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1.BUSINESS
Everi Holdings Inc. (formerly known as Global Cash Access Holdings, Inc.) (“Everi Holdings”, “Holdings” or “Everi”) is a holding company, the assets of which are the issued and outstanding shares of capital stock of each of Everi Games Holding Inc. (formerly known as Multimedia Games Holding Company, Inc.) (“Everi Games Holding”), which owns all of the issued and outstanding shares of capital stock of Everi Games Inc. (formerly known as Multimedia Games, Inc.) (“Everi Games” or “Games”) and Everi Payments Inc. (formerly known as Global Cash Access, Inc.) (“Everi Payments” or “Payments”). Unless otherwise indicated, the terms the “Company,” “we,” “us” and “our” refer to Holdings together with its consolidated subsidiaries.
Everi is dedicated to providing video and mechanical reel gaming content and technology solutions, integrated gaming payments solutions and compliance and efficiency software. The Company’s Games business provides: (a) comprehensive content, electronic gaming units and systems for Native American and commercial casinos, including the award winning TournEvent® slot tournament solution; and (b) the central determinant system for the video lottery terminals installed at racetracks in the State of New York. The Company’s Payments business provides: (a) access to cash at gaming facilities via Automated Teller Machine, or ATM, cash withdrawals, credit card cash access transactions, point of sale debit card transactions, and check verification and warranty services; (b) fully integrated gaming industry kiosks that provide cash access and related services; (c) products and services that improve credit decision making, automate cashier operations and enhance patron marketing activities for gaming establishments; (d) compliance, audit and data solutions; and (e) online payment processing solutions for gaming operators in states that offer intrastate, Internet-based gaming and lottery activities.
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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 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 presentation of results for the interim periods have been made. The results for the three and nine months ended September 30, 2016 are not necessarily indicative of results to be expected for the full fiscal year. The condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
There have been no changes to our basis of presentation and significant accounting policies since the most recent filing of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
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, settlement receivables, trade receivables, other receivables, settlement liabilities, accounts payable and accrued expenses approximates fair value due to the short-term maturities of these instruments. The fair value of our borrowings are 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.
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Level of |
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Outstanding |
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September 30, 2016 |
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Hierarchy |
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Fair Value |
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Balance |
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||
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Term loan |
|
1 |
|
$ |
450,546 |
|
$ |
468,100 |
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Senior secured notes |
|
3 |
|
$ |
322,438 |
|
$ |
335,000 |
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Senior unsecured notes |
|
1 |
|
$ |
336,438 |
|
$ |
350,000 |
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December 31, 2015 |
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Term loan |
|
1 |
|
$ |
445,900 |
|
$ |
490,000 |
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Senior secured notes |
|
3 |
|
$ |
314,900 |
|
$ |
335,000 |
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Senior unsecured notes |
|
1 |
|
$ |
297,500 |
|
$ |
350,000 |
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The senior secured notes were fair valued using a Level 3 input as there was no market activity or observable inputs as of September 30, 2016 and December 31, 2015. During the current period, the fair value of the senior secured notes was derived using the same rate as the term loan given that both were treated similarly. During the prior period, the fair value of the senior secured notes was derived using a Level 3 input by evaluating the trading activities of similar debt instruments.
Reclassification of Prior Year Balances
Reclassifications were made to the prior-period financial statements to conform to the current period presentation.
Recent Accounting Guidance
Recently Adopted Accounting Guidance
In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, which provides guidance to simplify the presentation of debt issuance costs. These amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The pronouncement is effective for annual periods beginning after December 15, 2015, and interim periods within those fiscal years, and early adoption is permitted for financial statements that have not been previously issued. This guidance was further clarified in ASU No. 2015-15, which addressed the treatment of debt issuance costs related to line-of credit arrangements. It noted that as ASU No. 2015-03 did not provide guidance on debt issuance costs related to line-of credit arrangements, the SEC would not object to an entity deferring and presenting these specific debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. We adopted the guidance in ASU Nos. 2015-03 and 2015-15 retrospectively to reclassify all debt issuance costs not associated with line-of-credit arrangements from the non-current portion of other assets to contra-liabilities and presented them as reductions to the face amount of each respective long-term debt instrument on our Condensed Consolidated Balance Sheets and related notes during the current period.
In January 2015, the FASB issued ASU No. 2015-01, which eliminates the requirement that an entity separately classify, present and disclose extraordinary events and transactions. The pronouncement is effective for annual periods ending after December 15, 2015. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. We adopted this guidance during the current period. There was no impact on our Condensed Consolidated Financial Statements, as we do not have any extraordinary items.
In June 2014, the FASB issued ASU No. 2014-12, which requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. The standard is effective for annual reporting periods beginning after December 15, 2015, with early adoption permitted. We adopted this guidance during the current period. There was no impact on our Condensed Consolidated Financial Statements.
Recent Accounting Guidance Not Yet Adopted
In October 2016, the FASB issued ASU No. 2016-16, which provides updated guidance on the recognition of the income tax consequences of intra-entity transfers of assets other than inventory when the transfer occurs, and this eliminates the exception for an intra-entity transfer of such assets. The new standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. This guidance will be applied using a modified retrospective approach through a cumulative-effective adjustment directly to retained earnings as of the beginning of the period of adoption. Early adoption is permitted during the first interim period of the year this guidance is adopted. We are currently evaluating the impact of adopting this guidance on our Condensed Consolidated Financial Statements and disclosures included within Notes to the Condensed Consolidated Financial Statements.
In August 2016, the FASB issued ASU No. 2016-15, which provides updated guidance on the classification of certain cash receipts and cash payments in the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. This guidance will be applied using a retrospective approach. If it is impracticable to apply the amendments retrospectively for some of the issues within this ASU, the amendments for those issues would be applied prospectively as of the earliest date practicable. Early adoption is permitted including adoption in an interim period. We are currently evaluating the impact of adopting this guidance on our Condensed Consolidated Financial Statements and disclosures included within Notes to the Condensed Consolidated Financial Statements.
