Everi Holdings Inc. [EVRI] Filings

10-Q 1 evri-20220930.htm 10-Q evri-20220930

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 September 30, 2022


☐			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 November 3, 2022, there were 89,466,734 shares of the registrant’s $0.001 par value per share common stock outstanding.

TABLE OF CONTENTS

Page

PART I: FINANCIAL INFORMATION

Item 1:

Financial Statements

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2022 and 2021

Unaudited Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021

Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021

Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2022 and 2021

Notes to Unaudited Condensed Consolidated Financial Statements

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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenues
Games revenues
Gaming operations	$	74,979	$	71,580	$	219,311	$	202,941
Gaming equipment and systems	37,500		24,220		103,766		68,298
Gaming other	41		33		126		82
Games total revenues	112,520		95,833		323,203		271,321
FinTech revenues
Financial access services	53,296		46,421		154,051		129,973
Software and other	22,192		17,024		59,056		49,874
Hardware	16,310		9,024		40,846		28,829
FinTech total revenues	91,798		72,469		253,953		208,676
Total revenues	204,318		168,302		577,156		479,997
Costs and expenses
Games cost of revenues(1)
Gaming operations	6,557		5,675		18,674		15,776
Gaming equipment and systems	22,545		13,503		62,721		39,058
Games total cost of revenues	29,102		19,178		81,395		54,834
FinTech cost of revenues(1)
Financial access services	2,760		1,830		7,405		4,863
Software and other	1,163		1,063		2,984		3,196
Hardware	10,771		5,380		27,074		17,078
FinTech total cost of revenues	14,694		8,273		37,463		25,137
Operating expenses	56,354		47,121		161,230		133,320
Research and development	16,803		9,598		43,386		26,799
Depreciation	17,444		14,463		48,342		46,571
Amortization	15,303		14,596		43,582		43,680
Total costs and expenses	149,700		113,229		415,398		330,341
Operating income	54,618		55,073		161,758		149,656
Other expenses
Interest expense, net of interest income	14,880		14,257		38,522		50,488
Loss on extinguishment of debt	—		34,389		—		34,389
Total other expenses	14,880		48,646		38,522		84,877
Income before income tax	39,738		6,427		123,236		64,779
Income tax provision (benefit)	10,329		(319)		29,784		1,285
Net income	29,409		6,746		93,452		63,494
Foreign currency translation loss	(2,639)		(442)		(4,665)		(335)
Comprehensive income	$	26,770	$	6,304	$	88,787	$	63,159

(1) Exclusive of depreciation and amortization.

EVERI HOLDINGS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME - CONTINUED

(In thousands, except earnings per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Earnings per share
Basic	$	0.33	$	0.07	$	1.03	$	0.72
Diluted	$	0.30	$	0.07	$	0.95	$	0.64
Weighted average common shares outstanding
Basic	90,014		90,322		91,039		88,688
Diluted	96,436		101,359		98,306		99,581

