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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
2023
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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 |
| Accelerated filer |
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Non-accelerated filer | ☐ |
| Smaller reporting company | ☐ | ||||||||||
Emerging growth company | ☐ | |||||||||||||
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| PART I: FINANCIAL INFORMATION | ||||||||||||||
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| 2022 | ||||||||||||||
Unaudited Condensed Consolidated Balance Sheets as of September 30, |
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Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2023 and 2022 | ||||||||||||||
| 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 September 30, 2023 (in thousands). 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. As of September 30, 2023 and December 31, 2022, 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 starting from the acquisition date. rates increase. 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.LOSSOPERATIONS AND COMPREHENSIVE LOSSlossearnings per share amounts) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Revenues Games revenues Gaming operations $ 78,400 $ 75,020 $ 231,490 $ 219,437 Gaming equipment and systems 33,138 37,500 100,554 103,766 Games total revenues 111,538 112,520 332,044 323,203 FinTech revenues Financial access services 57,158 53,296 169,032 154,051 Software and other 24,838 22,192 73,048 59,056 Hardware 13,066 16,310 41,665 40,846 FinTech total revenues 95,062 91,798 283,745 253,953 Total revenues 206,600 204,318 615,789 577,156 Costs and expenses Gaming operations 10,363 6,557 25,557 18,674 Gaming equipment and systems 18,239 22,545 58,629 62,721 Games total cost of revenues 28,602 29,102 84,186 81,395 Financial access services 2,925 2,760 8,521 7,405 Software and other 1,484 1,163 4,830 2,984 Hardware 8,904 10,771 27,926 27,074 FinTech total cost of revenues 13,313 14,694 41,277 37,463 Operating expenses 61,014 56,354 181,596 161,230 Research and development 16,120 16,803 48,853 43,386 Depreciation 19,902 17,444 58,373 48,342 Amortization 15,202 15,303 43,739 43,582 Total costs and expenses 154,153 149,700 458,024 415,398 Operating income 52,447 54,618 157,765 161,758 Other expenses Interest expense, net of interest income 19,925 14,880 58,031 38,522 Total other expenses 19,925 14,880 58,031 38,522 Income before income tax 32,522 39,738 99,734 123,236 Income tax provision 5,879 10,329 17,629 29,784 Net income 26,643 29,409 82,105 93,452 Foreign currency translation loss (1,602) (2,639) (1,670) (4,665) Comprehensive income $ 25,041 $ 26,770 $ 80,435 $ 88,787 Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Earnings per share Basic $ 0.31 $ 0.33 $ 0.93 $ 1.03 Diluted $ 0.29 $ 0.30 $ 0.88 $ 0.95 Weighted average common shares outstanding Basic 87,221 90,014 87,925 91,039 Diluted 91,245 96,436 93,162 98,306 At September 30, At December 31, 2023 2022 ASSETS Current assets Cash and cash equivalents $ 209,378 $ 293,394 Settlement receivables 239,513 263,745 Trade and other receivables, net of allowances for credit losses of $5,177 and $4,855 at September 30, 2023 and December 31, 2022, respectively 111,513 118,895 Inventory 73,439 58,350 Prepaid expenses and other current assets 46,259 38,822 Total current assets 680,102 773,206 Non-current assets Property and equipment, net 137,670 133,645 Goodwill 740,097 715,870 Other intangible assets, net 251,050 238,275 Other receivables 30,582 27,757 Deferred tax assets, net 528 1,584 Other assets 24,343 27,906 Total non-current assets 1,184,270 1,145,037 Total assets $ 1,864,372 $ 1,918,243 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Settlement liabilities $ 410,891 $ 467,903 Accounts payable and accrued expenses 200,258 217,424 Current portion of long-term debt 4,500 6,000 Total current liabilities 615,649 691,327 Non-current liabilities Deferred tax liabilities, net 19,220 5,994 Long-term debt, less current portion 969,347 971,995 Other accrued expenses and liabilities 16,622 31,286 Total non-current liabilities 1,005,189 1,009,275 Total liabilities 1,620,838 1,700,602 Commitments and contingencies (Note 12) Stockholders’ equity Convertible preferred stock, $0.001 par value, 50,000 shares authorized and no shares outstanding at September 30, 2023 and December 31, 2022, respectively — — Common stock, $0.001 par value, 500,000 shares authorized and 123,147 and 86,024 shares issued and outstanding at September 30, 2023, respectively, and 119,390 and 88,036 shares issued and outstanding at December 31, 2022, respectively 123 119 Additional paid-in capital 556,287 527,465 Retained earnings (accumulated deficit) 60,839 (21,266) Accumulated other comprehensive loss (5,867) (4,197) Treasury stock, at cost, 37,122 and 31,353 shares at September 30, 2023 and December 31, 2022, respectively (367,848) (284,480) Total stockholders’ equity 243,534 217,641 Total liabilities and stockholders’ equity $ 1,864,372 $ 1,918,243 Nine Months Ended September 30, 2023 2022 Cash flows from operating activities Net income $ 82,105 $ 93,452 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 58,373 48,342 Amortization 43,739 43,582 Non-cash lease expense 4,167 3,599 Amortization of financing costs and discounts 2,140 2,140 Loss on sale or disposal of assets 459 420 Accretion of contract rights 7,005 7,367 Provision for credit losses 8,861 7,286 Deferred income taxes 12,270 28,042 Reserve for inventory obsolescence 1,466 659 Stock-based compensation 14,185 15,012 Changes in operating assets and liabilities: Settlement receivables 24,219 12,251 Trade and other receivables (2,583) (23,845) Inventory (13,444) (23,026) Prepaid expenses and other assets (4,299) (26,388) Settlement liabilities (56,995) (59,432) Accounts payable and accrued expenses (20,655) 17,453 Net cash provided by operating activities 161,013 146,914 Cash flows from investing activities Capital expenditures (97,523) (92,225) Acquisitions, net of cash acquired (59,405) (33,250) Proceeds from sale of property and equipment 145 115 Placement fee agreements — (547) Net cash used in investing activities (156,783) (125,907) Cash flows from financing activities Repayments of term loan (6,000) (4,500) Proceeds from exercise of stock options 13,935 1,586 Treasury stock - equity award activities, net of shares withheld (8,126) (11,815) Treasury stock - repurchase of shares (73,938) (49,351) Payment of contingent consideration, acquisition (10,451) — Net cash used in financing activities (84,580) (64,080) Effect of exchange rates on cash and cash equivalents (583) (1,106) Cash, cash equivalents and restricted cash Net decrease for the period (80,933) (44,179) Balance, beginning of the period 295,063 303,726 Balance, end of the period $ 214,130 $ 259,547 Supplemental cash disclosures Cash paid for interest $ 69,003 $ 42,070 Cash paid for income tax, net 5,076 846 Supplemental non-cash disclosures Accrued and unpaid capital expenditures $ 2,401 $ 5,511 Transfer of leased gaming equipment to inventory 5,550 7,758 Common Stock—
Series AAdditional Accumulated
OtherTotal Stockholders’ Number of
SharesAmount Paid-in
CapitalRetained
EarningsComprehensive
LossTreasury