In June 2016, the FASB issued ASU No. 2016-13, which provides updated guidance on credit losses for financial assets measured at amortized cost basis and available-for sale debt securities. The new standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. This guidance will be applied using a modified retrospective approach for the cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective and using a prospective approach for debt securities for which an other-than-temporary impairment had been recognized before the effective date. Early adoption is permitted for fiscal years beginning after December 15, 2018. We are currently evaluating the impact of adopting this guidance on our Condensed Consolidated Financial Statements and disclosures included within Notes to the Condensed Consolidated Financial Statements.
In March 2016, the FASB issued ASU No. 2016-09, which simplifies several aspects of the accounting for share-based payment transactions, including the accounting for income taxes, statutory tax withholding requirements and classification on the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. This guidance will be applied either prospectively, retrospectively or using a modified retrospective transition method, depending on the area covered in this update. Early adoption is permitted. We are currently evaluating the impact of adopting this guidance on our Condensed Consolidated Financial Statements and disclosures included within Notes to the Condensed Consolidated Financial Statements.
In February 2016, the FASB issued ASU No. 2016-02, which provides guidance on the accounting treatment of leases. The ASU establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years and early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of adopting this guidance on our Condensed Consolidated Financial Statements and disclosures included within Notes to the Condensed Consolidated Financial Statements.
In July 2015, the FASB issued ASU No. 2015-11, which provides guidance on the measurement of inventory value. The amendments require an entity to measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using last-in, first-out (“LIFO”) or the retail inventory method. The amendments do not apply to inventory that is measured using LIFO or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (“FIFO”) or average cost. The pronouncement is effective for annual periods beginning after December 15, 2016, and interim periods within those fiscal years, and early adoption is permitted. We are currently evaluating the impact of adopting this guidance on our Condensed Consolidated Financial Statements and disclosures included within Notes to the Condensed Consolidated Financial Statements.
In August 2014, the FASB issued ASU No. 2014-15, which provides guidance on determining when and how reporting entities must disclose going-concern uncertainties in their financial statements. The pronouncement is effective for annual periods ending after December 15, 2016, and interim periods thereafter, and early adoption is permitted. We are currently evaluating the impact of adopting this guidance on our Condensed Consolidated Financial Statements and disclosures included within Notes to the Condensed Consolidated Financial Statements.
In May 2014, the FASB issued ASU No. 2014-09, which creates FASB Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” and supersedes ASC Topic 605, “Revenue Recognition”. The guidance replaces industry-specific guidance and establishes a single five-step model to identify and recognize revenue. The core principle of the guidance is that an entity should recognize revenue upon transfer of control of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Additionally, the guidance requires the entity to disclose further quantitative and qualitative information regarding the nature and amount of revenues arising from contracts with customers, as well as other information about the significant judgments and estimates used in recognizing revenues from contracts with customers. The guidance in ASU 2014-09 was further updated by ASU 2016-08 in March 2016, which provides clarification on the implementation of the principal vs agent considerations in ASU 2014-09. In April 2016, the FASB issued ASU 2016-10, which provides clarification on the implementation of performance obligations and licensing in ASU 2014-09. In May 2016, the FASB issued ASU 2016-11, which amends guidance provided in two SEC Staff Announcements at the March 3, 2016 Emerging Issues Task Force meeting over various topics relating to ASU 606. In May 2016, the FASB issued ASU 2016-12, which clarified various topics in ASU 606. This guidance was originally effective for interim and annual reporting periods beginning after December 15, 2016. However, in August 2015, the FASB issued ASU No. 2015-14, which extended the effective date to interim and annual periods beginning after December 15, 2017. Early application is permitted only as of annual reporting periods beginning after December 15, 2015, including interim reporting periods within that reporting period. This guidance may be adopted retrospectively or under a modified retrospective method where the cumulative effect is recognized at the date of initial application. We are currently evaluating the impact of adopting this guidance on our Condensed Consolidated Financial Statements and disclosures included within our Notes to the Condensed Consolidated Financial Statements.
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3. BUSINESS COMBINATIONS
Resort Advantage, LLC
In August 2015, we acquired certain assets of Resort Advantage, LLC (“Resort Advantage”) for an aggregate purchase price of approximately $13.3 million, of which we estimated that approximately $4.7 million would be paid under the provisions of the agreement over a period of 40 months. As of September 30, 2016, a payment of approximately $0.7 million was remitted, with a remaining estimate of approximately $1.0 million to be potentially paid under the provisions of the agreement over the remaining term. Resort Advantage is a supplier of comprehensive and integrated solutions for complete Financial Crimes Enforcement Network (“FinCEN”) and Internal Revenue Service regulatory compliance to the gaming industry. The Resort Advantage acquisition did not have a material impact on our results of operations or financial condition. We have not provided the supplemental pro forma impact of the Resort Advantage acquisition on the revenue and earnings of the combined entity as if the acquisition date had been January 1, 2014, and the amount of revenue and earnings derived from Resort Advantage have not been presented on a supplemental basis as such amounts are not material for the three and nine months ended September 30, 2016 and 2015, respectively.
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. We had no material acquisitions for the three and nine months ended September 30, 2016 and 2015.
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4. ATM FUNDING AGREEMENTS
Contract Cash Solutions Agreement
Our Contract Cash Solutions Agreement with Wells Fargo Bank, N.A. (“Wells Fargo”) allows us to use funds owned by Wells Fargo to provide the currency needed for normal operating requirements for our ATMs. For the use of these funds, we pay Wells Fargo a cash usage fee on the average daily balance of funds utilized multiplied by a contractually defined cash usage rate. These cash usage fees, reflected as interest expense within the Condensed Consolidated Statements of Loss and Comprehensive Loss, were $0.7 million and $2.3 million for the three and nine months ended September 30, 2016, respectively, and $0.5 million and $1.6 million for the three and nine months ended September 30, 2015, respectively. We are exposed to interest rate risk to the extent that the applicable London Interbank Offered Rate (“LIBOR”) increases.
