a date that is at least six months after the Stated Term Maturity Date, then the New Term Loan Facility shall mature on the date that is 91 days before the Unsecured Notes Maturity Date. The New Revolving Credit Facility matures five years after the Closing Date; provided, that, if on the date that is 121 days prior to the Unsecured Notes Maturity Date, any Unsecured Notes remain outstanding and the Unsecured Notes Maturity Date has not been extended to a date that is at least six months after the Stated Term Maturity Date, then the New Revolving Credit Facility shall mature on the date that is 121 days before the Unsecured Notes Maturity Date. The New Revolving Credit Facility is available for general corporate purposes, including permitted acquisitions, working capital and the issuance of letters of credit.
The interest rate per annum applicable to loans under the New Revolving Credit Facility will be, at Everi Payments’ option, the base rate or the Eurodollar Rate (defined to be the London Interbank Offered Rate or a comparable or successor rate) (the “Eurodollar Rate”) plus, in each case, an applicable margin. The interest rate per annum applicable to the New Term Loan Facility will also be, at Everi Payments’ option, the base rate or the Eurodollar Rate plus, in each case, an applicable margin. The Eurodollar Rate will be reset at the beginning of each selected interest period based on the Eurodollar Rate then in effect; provided that, if the Eurodollar Rate is below 1.0%, then such rate will be equal to 1.0% plus the applicable margin. The base rate is a fluctuating interest rate equal to the highest of: (i) the prime lending rate announced by the administrative agent; (ii) the federal funds effective rate from time to time plus 0.50%; and (iii) the Eurodollar Rate (after taking account of any applicable floor) applicable for an interest period of one month plus 1.00%. The applicable margins for both the New Revolving Credit Facility and the New Term Loan Facility are: (i) 4.50% in respect of Eurodollar Rate loans and (ii) 3.50% in respect of base rate loans.
Voluntary prepayments of the term loan and the revolving loansRevolver and voluntary reductions in the unused commitments are permitted in whole or in part, in minimum amounts as set forth in the New Credit Agreement governing the New Credit Facilities, with prior notice, butand without premium or penalty, except that certain refinancings or repricings of the term loansNew Term Loan within six months after the Closing Date will bewas subject to a prepayment premium of 1.00% of the principal amount repaid.
Subject to certain exceptions, the obligations under the New Credit Facilities are secured by substantially all of the present and subsequently acquired assets of each of Everi Payments, Holdings and the subsidiary guarantors party thereto including: (i) a perfected first priority pledge of all the capital stock of Everi Payments and each domestic direct, wholly owned material restricted subsidiary held by Holdings, Everi Payments or any such subsidiary guarantor; and (ii) a perfected first priority security interest in substantially all other tangible and intangible assets of Holdings, Everi Payments, and such subsidiary guarantors (including, but not limited to, accounts receivable, inventory, equipment, general intangibles, investment property, real property, intellectual property and the proceeds of the foregoing). Subject to certain exceptions, the New Credit Facilities are unconditionally guaranteed by Holdings and such subsidiary guarantors.
Events2022.
We are required to repay the New Term Loan Facilitynew share repurchase program in an amount equalnot to 0.25% per quarterexceed $150.0 million pursuant to which we may purchase outstanding Company common stock in open market or privately negotiated transactions over a period of eighteen (18) months through November 4, 2023. The actual number of shares to be purchased will depend upon market conditions and is subject to available liquidity, general market and economic conditions, alternative uses for the initial aggregate principal, withcapital and other factors. All shares purchased will be held in the final principal repayment installment onCompany’s treasury for possible future use. As of September 30, 2022, Everi had approximately 90.0 million shares issued and outstanding, net of 29.3 million shares held in the maturity date. InterestCompany’s treasury. There is due in arrears on each interest payment date applicable thereto no minimum number of shares that the Company is required to repurchase, and at such other times asthe program may be specifiedsuspended or discontinued at any time without prior notice. This new repurchase program supersedes and replaces, in its entirety, the New Credit Agreement. As to any loan other than a base rate loan,previous share repurchase program.