StockEquity Balance, January 1, 2023 119,390 $ 119 $ 527,465 $ (21,266) $ (4,197) $ (284,480) $ 217,641 Net income — — — 28,066 — — 28,066 Foreign currency translation — — — — (186) — (186) Stock-based compensation expense — — 4,825 — — — 4,825 Exercise of options 702 1 5,233 — — — 5,234 Restricted stock vesting, net of shares withheld 53 — — — — (333) (333) Balance, March 31, 2023 120,145 $ 120 $ 537,523 $ 6,800 $ (4,383) $ (284,813) $ 255,247 Net income — — — 27,396 — — 27,396 Foreign currency translation — — — — 118 — 118 Stock-based compensation expense — — 4,828 — — — 4,828 Exercise of options 494 — 2,353 — — — 2,353 Restricted stock vesting, net of shares withheld 1,656 2 — — — (7,738) (7,736) Repurchase of shares — — — — — (40,023) (40,023) Balance, June 30, 2023 122,295 $ 122 $ 544,704 $ 34,196 $ (4,265) $ (332,574) $ 242,183 Net income — — — 26,643 — — 26,643 Foreign currency translation — — — — (1,602) — (1,602) Stock-based compensation expense — — 4,532 — — — 4,532 Exercise of options, net of shares withheld 841 1 7,052 — — (1,056) 5,997 Restricted stock vesting, net of shares withheld 11 — (1) — — (55) (56) Repurchase of shares — — — — — (34,163) (34,163) Balance, September 30, 2023 123,147 $ 123 $ 556,287 $ 60,839 $ (5,867) $ (367,848) $ 243,534 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 stock vesting, net of shares withheld 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 stock vesting, net of shares withheld 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 stock vesting, net of shares withheld 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 content anda provider of financial technology solutions integratedthat power casino floors, provide operational efficiencies, and help fulfill regulatory requirements. The Company also develops and supplies player loyalty tools and mobile-first applications that enhance patron engagement for our customers and venues in the casino, sports, entertainment and hospitality industries. In addition, the Company provides bingo solutions through its consoles, electronic gaming payments solutionstablets and compliancerelated systems.efficiency softwareorganizes and manages its operations, across the following two business segments: (i) Games and (ii) Financial Technology Solutions (“FinTech”).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; (iii) business-to-business (“B2B”) digital online gaming activities; and (iv) bingo solutions through consoles, integrated electronic gaming tablets and related systems.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. We also develop and offer mobile-first applications aimed at enhancing patron engagement for customers in the casino, sports, entertainment, and hospitality industries. Our solutions are secured using an end-to-end security suite to protect against cyber-related attacks, allowing us to maintain appropriate levels of security. 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 solutions for gaming operators in states that offer intrastate, Internet-based gamingreporting services; marketing and lottery activities.promotional offering subscription-based services; and other ancillary offerings.2.BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESunaudited condensed consolidated financial statementsFinancial Statements included herein have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Some of the information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although we believe the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary for a fair statement of results for the interim periods have been made. The results for the three and nine months ended September 30, 20172023 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 ourthe most recently filed Annual Report on Form 10-K for the fiscal year ended December 31, 2016.There have been no changes2022 (the “Annual Report”).our basisthe total of presentation and significant accounting policies since the most recent filingsame such amounts shown in the statement of our Annual Report on Form 10-Kcash flows for the fiscal yearnine months ended December 31, 2016.Classification on our Balance Sheets At September 30, 2023 At December 31, 2022 Cash and cash equivalents Cash and cash equivalents $ 209,378 $ 293,394 Restricted cash - current Prepaid expenses and other current assets 4,651 1,568 Restricted cash - non-current Other assets 101 101 Total $ 214,130 $ 295,063 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 thousands).: Level of Hierarchy Fair Value Outstanding Balance September 30, 2023 $600 million Term Loan 2 $ 586,500 $ 586,500 $400 million Unsecured Notes 2 $ 345,000 $ 400,000 December 31, 2022 $600 million Term Loan 2 $ 588,560 $ 592,500 $400 million Unsecured Notes 2 $ 346,000 $ 400,000 term loan facility was reported at fair valuevalues of our borrowings were determined using a Level 2 input as there wereinputs based on quoted market prices for these securities.markets that were not considered active asthe accompanying Financial Statements have been reclassified to be consistent with the current year presentation. These reclassifications had no effect on net income for the prior periods.2017. 2023, no recent accounting guidance is expected to have a significant impact on our Financial Statements.senior unsecured notes were reported at fair value using a Level 1 input as there were quoted pricesfollowing table summarizes our contract assets and contract liabilities arising from contracts with customers (in thousands):2023 2022 Balance, beginning of period $ 22,417 $ 15,221 Balance, end of period 22,001 22,812 (Decrease) increase $ (416) $ 7,591 Balance, beginning of period $ 53,419 $ 36,615 Balance, end of period 55,722 46,706 Increase $ 2,303 $ 10,091 marketsour Balance Sheets.were considered active as ofwas included in the beginning contract liabilities balance during the nine months ended September 30, 2017.The term loan was reported at fair value using a Level 1 input2023 and 2022, respectively.there were quoted pricesNative American Class II offerings and other electronic bingo products, Class III slot machine offerings, HHR offerings, integrated electronic bingo gaming tablets, VLTs installed in markets that were considered active asthe State 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 pricesNew York and similar technology in markets that were considered active as of December 31, 2016.Reclassification of Prior Year BalancesReclassifications were made to the prior-period Financial Statements to conform to the current period presentation.Recent Accounting GuidanceRecently Adopted Accounting GuidanceIn January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-04, which provides updated guidancecertain tribal jurisdictions, B2B digital online gaming activities, accounting and central determinant systems, and other back-office systems. We conduct our Games segment business based on the goodwill impairment test and the method by which an entity recognizes an impairment charge. These amendments eliminate Step 2results generated from the current goodwill impairment processfollowing major revenue streams: (i) Gaming Operations; and require that an entity(ii) Gaming Equipment and Systems.an impairment charge equal to the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the totalour Gaming Operations revenue based on criteria set forth in ASC 842 or ASC 606, as applicable. The amount of goodwill allocatedlease revenue included in our Gaming Operations revenues and recognized under ASC 842 was approximately $52.7 million and $153.4 million for the three and nine months ended September 30, 2023, respectively, and $51.4 million and $148.0 million for the three and nine months ended September 30, 2022, respectively.thatgaming establishments to provide their patrons with financial access and funds-based services supporting digital, cashless and physical cash