Under this agreement, all currency supplied by Wells Fargo remains the sole property of Wells Fargo at all times until it is dispensed, at which time Wells Fargo obtains an interest in the corresponding settlement receivable which is recorded on a net basis. As these funds are not our assets, supplied cash is not reflected on the Condensed Consolidated Balance Sheets. The outstanding balance of ATM cash utilized by us from Wells Fargo was $212.2 and $364.5 million as of September 30, 2016 and December 31, 2015, respectively.
The Contract Cash Solutions Agreement provides us with cash in the maximum amount of $425.0 million during the term of the agreement, which expires on June 30, 2018.
We are responsible for any losses of cash in the ATMs under this agreement and we self‑insure for this risk. We incurred no material losses related to this self‑insurance for the three and nine months ended September 30, 2016 and 2015.
Site-Funded ATMs
We operate ATMs at certain customer gaming establishments where the gaming establishment provides the cash required for the ATM operational needs. We are required to reimburse the customer for the amount of cash dispensed from these Site-Funded ATMs. The Site-Funded ATM liability included within settlement liabilities in the accompanying Condensed Consolidated Balance Sheets was $76.0 million and $84.9 million as of September 30, 2016 and December 31, 2015, respectively.
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5. TRADE RECEIVABLES
Trade receivables represent short-term credit granted to customers for which collateral is generally not required. The balance of trade receivables consists of outstanding balances owed to us by gaming establishments and casino patrons. The balance of trade receivables consisted of the following (in thousands):
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At September 30, |
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At December 31, |
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2016 |
2015 |
|||||
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Trade receivables, net |
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|
|
|
|
|
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Games trade receivables |
$ |
40,724 |
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$ |
38,064 |
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|
Payments trade receivables |
|
7,669 |
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|
14,318 |
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Total trade receivables, net |
$ |
48,393 |
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$ |
52,382 |
|
At least quarterly, we evaluate the collectability of the outstanding balances and establish a reserve for the face amount of the expected losses on our receivables. The allowance for doubtful accounts for trade receivables includes reserves for both Games and Payments receivables. The provision for doubtful accounts is generally included within operating expenses in the Condensed Consolidated Statements of Loss and Comprehensive Loss. We also have a provision for doubtful accounts specifically associated with our outstanding check warranty receivables, which is included within Payments cost of revenues (exclusive of depreciation and amortization) in the Condensed Consolidated Statements of Loss and Comprehensive Loss. The outstanding balances of the check warranty and general reserves were $2.9 million and $1.4 million, respectively, as of September 30, 2016 and $3.0 million and $0.9 million, respectively, as of December 31, 2015.
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6. OTHER RECEIVABLES
Other receivables include the balance of notes and loans receivable on our games and fully integrated kiosk products; and development agreements, which are generated from reimbursable amounts advanced to tribal customers generally used by the customer to build, expand or renovate its facility.
In addition, we had a note receivable with Bee Cave Games, Inc. (“Bee Cave”), which was established prior to our acquisition of Everi Games Holding in December 2014 pursuant to a secured promissory note in the amount of $4.5 million, which bears annual interest at 7%. The note required interest only payments for the first 24 months followed by repayments of principal and interest in 48 equal monthly installments. In association with the promissory note, the Company received a warrant to purchase the common stock of Bee Cave and recorded a discount to the note for the fair value of the warrant received.
In May 2016, Bee Cave failed to pay its scheduled interest-only payment that was due related to its $4.5 million secured promissory note payable to Everi Games, for which we issued a Notice of Default and Acceleration to Bee Cave of our intent to foreclose on its assets in full settlement of the outstanding note obligation under the terms of the promissory note. At such time, we recorded a write-down of approximately $4.3 million related to the Bee Cave note receivable and warrant in operating expenses on the Condensed Consolidated Statements of Loss and Comprehensive Loss. During the three months ended September 30, 2016, we foreclosed on the Bee Cave assets, evaluated its platform, and began to utilize these assets in connection with our social gaming strategy to deliver content from our existing game library. Consequently, we extinguished the note receivable and recorded $0.5 million of developed technology and software within other intangible assets, net on the Condensed Consolidated Balance Sheets as of September 30, 2016.
Other receivables also include income taxes receivable and other miscellaneous receivables. The balance of other receivables consisted of the following (in thousands):
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|
At September 30, |
|
At December 31, |
|
||
|
2016 |
2015 |
|||||
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Other receivables |
|
|
|
|
|
|
|
Notes and loans receivable, net of discount of $0 and $699 at September 30, 2016 and December 31, 2015, respectively |
$ |
4,908 |
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$ |
9,930 |
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Federal and state income tax receivable |
|
657 |
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|
421 |
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Other |
|
697 |
|
|
1,232 |
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|
Total other receivables |
|
6,262 |
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|
11,583 |
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|
Less: non-current portion of notes and loans receivable |
|
1,793 |
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|
6,655 |
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Total other receivables, current portion |
$ |
4,469 |
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$ |
4,928 |
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7. PREPAID AND OTHER ASSETS
Prepaid and other assets include the balance of prepaid expenses, deposits, debt issuance costs on our revolving credit facility, restricted cash and other assets. The current portion of these assets is included in prepaid and other assets and the non-current portion is included in other assets, both of which are contained within the Condensed Consolidated Balance Sheets.
We reclassified $23.7 million of debt issuance costs related to our outstanding debt from the non-current portion of other assets to contra-liabilities included in long-term debt as of December 31, 2015 in connection with our retrospective adoption of ASU No. 2015-03. The remaining debt issuance costs included in the non-current portion of other assets relate to our line-of-credit arrangements and were not reclassified consistent with our adoption of ASU No. 2015-15.