For the quarternine ended September 30, 2017, 2022, respectively. The remaining availability under the New Term Loan Facility had an applicableMay 2022 $150.0 million share repurchase program was $100.6 million as of September 30, 2022. T
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Weighted average shares | |||||||||||||||||||||||
| Weighted average number of common shares outstanding - basic | 90,014 | 90,322 | 91,039 | 88,688 | |||||||||||||||||||
Potential dilution from equity awards(1) | 6,422 | 11,037 | 7,267 | 10,893 | |||||||||||||||||||
Weighted average number of common shares outstanding - diluted(1) | 96,436 | 101,359 | 98,306 | 99,581 | |||||||||||||||||||
| Stock Options | Restricted Stock Units | ||||||||||
| Outstanding, December 31, 2021 | 7,073 | 3,540 | |||||||||
| Granted | 81 | 1,276 | |||||||||
| Exercised options or vested shares | (284) | (1,978) | |||||||||
| Canceled or forfeited | (25) | (34) | |||||||||
| Outstanding, September 30, 2022 | 6,845 | 2,804 | |||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Games | |||||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Gaming operations | $ | 74,979 | $ | 71,580 | $ | 219,311 | $ | 202,941 | |||||||||||||||
| Gaming equipment and systems | 37,500 | 24,220 | 103,766 | 68,298 | |||||||||||||||||||
| Gaming other | 41 | 33 | 126 | 82 | |||||||||||||||||||
| Total revenues | 112,520 | 95,833 | 323,203 | 271,321 | |||||||||||||||||||
| Costs and expenses | |||||||||||||||||||||||
Cost of revenues(1) | |||||||||||||||||||||||
| Gaming operations | 6,557 | 5,675 | 18,674 | 15,776 | |||||||||||||||||||
| Gaming equipment and systems | 22,545 | 13,503 | 62,721 | 39,058 | |||||||||||||||||||
| Cost of revenues | 29,102 | 19,178 | 81,395 | 54,834 | |||||||||||||||||||
| Operating expenses | 19,860 | 16,711 | 57,886 | 48,871 | |||||||||||||||||||
| Research and development | 11,298 | 6,445 | 28,395 | 17,966 | |||||||||||||||||||
| Depreciation | 15,006 | 12,495 | 41,321 | 41,122 | |||||||||||||||||||
| Amortization | 11,472 | 10,805 | 31,744 | 32,464 | |||||||||||||||||||
| Total costs and expenses | 86,738 | 65,634 | 240,741 | 195,257 | |||||||||||||||||||
| Operating income | $ | 25,782 | $ | 30,199 | $ | 82,462 | $ | 76,064 | |||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| FinTech | |||||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Financial access services | $ | 53,296 | $ | 46,421 | $ | 154,051 | $ | 129,973 | |||||||||||||||
| Software and other | 22,192 | 17,024 | 59,056 | 49,874 | |||||||||||||||||||
| Hardware | 16,310 | 9,024 | 40,846 | 28,829 | |||||||||||||||||||
| Total revenues | 91,798 | 72,469 | 253,953 | 208,676 | |||||||||||||||||||
| Costs and expenses | |||||||||||||||||||||||
Cost of revenues(1) | |||||||||||||||||||||||
| Financial access services | 2,760 | 1,830 | 7,405 | 4,863 | |||||||||||||||||||
| Software and other | 1,163 | 1,063 | 2,984 | 3,196 | |||||||||||||||||||
| Hardware | 10,771 | 5,380 | 27,074 | 17,078 | |||||||||||||||||||
| Cost of revenues | 14,694 | 8,273 | 37,463 | 25,137 | |||||||||||||||||||
| Operating expenses | 36,494 | 30,410 | 103,344 | 84,449 | |||||||||||||||||||
| Research and development | 5,505 | 3,153 | 14,991 | 8,833 | |||||||||||||||||||
| Depreciation | 2,438 | 1,968 | 7,021 | 5,449 | |||||||||||||||||||
| Amortization | 3,831 | 3,791 | 11,838 | 11,216 | |||||||||||||||||||
| Total costs and expenses | 62,962 | 47,595 | 174,657 | 135,084 | |||||||||||||||||||
| Operating income | $ | 28,836 | $ | 24,874 | $ | 79,296 | $ | 73,592 | |||||||||||||||
| At September 30, | At December 31, | ||||||||||
| 2022 | 2021 | ||||||||||
| Total assets | |||||||||||
| Games | $ | 909,973 | $ | 913,880 | |||||||
| FinTech | 759,550 | 721,770 | |||||||||
| Total assets | $ | 1,669,523 | $ | 1,635,650 | |||||||
At September 30, 2017,2022.