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 September 30,		At December 31,
	2022		2021
ASSETS
Current assets
Cash and cash equivalents	$	258,627	$	302,009
Settlement receivables	76,854		89,275
Trade and other receivables, net of allowances for credit losses of $5,977 and $5,161 at September 30, 2022 and December 31, 2021, respectively	116,843		104,822
Inventory	55,890		29,233
Prepaid expenses and other current assets	39,009		27,299
Total current assets	547,223		552,638
Non-current assets
Property and equipment, net	130,545		119,993
Goodwill	707,214		682,663
Other intangible assets, net	230,928		214,594
Other receivables	24,777		13,982
Deferred tax assets, net	179		32,121
Other assets	28,657		19,659
Total non-current assets	1,122,300		1,083,012
Total assets	$	1,669,523	$	1,635,650
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Settlement liabilities	$	232,147	$	291,861
Accounts payable and accrued expenses	209,766		173,933
Current portion of long-term debt	6,000		6,000
Total current liabilities	447,913		471,794
Non-current liabilities
Deferred tax liabilities, net	345		—
Long-term debt, less current portion	972,877		975,525
Other accrued expenses and liabilities	29,669		13,831
Total non-current liabilities	1,002,891		989,356
Total liabilities	1,450,804		1,461,150
Commitments and contingencies (Note 13)
Stockholders’ equity
Convertible preferred stock, $0.001 par value, 50,000 shares authorized and no shares outstanding at September 30, 2022 and December 31, 2021, respectively	—		—
Common stock, $0.001 par value, 500,000 shares authorized and 119,258 and 89,972 shares issued and outstanding at September 30, 2022, respectively, and 116,996 and 91,313 shares issued and outstanding at December 31, 2021, respectively	119		117
Additional paid-in capital	522,353		505,757
Accumulated deficit	(48,303)		(141,755)
Accumulated other comprehensive loss	(6,120)		(1,455)
Treasury stock, at cost, 29,286 and 25,683 shares at September 30, 2022 and December 31, 2021, respectively	(249,330)		(188,164)
Total stockholders’ equity	218,719		174,500
Total liabilities and stockholders’ equity	$	1,669,523	$	1,635,650

See notes to unaudited condensed consolidated financial statements.

EVERI HOLDINGS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities
Net income	$	93,452	$	63,494
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	48,342		46,571
Amortization	43,582		43,680
Non-cash lease expense	3,599		3,400
Amortization of financing costs and discounts	2,140		3,234
Loss on sale or disposal of assets	420		1,616
Accretion of contract rights	7,367		6,966
Provision for credit losses	7,286		5,499
Deferred income taxes	28,042		(174)
Reserve for inventory obsolescence	659		1,610
Loss on extinguishment of debt	—		34,389
Stock-based compensation	15,012		12,404
Changes in operating assets and liabilities:
Settlement receivables	12,251		10,056
Trade and other receivables	(23,845)		(25,522)
Inventory	(23,026)		(5,569)
Prepaid expenses and other assets	(26,388)		(8,068)
Settlement liabilities	(59,432)		4,371
Accounts payable and accrued expenses	17,453		45,543
Net cash provided by operating activities	146,914		243,500
Cash flows from investing activities
Capital expenditures	(92,225)		(73,288)
Acquisitions, net of cash acquired	(33,250)		(15,000)
Proceeds from sale of property and equipment	115		215
Placement fee agreements	(547)		—
Net cash used in investing activities	(125,907)		(88,073)
Cash flows from financing activities
Proceeds from new term loan	—		600,000
Repayments of new term loan	(4,500)		—
Repayments of prior term loan	—		(735,500)
Repayments of prior incremental term loan	—		(124,375)
Proceeds from 2021 unsecured notes	—		400,000
Repayments of 2017 unsecured notes	—		(285,381)
Fees associated with debt transactions - new debt	—		(19,797)
Fees associated with debt transactions - prior debt	—		(20,828)
Proceeds from exercise of stock options	1,586		14,012
Treasury stock - restricted share vestings and withholdings	(11,815)		(8,909)
Treasury stock - repurchase of shares	(49,351)		—
Payment of contingent consideration, acquisition	—		(9,875)
Net cash used in financing activities	(64,080)		(190,653)
Effect of exchange rates on cash and cash equivalents	(1,106)		(237)
Cash, cash equivalents and restricted cash
Net decrease for the period	(44,179)		(35,463)
Balance, beginning of the period	303,726		252,349
Balance, end of the period	$	259,547	$	216,886

See notes to unaudited condensed consolidated financial statements.