The balance of the current portion of prepaid and other assets consisted of the following (in thousands):
|
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At September 30, |
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At December 31, |
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||
|
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2016 |
|
2015 |
|
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||
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Prepaid expenses and other assets |
|
|
|
|
|
|
|
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Prepaid expenses |
$ |
6,334 |
|
$ |
8,255 |
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|
|
Deposits |
|
8,680 |
|
|
8,946 |
|
|
|
Other |
|
3,748 |
|
|
3,571 |
|
|
|
Total prepaid expenses and other assets |
$ |
18,762 |
|
$ |
20,772 |
|
|
The balance of the non-current portion of other assets consisted of the following (in thousands):
|
|
At September 30, |
|
At December 31, |
|
|
||
|
|
2016 |
|
2015 |
|
|
||
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Other assets |
|
|
|
|
|
|
|
|
Debt issuance costs |
$ |
747 |
|
$ |
919 |
|
|
|
Prepaid expenses and deposits |
|
3,984 |
|
|
4,521 |
|
|
|
Other |
|
3,917 |
|
|
5,934 |
|
|
|
Total other assets |
$ |
8,648 |
|
$ |
11,374 |
|
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8. INVENTORY
Our inventory primarily consists of component parts as well as finished goods and work-in-progress. The cost of inventory includes cost of materials, labor, overhead and freight. The inventory is stated at the lower of cost or market and accounted for using the FIFO method.
Inventory consisted of the following (in thousands):
|
|
At September 30, |
|
At December 31, |
|
|
||
|
|
2016 |
|
2015 |
|
|
||
|
Inventory |
|
|
|
|
|
|
|
|
Raw materials and component parts, net of reserves of $937 and $912 at September 30, 2016 and December 31, 2015, respectively |
$ |
14,667 |
|
$ |
23,663 |
|
|
|
Work in progress |
|
2,071 |
|
|
1,495 |
|
|
|
Finished goods |
|
4,039 |
|
|
3,580 |
|
|
|
Total inventory |
$ |
20,777 |
|
$ |
28,738 |
|
|
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9. PROPERTY, EQUIPMENT AND LEASED ASSETS
Property, equipment and leased assets consist of the following (in thousands):
|
|
|
|
|
At September 30, 2016 |
|
At December 31, 2015 |
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|
|
|
Useful Life |
|
|
|
|
Accumulated |
|
Net Book |
|
|
|
Accumulated |
|
Net Book |
|
|||||||
|
|
|
(Years) |
|
Cost |
|
Depreciation |
|
Value |
|
Cost |
|
Depreciation |
|
Value |
|
||||||||
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Property, equipment and leased assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental pool - deployed |
|
2 |
- |
4 |
|
$ |
117,074 |
|
$ |
52,096 |
|
$ |
64,978 |
|
$ |
91,743 |
|
$ |
29,993 |
|
$ |
61,750 |
|
|
Rental pool - undeployed |
|
2 |
- |
4 |
|
|
14,680 |
|
|
5,644 |
|
|
9,036 |
|
|
11,950 |
|
|
3,361 |
|
|
8,589 |
|
|
ATM equipment |
|
|
5 |
|
|
|
16,786 |
|
|
10,883 |
|
|
5,903 |
|
|
20,601 |
|
|
12,885 |
|
|
7,716 |
|
|
Leasehold and building improvements |
|
Lease Term |
|
|
9,978 |
|
|
3,263 |
|
|
6,715 |
|
|
7,564 |
|
|
2,038 |
|
|
5,526 |
|
||
|
Cash advance equipment |
|
|
3 |
|
|
|
8,510 |
|
|
3,955 |
|
|
4,555 |
|
|
7,662 |
|
|
2,711 |
|
|
4,951 |
|
|
Machinery, office and other equipment |
|
2 |
- |
5 |
|
|
29,999 |
|
|
18,679 |
|
|
11,320 |
|
|
32,313 |
|
|
14,537 |
|
|
17,776 |
|
|
Total |
|
|
|
|
|
$ |
197,027 |
|
$ |
94,520 |
|
$ |
102,507 |
|
$ |
171,833 |
|
$ |
65,525 |
|
$ |
106,308 |
|
In the second quarter of 2016, our corporate aircraft was classified as held for sale and sold for $4.8 million during the period. We recognized a $0.9 million loss on the sale of the aircraft, which was included in operating expenses in the Condensed Consolidated Statements of Loss and Comprehensive Loss for the nine months ended September 30, 2016. The aircraft was included in machinery, office and other equipment.
In connection with the sale of certain assets related to our PokerTek products during the three months ended September 30, 2015 for a purchase price of $5.4 million, we recorded a gain of approximately $3.9 million, which was included in the operating expenses in our Condensed Consolidated Statements of Operations and Comprehensive Loss for such period.
Depreciation expense related to other property, equipment and leased assets totaled approximately $12.4 million and $37.2 million for the three and nine months ended September 30, 2016, respectively, and $10.9 million and $32.0 million for the three and nine months ended September 30, 2015, respectively. Our property, equipment and leased assets were not impaired for the three and nine months ended September 30, 2016 and 2015, 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 $786.9 million and $789.8 million at September 30, 2016 and December 31, 2015, respectively.
In accordance with ASC 350, we test goodwill at the reporting unit level, which in certain cases may be a component of an operating segment, for impairment on an annual basis and between annual tests if triggering 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 estimate of fair value requires significant judgment. We based our fair value estimates on assumptions that we believe to be reasonable but that 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 for our reporting units. There can be no assurance that our estimates and assumptions made for purposes of our goodwill testing as of the time of testing 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 goodwill impairment charges in future periods, whether in connection with our next annual impairment testing, or earlier, if an indicator of an impairment is present prior to our next annual evaluation.
No impairment was identified for our goodwill for the three and nine months ended September 30, 2016 and 2015.