options across mobile, assisted and self-service channels along with related loyalty and marketing tools, and other information-related products and services. We also develop and offer mobile-first applications aimed at enhancing patron engagement for customers in the casino, sports, entertainment, and hospitality industries. In addition, our services operate as part of an end-to-end security suite to protect against cyber-related attacks, allowing us to maintain appropriate levels of security. These solutions include: access to cash and cashless funding at gaming facilities via ATM debit withdrawals, credit card financial access transactions, and POS debit card purchases at casino cages, kiosk and mobile POS devices; accounts for the CashClub Wallet, check warranty services, self-service loyalty and fully integrated kiosk maintenance services; self-service loyalty tools and promotion management software; compliance, audit, and data software; casino credit data and reporting unit. Additionally, a company should also take into consideration income tax effectsservices; marketing and promotional offering subscription-based services; and other ancillary offerings. We conduct our FinTech segment business based on results generated from tax deductible goodwill on the carrying amountfollowing major revenue streams: (i) Financial Access Services; (ii) Software and Other; and (iii) Hardware.reporting unit when recording an impairment loss. The new standard is effectivesales type or direct financing lease, which are accounted 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 permittedunder ASC 842. We did not have any material financial access kiosk and related equipment sales contracts accounted 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 goodwillunder ASC 842 during the three and nine months ended September 30, 2017, this ASU did not impact2023 and 2022.Financial Statements.In March 2016, the FASB issued ASU No. 2016-09, which simplifies several aspectsoperating leases is as follows (in thousands):Classification on our Balance Sheets At September 30, 2023 At December 31, 2022 Assets Operating lease right-of-use (“ROU”) assets Other assets, non-current $ 13,804 $ 17,169 Liabilities Current operating lease liabilities Accounts payable and accrued expenses $ 6,605 $ 6,507 Non-current operating lease liabilities Other accrued expenses and liabilities $ 10,332 $ 14,738 Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Cash paid for: Long-term operating leases $ 1,902 $ 1,855 $ 5,476 $ 5,165 Short-term operating leases $ 496 $ 398 $ 1,341 $ 1,205 Right-of-use assets obtained in exchange for lease obligations: Operating leases $ — $ 997 $ 852 $ 7,448 At September 30, 2023 At December 31, 2022 Weighted Average Remaining Lease Term (in years): Operating leases 2.7 3.4 Weighted Average Discount Rate: Operating leases 4.79 % 4.72 % the accounting for share-based payment transactions, including the accounting for income taxes, statutory tax withholding requirements and classification on the statementlease expense are as follows (in thousands):Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Operating Lease Cost: Operating lease cost $ 1,632 $ 1,663 $ 4,668 $ 4,492 Variable lease cost $ 401 $ 259 $ 1,026 $ 902 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. Aslease liabilities are summarized as follows as of September 30, 2017, the adoption2023 (in thousands):Year Ending December 31, Amount 2023 (excluding the nine months ended September 30, 2023) $ 1,879 2024 7,054 2025 5,978 2026 2,200 2027 608 Thereafter 359 Total future minimum lease payments 18,078 Less: Amount representing interest 1,141 Present value of future minimum lease payments 16,937 Less: Current operating lease obligations 6,605 Long-term lease obligations $ 10,332 ASU No. 2016-09 has not materially impacted our Financial Statements. With respect to forfeitures, the Company will continue to estimate the numberSeptember 30, 2023 with a term 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 fiscalten 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 conditionsfuture minimum lease payments 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 a
approximately $27.3 million.retrospective 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 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 updates 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.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 COMBINATIONSAmount Purchase consideration $ 61,013 Cash consideration to be paid post-closing 466 Total purchase consideration $ 61,479 haddo not expect our fair value determinations to materially change; however, there may be differences between the amounts recorded at the Video King Closing Date and the final fair value analysis, which we expect to complete no later than the second quarter of 2024.Amount Current assets $ 7,715 Property and equipment 4,485 Other intangible assets 25,770 24,267 Other assets 763 Total Assets 63,000 Accounts payable and accrued expenses 1,193 Other accrued expenses and liabilities 328 Total liabilities 1,521 Net assets acquired $ 61,479 acquisitionsand the carrying amounts of these assets approximated their fair values.Useful Life (Years) Estimated Fair Value Other Intangible Assets Trade name 10 $ 950 Developed technology 7 7,300 Customer relationships 14 17,520 Total other intangible assets $ 25,770 three and nine months ended September 30, 20172023.2016.the four acquired businesses prior to the acquisitions as if the transactions occurred on January 1, 2022. The unaudited pro4.FUNDING AGREEMENTSContract Cash Solutions AgreementOur Contract Cash Solutions Agreement Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Unaudited pro forma consolidated financial data Revenues $ 206,601 $ 212,239 $ 625,017 $ 611,005 Net income $ 26,646 $ 26,538 $ 81,911 $ 84,261 Wells Fargo Bank, N.A. (“Wells Fargo”) allows us to use funds owned by Wells Fargothird-party vendors to provide the currency neededcash for normal operating requirements forcertain of our ATMs.fund dispensing devices. For the use of these funds, we pay Wells Fargo a cash usage fee on either the average daily balance of funds utilized multiplied by a contractually defined cashusage rate or the amounts supplied multiplied by a contractually defined usage rate. These cashfund usage fees, reflected as interest expense within the Statements of Loss,Operations, were $1.2approximately $5.1 million and $3.5$15.3 million for the three and nine months ended September 30, 2017,2023, respectively, and $0.7$2.7 million and $2.3$5.5 million for the three and nine months ended September 30, 2016,2022, respectively. We are exposed to interest rate risk to the extent that the applicable London Interbank Offered Rate (“LIBOR”) increases.this agreement, allthese agreements, the currency supplied by Wells Fargo remains thethird party vendors remain their sole property of Wells Fargo at all times until it is dispensed, at which time Wells Fargo obtains an interest in the corresponding settlement receivable which is recorded on a net basis.funds are dispensed. As these funds are not our assets, supplied cash is not reflected on thein our Balance Sheets. The outstanding balancesbalance of ATM cash utilized by usfunds provided from Wells Fargothe third parties were $226.6approximately $329.8 million and $285.4$444.6 million as of September 30, 20172023 and December 31, 2016,2022, respectively.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 duringpermitted by the vault cash provider. The term of the agreement which expires on June 30, 2019.