Refinanced Senior Secured Notes
In connectionFacilities”). The fees associated with entering into the New Credit Agreement, on May 9, 2017, Everi Payments redeemed in full $335.0 million face value (plus accrued interest) of the Refinanced Secured Notes. As a result of the redemption, the Company recorded $1.7Facilities were approximately $13.9 million, which consisted of unamortized deferred financing fees of $0.2 million andincluded discounts of approximately $1.5 million. These fees are included
Senior2025 (the “2017 Unsecured Notes
In December 2014, we issued $350.0Notes”) with an offering of $400 million in aggregate principal, amountissued at par, of 10.00%5.00% senior unsecured notes due 2029 (the “2021 Unsecured Notes due 2022 (the “Unsecured Notes”). The fees associated with the 2021 Unsecured Notes included original issue discounts of approximately $3.8 million and debt issuance costs of approximately $14.0$5.9 million.
Interest
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | 2022 vs 2021 | |||||||||||||||||||||||||||||||||
| $ | % | $ | % | $ | % | ||||||||||||||||||||||||||||||
| Revenues | |||||||||||||||||||||||||||||||||||
| Games revenues | |||||||||||||||||||||||||||||||||||
| Gaming operations | $ | 74,979 | 37 | % | $ | 71,580 | 43 | % | $ | 3,399 | 5 | % | |||||||||||||||||||||||
| Gaming equipment and systems | 37,500 | 18 | % | 24,220 | 14 | % | 13,280 | 55 | % | ||||||||||||||||||||||||||
| Gaming other | 41 | — | % | 33 | — | % | 8 | 24 | % | ||||||||||||||||||||||||||
| Games total revenues | 112,520 | 55 | % | 95,833 | 57 | % | 16,687 | 17 | % | ||||||||||||||||||||||||||
| FinTech revenues | |||||||||||||||||||||||||||||||||||
| Financial access services | 53,296 | 26 | % | 46,421 | 28 | % | 6,875 | 15 | % | ||||||||||||||||||||||||||
| Software and other | 22,192 | 11 | % | 17,024 | 10 | % | 5,168 | 30 | % | ||||||||||||||||||||||||||
| Hardware | 16,310 | 8 | % | 9,024 | 5 | % | 7,286 | 81 | % | ||||||||||||||||||||||||||
| FinTech total revenues | 91,798 | 45 | % | 72,469 | 43 | % | 19,329 | 27 | % | ||||||||||||||||||||||||||
| Total revenues | 204,318 | 100 | % | 168,302 | 100 | % | 36,016 | 21 | % | ||||||||||||||||||||||||||
| Costs and expenses | |||||||||||||||||||||||||||||||||||
Games cost of revenues(1) | |||||||||||||||||||||||||||||||||||
| Gaming operations | 6,557 | 3 | % | 5,675 | 3 | % | 882 | 16 | % | ||||||||||||||||||||||||||