Other Intangible Assets
Other intangible assets consist of the following (in thousands):
|
|
|
|
|
At September 30, 2016 |
|
At December 31, 2015 |
||||||||||||||||
|
|
|
Useful Life |
|
|
|
|
Accumulated |
|
Net Book |
|
|
|
|
Accumulated |
|
Net Book |
||||||
|
|
|
(years) |
|
Cost |
|
Amortization |
|
Value |
|
Cost |
|
Amortization |
|
Value |
||||||||
|
Other intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract rights under development and placement fee agreements |
|
1 |
- |
7 |
|
$ |
24,858 |
|
$ |
11,477 |
|
$ |
13,381 |
|
$ |
16,453 |
|
$ |
7,612 |
|
$ |
8,841 |
|
Customer contracts |
|
7 |
- |
14 |
|
|
50,975 |
|
|
39,019 |
|
|
11,956 |
|
|
50,177 |
|
|
34,755 |
|
|
15,422 |
|
Customer relationships |
|
8 |
- |
12 |
|
|
231,100 |
|
|
37,447 |
|
|
193,653 |
|
|
231,100 |
|
|
21,723 |
|
|
209,377 |
|
Developed technology and software |
|
1 |
- |
6 |
|
|
218,269 |
|
|
110,998 |
|
|
107,271 |
|
|
197,658 |
|
|
63,591 |
|
|
134,067 |
|
Patents, trademarks and other |
|
1 |
- |
17 |
|
|
28,205 |
|
|
16,668 |
|
|
11,537 |
|
|
28,240 |
|
|
13,485 |
|
|
14,755 |
|
Total |
|
|
|
|
|
$ |
553,407 |
|
$ |
215,609 |
|
$ |
337,798 |
|
$ |
523,628 |
|
$ |
141,166 |
|
$ |
382,462 |
Amortization expense related to other intangible assets totaled approximately $24.1 million and $70.9 million for the three and nine months ended September 30, 2016, respectively, and $21.5 million and $62.9 million for the three and nine months ended September 30, 2015, respectively. We capitalized and placed into service $6.4 million and $16.0 million of software development costs for the three and nine months ended September 30, 2016, respectively, and $6.7 million and $12.3 million of software development costs for the three and nine months ended September 30, 2015, respectively.
On a quarterly basis, we evaluate our other intangible assets for potential impairment as part of our quarterly review process. No impairment was identified for our other intangible assets during our assessment for the three and nine months ended September 30, 2016 and 2015.
We enter into development and placement fee agreements to provide financing for new gaming facilities or for the expansion or improvement of existing facilities. All or a portion of the funds provided under development agreements are reimbursed to us, while funding under placement fee agreements is not reimbursed. In return for the fees under these agreements, each facility dedicates a percentage of its floor space, or an agreed upon unit count, for the placement of our electronic gaming machines (“EGMs”) over the term of the agreement, generally 12 to 83 months and we receive a fixed percentage or flat fee of those machines’ hold per day. Certain of the agreements contain EGM performance standards that could allow the respective facility to reduce a portion of our guaranteed floor space.
In addition, certain development agreements allow the facilities to buy out floor space after advances that are subject to repayment have been repaid. The development agreements typically provide for a portion of the amounts retained by each facility for its share of the operating profits of the facility to be used to repay some or all of the advances recorded as notes receivable, which are included as part of other receivables current and non-current in the Condensed Consolidated Balance Sheets. There were no receivables related to development agreements at September 30, 2016 and December 31, 2015. Placement fees and amounts advanced in excess of those to be reimbursed by the customer for real property and land improvements are allocated to intangible assets and are generally amortized over the term of the contract, which is recorded as a reduction of revenue generated from the facility. In the past we have, and in the future, we may, by mutual agreement, amend these agreements to reduce our floor space at the facilities. Any proceeds received for the reduction of floor space is first applied against the intangible asset for that particular development or placement fee agreement, if any, and the remaining net book value of the intangible asset is prospectively amortized on a straight-line method over the remaining estimated useful life. We did not enter into any placement fee agreements during the three months ended September 30, 2016 and 2015, respectively. We paid approximately $11.2 million and $2.8 million to extend the term of placement fee agreements with a customer for certain of its locations for the nine months ended September 30, 2016 and 2015, respectively.
During the three months ended September 30, 2016, we foreclosed on the Bee Cave assets, evaluated its platform, and began to utilize these assets in connection with our social gaming strategy to deliver content from our existing game library. Consequently, we extinguished the note receivable and recorded $0.5 million of developed technology and software within other intangible assets, net on the Condensed Consolidated Balance Sheets as of September 30, 2016.
|
|||
11.ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The following table presents our accounts payable and accrued expenses (in thousands):
|
|
At September 30, |
|
At December 31, |
|
||
|
|
2016 |
|
2015 |
|
||
|
Accounts payable and accrued expenses |
|
|
|
|
|
|
|
Trade accounts payable |
$ |
47,956 |
|
$ |
67,139 |
|
|
Accrued interest |
|
15,036 |
|
|
73 |
|
|
Payroll and related expenses |
|
8,600 |
|
|
8,565 |
|
|
Deferred and unearned revenues |
|
9,833 |
|
|
10,836 |
|
|
Cash access processing and related expenses |
|
4,666 |
|
|
4,662 |
|
|
Accrued taxes |
|
3,084 |
|
|
1,654 |
|
|
Other |
|
9,644 |
|
|
8,583 |
|
|
Total accounts payable and accrued expenses |
$ |
98,819 |
|
$ |
101,512 |
|
|
|||
12. LONG-TERM DEBT
The following table summarizes our outstanding indebtedness (in thousands):
|
|
At September 30, |
|
At December 31, |
|
|
||
|
|
2016 |
|
2015 |
|
|
||
|
Long-term debt |
|
|
|
|
|
|
|
|
Senior secured term loan |
$ |
468,100 |
|
$ |
490,000 |
|
|
|
Senior secured notes |
|
335,000 |
|
|
335,000 |
|
|
|
Senior unsecured notes |
|
350,000 |
|
|
350,000 |
|
|
|
Total debt |
|
1,153,100 |
|
|
1,175,000 |
|
|
|
Less: debt issuance costs and warrant discount |
|
(30,335) |
|
|
(35,101) |
|
|
|
Total debt after debt issuance costs and discount |
|
1,122,765 |
|
|
1,139,899 |
|
|
|
Less: current portion of long-term debt |
|
(10,000) |
|
|
(10,000) |
|
|
|
Long-term debt, less current portion |
$ |
1,112,765 |
|
$ |
1,129,899 |
|
|
We reclassified $23.7 million of debt issuance costs related to our outstanding debt from the non-current portion of other assets to contra-liabilities included in long-term debt as of December 31, 2015 in connection with our retrospective adoption of ASU No. 2015-03. The remaining debt issuance costs included in the non-current portion of other assets relates to our line-of-credit arrangements and were not reclassified consistent with our adoption of ASU No. 2015-15.