EVERI HOLDINGS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Nine Months Ended September 30,
	2022		2021
Supplemental cash disclosures
Cash paid for interest	$	42,070	$	45,167
Cash paid for income tax, net	846		975
Supplemental non-cash disclosures
Accrued and unpaid capital expenditures	$	5,511	$	32,999
Transfer of leased gaming equipment to inventory	7,758		5,636

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 vestings and withholdings	41	—		(1)		—		—		(172)		(173)
Balance, March 31, 2021	112,852	$	113	$	471,902	$	(274,086)	$	(1,412)	$	(178,985)	$	17,532
Net income	—	—		—		36,214		—		—		36,214
Foreign currency translation	—	—		—		—		328		—		328
Stock-based compensation expense	—	—		5,447		—		—		—		5,447
Exercise of options	1,358	2		6,416		—		—		—		6,418
Restricted share vestings and withholdings	1,349	1		(3)		—		—		(8,437)		(8,439)
Balance, June 30, 2021	115,559	$	116	$	483,762	$	(237,872)	$	(1,084)	$	(187,422)	$	57,500
Net income	—	—		—		6,746		—		—		6,746
Foreign currency translation	—	—		—		—		(442)		—		(442)
Stock-based compensation expense	—	—		3,952		—		—		—		3,952
Exercise of options	762	—		5,309		—		—		—		5,309
Restricted share vestings and withholdings	36	—		(1)		—		—		(296)		(297)
Balance, September 30, 2021	116,357	$	116	$	493,022	$	(231,126)	$	(1,526)	$	(187,718)	$	72,768

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, 2022	116,996	$	117	$	505,757	$	(141,755)	$	(1,455)	$	(188,164)	$	174,500
Net income	—	—		—		31,522		—		—		31,522
Foreign currency translation	—	—		—		—		580		—		580
Stock-based compensation expense	—	—		4,811		—		—		—		4,811
Exercise of options	164	—		699		—		—		—		699
Restricted share vestings and withholdings	61	—		—		—		—		(400)		(400)
Balance, March 31, 2022	117,221	$	117	$	511,267	$	(110,233)	$	(875)	$	(188,564)	$	211,712
Net income	—	—		—		32,521		—		—		32,521
Foreign currency translation	—	—		—		—		(2,606)		—		(2,606)
Stock-based compensation expense	—	—		5,500		—		—		—		5,500
Exercise of options	5	—		20		—		—		—		20
Restricted share vestings and withholdings	1,883	2		(2)		—		—		(11,182)		(11,182)
Repurchase of shares	—	—		—		—		—		(33,336)		(33,336)
Balance, June 30, 2022	119,109	$	119	$	516,785	$	(77,712)	$	(3,481)	$	(233,082)	$	202,629
Net income	—	—		—		29,409		—		—		29,409
Foreign currency translation	—	—		—		—		(2,639)		—		(2,639)
Stock-based compensation expense	—	—		4,701		—		—		—		4,701
Exercise of options	115	—		867		—		—		—		867
Restricted share vestings and withholdings	34	—		—		—		—		(233)		(233)
Repurchase of shares	—	—		—		—		—		(16,015)		(16,015)
Balance, September 30, 2022	119,258	$	119	$	522,353	$	(48,303)	$	(6,120)	$	(249,330)	$	218,719

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 and Historic Horse Racing (“HHR”) gaming 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 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 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 negatively impacted the global economy, disrupted global supply chains, and created significant volatility in the financial markets. Initially, it lowered equity market valuations and raised the cost of borrowing funds, increased unemployment levels, and caused temporary, and in certain cases, permanent closures of many businesses. The gaming industry was not immune to these factors as our casino customers closed their gaming establishments in the first quarter of 2020. As the initial impacts from the COVID-19 pandemic subsided, most of our casino customers began to reopen their operations over the remainder of 2020 and throughout 2021. While some of our customers’ locations have permanently ceased operations, nearly all of our customer base has resumed operations as of September 30, 2022. In addition, the impacts of employment constraints and supply chain disruptions continue to challenge our customers and us.

Since the onset of COVID-19, we have implemented measures to mitigate our exposure throughout the global pandemic. While many pandemic impacts have subsided, further uncertainty still challenges our customers and us as a result of COVID-19 and the resurgence of its variants. We continue to evaluate our business strategies and monitor the impacts of the global pandemic, employment constraints and supply chain disruptions on our results of operations and financial condition, and make adjustments to our business, accordingly.

