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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One) | | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2022
OR | | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-32622
EVERI HOLDINGS INC.
(Exact name of registrant as specified in its charter) | | | | | | | | |
Delaware | | 20-0723270 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | |
7250 S. Tenaya Way, Suite 100 | | |
Las Vegas | | |
Nevada | | 89113 |
(Address of principal executive offices) | | (Zip Code) |
(800) 833-7110
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
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 |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. | | | | | | | | | | | | | | |
Large accelerated filer | ☒ | | Accelerated filer | ☐ |
Non-accelerated filer | ¨ | | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
As of May 4, 2022, there were 92,179,652 shares of the registrant’s $0.001 par value per share common stock outstanding.
TABLE OF CONTENTS
| | | | | | | | | | | | | | |
| | | | Page |
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PART I: FINANCIAL INFORMATION | | |
| | | | |
Item 1: | | Financial Statements | | |
| | | | |
| | Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2022 and 2021 | | |
| | | | |
| | Unaudited Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 | | |
| | | | |
| | Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 | | |
| | | | |
| | Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2022 and 2021 | | |
| | | | |
| | Notes to Unaudited Condensed Consolidated Financial Statements | | |
| | | | |
Item 2: | | Management’s Discussion and Analysis of Financial Condition and Results of Operations | | |
| | | | |
Item 3: | | Quantitative and Qualitative Disclosures About Market Risk | | |
| | | | |
Item 4: | | Controls and Procedures | | |
| | | | |
PART II: OTHER INFORMATION | | |
| | | | |
Item 1: | | Legal Proceedings | | |
| | | | |
Item 1A: | | Risk Factors | | |
| | | | |
Item 2: | | Unregistered Sales of Equity Securities and Use of Proceeds | | |
| | | | |
Item 3: | | Defaults Upon Senior Securities | | |
| | | | |
Item 4: | | Mine Safety Disclosures | | |
| | | | |
Item 5: | | Other Information | | |
| | | | |
Item 6: | | Exhibits | | |
| | | | |
Signatures | | | | |
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements.
EVERI HOLDINGS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except earnings per share amounts)
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
Revenues | | | |
Games revenues | | | |
Gaming operations | $ | 70,297 | | | $ | 58,141 | |
Gaming equipment and systems | 27,998 | | | 17,988 | |
Gaming other | 41 | | | 22 | |
Games total revenues | 98,336 | | | 76,151 | |
FinTech revenues | | | |
Financial access services | 49,879 | | | 38,712 | |
Software and other | 17,867 | | | 17,246 | |
Hardware | 9,534 | | | 7,004 | |
FinTech total revenues | 77,280 | | | 62,962 | |
Total revenues | 175,616 | | | 139,113 | |
Costs and expenses | | | |
Games cost of revenues(1) | | | |
Gaming operations | 5,995 | | | 4,759 | |
Gaming equipment and systems | 16,782 | | | 10,307 | |
Games total cost of revenues | 22,777 | | | 15,066 | |
FinTech cost of revenues(1) | | | |
Financial access services | 2,175 | | | 1,473 | |
Software and other | 935 | | | 1,004 | |
Hardware | 5,941 | | | 4,028 | |
FinTech total cost of revenues | 9,051 | | | 6,505 | |
Operating expenses | 49,825 | | | 38,043 | |
Research and development | 12,519 | | | 8,413 | |
Depreciation | 15,220 | | | 16,177 | |
Amortization | 13,633 | | | 14,715 | |
Total costs and expenses | 123,025 | | | 98,919 | |
Operating income | 52,591 | | | 40,194 | |
Other expenses | | | |
Interest expense, net of interest income | 11,348 | | | 18,471 | |
Total other expenses | 11,348 | | | 18,471 | |
Income before income tax | 41,243 | | | 21,723 | |
Income tax provision | 9,721 | | | 1,189 | |
Net income | 31,522 | | | 20,534 | |
Foreign currency translation gain (loss) | 580 | | | (221) | |
Comprehensive income | $ | 32,102 | | | $ | 20,313 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
(1) Exclusive of depreciation and amortization.
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
Earnings per share | | | |
Basic | $ | 0.34 | | | $ | 0.24 | |
Diluted | $ | 0.31 | | | $ | 0.21 | |
Weighted average common shares outstanding | | | |
Basic | 91,408 | | | 86,984 | |
Diluted | 101,471 | | | 97,968 | |
See notes to unaudited condensed consolidated financial statements.
EVERI HOLDINGS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value amounts)
| | | | | | | | | | | |
| At March 31, | | At December 31, |
| 2022 | | 2021 |
ASSETS | | | |
Current assets | | | |
Cash and cash equivalents | $ | 269,400 | | | $ | 302,009 | |
Settlement receivables | 60,348 | | | 89,275 | |
Trade and other receivables, net of allowances for credit losses of $5,023 and $5,161 at March 31, 2022 and December 31, 2021, respectively | 113,087 | | | 104,822 | |
Inventory | 45,699 | | | 29,233 | |
Prepaid expenses and other current assets | 27,856 | | | 27,299 | |
Total current assets | 516,390 | | | 552,638 | |
Non-current assets | | | |
Property and equipment, net | 119,295 | | | 119,993 | |
Goodwill | 695,436 | | | 682,663 | |
Other intangible assets, net | 221,737 | | | 214,594 | |
Other receivables | 15,742 | | | 13,982 | |
Deferred tax assets, net | 22,972 | | | 32,121 | |
Other assets | 24,450 | | | 19,659 | |
Total non-current assets | 1,099,632 | | | 1,083,012 | |
Total assets | $ | 1,616,022 | | | $ | 1,635,650 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities | | | |
Settlement liabilities | $ | 208,491 | | | $ | 291,861 | |
Accounts payable and accrued expenses | 192,554 | | | 173,933 | |
Current portion of long-term debt | 6,000 | | | 6,000 | |
Total current liabilities | 407,045 | | | 471,794 | |
Non-current liabilities | | | |
Long-term debt, less current portion | 974,642 | | | 975,525 | |
Other accrued expenses and liabilities | 22,623 | | | 13,831 | |
Total non-current liabilities | 997,265 | | | 989,356 | |
Total liabilities | 1,404,310 | | | 1,461,150 | |
Commitments and contingencies (Note 13) | | | |
Stockholders’ equity | | | |
Convertible preferred stock, $0.001 par value, 50,000 shares authorized and no shares outstanding at March 31, 2022 and December 31, 2021, respectively | — | | | — | |
Common stock, $0.001 par value, 500,000 shares authorized and 117,221 and 91,519 shares issued and outstanding at March 31, 2022, respectively, and 116,996 and 91,313 shares issued and outstanding at December 31, 2021, respectively | 117 | | | 117 | |
Additional paid-in capital | 511,267 | | | 505,757 | |
Accumulated deficit | (110,233) | | | (141,755) | |
Accumulated other comprehensive loss | (875) | | | (1,455) | |
Treasury stock, at cost, 25,702 and 25,683 shares at March 31, 2022 and December 31, 2021, respectively | (188,564) | | | (188,164) | |
Total stockholders’ equity | 211,712 | | | 174,500 | |
Total liabilities and stockholders’ equity | $ | 1,616,022 | | | $ | 1,635,650 | |
See notes to unaudited condensed consolidated financial statements.