| Gaming equipment and systems | 22,545 | 11 | % | 13,503 | 8 | % | 9,042 | 67 | % | ||||||||||||||||||||||||||
| Games total cost of revenues | 29,102 | 14 | % | 19,178 | 11 | % | 9,924 | 52 | % | ||||||||||||||||||||||||||
FinTech cost of revenues(1) | |||||||||||||||||||||||||||||||||||
| Financial access services | 2,760 | 1 | % | 1,830 | 1 | % | 930 | 51 | % | ||||||||||||||||||||||||||
| Software and other | 1,163 | 1 | % | 1,063 | 1 | % | 100 | 9 | % | ||||||||||||||||||||||||||
| Hardware | 10,771 | 5 | % | 5,380 | 3 | % | 5,391 | 100 | % | ||||||||||||||||||||||||||
| FinTech total cost of revenues | 14,694 | 7 | % | 8,273 | 5 | % | 6,421 | 78 | % | ||||||||||||||||||||||||||
| Operating expenses | 56,354 | 28 | % | 47,121 | 28 | % | 9,233 | 20 | % | ||||||||||||||||||||||||||
| Research and development | 16,803 | 8 | % | 9,598 | 6 | % | 7,205 | 75 | % | ||||||||||||||||||||||||||
| Depreciation | 17,444 | 9 | % | 14,463 | 9 | % | 2,981 | 21 | % | ||||||||||||||||||||||||||
| Amortization | 15,303 | 7 | % | 14,596 | 9 | % | 707 | 5 | % | ||||||||||||||||||||||||||
| Total costs and expenses | 149,700 | 73 | % | 113,229 | 67 | % | 36,471 | 32 | % | ||||||||||||||||||||||||||
| Operating income | 54,618 | 27 | % | 55,073 | 33 | % | (455) | (1) | % | ||||||||||||||||||||||||||
| Other expenses | |||||||||||||||||||||||||||||||||||
| Interest expense, net of interest income | 14,880 | 7 | % | 14,257 | 8 | % | 623 | 4 | % | ||||||||||||||||||||||||||
| Loss on extinguishment of debt | — | — | % | 34,389 | 20 | % | (34,389) | (100) | % | ||||||||||||||||||||||||||
| Total other expenses | 14,880 | 7 | % | 48,646 | 29 | % | (33,766) | (69) | % | ||||||||||||||||||||||||||
| Income before income tax | 39,738 | 20 | % | 6,427 | 4 | % | 33,311 | 518 | % | ||||||||||||||||||||||||||
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | 2022 vs 2021 | |||||||||||||||||||||||||||||||||
| $ | % | $ | % | $ | % | ||||||||||||||||||||||||||||||
| Income tax provision (benefit) | 10,329 | 5 | % | (319) | — | % | 10,648 | 3338 | % | ||||||||||||||||||||||||||
| Net income | $ | 29,409 | 14 | % | $ | 6,746 | 4 | % | $ | 22,663 | 336 | % | |||||||||||||||||||||||
also in our gaming equipment revenues; and (iii) an increase in our online digital solutions as a result of growth in the customer base, which were reflected in our gaming operations revenues.