Credit Facilities
In December 2014, Everi Payments, as borrower, and Holdings entered into a credit facility with Bank of America, N.A., as administrative agent, collateral agent, swing line lender and letter of credit issuer; Deutsche Bank Securities Inc., as syndication agent; and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Deutsche Bank Securities, Inc., as joint lead arrangers and joint book managers (the “Credit Agreement”). The Credit Agreement consists of the $500.0 million, six-year senior secured term loan facility that matures in 2020 (the “Term Loan”) and the $50.0 million, five-year senior secured revolving credit facility that matures in 2019 (the “Revolving Credit Facility,” and together with the Term Loan, the “Credit Facilities”). The fees associated with the Credit Facilities included discounts of approximately $7.5 million and debt issuance costs of approximately $13.9 million. All borrowings under the Credit Facilities are subject to the satisfaction of customary conditions, including the absence of a default and compliance with representations and warranties.
We are required to repay the Term Loan in an amount equal to 0.50% per quarter of the initial aggregate principal with the final principal repayment installment on the maturity date. Interest is due in arrears each March, June, September and December and at the maturity date. However, interest may be remitted within one to three months of such dates.
The Term Loan had an applicable interest rate of 6.25% as of September 30, 2016 and December 31, 2015.
The interest rate per annum applicable to the Revolving Credit Facility is, at our option, the base rate or LIBOR plus, in each case, an applicable margin. The interest rate per annum applicable to the Term Loan is also, at our option, the base rate or LIBOR plus, in each case, an applicable margin. LIBOR will be reset at the beginning of each selected interest period based on the LIBOR rate then in effect; provided that, with respect to the Revolving Credit Facility, if LIBOR is below zero, then such rate will be equal to zero plus the applicable margin, and, with respect to the Term Loan, if LIBOR is below 1.0%, then such rate will be equal to 1.0% plus the applicable margin. The base rate is a fluctuating interest rate equal to the highest of (a) the prime lending rate announced by the administrative agent, (b) the federal funds effective rate from time to time plus 0.50%, and (c) LIBOR (after taking account of any applicable floor) applicable for an interest period of one month plus 1.00%. The applicable margins of 4.75% and 5.25% for the Revolving Credit Facility and Term Loan, respectively, are subject to adjustment based on our consolidated secured leverage ratio.
Voluntary prepayments of the Term Loan and the Revolving Credit Facility and voluntary reductions in the unused commitments are permitted in whole or in part, in minimum amounts as set forth in the Credit Agreement, with prior notice but without premium or penalty.
Subject to certain exceptions, the obligations under the Credit Facilities are secured by substantially all of the present and after acquired assets of each of Everi Payments, Holdings and the subsidiary guarantors (the “Collateral”) including: (a) a perfected first priority pledge of all the capital stock of Everi Payments and each domestic direct, wholly owned material restricted subsidiary held by Holdings, Everi Payments or any such subsidiary guarantor; and (b) a perfected first priority security interest in substantially all other tangible and intangible assets of Holdings, Everi Payments, and such subsidiary guarantors (including, but not limited to, accounts receivable, inventory, equipment, general intangibles, investment property, real property, intellectual property and the proceeds of the foregoing). Subject to certain exceptions, the Credit Facilities are unconditionally guaranteed by Holdings and such subsidiary guarantors and Everi Games Holding and its material domestic subsidiaries.
The Credit Agreement contains certain covenants that, among other things, limit Holdings’ ability, and the ability of certain of its subsidiaries, to incur additional indebtedness; sell assets or consolidate or merge with or into other companies; pay dividends or repurchase or redeem capital stock; make certain investments; issue capital stock of subsidiaries; incur liens; prepay, redeem or repurchase subordinated debt; and enter into certain types of transactions with our affiliates. The Credit Agreement also requires Holdings, together with its subsidiaries, to comply with a consolidated secured leverage ratio as well as an annual excess cash flow payment requirement. Based on our excess cash flow calculation at December 31, 2015, an excess cash flow payment of approximately $14.4 million was made during the nine months ended September 30, 2016.
Events of default under the Credit Agreement include customary events such as a cross-default provision with respect to other material debt (which includes Everi Payments’ 7.25% Senior Secured Notes due 2021 and 10.00% Senior Unsecured Notes due 2022). In addition, an event of default will occur if Holdings undergoes a change of control. This is defined to include the case where Holdings ceases to own 100% of the equity interests of Everi Payments, or where any person or group acquires a percentage of the economic or voting interests of Holdings’ capital stock of 35% or more (determined on a fully diluted basis), or where a majority of the board of directors of Everi Payments ceases to consist of persons who are directors of Holdings on the closing date of the Credit Facilities or other directors whose nomination for election to the board of directors of Holdings was recommended by a majority of the then continuing directors.
At September 30, 2016, we had approximately $468.1 million of borrowings outstanding under the Term Loan and no borrowings outstanding under the Revolving Credit Facility. We had $50.0 million of additional borrowing availability under the Revolving Credit Facility as of September 30, 2016. The weighted average interest rate on the Credit Facilities was approximately 6.25% for the nine months ended September 30, 2016.
We were in compliance with the terms of the Credit Facilities as of September 30, 2016 and December 31, 2015.
Senior Secured Notes and Refinance of Senior Secured Notes
In December 2014, we issued $350.0 million in aggregate principal amount of 7.75% Secured Notes due 2021 (the “Secured Notes”). The fees associated with the Secured Notes included debt issuance costs of approximately $13.6 million. The Secured Notes were acquired by the initial purchasers pursuant to the terms of a purchase agreement. Under the terms of the purchase agreement, during a one-year period following the closing and upon prior notice from the initial purchasers, the Company was required to use commercially reasonable efforts to aid the purchasers in the resale of the Secured Notes, including by preparing an updated offering memorandum and participating in reasonable marketing efforts including road shows, to the extent required therein. Alternatively, we had the ability to redeem the Secured Notes from the initial purchasers without penalty. On April 15, 2015, the Company entered into a note purchase agreement with Everi Payments, CPPIB Credit Investments III Inc. (the “Purchaser”), and Deutsche Bank Trust Company Americas, as collateral agent (the “Note Purchase Agreement”), and issued $335.0 million in aggregate principal amount of the 7.25% Secured Notes due 2021 (the “Refinanced Secured Notes”) to the Purchaser in a private offering. With the proceeds from the issuance of the Refinanced Secured Notes, we redeemed, in full, the Company’s then outstanding Secured Notes from the initial purchasers in accordance with the terms of the indenture governing the Secured Notes. In connection with the issuance of the Refinanced Secured Notes during the second quarter of 2015, we expensed $13.0 million of related debt issuance costs and fees to loss on extinguishment of debt associated with the redeemed Secured Notes that were outstanding prior to the refinance transaction.