EVERI HOLDINGS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
Cash flows from operating activities | | | |
Net income | $ | 31,522 | | | $ | 20,534 | |
Adjustments to reconcile net income to cash provided by operating activities: | | | |
Depreciation | 15,220 | | | 16,177 | |
Amortization | 13,633 | | | 14,715 | |
Non-cash lease expense | 1,014 | | | 1,196 | |
Amortization of financing costs and discounts | 713 | | | 1,172 | |
Loss on sale or disposal of assets | 29 | | | 743 | |
Accretion of contract rights | 2,427 | | | 2,318 | |
Provision for credit losses | 1,947 | | | 1,999 | |
Deferred income taxes | 9,398 | | | 820 | |
Reserve for inventory obsolescence | 55 | | | 467 | |
Stock-based compensation | 4,811 | | | 3,005 | |
Changes in operating assets and liabilities: | | | |
Settlement receivables | 28,958 | | | 14,832 | |
Trade and other receivables | (6,123) | | | (7,673) | |
Inventory | (11,069) | | | (2,438) | |
Prepaid expenses and other assets | (6,812) | | | (1,863) | |
Settlement liabilities | (83,427) | | | 25,105 | |
Accounts payable and accrued expenses | 2,978 | | | 20,497 | |
Net cash provided by operating activities | 5,274 | | | 111,606 | |
Cash flows from investing activities | | | |
Capital expenditures | (23,639) | | | (20,035) | |
Acquisitions, net of cash acquired | (13,318) | | | (10,000) | |
Proceeds from sale of property and equipment | 57 | | | 80 | |
Net cash used in investing activities | (36,900) | | | (29,955) | |
Cash flows from financing activities | | | |
Repayments of new term loan | (1,500) | | | — | |
Repayments of prior incremental term loan | — | | | (313) | |
Proceeds from exercise of stock options | 699 | | | 2,285 | |
Treasury stock | (400) | | | (173) | |
Net cash (used in) provided by financing activities | (1,201) | | | 1,799 | |
Effect of exchange rates on cash and cash equivalents | 136 | | | (120) | |
Cash, cash equivalents and restricted cash | | | |
Net (decrease) increase for the period | (32,691) | | | 83,330 | |
Balance, beginning of the period | 303,726 | | | 252,349 | |
Balance, end of the period | $ | 271,035 | | | $ | 335,679 | |
| | | | | | | | | | | |
Supplemental cash disclosures | | | |
Cash paid for interest | $ | 14,439 | | | $ | 12,026 | |
Cash refunded for income tax, net | (41) | | | (197) | |
Supplemental non-cash disclosures | | | |
Accrued and unpaid capital expenditures | $ | 2,987 | | | $ | 2,786 | |
Transfer of leased gaming equipment to inventory | 1,358 | | | 1,407 | |
See notes to unaudited condensed consolidated financial statements.
EVERI HOLDINGS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock— Series A | | Additional | | | | Accumulated Other | | | | Total Stockholders’ |
| | Number of Shares | | Amount | | Paid-in Capital | | Accumulated Deficit | | Comprehensive Loss | | Treasury Stock | | Equity |
| | | | | | | | | | | | | | |
Balance, January 1, 2021 | | 111,872 | | | $ | 112 | | | $ | 466,614 | | | $ | (294,620) | | | $ | (1,191) | | | $ | (178,813) | | | $ | (7,898) | |
Net income | | — | | | — | | | — | | | 20,534 | | | — | | | — | | | 20,534 | |
Foreign currency translation | | — | | | — | | | — | | | — | | | (221) | | | — | | | (221) | |
Stock-based compensation expense | | — | | | — | | | 3,005 | | | — | | | — | | | — | | | 3,005 | |
Exercise of warrants | | 378 | | | — | | | — | | | — | | | — | | | — | | | — | |
Exercise of options | | 561 | | | 1 | | | 2,284 | | | — | | | — | | | — | | | 2,285 | |
Restricted share vesting and withholding | | 41 | | | | | (1) | | | — | | | — | | | (172) | | | (173) | |
Balance, March 31, 2021 | | 112,852 | | | $ | 113 | | | $ | 471,902 | | | $ | (274,086) | | | $ | (1,412) | | | $ | (178,985) | | | $ | 17,532 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, January 1, 2022 | | 116,996 | | | $ | 117 | | | $ | 505,757 | | | $ | (141,755) | | | $ | (1,455) | | | $ | (188,164) | | | $ | 174,500 | |
Net income | | — | | | — | | | — | | | 31,522 | | | — | | | — | | | 31,522 | |
Foreign currency translation | | — | | | — | | | — | | | — | | | 580 | | | — | | | 580 | |
Stock-based compensation expense | | — | | | — | | | 4,811 | | | — | | | — | | | — | | | 4,811 | |
Exercise of options | | 164 | | | — | | | 699 | | | — | | | — | | | — | | | 699 | |
Restricted share vesting and withholding | | 61 | | | | | — | | | — | | | — | | | (400) | | | (400) | |
Balance, March 31, 2022 | | 117,221 | | | $ | 117 | | | $ | 511,267 | | | $ | (110,233) | | | $ | (875) | | | $ | (188,564) | | | $ | 211,712 | |
See notes to unaudited condensed consolidated financial statements.