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, |
| ||
|
| 2017 |
|
| 2016 |
| ||
Trade and other receivables, net |
|
|
|
|
|
|
|
|
Games trade and loans receivables |
| $ | 36,837 |
|
| $ | 44,410 |
|
Payments trade and loans receivables |
|
| 10,214 |
|
|
| 12,337 |
|
Other receivables |
|
| 796 |
|
|
| 1,924 |
|
Total trade and other receivables, net |
| $ | 47,847 |
|
| $ | 58,671 |
|
Less: non-current portion of receivables |
|
| 2,876 |
|
|
| 2,020 |
|
Total trade and other receivables, current portion |
| $ | 44,971 |
|
| $ | 56,651 |
|
| At September 30, | At December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| Trade and other receivables, net | |||||||||||
| Games trade and loans receivable | $ | 69,216 | $ | 78,200 | |||||||
| FinTech trade and loans receivable | 47,575 | 39,925 | |||||||||
Contract assets(1) | 22,001 | 22,417 | |||||||||
| Other receivables | 3,303 | 6,110 | |||||||||
| Total trade and other receivables, net | 142,095 | 146,652 | |||||||||
| Non-current portion of receivables | |||||||||||
| Games trade and loans receivable | 568 | 1,382 | |||||||||
| FinTech trade and loans receivable | 20,728 | 16,519 | |||||||||
Contract assets(1) | 9,286 | 9,856 | |||||||||
| Total non-current portion of receivables | 30,582 | 27,757 | |||||||||
| Total trade and other receivables, current portion | $ | 111,513 | $ | 118,895 | |||||||
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, | |||||||||||
| 2023 | 2022 | ||||||||||
| Beginning allowance for credit losses | $ | (4,855) | $ | (5,161) | |||||||
| Provision | (8,861) | (7,286) | |||||||||
| Charge-offs, net of recoveries | 8,539 | 6,470 | |||||||||
| Ending allowance for credit losses | $ | (5,177) | $ | (5,977) | |||||||
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, | ||||||||||
| 2023 | 2022 | ||||||||||
| Inventory | |||||||||||
| Component parts | $ | 56,251 | $ | 48,688 | |||||||
| Work-in-progress | 2,635 | 323 | |||||||||
| Finished goods | 14,553 | 9,339 | |||||||||
| Total inventory | $ | 73,439 | $ | 58,350 | |||||||
|
|
|
| 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, 2023 | At December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||
| Useful Life (Years) | Cost | Accumulated Depreciation | Net Book Value | Cost | Accumulated Depreciation | Net Book Value | |||||||||||||||||||||||||||||||||||
| Property and equipment | |||||||||||||||||||||||||||||||||||||||||
| Rental pool - deployed | 2-5 | $ | 298,902 | $ | 213,920 | $ | 84,982 | $ | 279,524 | $ | 188,369 | $ | 91,155 | ||||||||||||||||||||||||||||
| Rental pool - undeployed | 2-5 | 37,236 | 29,080 | 8,156 | 30,378 | 23,930 | 6,448 | ||||||||||||||||||||||||||||||||||
| FinTech equipment | 1-5 | 37,663 | 26,618 | 11,045 | 36,442 | 24,167 | 12,275 | ||||||||||||||||||||||||||||||||||
| Leasehold and building improvements | Lease Term | 23,094 | 11,579 | 11,515 | 13,666 | 10,689 | 2,977 | ||||||||||||||||||||||||||||||||||
| Machinery, office, and other equipment | 1-5 | 62,166 | 40,194 | 21,972 | 55,246 | 34,456 | 20,790 | ||||||||||||||||||||||||||||||||||
| Total | $ | 459,061 | $ | 321,391 | $ | 137,670 | $ | 415,256 | $ | 281,611 | $ | 133,645 | |||||||||||||||||||||||||||||
|
|
In accordance with ASC 350, we test goodwill at We have the following reporting unit level, which are identified as operating segments or one level below, for impairment on an annual basisunits: (i) Games; (ii) Financial Access Services; (iii) Kiosk Sales and between annual tests if eventsServices; (iv) Central Credit Services; (v) Compliance Sales and circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount.
We test for impairment annually on a reporting unit basis, at the beginning of our fourth fiscal quarter, or more often under certain circumstances. The annual impairment test is completed using either: a qualitative Step 0 assessment based on reviewing relevant eventsServices; (vi) Loyalty Sales and circumstances; or a quantitative Step 1 assessment, which determines the fair value of the reporting unit, using an income approach that discounts future cash flows based on the estimated future results of our reporting unitsServices; and a market approach that compares market multiples of comparable companies to determine whether or not any impairment exists. If the fair value of a reporting unit is less than its carrying amount, we will use the Step 1 assessment to determine the impairment in accordance with the adoption of ASU No 2017-04.
No impairment was identified for our goodwill for the three and nine months ended September 30, 2017 and 2016.
|
|
| 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, 2023 | At December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||
| 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 | $ | 57,821 | $ | 19,257 | $ | 38,564 | $ | 57,821 | $ | 12,252 | $ | 45,569 | ||||||||||||||||||||||||||||
| Customer relationships | 3-14 | 349,136 | 250,030 | 99,106 | 331,999 | 233,150 | 98,849 | ||||||||||||||||||||||||||||||||||
| Developed technology and software | 1-7 | 442,238 | 332,064 | 110,174 | 401,087 | 309,285 | 91,802 | ||||||||||||||||||||||||||||||||||
| Patents, trademarks, and other | 2-18 | 24,747 | 21,541 | 3,206 | 22,334 | 20,279 | 2,055 | ||||||||||||||||||||||||||||||||||
| Total | $ | 873,942 | $ | 622,892 | $ | 251,050 | $ | 813,241 | $ | 574,966 | $ | 238,275 | |||||||||||||||||||||||||||||
We evaluate our other intangible assets for potential impairment in connection with our quarterly review process. There was no material impairment identified for any of our other intangible assets for the three and nine months ended September 30, 2017 and 2016.
We enter into placement fee agreements to provide financing for new gaming facilities or for the expansion or improvement of existing facilities. The funding under placement fee agreements is 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. During the three and nine months ended September 30, 2017, 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 of placement fee agreements with the same customer for certain of its locations. We did not enter into any placement fee agreements or incur related fees during the three months ended September 30, 2016.
The following table presents our accounts payable and accrued expenses (in thousands):
|
| 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 |
|
|
|
| 11. LONG-TERM DEBT |
|
| 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 | 2023 | 2022 | |||||||||||||||||||||||
| Long-term debt | ||||||||||||||||||||||||||
| $600 million Term Loan | 2028 | SOFR+2.50% | $ | 586,500 | $ | 592,500 | ||||||||||||||||||||
| $125 million Revolver | 2026 | SOFR+2.50% | — | — | ||||||||||||||||||||||
| Senior Secured Credit Facilities | 586,500 | 592,500 | ||||||||||||||||||||||||
| $400 million Unsecured Notes | 2029 | 5.00% | 400,000 | 400,000 | ||||||||||||||||||||||
| Total debt | 986,500 | 992,500 | ||||||||||||||||||||||||
| Debt issuance costs and discount | (12,653) | (14,505) | ||||||||||||||||||||||||
| Total debt after debt issuance costs and discount | 973,847 | 977,995 | ||||||||||||||||||||||||
| Current portion of long-term debt | (4,500) | (6,000) | ||||||||||||||||||||||||
| Total long-term debt, net of current portion | $ | 969,347 | $ | 971,995 | ||||||||||||||||||||||
Refinancing
On May 9, 2017
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.,Jefferies Finance LLC, as administrative agent, collateral agent, swing line lender and letter of credit issuer, Deutsche Bank Securities Inc., as syndication agent,issuer.