| Nine Months Ended | |||||||||||||||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | 2022 vs 2021 | |||||||||||||||||||||||||||||||||
| $ | % | $ | % | $ | % | ||||||||||||||||||||||||||||||
| Revenues | |||||||||||||||||||||||||||||||||||
| Games revenues | |||||||||||||||||||||||||||||||||||
| Gaming operations | $ | 219,311 | 38 | % | $ | 202,941 | 42 | % | $ | 16,370 | 8 | % | |||||||||||||||||||||||
| Gaming equipment and systems | 103,766 | 18 | % | 68,298 | 14 | % | 35,468 | 52 | % | ||||||||||||||||||||||||||
| Gaming other | 126 | — | % | 82 | — | % | 44 | 54 | % | ||||||||||||||||||||||||||
| Games total revenues | 323,203 | 56 | % | 271,321 | 57 | % | 51,882 | 19 | % | ||||||||||||||||||||||||||
| FinTech revenues | |||||||||||||||||||||||||||||||||||
| Financial access services | 154,051 | 27 | % | 129,973 | 27 | % | 24,078 | 19 | % | ||||||||||||||||||||||||||
| Software and other | 59,056 | 10 | % | 49,874 | 10 | % | 9,182 | 18 | % | ||||||||||||||||||||||||||
| Hardware | 40,846 | 7 | % | 28,829 | 6 | % | 12,017 | 42 | % | ||||||||||||||||||||||||||
| FinTech total revenues | 253,953 | 44 | % | 208,676 | 43 | % | 45,277 | 22 | % | ||||||||||||||||||||||||||
| Total revenues | 577,156 | 100 | % | 479,997 | 100 | % | 97,159 | 20 | % | ||||||||||||||||||||||||||
| Costs and expenses | |||||||||||||||||||||||||||||||||||
Games cost of revenues(1) | |||||||||||||||||||||||||||||||||||
| Gaming operations | 18,674 | 3 | % | 15,776 | 3 | % | 2,898 | 18 | % | ||||||||||||||||||||||||||
| Gaming equipment and systems | 62,721 | 11 | % | 39,058 | 8 | % | 23,663 | 61 | % | ||||||||||||||||||||||||||
| Games total cost of revenues | 81,395 | 14 | % | 54,834 | 11 | % | 26,561 | 48 | % | ||||||||||||||||||||||||||
FinTech cost of revenues(1) | |||||||||||||||||||||||||||||||||||
| Financial access services | 7,405 | 1 | % | 4,863 | 1 | % | 2,542 | 52 | % | ||||||||||||||||||||||||||
| Software and other | 2,984 | 1 | % | 3,196 | 1 | % | (212) | (7) | % | ||||||||||||||||||||||||||
| Hardware | 27,074 | 5 | % | 17,078 | 4 | % | 9,996 | 59 | % | ||||||||||||||||||||||||||
| FinTech total cost of revenues | 37,463 | 7 | % | 25,137 | 5 | % | 12,326 | 49 | % | ||||||||||||||||||||||||||
| Operating expenses | 161,230 | 28 | % | 133,320 | 28 | % | 27,910 | 21 | % | ||||||||||||||||||||||||||
| Research and development | 43,386 | 8 | % | 26,799 | 6 | % | 16,587 | 62 | % | ||||||||||||||||||||||||||
| Depreciation | 48,342 | 8 | % | 46,571 | 10 | % | 1,771 | 4 | % | ||||||||||||||||||||||||||
| Amortization | 43,582 | 8 | % | 43,680 | 9 | % | (98) | — | % | ||||||||||||||||||||||||||
| Total costs and expenses | 415,398 | 73 | % | 330,341 | 69 | % | 85,057 | 26 | % | ||||||||||||||||||||||||||
| Operating income | 161,758 | 27 | % | 149,656 | 31 | % | 12,102 | 8 | % | ||||||||||||||||||||||||||
| Other expenses | |||||||||||||||||||||||||||||||||||
| Interest expense, net of interest income | 38,522 | 7 | % | 50,488 | 11 | % | (11,966) | (24) | % | ||||||||||||||||||||||||||
| Loss on extinguishment of debt | — | — | % | 34,389 | 7 | % | (34,389) | (100) | % | ||||||||||||||||||||||||||
| Total other expenses | 38,522 | 7 | % | 84,877 | 18 | % | (46,355) | (55) | % | ||||||||||||||||||||||||||
| Income before income tax | 123,236 | 20 | % | 64,779 | 13 | % | 58,457 | 90 | % | ||||||||||||||||||||||||||
| Nine Months Ended | |||||||||||||||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | 2022 vs 2021 | |||||||||||||||||||||||||||||||||
| $ | % | $ | % | $ | % | ||||||||||||||||||||||||||||||
| Income tax provision | 29,784 | 5 | % | 1,285 | — | % | 28,499 | 2218 | % | ||||||||||||||||||||||||||
| Net income | $ | 93,452 | 16 | % | $ | 63,494 | 13 | % | $ | 29,958 | 47 | % | |||||||||||||||||||||||
| At September 30, | At December 31 | ||||||||||
| 2022 | 2021 | ||||||||||
| Balance sheet data | |||||||||||
| Total assets | $ | 1,669,523 | $ | 1,635,650 | |||||||