EVERI HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In this filing, we refer to: (i) our unaudited condensed consolidated financial statements and notes thereto as our “Financial Statements;” (ii) our Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income as our “Statements of Operations;” and (iii) our Unaudited Condensed Consolidated Balance Sheets as our “Balance Sheets.”
1. BUSINESS
Everi Holdings Inc. (“Everi 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., which owns all of the issued and outstanding shares of capital stock of Everi Games Inc. (“Everi Games” or “Games”). Unless otherwise indicated, the terms the “Company,” “we,” “us,” and “our” refer to Everi Holdings together with its consolidated subsidiaries.
Everi is a supplier of entertainment and technology solutions for the casino and digital gaming industry. The Company develops game content and gaming machines, gaming systems and services for land-based and iGaming operators. The Company is also a provider of financial technology solutions that power the casino floor, including products and services that facilitate cash and cashless financial transactions, self-service player loyalty tools and applications, and regulatory and intelligence software.
Everi reports its financial performance, and organizes and manages its operations, across the following two business segments: (i) Games and (ii) Financial Technology Solutions (“FinTech”).
Everi Games provides gaming operators with gaming technology and entertainment products and services, including: (i) gaming machines, primarily comprising Class II and Class III slot machines placed under participation or fixed-fee lease arrangements or sold to casino customers; (ii) providing and maintaining the central determinant systems for the video lottery terminals (“VLTs”) installed in the State of New York and similar technology in certain tribal jurisdictions; and (iii) business-to-business (“B2B”) digital online gaming activities.
Everi FinTech provides gaming operators with financial technology products and services, including: (i) financial access and related services supporting digital, cashless and physical cash options across mobile, assisted and self-service channels; (ii) loyalty and marketing software and tools, regulatory and compliance (“RegTech”) software solutions, other information-related products and services, and hardware maintenance services; and (iii) associated casino patron self-service hardware that utilizes our financial access, software and other services. Our services operate as part of an end-to-end security suite to protect against cyber-related attacks and maintain the necessary secured environments to maintain compliance with applicable regulatory requirements. These solutions include: access to cash and cashless funding at gaming facilities via Automated Teller Machine (“ATM”) debit withdrawals, credit card financial access transactions, and point of sale (“POS”) debit card purchases at casino cages, kiosk and mobile POS devices; accounts for the CashClub Wallet, check warranty services, self-service ATMs and fully integrated kiosk and maintenance services; self-service loyalty tools and promotion management software; compliance, audit, and data software; casino credit data and reporting services; marketing and promotional offering subscription-based services; and other ancillary offerings.
Impact of the Coronavirus Disease 2019 (“COVID-19”) Pandemic
The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, lowered equity market valuations, created significant volatility in the financial markets, increased unemployment levels, and caused temporary, and in certain cases, permanent closures of many businesses. The initial impacts from the COVID-19 pandemic have begun to subside with certain aspects of the global economy, equity market valuations, and increased unemployment levels showing signs of recovery. The gaming industry was not immune to these factors as our casino customers closed their gaming establishments in the first quarter of 2020, with many beginning to reopen their operations over the remainder of 2020 and throughout 2021.
Since the onset of COVID-19, we have implemented measures to mitigate our exposure throughout the global pandemic. While there may be further uncertainty facing our customers as a result of COVID-19, we continue to evaluate our business strategies and the impacts of the global pandemic on our results of operations and financial condition and make business decisions to mitigate further risk. While gaming industry conditions have improved significantly in the first quarter of 2022 and year ended December 31, 2021, compared to 2020, it is unclear if the customer equipment purchases will consistently return to pre-COVID levels. Resurgences of COVID-19 and its variants could impact future customer operations or our own; however, we continue to monitor the impacts of the global pandemic and make adjustments to our business, accordingly.
Our revenues and liquidity for the first quarter of 2022 exceeded the first quarter of 2021, as nearly all of our casino customer locations have again reopened. With various limitations still in effect, we expect that demand and supply for our products and
services may be tempered in the short-term, to the extent gaming activity decreases at our customers’ locations, or fails to increase at expected rates, and to the extent our customers decide to continue to restrict their capital spending as a result of uncertainty in the industry, or that supply chain disruptions might impact customer deliveries or otherwise.
The impact of the COVID-19 pandemic also exacerbates the risks disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “Annual Report”), including, but not limited to: our ability to generate revenues and, earn profits, our ability to service existing and attract new customers and maintain our overall competitiveness in the market; the potential for significant fluctuations in demand for our products and services; overall trends in the gaming industry impacting our business, and potential volatility in our stock price, among other concerns such as cybersecurity exposure.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Our unaudited condensed consolidated financial 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 months ended March 31, 2022 are not necessarily indicative of results to be expected for the full fiscal year. The Financial Statements should be read in conjunction with the consolidated financial statements and notes thereto included in the most recently filed Annual Report.
We evaluate the composition of our revenues to maintain compliance with SEC Regulation S-X Section 210.5-3, which requires us to separately present certain categories of revenues that exceed the quantitative threshold on our Statements of Operations.
Revenue Recognition
Overview
We evaluate the recognition of revenue based on the criteria set forth in Accounting Standards Codification (“ASC”) 606 — Revenue from Contracts with Customers and ASC 842 — Leases, as appropriate. We recognize revenue upon transferring control of goods or services to our customers in an amount that reflects the consideration we expect to receive in exchange for those goods or services. We enter into contracts with customers that include various performance obligations consisting of goods, services, or combinations of goods and services. Timing of the transfer of control varies based on the nature of the contract. We recognize revenue net of any sales and other taxes collected from customers, which are subsequently remitted to governmental authorities and are not included in revenues or operating expenses. We measure revenue based on the consideration specified in a contract with a customer and adjusted, as necessary.