Secured Notes due 2021 inICE Benchmark Administration ceased to provide all available tenors of the aggregate original principal amount of $335.0 million (the “Refinanced Secured Notes”); and (ii) pay related transaction fees and expenses.
Eurodollar Rate. In connection with such implementation of SOFR, the refinancing, we recorded a non-cash charge of approximately $14.6 million during the second quarter of 2017 relatedCompany and Jefferies Finance LLC agreed to make conforming changes to the unamortized deferred financing fees and discounts relatedrelevant provisions of the Original Credit Agreement, as reflected in the Amended Credit Agreement.
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”)account for the Everi Payments 10.00% Senior Unsecured Notes due 2022modification to our Credit Facilities in accordance with ASC 470 as if the aggregate original principal amountmodification was not substantial.
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. ended September 30, 2023.
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 FacilitiesRevolver remained fully undrawn 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, the interest payment dates shall be last business day of each March, June, September and December and the maturity date.
For the quarter ended September 30, 2017, the New Term Loan Facility had an applicable2023.
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 stock7.47% for the three and nine months ended September 30, 2017, respectively,2023, respectively.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Weighted average shares | |||||||||||||||||||||||
| Weighted average number of common shares outstanding - basic | 87,221 | 90,014 | 87,925 | 91,039 | |||||||||||||||||||
Potential dilution from equity awards(1) | 4,024 | 6,422 | 5,237 | 7,267 | |||||||||||||||||||
Weighted average number of common shares outstanding - diluted(1) | 91,245 | 96,436 | 93,162 | 98,306 | |||||||||||||||||||
The weighted average0.2 million and 0.1 million number of shares of commonthat were anti-dilutive under the treasury 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, 2017,2022, respectively.
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.
|
| 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 |
|
| Stock Options | Restricted Stock Units | ||||||||||
| Outstanding, December 31, 2022 | 6,793 | 2,709 | |||||||||
| Granted | 103 | 1,537 | |||||||||
| Exercised options or vested shares | (2,037) | (1,720) | |||||||||
| Canceled or forfeited | (28) | (54) | |||||||||
| Outstanding, September 30, 2023 | 4,831 | 2,472 | |||||||||
The maximum number
Stock Options
The fair values of our standard time-based options were determinedincentive plan 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.
2023.
|
| 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 grantedincome tax provision 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 provision2023, reflected an effective income tax rate of negative 20.0%18.1% and negative 15.6% for the three and nine months ended September, 30, 2017,17.7%, respectively, which was less than the statutory federal rate of 35.0%21.0%, primarily due to an increase in our valuation allowance for deferred tax assets,a research credit and the benefit from equity award activities, partially offset by state taxes and the benefit from a research credit.compensation deduction limitations. The income tax benefit reflected an effective income tax rate of 37.7% and 39.4%provision for the three and nine months ended September 30, 2016,2022, reflected an effective income tax rate of 26.0% and 24.2%, respectively, which was highergreater than the statutory federal rate of 35.0%21.0%, primarily due to state taxes, the lowercompensation deduction limitations, a net operating loss limitation and an accrual for a foreign withholding tax, rate applicable to our foreign source income,partially offset by both a research credit 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.
equity award activities.
|
|
Our chief operating decision-making group has determined the following to be the operating segments are monitored by management for which we conduct business: (a) Games and (b) Payments.performance against our internal forecasts. We have reported our financial performance based on our segments in both the current and prior periods. Each of these segments is monitored byRefer to
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.
The accounting policies of the operating segments are generally the same as those described in the summary of significant accounting policies.
|
| For the Three Months Ended September 30, |
|
| For the Nine Months Ended September 30, |
| |||||||||||||||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||||||
| Games | Games | ||||||||||||||||||||||||||||||||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenues | ||||||||||||||||||||||
Games |
| $ | 55,452 |
|
| $ | 56,218 |
|
| $ | 165,832 |
|
| $ | 158,660 |
| |||||||||||||||||||||||
Payments |
|
| 191,870 |
|
|
| 165,959 |
|
|
| 561,257 |
|
|
| 483,286 |
| |||||||||||||||||||||||
| Gaming operations | Gaming operations | $ | 78,400 | $ | 75,020 | $ | 231,490 | $ | 219,437 | ||||||||||||||||||||||||||||||
| Gaming equipment and systems | Gaming equipment and systems | 33,138 | 37,500 | 100,554 | 103,766 | ||||||||||||||||||||||||||||||||||
Total revenues |
| $ | 247,322 |
|
| $ | 222,177 |
|
| $ | 727,089 |
|
| $ | 641,946 |
| Total revenues | 111,538 | 112,520 | 332,044 | 323,203 | ||||||||||||||||||
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 |
| |||||||||||||||||||||||
| Costs and expenses | Costs and expenses | ||||||||||||||||||||||||||||||||||||||
Cost of revenues(1) | Cost of revenues(1) | ||||||||||||||||||||||||||||||||||||||
| Gaming operations | Gaming operations | 10,363 | 6,557 | 25,557 | 18,674 | ||||||||||||||||||||||||||||||||||
| Gaming equipment and systems | Gaming equipment and systems | 18,239 | 22,545 | 58,629 | 62,721 | ||||||||||||||||||||||||||||||||||
| Total cost of revenues | Total cost of revenues | 28,602 | 29,102 | 84,186 | 81,395 | ||||||||||||||||||||||||||||||||||
| Operating expenses | Operating expenses | 22,805 | 19,860 | 64,574 | 57,886 | ||||||||||||||||||||||||||||||||||
| Research and development | Research and development | 10,065 | 11,298 | 31,890 | 28,395 | ||||||||||||||||||||||||||||||||||
| Depreciation | Depreciation | 17,492 | 15,006 | 50,997 | 41,321 | ||||||||||||||||||||||||||||||||||
| Amortization | Amortization | 11,153 | 11,472 | 32,304 | 31,744 | ||||||||||||||||||||||||||||||||||
| Total costs and expenses | Total costs and expenses | 90,117 | 86,738 | 263,951 | 240,741 | ||||||||||||||||||||||||||||||||||
| Operating income | Operating income | $ | 21,421 | $ | 25,782 | $ | 68,093 | $ | 82,462 | ||||||||||||||||||||||||||||||
|
| 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 |
|
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| FinTech | |||||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Financial access services | $ | 57,158 | $ | 53,296 | $ | 169,032 | $ | 154,051 | |||||||||||||||
| Software and other | 24,838 | 22,192 | 73,048 | 59,056 | |||||||||||||||||||
| Hardware | 13,066 | 16,310 | 41,665 | 40,846 | |||||||||||||||||||
| Total revenues | 95,062 | 91,798 | 283,745 | 253,953 | |||||||||||||||||||
| Costs and expenses | |||||||||||||||||||||||
Cost of revenues(1) | |||||||||||||||||||||||
| Financial access services | 2,925 | 2,760 | 8,521 | 7,405 | |||||||||||||||||||
| Software and other | 1,484 | 1,163 | 4,830 | 2,984 | |||||||||||||||||||
| Hardware | 8,904 | 10,771 | 27,926 | 27,074 | |||||||||||||||||||
| Total cost of revenues | 13,313 | 14,694 | 41,277 | 37,463 | |||||||||||||||||||
| Operating expenses | 38,209 | 36,494 | 117,022 | 103,344 | |||||||||||||||||||
| Research and development | 6,055 | 5,505 | 16,963 | 14,991 | |||||||||||||||||||
| Depreciation | 2,410 | 2,438 | 7,376 | 7,021 | |||||||||||||||||||
| Amortization | 4,049 | 3,831 | 11,435 | 11,838 | |||||||||||||||||||
| Total costs and expenses | 64,036 | 62,962 | 194,073 | 174,657 | |||||||||||||||||||
| Operating income | $ | 31,026 | $ | 28,836 | $ | 89,672 | $ | 79,296 | |||||||||||||||
| At September 30, | At December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| Total assets | |||||||||||
| Games | $ | 928,911 | $ | 911,907 | |||||||
| FinTech | 935,461 | 1,006,336 | |||||||||
| Total assets | $ | 1,864,372 | $ | 1,918,243 | |||||||
|
|
We conduct substantially all of our business through our U.S.2023, respectively, 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 and14% 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 eventevents for the period.