| Total borrowings | $ | 978,877 | $ | 981,525 | |||||||
| Total stockholders’ equity | $ | 218,719 | $ | 174,500 | |||||||
| Cash available | |||||||||||
| Cash and cash equivalents | $ | 258,627 | $ | 302,009 | |||||||
| Settlement receivables | 76,854 | 89,275 | |||||||||
| Settlement liabilities | (232,147) | (291,861) | |||||||||
Net cash position(1) | 103,334 | 99,423 | |||||||||
| Undrawn revolving credit facility | 125,000 | 125,000 | |||||||||
Net cash available(1) | $ | 228,334 | $ | 224,423 | |||||||
| Nine Months Ended September 30, | $ Change | ||||||||||||||||
| 2022 | 2021 | 2022 vs 2021 | |||||||||||||||
| Cash flow activities | |||||||||||||||||
| Net cash provided by operating activities | $ | 146,914 | $ | 243,500 | $ | (96,586) | |||||||||||
| Net cash used in investing activities | (125,907) | (88,073) | (37,834) | ||||||||||||||
| Net cash used in financing activities | (64,080) | (190,653) | 126,573 | ||||||||||||||
| Effect of exchange rates on cash and cash equivalents | (1,106) | (237) | (869) | ||||||||||||||
| Cash, cash equivalents and restricted cash | |||||||||||||||||
| Net decrease for the period | (44,179) | (35,463) | (8,716) | ||||||||||||||
| Balance, beginning of the period | 303,726 | 252,349 | 51,377 | ||||||||||||||
| Balance, end of the period | $ | 259,547 | $ | 216,886 | $ | 42,661 | |||||||||||
In December 2015, we completed an exchange offeropen market and reduced option exercise activities in which all of the unregistered Unsecured Notes were exchanged for a like amount of Unsecured Notes that had been registered under the Securities Act.
We were in compliance with the terms of the Unsecured Notescurrent year period.
other debt as well as interest rate risk refer to
Part I, Item 3: Quantitative and Qualitative Disclosures About Market Risk, “Note 12 — Long-Term Debt” in Part I, Item 1: Financial Statements.In May 2017, we entered into the New Credit Agreement, which provides for the $35.0 million New Revolving Credit Facility and the $820.0 million New Term Loan Facility. Under the New Credit Agreement, we are requiredother than an
In July 2017, we extendedobligations discussed in
Other Liquidity Needs and Resources
We need cash to support our foreign operations. For some foreign jurisdictions, such as the United Kingdom, applicable law and cross border treaties allow us to transfer funds between our domestic and foreign operations efficiently. For
other foreign jurisdictions, we must rely on the cash generated by our operations in those foreign jurisdictions, and the cost of repatriation is prohibitive. For example, Global Cash Access (Canada), Inc., the subsidiary through which we operate our Payments business in Canada, generates cash that is sufficient to support its operations. If we expand our Payments business into new foreign jurisdictions, we must rely on treaty favored cross border transfers of funds, the cash generated by our operations in those foreign jurisdictions or alternate sources of working capital.
Our Contract Cash Solutions Agreement
The
2024 and will automatically renew for additional one-year periods unless either party provides a ninety-day written notice of its intent not to renew.
Effects of Inflation
Our monetary assets, consisting primarily of cash, receivables, inventory and our non-monetary assets, consisting primarily of the deferred tax asset, goodwill and other intangible assets, are not significantly affected by inflation. We believe that replacement costs of equipment, furniture and leasehold improvements will not materially affect our operations. However, the rate of inflation affects our operating expenses, such as those for salaries and benefits, armored carrier expenses, telecommunications expenses and equipment repair and maintenance services, which may not be readily recoverable in the financial terms under which we provide our Games and Payments products and services to gaming establishments and their patrons.