Disaggregation of Revenues
Contract Balances
Since our contracts may include multiple performance obligations, there is often a timing difference between cash collections and the satisfaction of such performance obligations and revenue recognition. Such arrangements are evaluated to determine whether contract assets and liabilities exist. We generally record contract assets when the timing of billing differs from when revenue is recognized due to contracts containing specific performance obligations that are required to be met prior to a customer being invoiced. We generally record contract liabilities when cash is collected in advance of us satisfying performance obligations, including those that are satisfied over a period of time. Balances of our contract assets and contract liabilities may fluctuate due to timing of cash collections.
The following table summarizes our contract assets and contract liabilities arising from contracts with customers (in thousands): | | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2022 | | 2021 |
Contract assets(1) | | | | |
Balance at January 1 - current | | $ | 9,927 | | | $ | 9,240 | |
Balance at January 1 - non-current | | 5,294 | | | 8,321 | |
Total | | 15,221 | | | 17,561 | |
Balance at March 31 - current | | 10,662 | | | 9,796 | |
Balance at March 31 - non-current | | 3,852 | | | 7,299 | |
Total | | 14,514 | | | 17,095 | |
Decrease | | $ | (707) | | | $ | (466) | |
Contract liabilities(2) | | | | |
Balance at January 1 - current | | $ | 36,238 | | | $ | 26,980 | |
Balance at January 1 - non-current | | 377 | | | 289 | |
Total | | 36,615 | | | 27,269 | |
Balance at March 31 - current | | 38,877 | | | 27,887 | |
Balance at March 31 - non-current | | 213 | | | 98 | |
Total | | 39,090 | | | 27,985 | |
Increase | | $ | 2,475 | | | $ | 716 | |
(1) The current portion of contract assets is included within trade and other receivables, net, and the non-current portion is included within other receivables in our Balance Sheets.
(2) The current portion of contract liabilities is included within accounts payable and accrued expenses, and the non-current portion is included within other accrued expenses and liabilities in our Balance Sheets.
We recognized approximately $12.7 million and $10.5 million in revenue that was included in the beginning contract liability balance during the three months ended March 31, 2022 and 2021, respectively.
Games Revenues
Our products and services include electronic gaming devices, such as Native American Class II offerings and other electronic bingo products, Class III slot machine offerings, VLTs, B2B digital online gaming activities, accounting and central determinant systems, and other back office systems. We conduct our Games segment business based on results generated from the following major revenue streams: (i) Gaming Operations; (ii) Gaming Equipment and Systems; and (iii) Gaming Other.
We recognize our Gaming Operations revenue based on criteria set forth in ASC 842 or ASC 606, as applicable. The amount of lease revenue included in our Gaming Operations revenues and recognized under ASC 842 was approximately $47.1 million and $40.8 million for the three months ended March 31, 2022 and 2021, respectively.
FinTech Revenues
Our FinTech products and services include solutions that we offer to gaming 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. In addition, our services operate as part of an end-to-end security suite to protect against cyber-related attacks and maintain the necessary secured environments to maintain compliance with applicable regulatory requirements. These solutions include: access to cash and cashless funding at gaming facilities via 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 ATMs and fully integrated kiosk and maintenance services; self-service loyalty tools and promotion management software; compliance, audit, and data software; casino credit data and reporting services; marketing and promotional offering subscription-based services; and other ancillary offerings. We conduct our FinTech segment business based on results generated from the following major revenue streams: (i) Financial Access Services; (ii) Software and Other; and (iii) Hardware.
Hardware revenues are derived from the sale of our financial access and loyalty kiosks and related equipment and are accounted for under ASC 606, unless such transactions meet the definition of a sales type or direct financing lease, which are accounted for under ASC 842. We did not have any material financial access kiosk and related equipment sales contracts accounted for under ASC 842 during the three months ended March 31, 2022 and 2021.
Restricted Cash
Our restricted cash primarily consists of: (i) funds held in connection with certain customer agreements; (ii) funds held in connection with a sponsorship agreement; (iii) wide area progressive (“WAP”)-related restricted funds; and (iv) financial access activities related to cashless balances held on behalf of patrons. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Balance Sheets that sum to the total of the same such amounts shown in the statement of cash flows for the three months ended March 31, 2022 (in thousands).
| | | | | | | | | | | | | | | | | |
| Classification on our Balance Sheets | | At March 31, 2022 | | At December 31, 2021 |
Cash and cash equivalents | Cash and cash equivalents | | $ | 269,400 | | | $ | 302,009 | |
Restricted cash - current | Prepaid expenses and other current assets | | 1,534 | | | 1,616 | |
Restricted cash - non-current | Other assets | | 101 | | | 101 | |
Total | | | $ | 271,035 | | | $ | 303,726 | |
Allowance for Credit Losses
We continually evaluate the collectability of outstanding balances and maintain an allowance for credit losses related to our trade and other receivables and notes receivable that have been determined to have a high risk of uncollectability, which represents our best estimates of the current expected credit losses to be incurred in the future. To derive our estimates, we analyze historical collection trends and changes in our customer payment patterns, current and expected conditions and market trends along with our operating forecasts, concentration, and creditworthiness when evaluating the adequacy of our allowance for credit losses. In addition, with respect to our check warranty receivables, we are exposed to risk for the losses associated with warranted items that cannot be collected from patrons issuing these items. We evaluate the collectability of the outstanding balances and establish a reserve for the face amount of the current expected credit losses related to these receivables. Account balances are charged against the provision when the Company believes it is probable the receivable will not be recovered. The provision for doubtful accounts receivable is included within operating expenses and the check warranty loss reserves are included within financial access services cost of revenues in the Statements of Operations.