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.
accurate.
Everi is dedicated to providing video and mechanical reel gaming content and technology solutions, integrated gaming payments solutions and compliance and efficiency softwaresold to casino 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 systems and the award winning 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; (iii) business-to-business (“B2B”)
(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. We also develop and offer mobile-first applications aimed at enhancing patron engagement for customers in the casino, sports, entertainment, and hospitality industries. Our solutions are secured using an end-to-end security suite to protect against cyber-related attacks, allowing us to maintain appropriate levels of security. 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) 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 ourpromotion 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;software; compliance, audit, and data software; casino credit data and reporting servicesservices; marketing and promotional offering subscription-based 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.
2022 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 ) % 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 % 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 Estimates Statements. 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 20172023 compared to three months ended September 30, 2016(inas reported for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 (amounts in thousands)*:*Rounding may cause variances. Three Months Ended September 30, 2023 September 30, 2022 2023 vs 2022 $ % $ % $ % Revenues Games revenues Gaming operations $ 78,400 38 % $ 75,020 37 % $ 3,380 5 % Gaming equipment and systems 33,138 16 % 37,500 18 % (4,362) (12) % Games total revenues 111,538 54 % 112,520 55 % (982) (1) % FinTech revenues Financial access services 57,158 28 % 53,296 26 % 3,862 7 % Software and other 24,838 12 % 22,192 11 % 2,646 12 % Hardware 13,066 6 % 16,310 8 % (3,244) (20) % FinTech total revenues 95,062 46 % 91,798 45 % 3,264 4 % Total revenues 206,600 100 % 204,318 100 % 2,282 1 % Costs and expenses Gaming operations 10,363 5 % 6,557 3 % 3,806 58 % Gaming equipment and systems 18,239 9 % 22,545 11 % (4,306) (19) % Games total cost of revenues 28,602 14 % 29,102 14 % (500) (2) % Financial access services 2,925 1 % 2,760 1 % 165 6 % Software and other 1,484 1 % 1,163 1 % 321 28 % Hardware 8,904 4 % 10,771 5 % (1,867) (17) % FinTech total cost of revenues 13,313 6 % 14,694 7 % (1,381) (9) % Operating expenses 61,014 30 % 56,354 28 % 4,660 8 % Research and development 16,120 8 % 16,803 8 % (683) (4) % Depreciation 19,902 10 % 17,444 9 % 2,458 14 % Amortization 15,202 7 % 15,303 7 % (101) (1) % Total costs and expenses 154,153 75 % 149,700 73 % 4,453 3 % Operating income 52,447 25 % 54,618 27 % (2,171) (4) % Other expenses Interest expense, net of interest income 19,925 10 % 14,880 7 % 5,045 34 % Total other expenses 19,925 10 % 14,880 7 % 5,045 34 % Income before income tax 32,522 16 % 39,738 20 % (7,216) (18) % Three Months Ended September 30, 2023 September 30, 2022 2023 vs 2022 $ % $ % $ % Income tax provision 5,879 3 % 10,329 5 % (4,450) (43) % Net income $ 26,643 13 % $ 29,409 14 % $ (2,766) (9) % $25.1approximately $2.3 million, or 11%1%, to $247.3approximately $206.6 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, 2017,2023, as compared to the same period in the prior year. This was primarily due to a declinethe growth in cost ofFinTech 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 ofdescribed below.(exclusive of depreciation and amortization) increaseddecreased by $22.6approximately $1.0 million, or 18%1%, to $149.8approximately $111.5 million for the three months ended September 30, 2017,2023, as compared to the same period in the prior year. This change was primarily due to lower unit sales, partially offset by higher average selling prices and continued results from our HHR and bingo solutions reflected in our gaming equipment and systems revenues. In addition, the decrease was partially offset by the continued results from our bingo solutions and interactive and digital offerings, tempered by a lower daily win per unit on a slightly reduced installed base of lease machines reflected in our gaming operations revenues.relateddue to the costs associated with the increase in cash access services volumes.Operating expenses increaseddescribed below.$2.5approximately $0.5 million, or 9%2%, to $29.5approximately $28.6 million for the three months ended September 30, 2017,2023, as compared to the same period in the prior year. This change was primarily attributabledue to higher payrollthe reduced variable costs associated with lower unit sales, partially offset by the variable costs from our bingo solutions reflected in our gaming equipment and systems cost of revenues. In addition, the decrease was partially offset by the additional costs related expenses.Researchto our installed base of leased machines and development for the three months ended September 30, 2017 remained relatively consistent with the same periodbingo integrated electronic gaming tablets reflected in the prior year.Depreciation for the three months ended September 30, 2017 remained relatively consistent with the same period in the prior year.Amortizationour gaming operations cost of revenues.$6.8approximately $1.4 million, or 28%9%, to $17.3approximately $13.3 million for the three months ended September 30, 2017,2023, as compared to the same period in the prior year. This change was primarily due to the reduced variable costs of hardware revenues associated with certain intangible assets being fully amortized related tothe lower unit sales of kiosks, including from acquired businesses. This decrease was partially offset by an increase in variable costs of software revenues from our acquisitionkiosk and loyalty solutions and an increase in variable costs of the Games business.Primarily as a result of the factors described above, operating incomefinancial access services from our check warranty offering.$8.2approximately $4.7 million, or 71%8%, to $19.8approximately $61.0 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, 2016The following table presents our Results of Operations (in thousands)*:*Rounding may cause variances.RevenuesTotal 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 ExpensesGames 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, 2017,2023, as compared to the same period in the prior year. This was primarily due to higher variable costs associated withpayroll and related expenses to support the growth of our existing operations and new employees from acquisitions in our FinTech and Games segments. In addition, the increase was attributable to rising expenses for software licensing and additional employee travel and related costs in unit sales,our Games and FinTech segments. The increase in operating expenses was partially offset by a declineadditional legal costs incurred in the cost of revenues as a result ofprior period due to litigation activities from existing proceedings in our Games and FinTech segments.timing of the TournEvent of Champions® slot tournament that occurred in the fourth quarter of 2017three months ended September 30, 2023, as compared to the third quarter of 2016.Payments cost of revenues (exclusive of depreciationsame period in the prior year. This change was primarily due to lower payroll and amortization)related expenses, together with higher capitalized development costs in our Games segment. This change was partially offset by higher payroll and related expenses in our FinTech segment.