In connection with the issuance of the Refinanced Secured Notes and pursuant to the terms of the Note Purchase Agreement, the Company issued a warrant to purchase shares of the Company’s common stock (the “Warrant”) to the Purchaser. The Warrant expires on the sixth anniversary of the date of issuance. The number of shares issuable pursuant to the Warrant and the warrant exercise price are subject to adjustment for stock splits, reverse stock splits, stock dividends, mergers and certain other events. The Warrant was valued at $2.2 million using a modified Black-Scholes model and was accounted for as a debt discount.
Interest is due quarterly in arrears each January, April, July and October.
We were in compliance with the terms of the Refinanced Secured Notes as of September 30, 2016 and December 31, 2015.
Senior Unsecured Notes
In December 2014, we issued $350.0 million in aggregate principal amount of 10.0% Unsecured Notes due 2022 (the “Unsecured Notes”). The fees associated with the Unsecured Notes included original issue discounts of approximately $3.8 million and debt issuance costs of approximately $14.0 million.
Interest is due semi-annually in arrears each January and July.
The Unsecured Notes were acquired by the initial purchasers pursuant to the terms of a purchase agreement. Under the terms of the purchase agreement, during a one-year period following the closing and upon prior notice from the initial purchasers, the Company was required to use commercially reasonable efforts to aid the purchasers in the resale of the Unsecured Notes, including by preparing an updated offering memorandum and participating in reasonable marketing efforts including road shows, to the extent required therein. The Unsecured Notes were resold by the initial purchasers to third parties in the second quarter of 2015.
In connection with the issuance of the Unsecured Notes, the Company entered into a registration rights agreement pursuant to which the Company agreed, for the benefit of the initial holders of the Unsecured Notes, to file with the SEC, and use its commercially reasonable efforts to cause to become effective, a registration statement relating to an offer to exchange the Unsecured Notes for an issue of SEC-registered notes with terms identical to the Unsecured Notes. On October 23, 2015, we filed a registration statement on Form S-4 with the SEC in accordance with the registration rights agreement outlining our offer to exchange the Unsecured Notes for identical notes without transfer restrictions. The registration statement was declared effective on November 3, 2015, and the exchange offer for the Unsecured Notes was completed on December 4, 2015 with 100% percent participation.
We were in compliance with the terms of the Unsecured Notes as of September 30, 2016 and December 31, 2015.
|
|||
13.COMMITMENTS AND CONTINGENCIES
We are subject to claims and suits that arise from time to time in the ordinary course of business. We do not believe the liabilities, if any, which may ultimately result from the outcome of such matters, individually or in the aggregate, will have a material adverse impact on our financial position, liquidity or results of operations.
Gain Contingency Settlement
In January 2014, we filed a complaint against certain third party defendants alleging conspiracy in restraint of competition regarding interchange fees, monopolization by defendants in the relevant market, and attempted monopolization of the defendants in the relevant market. We demanded a trial by jury of all issues so triable. The defendants filed a motion to dismiss on March 13, 2014. A settlement agreement was reached as of January 16, 2015 and, on January 22, 2015, the settlement agreement was executed and delivered for which we received $14.4 million in cash and recorded the settlement proceeds in the first quarter of 2015. This settlement is included as a reduction of operating expenses in our Condensed Consolidated Statements of Loss and Comprehensive Loss for the nine months ended September 30, 2015.
|
|||
14.SHAREHOLDERS’ EQUITY
Preferred Stock. Our amended and restated certificate of incorporation, as amended, allows our Board of Directors, without further action by stockholders, to issue up to 50,000,000 shares of preferred stock in one or more series and to fix the designations, powers, preferences, privileges and relative participating, optional, or special rights as well as the qualifications, limitations or restrictions of the preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences. As of September 30, 2016 and December 31, 2015, we had no shares of preferred stock outstanding.
Common Stock. Subject to the preferences that may apply to shares of preferred stock that may be outstanding at the time, the holders of outstanding shares of common stock are entitled to receive dividends out of assets legally available at the times and in the amounts as our Board of Directors may from time to time determine. All dividends are non-cumulative. In the event of the liquidation, dissolution or winding up of Everi, the holders of common stock are entitled to share ratably in all assets remaining after the payment of liabilities, subject to the prior distribution rights of preferred stock, if any, then outstanding. Each stockholder is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. Cumulative voting for the election of directors is not provided for. The common stock is not entitled to preemptive rights and is not subject to conversion or redemption. There are no sinking fund provisions applicable to the common stock. Each outstanding share of common stock is fully paid and non-assessable. As of September 30, 2016 and December 31, 2015, we had 90,907,273 and 90,877,273 shares of common stock issued, respectively.