Goodwill
Goodwill represents the excess of the purchase price over the identifiable tangible and intangible assets acquired plus liabilities assumed arising from business combinations. We test for impairment annually on a reporting unit basis, at the beginning of our fourth fiscal quarter and between annual tests if events and circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The annual impairment test is completed using either: a qualitative “Step 0” assessment based on reviewing relevant events and circumstances; or a quantitative “Step 1” assessment, which determines the fair value of the reporting unit, using both an income approach that discounts future cash flows based on the estimated future results of our reporting units and a market approach that compares market multiples of comparable companies to determine whether an impairment exists. To the extent the carrying amount of a reporting unit is less than its estimated fair value, an impairment charge is recorded.
The evaluation of impairment of goodwill requires the use of estimates about future operating results. Changes in forecasted operations can materially affect these estimates, which could materially affect our results of operations and financial condition. The estimates of expected future cash flows require significant judgment and are based on assumptions we determined to be reasonable; however, they are unpredictable and inherently uncertain, including, estimates of future growth rates, operating margins and assumptions about the overall economic climate as well as the competitive environment within which we operate. There can be no assurance that our estimates and assumptions made for purposes of our impairment assessments as of the time of evaluation will prove to be accurate predictions of the future. If our assumptions regarding business plans, competitive environments, or anticipated growth rates are not correct, we may be required to record non-cash impairment charges in future periods, whether in connection with our normal review procedures periodically, or earlier, if an indicator of an impairment is present prior to such evaluation.
Our reporting units are identified as operating segments or one level below. Reporting units must: (i) engage in business activities from which they earn revenues and incur expenses; (ii) have operating results that are regularly reviewed by our segment management to ascertain the resources to be allocated to the segment and assess its performance; and (iii) have discrete financial information available. As of March 31, 2022, our reporting units included: (i) Games; (ii) Financial Access Services; (iii) Kiosk Sales and Services; (iv) Central Credit Services; (v) Compliance Sales and Services; and (vi) Loyalty Sales and Services.
Fair Values of Financial Instruments
The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point in time, based upon relevant market information about the financial instrument.
The carrying amount of cash and cash equivalents, restricted cash, settlement receivables, short-term trade and other receivables, settlement liabilities, accounts payable, and accrued expenses approximate fair value due to the short-term maturities of these instruments. The fair value of the long-term trade and loans receivable is estimated by discounting expected future cash flows using current interest rates at which similar loans would be made to borrowers with similar credit ratings and remaining maturities. The fair value of long-term accounts payable is estimated by discounting the total obligation using the appropriate interest rates. As of March 31, 2022 and December 31, 2021, the fair value of trade and loans receivable approximated the carrying value due to contractual terms generally being slightly over 12 months. The fair value of our borrowings is 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 (dollars in thousands):
| | | | | | | | | | | | | | | | | |
| Level of Hierarchy | | Fair Value | | Outstanding Balance |
March 31, 2022 | | | | | |
$600 million New Term Loan | 2 | | $ | 591,030 | | | $ | 597,000 | |
$400 million 2021 Unsecured Notes | 2 | | $ | 378,000 | | | $ | 400,000 | |
December 31, 2021 | | | | | |
$600 million New Term Loan | 2 | | $ | 598,171 | | | $ | 598,500 | |
$400 million 2021 Unsecured Notes | 2 | | $ | 404,000 | | | $ | 400,000 | |
Our borrowings’ fair values were determined using Level 2 inputs based on quoted market prices for these securities.
Reclassification of Prior Year Balances
Certain amounts in the accompanying consolidated financial statements and accompanying notes have been reclassified to be consistent with the current year presentation. These reclassifications had no effect on net income for the prior periods.
Recent Accounting Guidance
Recently Adopted Accounting Guidance
| | | | | | | | | | | |
Standard | Description | Date of Adoption | Effect on Financial Statements |
ASU 2021-05, 'Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments | This ASU amends the lease classification requirements for lessors to align them with practice under ASC Topic 840 | January 1, 2022 | The adoption of this ASU did not have a material effect on our Financial Statements or on our disclosures. |
Recent Accounting Guidance Not Yet Adopted
As of March 31, 2022, we do not anticipate recently issued accounting guidance to have a significant future impact on our consolidated financial statements.
3. LEASES
We determine if a contract is, or contains, a lease at the inception, or modification, of a contract based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control over the use of an asset is predicated upon the notion that a lessee has both the right to (i) obtain substantially all of the economic benefit from the use of the asset; and (ii) direct the use of the asset.
Operating lease right-of-use (“ROU”) assets and liabilities are recognized based on the present value of minimum lease payments over the expected lease term at commencement date. Lease expense is recognized on a straight-line basis over the expected lease term. Our lease arrangements have both lease and non-lease components, and we have elected the practical expedient to account for the lease and non-lease elements as a single lease.
Certain of our lease arrangements contain options to renew with terms that generally have the ability to extend the lease term to a range of approximately one to ten years. The exercise of lease renewal options is generally at our sole discretion. The expected lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise such option. The depreciable life of leased assets and leasehold improvements is limited by the expected term of such assets, unless there is a transfer of title or purchase option reasonably certain to be exercised.
Lessee
We enter into operating lease agreements for real estate purposes that generally consist of buildings for office space and warehouses for manufacturing purposes. Certain of our lease agreements consist of rental payments that are periodically adjusted for inflation. Our lease agreements do not contain material residual value guarantees or material restrictive covenants. Our lease agreements do not generally provide explicit rates of interest; therefore, we use our incremental collateralized borrowing rate, which is based on a fully collateralized and fully amortizing loan with a maturity date the same as the length of the lease that is based on the information available at the commencement date to determine the present value of lease payments. Leases with an initial term of 12 months or less (short-term) are not accounted for on our Balance Sheets. As of March 31, 2022 and December 31, 2021, our finance leases were not material.
Supplemental balance sheet information related to our operating leases is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Classification on our Balance Sheets | | At March 31, 2022 | | At December 31, 2021 |
Assets | | | | | | |
Operating lease ROU assets | | Other assets, non-current | | $ | 17,483 | | | $ | 12,692 | |
Liabilities | | | | | | |
Current operating lease liabilities | | Accounts payable and accrued expenses | | $ | 5,842 | | | $ | 5,663 | |
Non-current operating lease liabilities | | Other accrued expenses and liabilities | | $ | 16,099 | | | $ | 11,869 | |
Supplemental cash flow information related to leases is as follows (in thousands):
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
Cash paid for: | | | |
Long-term operating leases | $ | 1,668 | | | $ | 1,625 | |
Short-term operating leases | $ | 409 | | | $ | 430 | |
Right-of-use assets obtained in exchange for lease obligations: | | | |
Operating leases(1) | $ | 5,947 | | | $ | — | |
(1) The amounts are presented net of current year terminations and exclude amortization for the period.