$62.7approximately $2.5 million, or 17%14%, to $436.1approximately $19.9 million for the ninethree months ended September 30, 2017,2023, as compared to the same period in the prior year. This was primarily related to the costs associated with the shortening of estimated remaining useful lives that were no longer supportable for certain fixed assets and an increase in cash access services volumes.Operating expenses decreased by $0.5 million, or 1%,capital spending related to $87.2 millionacquired businesses in our Games segment.ninethree months ended September 30, 2017,2023, as compared to the same period in the prior year. This was primarily attributable to higher costs inprior-year periodfactors described above, our operating income decreased by $2.2 million, or 4%, 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 ninethree months ended September 30, 2017,2023, as compared to the same period in the prior year. The operating income margin was 25% for the three months ended September 30, 2023 compared to an operating income margin of 27% for the same period in the prior year.higher capitalizationresult of certain development costs.Depreciationinflationary pressures in the macro-economic environment and global instability. This was partially offset by interest earned of approximately $3.0 million on our cash balances due to rising interest rates throughout the period.$2.4approximately $4.5 million, or 6%43%, to $34.8approximately $5.9 million for the three months ended September 30, 2023, as compared to the same period in the prior year. The income tax provision for the three months ended September 30, 2023 reflected an effective income tax rate of 18.1%, which was lower than the statutory federal rate of 21.0%, primarily due to a research credit and the benefit from equity award activities, partially offset by state taxes and compensation deduction limitations. The income tax provision of $10.3 million for the three months ended September 30, 2022 reflected an effective income tax rate of 26.0%, which was greater than the statutory federal rate of 21.0%, primarily due to state taxes, compensation deduction limitations and a net operating loss limitation, partially offset by both a research credit and the benefit from equity award activities. Nine Months Ended September 30, 2023 September 30, 2022 2023 vs 2022 $ % $ % $ % Revenues Games revenues Gaming operations $ 231,490 38 % $ 219,437 38 % $ 12,053 5 % Gaming equipment and systems 100,554 16 % 103,766 18 % (3,212) (3) % Games total revenues 332,044 54 % 323,203 56 % 8,841 3 % FinTech revenues Financial access services 169,032 27 % 154,051 27 % 14,981 10 % Software and other 73,048 12 % 59,056 10 % 13,992 24 % Hardware 41,665 7 % 40,846 7 % 819 2 % FinTech total revenues 283,745 46 % 253,953 44 % 29,792 12 % Total revenues 615,789 100 % 577,156 100 % 38,633 7 % Costs and expenses Gaming operations 25,557 4 % 18,674 3 % 6,883 37 % Gaming equipment and systems 58,629 10 % 62,721 11 % (4,092) (7) % Games total cost of revenues 84,186 14 % 81,395 14 % 2,791 3 % Financial access services 8,521 1 % 7,405 1 % 1,116 15 % Software and other 4,830 1 % 2,984 1 % 1,846 62 % Hardware 27,926 5 % 27,074 5 % 852 3 % FinTech total cost of revenues 41,277 7 % 37,463 7 % 3,814 10 % Operating expenses 181,596 29 % 161,230 28 % 20,366 13 % Research and development 48,853 8 % 43,386 8 % 5,467 13 % Depreciation 58,373 9 % 48,342 8 % 10,031 21 % Amortization 43,739 7 % 43,582 8 % 157 — % Total costs and expenses 458,024 74 % 415,398 73 % 42,626 10 % Operating income 157,765 26 % 161,758 27 % (3,993) (2) % Other expenses Interest expense, net of interest income 58,031 9 % 38,522 7 % 19,509 51 % Total other expenses 58,031 9 % 38,522 7 % 19,509 51 % Income before income tax 99,734 16 % 123,236 20 % (23,502) (19) % Nine Months Ended September 30, 2023 September 30, 2022 2023 vs 2022 $ % $ % $ % Income tax provision 17,629 3 % 29,784 5 % (12,155) (41) % Net income $ 82,105 13 % $ 93,452 16 % $ (11,347) (12) % 2017,2023, as compared to the same period in the prior year. This was primarily due to the higher Games and FinTech revenues described below.being fully depreciated, partially offset by higherand an increase in capital spending related to acquired businesses in our Games segment.associated with new assets placedwas relatively consistent for the nine months ended September 30, 2023, as compared to the same period in service.Amortizationthe prior year.$18.8$4.0 million, or 2%, for the nine months ended September 30, 2023, as compared to the same period in the prior year. The operating income margin was 26% for the nine months ended September 30, 2023 compared to an operating income margin of 27% for the same period in the prior year.$52.1approximately $58.0 million for the nine months ended September 30, 2017,2023, as compared to the same period in the prior year. This was primarily associated with certain intangible assets being fully amortized relateddue to higher interest rates on our acquisition of the Games business.Primarilyvariable debt and our vault cash as a result of inflationary pressures in the factors described above, operating income increasedmacro-economic environment and global instability. This was partially offset by $42.3interest earned of approximately $8.9 million on our cash balances due to rising interest rates throughout the period.197%41%, to $63.7approximately $17.6 million for the nine months ended September 30, 2017,2023, as compared to the same period in the prior year. The operating margin increased from 3%income tax provision for the nine months ended September 30, 20162023 reflected an effective income tax rate of 17.7%, which was lower than the statutory federal rate of 21.0%, primarily due to 9% fora research credit and the nine months ended September 30, 2017.Interest expense, netbenefit from equity award activities, partially offset by state taxes and compensation deduction limitations. The income tax provision of interest income decreased by $2.2 million, or 3%, to $72.3$29.8 million for the nine months ended September 30, 2017,2022 reflected an effective income tax rate of 24.2%, which was greater than the statutory federal rate of 21.0%, primarily due to state taxes, compensation deduction limitations, a net operating loss limitation and an accrual for a foreign withholding tax, partially offset by both a research credit and the benefit from equity award activities.compared to $74.5a result of the factors described above, we had net income of approximately $82.1 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, 2017,2023, as compared to annet income tax benefit of $20.9approximately $93.5 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 UnitsThe following tables include the revenues from our Games segment and the related leased units (amounts in thousands, except for EGMs):(1)We enter into placement fee agreements for our EGMs to secure floor space for a contracted period of time.(2)In general, under participation arrangements, we secure floor space for our EGMs on a month-to-month basis.(3)We provide the New York State Gaming Commission with an accounting and central determinant system for the video lottery terminals in operation at licensed New York State facilities.(1)We enter into placement fee agreements for our EGMs to secure floor space for a contracted period of time.(2)In general, under participation arrangements, we secure floor space for our EGMs on a month-to-month basis.