Wells Fargo supplies usexchange risk.
The New Credit Facilities bear interest at rates that can vary over time. We have the option of havingpaying interest on the outstanding amounts under the New Credit Facilities paid based onusing a base rate or based on LIBOR. We have historically elected to pay interest based on LIBOR, and we expect to continue to pay interest based on LIBOR ofdo so for various maturities.
The Company’s
No change in2022
We are involved in various investigations, claims and lawsuits in the ordinary course of our business. In addition, various legal actions, claims and governmental inquiries and proceedings are pending or may be instituted or asserted in the future against us and our subsidiaries. Although the outcome
Total Number of Shares Purchased (1) (in thousands) Average Price per Share (2) Tax Withholdings 7/1/17 - 7/31/17 0.5 $ 7.10 8/1/17 - 8/31/17 0.4 $ 7.33 9/1/17 - 9/30/17 0.5 $ 7.80 Total 1.4 $ 7.41 XBRL Taxonomy Extension Schema Document. XBRL Taxonomy Extension Calculation Linkbase Document. XBRL Taxonomy Extension Definition Linkbase Document. Description XBRL Taxonomy Extension Presentation Linkbase Document. Furnished herewith. EVERI HOLDINGS INC. (Date) (Registrant) By: /s/ Todd A. Valli Todd A. Valli Senior Vice President, Corporate Finance and Tax & Chief Accounting Officer (For the Registrant and as Principal Accounting Officer)EquityEquity Securities and Use of Proceeds. Share Repurchases 7/1/22 - 7/31/22 926.1 (1) $ 17.29 926.1 $ 100,648.6 8/1/22 - 8/31/22 — (1) $ — — 100,648.6 9/1/22 - 9/30/22 — (1) $ — — 100,648.6 Sub-total 926.1 $ 17.29 926.1 $ 100,648.6 Tax Withholdings 7/1/22 - 7/31/22 3.9 (2) $ 18.28 — $ — 8/1/22 - 8/31/22 6.2 (2) $ 19.64 — — 9/1/22 - 9/30/22 2.5 (2) $ 15.82 — — Sub-total 12.6 $ 18.45 — $ — Total 938.7 $ 17.31 926.1 $ 100,648.6
(1) Represents the number of shares repurchased during the three months ended September 30, 2022 pursuant to the share repurchase program that our Board of Directors has authorized and approved giving us the authority to repurchase up to $150.0 million of our outstanding common stock over an 18-month period, which commenced in the second quarter of 2022, in accordance with Company and regulatory policies and trading plans established in accordance with Rules 10b5-1 and 10b-18 of the Securities Exchange Act of 1934. This share repurchase program supersedes all prior share repurchase programs. Refer to "Note 14 — Stockholders' Equity” in Part I, Item 1: Financial Statements for additional details.(1)Represents the shares of common stock that were withheld from restricted stock awards to satisfy the minimum applicable tax withholding obligations incident to the vesting of such restricted stock awards. There are no limitations on the number of shares of common stock that may be withheld from restricted stock awards to satisfy the minimum tax withholding obligations incident to the vesting of restricted stock awards.
(2) Represents the shares of common stock that were withheld from restricted stock awards to satisfy the applicable tax withholding obligations incident to the vesting of such restricted stock awards. There are no limitations on the number of shares of common stock that may be withheld from restricted stock awards to satisfy the tax withholding obligations incident to the vesting of restricted stock awards.(2)Represents the average price per share of common stock withheld from restricted stock awards on the date of withholding.ExhibitsExhibit
NumberDescriptionExhibit Number Description 10.1* 31.1* 31.2* 32.1** 32.2**101.INS*XBRL Instance Document.101.SCH*101.CAL*101.DEF*101.LAB**101.LAB XBRL Taxonomy Extension Label Linkbase Document. 101.PRE**Filed herewith.*104 The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline XBRL (included as Exhibit 101). * Filed herewith. ** November 7, 20178, 202251