Other information related to lease terms and discount rates is as follows: | | | | | | | | | | | | | | |
| | At March 31, 2022 | | At December 31, 2021 |
Weighted Average Remaining Lease Term (in years): | | | | |
Operating leases | | 3.79 | | 3.52 |
Weighted Average Discount Rate: | | | | |
Operating leases | | 4.55 | % | | 5.04 | % |
Components of lease expense, which are included in operating expenses, are as follows (in thousands):
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2022 | | 2021 |
Operating Lease Cost: | | | | |
Operating lease cost | | $ | 1,362 | | | $ | 1,460 | |
Variable lease cost | | $ | 279 | | | $ | 250 | |
Maturities of lease liabilities are summarized as follows as of March 31, 2022 (in thousands):
| | | | | | | | |
Year Ending December 31, | | Amount |
2022 (excluding the three months ended March 31, 2022) | | $ | 4,958 | |
2023 | | 6,377 | |
2024 | | 5,749 | |
2025 | | 5,043 | |
2026 | | 1,587 | |
Thereafter | | 154 | |
Total future minimum lease payments | | 23,868 | |
Amount representing interest | | 1,927 | |
Present value of future minimum lease payments | | 21,941 | |
Current operating lease obligations | | 5,842 | |
Long-term lease obligations | | $ | 16,099 | |
Lessor
We generate lease revenues primarily from our gaming operations activities, and the majority of our leases are month-to-month leases. Under these arrangements, we retain ownership of the electronic gaming machines (“EGMs”) installed at customer facilities. We receive recurring revenues based on a percentage of the net win per day generated by the leased gaming equipment or a fixed daily fee. Such revenues are generated daily and are limited to the lesser of the net win per day generated by the leased gaming equipment or the fixed daily fee and the lease payments that have been collected from the lessee. Certain of our leases have terms and conditions with options for a lessee to purchase the underlying assets. Refer to "Note 9 - Property and Equipment" for details of our rental pool assets cost and accumulated depreciation. We did not have material sales transactions that qualified for sales-type lease accounting treatment during the three months ended March 31, 2022 and 2021. Our interest income recognized in connection with sales-type leases executed in the prior periods was not material.
Supplemental balance sheet information related to our sales-type leases is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Classification on our Balance Sheets | | At March 31, 2022 | | At December 31, 2021 |
Assets | | | | | | |
Net investment in sales-type leases - current | | Trade and other receivables, net | | $ | 898 | | | $ | 1,331 | |
4. BUSINESS COMBINATIONS
We account for business combinations in accordance with ASC 805, which requires that the identifiable assets acquired and liabilities assumed be recorded at their estimated fair values on the acquisition date separately from goodwill, which is the excess of the fair value of the purchase price over the fair values of these identifiable assets and liabilities. We include the results of operations of an acquired business as of the acquisition date.
On March 1, 2022 (the “Closing Date”), the Company acquired the stock of ecash Holdings Pty Limited and wholly-owned subsidiaries Global Payment Technologies Australia Pty Limited, and ACN 121 187 068 Pty Limited (collectively “ecash”), a privately owned, Australia-based developer and provider of innovative cash handling and financial payment solutions for the broader gaming industry in Australia, Asia, Europe, and the United States. The acquisition of ecash’s products and services represents a strategic extension of Everi’s current suite of financial technology solutions within the FinTech segment. The acquisition provides Everi with a complementary portfolio of new customer locations throughout Australia, the United States, and other geographies.
Under the terms of the stock purchase agreement, we paid the seller AUD$20 million (approximately USD$15 million) on the Closing Date of the transaction and we will pay an additional AUD$6.5 million one year following the Closing Date and another AUD$6.5 million two years following the Closing Date. In addition, we expect to pay approximately AUD$9.0 million for the excess net working capital within a year from the Closing Date.
Pursuant to the arrangement, there is an earn-out provision of up to AUD$10 million, to the extent certain growth targets are achieved. The payment, if any, is subject to certain employment restrictions and will be accounted for as compensation expense in accordance with GAAP.
The acquisition did not have a significant impact on our results of operations or financial condition for the three months ended March 31, 2022.
The total preliminary purchase consideration for ecash was as follows (in thousands, at fair value):
| | | | | |
| Amount in USD |
Purchase consideration | |
Cash consideration paid at closing | $ | 14,980 | |
Cash consideration to be paid in subsequent periods | 15,905 | |
Total purchase consideration | $ | 30,885 | |
The transaction was accounted for using the acquisition method of accounting, which requires, among other things, the assets acquired and liabilities assumed be recognized at their respective fair values as of the acquisition date. The excess of the purchase price over those fair values was recorded as goodwill, which will be amortized over a period of 15 years for tax purposes. The estimates and assumptions used include the projected timing and amount of future cash flows and discount rates reflecting risk inherent in the future cash flows. The estimated fair values of assets acquired and liabilities assumed and resulting goodwill are subject to adjustment as the Company finalizes its purchase price accounting. The significant items for which a final fair value has not been determined include, but are not limited to: the valuation and estimated useful lives of intangible assets, deferred and unearned revenues, and deferred income taxes. We do not expect our fair value determinations to materially change; however, there may be differences between the amounts recorded at the Closing Date and the final fair value analysis, which we expect to complete no later than the first quarter of 2023.