(3)We provide the New York State Gaming Commission with an accounting and central determinant system for the video lottery terminals in operation at licensed New York State facilities.Policies Financial Statementsfinancial statements in conformity with U.S. generally accepted accounting principles in the United States(“GAAP”) 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 policiesestimates as the onesthose that involve a significant level of estimation uncertainty and have had or are most importantreasonably likely to the portrayal ofhave a material impact on the financial condition andor 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, thereregistrant.theour critical accounting policies and estimates discussedas compared to those disclosed in our audited Consolidated Financial Statements included in ourmost recently filed Annual Report on Form 10-K for the fiscal year ended December 31, 2016.Report.For a descriptionour recently adopted accounting guidance andSeptember 30, 2023, no recent accounting guidance not yet adopted, see “Note 2 — Basis of Presentation and Summary of Significant Accounting Policies — Recent Accounting Guidance” ofis expected to have a significant impact on our Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for a description of recent accounting guidance.LIQUIDITY AND CAPITAL RESOURCES 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 2023 2022 Balance sheet data Total assets $ 1,864,372 $ 1,918,243 Total borrowings Total borrowings $ 973,847 $ 977,995 Total stockholders’ equity Total stockholders’ equity $ 243,534 $ 217,641 Cash available Cash and cash equivalents $ 209,378 $ 293,394 Settlement receivables 239,513 263,745 Settlement liabilities (410,891) (467,903) 38,000 89,236 Undrawn revolving credit facility 125,000 125,000 $ 163,000 $ 214,236
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Our
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 inforeseeable future on both 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 thatshort- and long-term basis. In addition, 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 amountshave sufficient borrowings available under our Revolvingsenior secured revolving credit facility to meet further funding requirements. Based upon available information, we believe our lenders should be able to honor their commitments under the Credit Facility was approximately $73.4 million and $58.7 million as of September 30, 2017 and December 31, 2016, respectively.
Agreement (defined in
“Note 11 — Long-term Debt”).
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| Nine Months Ended September 30, |
|
| 2017 vs 2016 |
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|
| 2017 |
|
| 2016 |
|
| Change |
| |||
Cash flow activities |
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|
|
|
|
|
|
|
|
|
|
|
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 |
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Balance, beginning of the period |
|
| 119,051 |
|
|
| 102,030 |
|
|
| 17,021 |
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Balance, end of the period |
| $ | 108,471 |
|
| $ | 90,488 |
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| $ | 17,983 |
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| Nine Months Ended September 30, | $ Change | ||||||||||||||||
| 2023 | 2022 | 2023 vs 2022 | |||||||||||||||
| Cash flow activities | |||||||||||||||||
| Net cash provided by operating activities | $ | 161,013 | $ | 146,914 | $ | 14,099 | |||||||||||
| Net cash used in investing activities | (156,783) | (125,907) | (30,876) | ||||||||||||||
| Net cash used in financing activities | (84,580) | (64,080) | (20,500) | ||||||||||||||
| Effect of exchange rates on cash and cash equivalents | (583) | (1,106) | 523 | ||||||||||||||
| Cash, cash equivalents and restricted cash | |||||||||||||||||
| Net decrease for the period | (80,933) | (44,179) | (36,754) | ||||||||||||||
| Balance, beginning of the period | 295,063 | 303,726 | (8,663) | ||||||||||||||
| Balance, end of the period | $ | 214,130 | $ | 259,547 | $ | (45,417) | |||||||||||
our Games segment.
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 fromoption 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.
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 The following table summarizes our outstanding indebtedness (in thousands):RefinancingOn 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 $35.0Our $125 million five-year senior secured revolving credit facility (the “New Revolving Credit Facility”“Revolver”); remained fully undrawn and (ii)we had an $820.0outstanding balance on the $600 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”“Term Loan”). The fees associated with the New Credit Facilities included discounts of approximately $4.1$586.5 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 FacilitiesThe 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 such2023.
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 timeswell 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, the interest payment dates shall be last business day of each March, June, September and December and the maturity date.
For the quarter ended September 30, 2017, the New Term Loan Facility had an applicable weighted average interest rate of 5.74%. For the nine months ended September 30, 2017, the Prior Credit Facility had an applicable weighted average interest rate of 6.29%; the New Term Loan Facility had an applicable weighted average interest rate of 5.71%;risk refer to
At September 30, 2017, we had $818.0 million of borrowings outstanding under the New Term Loan FacilityQualitative Disclosures About Market Risk
Refinanced Senior Secured Notes
In connection with entering into the New Credit Agreement, on May 9, 2017, Everi Payments redeemed
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
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 a decrease to make principal paymentscertain purchase obligations 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 blended 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 $104.5approximately $26.9 million from 2017 through 2021those disclosed in our Annual Report and thereafter, respectively.
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.
Off-Balance Sheet Arrangements
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.
2022.
Wells Fargo supplies usexchange risk.
The New senior secured term loan and senior secured revolving credit facility (“Credit FacilitiesFacilities”) 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.a benchmark rate, the secured overnight financing rate (“SOFR”). We have historically elected to pay interest based on LIBOR,the benchmark rate, and we expect to continue to pay interest based on LIBOR ofdo so for various maturities.
disclosures.
No change2023
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.(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. Share Repurchases 7/1/23 - 7/31/23 — $ — — $ 140,000.0 8/1/23 - 8/31/23 1,704.4 $ 13.60 1,704.4 116,814.5 9/1/23 - 9/30/23 739.9 $ 14.53 739.9 106,062.6 Sub-total 2,444.3 $ 13.88 2,444.3 $ 106,062.6 Tax Withholdings 7/1/23 - 7/31/23 1.2 (3) $ 14.84 — $ — 8/1/23 - 8/31/23 77.0 (3) $ 14.20 — — 9/1/23 - 9/30/23 — (3) $ — — — Sub-total 78.2 $ 14.21 — $ — Total 2,522.5 $ 13.89 2,444.3 $ 106,062.6
(1) Represents the average price per share of common stock purchased or withheld.(2)Represents the average price per share of common stock withheld from restricted stock awards on the date of withholding.
(b) Not applicable.ExhibitsExhibit
NumberDescriptionExhibit Number Description 10.1* 31.1* 31.2* 32.1** 32.2**Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 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, 2023, formatted in Inline XBRL (included as Exhibit 101). * Filed herewith. ** † Management contracts or compensatory plans or arrangements. November 7, 20178, 202351