Our revenues for the third quarter of 2022 exceeded the third quarter of 2021. While gaming industry conditions have improved significantly compared to the start of the pandemic, it is unclear if customers’ industry capital allocations will fully return to and remain at pre-COVID levels. With macro-economic volatility and pandemic-related challenges still in effect, we expect that demand and supply for our products and services could be tempered in the short-term, to the extent gaming activity decreases at our customers’ locations, or fails to increase at expected rates, and to the extent our customers decide to restrict their capital spending as a result of uncertainty in the industry, or that supply chain disruptions might impact customer deliveries, or otherwise.

The impact of the COVID-19 pandemic also exacerbates the risks disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “Annual Report”), including, but not limited to: our ability to generate revenues and, earn profits, our ability to service existing and attract new customers and maintain our overall competitiveness in the market; the potential for significant fluctuations in demand for our products and services; overall trends in the gaming industry impacting our business, and potential volatility in our stock price, among other concerns.

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING 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 and nine months ended September 30, 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

We disaggregate revenues based on the nature and timing of the cash flows generated by such revenues as presented in “Note 18 — Segment Information.”

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 invoicing and cash collections.

The following table summarizes our contract assets and contract liabilities arising from contracts with customers (in thousands):


	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 September 30 - current	12,223		9,728
Balance at September 30 - non-current	10,589		5,647
Total	22,812		15,375
Increase (decrease)	$	7,591	$	(2,186)
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 September 30 - current	44,460		36,503
Balance at September 30 - non-current	2,246		493
Total	46,706		36,996
Increase	$	10,091	$	9,727

(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 $25.1 million and $21.0 million in revenue that was included in the beginning contract liabilities balance during the nine months ended September 30, 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, HHR 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 $51.4 million and $148.0 million for the three and nine months ended September 30, 2022, respectively, and $49.2 million and $141.6 million for the three and nine months ended September 30, 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 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 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 and nine months ended September 30, 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 nine months ended September 30, 2022 (in thousands).


	Classification on our Balance Sheets	At September 30, 2022		At December 31, 2021
Cash and cash equivalents	Cash and cash equivalents	$	258,627	$	302,009
Restricted cash - current	Prepaid expenses and other current assets	819		1,616
Restricted cash - non-current	Other assets	101		101
Total		$	259,547	$	303,726

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 September 30, 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 September 30, 2022 and December 31, 2021, the fair value of trade and loans receivable approximated the carrying value due to contractual terms generally being slightly 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
September 30, 2022
$600 million New Term Loan	2	$	572,972	$	594,000
$400 million 2021 Unsecured Notes	2	$	329,984	$	400,000
December 31, 2021
$600 million New Term Loan	2	$	598,171	$	598,500
$400 million 2021 Unsecured Notes	2	$	404,000	$	400,000

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 September 30, 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 September 30, 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 September 30, 2022		At December 31, 2021
Assets
Operating lease ROU assets	Other assets, non-current	$	18,426	$	12,692
Liabilities
Current operating lease liabilities	Accounts payable and accrued expenses	$	6,436	$	5,663
Non-current operating lease liabilities	Other accrued expenses and liabilities	$	16,281	$	11,869

Supplemental cash flow information related to leases is as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Cash paid for:
Long-term operating leases	$	1,855	$	1,660	$	5,165	$	5,030
Short-term operating leases	$	398	$	400	$	1,205	$	1,219
Right-of-use assets obtained in exchange for lease obligations:
Operating leases(1)	$	997	$	396	$	7,448	$	1,063

(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 September 30, 2022		At December 31, 2021
Weighted Average Remaining Lease Term (in years):
Operating leases	3.57		3.52
Weighted Average Discount Rate:
Operating leases	4.71	%	5.04	%

Components of lease expense, which are included in operating expenses, are as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Operating Lease Cost:
Operating lease cost	$	1,663	$	1,276	$	4,492	$	4,192
Variable lease cost	$