The information below reflects the preliminary amounts of identifiable assets acquired and liabilities assumed as of the closing date of the transaction (in thousands): | | | | | |
| Amount in USD |
Current assets | $ | 14,168 | |
Property and equipment | 1,435 | |
Other intangible assets | 11,600 | |
Goodwill | 10,661 | |
Other assets | 549 | |
Total Assets | 38,413 | |
Accounts payable and accrued expenses | 6,416 | |
Other accrued expenses and liabilities | 1,112 | |
Total liabilities | 7,528 | |
Net assets acquired | $ | 30,885 | |
Current assets acquired included approximately $2.8 million in cash. Trade receivables acquired of approximately $5.8 million were short-term in nature and considered to be collectible, and therefore, the carrying amounts of these assets represented their fair values. Inventory acquired of approximately $5.5 million consisted of raw materials and finished goods and was recorded at fair value based on the estimated net realizable value of these assets. Property, equipment, and leased assets acquired were not material in size or scope, and the carrying amounts of these assets approximated their fair values.
The following table summarizes preliminary values of acquired intangible assets (dollars in thousands):
| | | | | | | | | | | |
| Useful Life (Years) | | Estimated Fair Value (USD) |
Other Intangible Assets | | | |
Trade name | 3 | | $ | 700 | |
Developed technology | 3 | | 3,600 | |
Customer relationships | 9 | | 7,300 | |
Total other intangible assets | | | $ | 11,600 | |
The fair value of intangible assets was determined by applying the income approach. The financial results included in our Statements of Operations since the acquisition date and through March 31, 2022 reflected revenues of approximately $1.2 million and net income of approximately $0.2 million. We incurred acquisition-related costs of approximately $0.2 million for the three months ended March 31, 2022.
5. FUNDING AGREEMENTS
We have commercial arrangements with third-party vendors to provide cash for certain of our fund dispensing devices. For the use of these funds, we pay a usage fee on either the average daily balance of funds utilized multiplied by a contractually defined usage rate or the amounts supplied multiplied by a contractually defined usage rate. These fund usage fees, reflected as interest expense within the Statements of Operations, were approximately $1.0 million and $0.7 million for the three months ended March 31, 2022 and 2021, respectively. We are exposed to interest rate risk to the extent that the applicable rates increase.
Under these agreements, the currency supplied by third party vendors remains their sole property until the funds are dispensed. As these funds are not our assets, supplied cash is not reflected in our Balance Sheets. The outstanding balance of funds provided from the third parties were approximately $390.4 million and $401.8 million as of March 31, 2022 and December 31, 2021, respectively.
Our primary commercial arrangement, the Contract Cash Solutions Agreement, as amended, is with Wells Fargo, N.A. (“Wells Fargo”). Wells Fargo provides us with cash up to $300 million with the ability to increase the amount as defined within the agreement or otherwise permitted by the vault cash provider. The term of the agreement expires on June 30, 2023 and will automatically renew for additional one-year periods unless either party provides a ninety-day written notice of its intent not to renew.
We are responsible for losses of cash in the fund dispensing devices under this agreement, and we self-insure for this type of risk. There were no material losses for the three months ended March 31, 2022 and 2021.
6. TRADE AND OTHER RECEIVABLES
Trade and other receivables represent short-term credit granted to customers and long-term loans receivable in connection with our Games and FinTech equipment and compliance products. Trade and loans receivables generally do not require collateral. The balance of trade and loans receivables consists of outstanding balances owed to us by gaming establishments. Other receivables include income tax receivables and other miscellaneous receivables.
The balance of trade and other receivables consisted of the following (in thousands):
| | | | | | | | | | | |
| At March 31, | | At December 31, |
| 2022 | | 2021 |
Trade and other receivables, net | | | |
Games trade and loans receivables | $ | 78,349 | | | $ | 77,053 | |
FinTech trade and loans receivables | 26,989 | | | 21,504 | |
Contract assets(1) | 14,514 | | | 15,221 | |
Other receivables | 8,079 | | | 3,695 | |
Net investment in sales-type leases | 898 | | | 1,331 | |
Total trade and other receivables, net | 128,829 | | | 118,804 | |
Non-current portion of receivables | | | |
Games trade and loans receivables | 1,265 | | | 1,348 | |
FinTech trade and loans receivables | 10,625 | | | 7,340 | |
Contract assets(1) | 3,852 | | | 5,294 | |
Total non-current portion of receivables | 15,742 | | | 13,982 | |
Total trade and other receivables, current portion | $ | 113,087 | | | $ | 104,822 | |
Allowance for Credit Losses
The activity in our allowance for credit losses for the three months ended March 31, 2022 and 2021 is as follows (in thousands):
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
Beginning allowance for credit losses | $ | (5,161) | | | $ | (3,689) | |
Provision | (1,947) | | | (1,999) | |
Charge-offs and recoveries | 2,085 | | | 1,239 | |
Ending allowance for credit losses | $ | (5,023) | | | $ | (4,449) | |
7. INVENTORY
Our inventory primarily consists of component parts as well as work-in-progress and finished goods. The cost of inventory includes cost of materials, labor, overhead and freight, and is accounted for using the first in, first out method. The inventory is stated at the lower of cost or net realizable value.
Inventory consisted of the following (in thousands):
| | | | | | | | | | | |
| At March 31, | | At December 31, |
| 2022 | | 2021 |
Inventory | | | |
Component parts, net of reserves of $2,098 and $2,422 at March 31, 2022 and December 31, 2021, respectively | $ | 33,646 | | | $ | 22,490 | |
Work-in-progress | 4,179 | | | 554 | |
Finished goods | 7,874 | | | 6,189 | |
Total inventory | $ | 45,699 | | | $ | 29,233 | |
8. PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets include the balance of prepaid expenses, deposits, debt issuance costs on our New Revolver (as defined below), restricted cash, operating lease ROU assets, and other assets. The current portion of these assets is included in prepaid expenses and other current 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 expenses and other assets consisted of the following (in thousands):
| | | | | | | | | | | |
| At March 31, | | At December 31, |
| 2022 | | 2021 |
Prepaid expenses and other current assets | | | |
Prepaid expenses | $ | 15,738 | | | $ | 14,389 | |
Deposits | 8,102 | | | 7,709 | |
Restricted cash(1) | 1,534 | | | 1,616 | |
Other | 2,482 | | | 3,585 | |
Total prepaid expenses and other current assets | $ | 27,856 | | | $ | 27,299 | |
The balance of the non-current portion of other assets consisted of the following (in thousands):
| | | | | | | | | | | |
| At March 31, | | At December 31, |
| 2022 | | 2021 |
Other assets | | | |
Operating lease ROU assets | $ | 17,483 | | | $ | 12,692 | |
Prepaid expenses and deposits | 4,948 | | | 4,789 | |
Debt issuance costs of revolving credit facility | 1,664 | | | 1,760 | |
Other | 355 | | | 418 | |
Total other assets | $ | 24,450 | | | $ | 19,659 | |
9. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | At March 31, 2022 | | At December 31, 2021 |
| Useful Life (Years) | | Cost | | Accumulated Depreciation | | Net Book Value | | Cost | | Accumulated Depreciation | | Net Book Value |
Property and equipment | | | | | | | | | | | | | |
Rental pool - deployed | 2-4 | | $ | 253,441 | | | $ | 171,562 | | | $ | 81,879 | | | $ | 248,958 | | | $ | 166,075 | | | $ | 82,883 | |
Rental pool - undeployed | 2-4 | | 24,676 | | | 19,730 | | | 4,946 | | | 23,284 | | | 18,285 | | | 4,999 | |
FinTech equipment | 1-5 | | 33,265 | | | 21,978 | | | 11,287 | | | 32,802 | | | 21,257 | | | 11,545 | |
Leasehold and building improvements | Lease Term | | 12,622 | | | 9,612 | | | 3,010 | | | 12,598 | | | 9,234 | | | 3,364 | |
Machinery, office, and other equipment | 1-5 | | 47,352 | | | 29,179 | | | 18,173 | | | 45,277 | | | 28,075 | | | 17,202 | |
Total | | | $ | 371,356 | | | $ | 252,061 | | | $ | 119,295 | | | $ | 362,919 | | | $ | 242,926 | | | $ | 119,993 | |
Depreciation expense related to property and equipment totaled approximately $15.2 million and $16.2 million for the three months ended March 31, 2022 and 2021, respectively.
10. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
Goodwill represents the excess of the purchase price over the identifiable tangible and intangible assets acquired plus liabilities assumed arising from business combinations. The balance of goodwill was approximately $695.4 million and $682.7 million at March 31, 2022 and December 31, 2021, respectively. We have the following reporting units: (i) Games; (ii) Financial Access Services; (iii) Kiosk Sales and Services; (iv) Central Credit Services; (v) Compliance Sales and Services; and (vi) Loyalty Sales and Services.
In accordance with ASC 350 (“Intangibles—Goodwill and Other”), we test goodwill at the reporting unit level, which is identified as an operating segment or one level below, for impairment on an annual basis and between annual tests if events and circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount.
We test our goodwill for impairment on October 1 each year, or more frequently if events or changes in circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The annual impairment test is completed using either: a qualitative “Step 0” assessment based on reviewing relevant events and circumstances or a quantitative “Step 1” assessment, which determines the fair value of the reporting unit, using both an income approach that discounts future cash flows based on the estimated future results of our reporting units and a market approach that compares market multiples of comparable companies to determine whether or not any impairment exists. To the extent the carrying amount of a reporting unit is less than its estimated fair value, an impairment charge is recorded.
There was no impairment identified for our goodwill for the three months ended March 31, 2022 and 2021.
Other Intangible Assets
Other intangible assets consist of the following (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | At March 31, 2022 | | At December 31, 2021 |
| Useful Life (Years) | | Cost | | Accumulated Amortization | | Net Book Value | | Cost | | Accumulated Amortization | | Net Book Value |
Other intangible assets | | | | | | | | | | | | | |
Contract rights under placement fee agreements | 2-7 | | $ | 59,376 | | | $ | 6,664 | | | $ | 52,712 | | | $ | 58,837 | | | $ | 4,237 | | | $ | 54,600 | |
Customer relationships | 3-14 | | 310,613 | | | 212,542 | | | 98,071 | | | 303,238 | | | 206,273 | | | 96,965 | |
Developed technology and software | 1-6 | | 355,920 | | | 286,665 | | | 69,255 | | | 342,309 | | | 280,412 | | | 61,897 | |
Patents, trade names, and other | 2-18 | | 21,247 | | | 19,548 | | | 1,699 | | | 20,547 | | | 19,415 | | | 1,132 | |
Total | | | $ | 747,156 | | | $ | 525,419 | | | $ | 221,737 | | | $ | 724,931 | | | $ | 510,337 | | | $ | 214,594 | |
Amortization expense related to other intangible assets was approximately $13.6 million and $14.7 million for the three months ended March 31, 2022 and 2021, respectively.
We evaluate our other intangible assets for potential impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. During the three months ended March 31, 2022 and 2021, there were no material write-downs of intangible assets.
11. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The following table presents our accounts payable and accrued expenses (in thousands):
| | | | | | | | | | | |
| At March 31, | | At December 31, |
| 2022 | | 2021 |
Accounts payable and accrued expenses | | | |
Customer commissions payable | $ | 65,764 | | | $ | 57,515 | |
Accounts payable - trade | 47,184 | | | 25,453 | |
Contract liabilities | 38,877 | | | 36,238 | |
Payroll and related expenses | 17,893 | | | 29,125 | |
Operating lease liabilities | 5,842 | | | 5,663 | |
Accrued interest | 5,816 | | | 9,273 | |
Financial access processing and related expenses | 3,865 | | | 3,619 | |
Accrued taxes | 3,317 | | | 2,756 | |
Other | 3,996 | | | 4,291 | |
Total accounts payable and accrued expenses | $ | 192,554 | | | $ | 173,933 | |
12. LONG-TERM DEBT
The following table summarizes our outstanding indebtedness (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Maturity | | Interest | | At March 31, | | At December 31, |
| | Date | | Rate | | 2022 | | 2021 |
Long-term debt | | | | | | | | |
$600 million New Term Loan | | 2028 | | LIBOR+2.50% | | $ | 597,000 | | | $ | |