Treasury Stock. Employees may direct us to withhold vested shares of restricted stock to satisfy the minimum statutory withholding requirements applicable to their restricted stock vesting. We repurchased or withheld from restricted stock awards 2,223 and 7,135 shares of common stock for the three and nine months ended September 30, 2016, respectively, at an aggregate purchase price of $3,879 and $16,894, respectively, and 2,456 and 7,900 shares of common stock for the three and nine months ended September 30, 2015, respectively, at an aggregate purchase price of $14,214 and $54,124, respectively, to satisfy the minimum applicable tax withholding obligations related to the vesting of such restricted stock awards.
|
|||
15.WEIGHTED AVERAGE COMMON SHARES
The weighted average number of shares of common stock outstanding used in the computation of basic and diluted earnings per share is as follows (in thousands):
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||
|
|
|
2016 |
|
2015 |
|
|
2016 |
|
2015 |
|
|
Weighted average shares |
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic |
|
66,049 |
|
65,941 |
|
|
66,041 |
|
65,804 |
|
|
Potential dilution from equity grants(1) |
|
— |
|
— |
|
|
— |
|
— |
|
|
Weighted average number of common shares outstanding - diluted |
|
66,049 |
|
65,941 |
|
|
66,041 |
|
65,804 |
|
|
(1) |
The Company was in a net loss position for the three and nine months ended September 30, 2016 and 2015, respectively, and therefore, no potential dilution from the application of the treasury stock method was applicable. Equity awards to purchase approximately 18.5 million and 15.9 million shares of common stock for the three and nine months ended September 30, 2016, respectively, and 16.5 million and 12.3 million shares of common stock for the three and nine months ended September 30, 2015, respectively, were excluded from the computation of diluted net loss per share as this effect would have been antidilutive. |
|
|||
16.SHARE-BASED COMPENSATION
Equity Incentive Awards
Our 2014 Equity Incentive Plan (the “2014 Plan”) and our 2012 Equity Incentive Plan (as amended, the “2012 Plan”) are used to attract and retain the best available personnel, to provide additional incentives to employees, directors and consultants and to promote the success of our business. The 2014 Plan superseded the then current 2005 Stock Incentive Plan (the “2005 Plan”). The 2012 Plan was assumed in connection with our acquisition of Everi Games Holding and conformed to include similar provisions to those as set forth in the 2014 Plan. Our equity plans are administered by the Compensation Committee of our Board of Directors, which has the authority to select individuals who are to receive options or other equity incentive awards and to specify the terms and conditions of grants of equity incentive awards, including, but not limited to: the vesting provisions, the terms and the exercise prices.
Generally, we grant the following award types: (a) time-based options, (b) cliff-vesting time-based options, (c) market-based options and (d) restricted stock. These awards have varying vesting provisions and expiration periods. For the three and nine months ended September 30, 2016, we granted time- and market-based options.
Our time-based stock options granted under our equity plans generally vest at a rate of 25% per year on each of the first four anniversaries of the option grant dates. These options expire after a ten-year period.
Our market-based options granted under our equity plans in 2016 vest at a rate of 25% per year on each of the first four anniversaries, provided that as of the vesting date for each vesting tranche, the closing price of the Company’s shares on the New York Stock Exchange is at least a specified price hurdle, defined as a fifty percent (50%) premium to the closing stock price on the grant date. If the price hurdle is not met as of the vesting date for a vesting tranche, then the vested tranche shall vest and become vested shares on the last day of a period of thirty (30) consecutive trading days during which the closing price is at least the price hurdle. These options expire after a ten-year period.
Our market-based stock options granted under the 2014 Plan in 2015 vest if our average stock price in any period of 30 consecutive trading days meets certain target prices during a four-year period that commenced on the date of grant for these options. These options expire after a seven-year period.
A summary of award activity is as follows (in thousands):
|
|
|
Stock Options |
|
Restricted Stock |
|
|
|
|
Granted |
|
Granted |
|
|
Outstanding, December 31, 2015 |
|
17,440 |
|
310 |
|
|
Additional authorized shares |
|
— |
|
— |
|
|
Granted |
|
4,242 |
|
— |
|
|
Exercised options or vested shares |
|
— |
|
(30) |
|
|
Canceled or forfeited |
|
(3,367) |
|
(155) |
|
|
Outstanding, September 30, 2016 |
|
18,315 |
|
125 |
|
The maximum number of shares available for future equity awards, both under the 2014 Plan and 2012 Plan, is approximately 5.0 million shares of our common stock. There are no shares available for future equity awards under the 2005 Plan.
Stock Options
The fair value of our standard time-based options was determined as of the date of grant using the Black-Scholes option pricing model with the following assumptions:
|
|
|
Nine months ended |
|||
|
|
|
September 30, |
|||
|
|
|
2016 |
|
2015 |
|
|
Risk-free interest rate |
|
1 |
% |
1 |
% |
|
Expected life of options (in years) |
|
5 |
|
4 |
|
|
Expected volatility |
|
51 |
% |
43 |
% |
|
Expected dividend yield |
|
— |
% |
— |
% |
For the nine months ended September 30, 2016, certain executive and director grants were valued under the Black-Scholes option pricing model that utilized different assumptions from those used for our standard time-based options. For the time-based options granted on February 25, 2016, the assumptions were: (a) risk-free interest rate of 1%; (b) expected term of five years; (c) expected volatility of 49%; and (d) no expected dividend yield. For the time-based options granted on February 13, 2016, the assumptions were: (a) risk-free interest rate of 1%; (b) expected term of six years; (c) expected volatility of 49%; and (d) no expected dividend yield.
The fair value of market-based options granted in connection with the annual grant that occurred during the second quarter of 2016 was determined as of the date of grant using a lattice-based option valuation model with the following assumptions:
|
|
|
Nine months ended |
|||
|
|
|
September 30, |
|||
|
|
|
2016 |
|
2015 |
|
|
Risk-free interest rate |
|
2 |
% |
1 |
% |
|
Measurement period (in years) |
|
10 |
|
4 |
|
|
Expected volatility |
|
68 |
% |
43 |
% |
|
Expected dividend yield |
|
— |
% |
— |
% |
For the market-based options granted during the third quarter of 2016, the assumptions were: (a) risk-free interest rate of 2%; (b) expected term of ten years; (c) expected volatility of 69%; and (d) no expected dividend yield.
The following tables present the options activity:
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Number of |
|
Weighted Average |
|
Average Life |
|
Aggregate |
|
||
|
|
|
Common Shares |
|
Exercise Price |
|
Remaining |
|
Intrinsic Value |
|
||
|
|
|
(in thousands) |
|
(per share) |
|
(years) |
|
(in thousands) |
|
||
|
Outstanding, December 31, 2015 |
|
17,440 |
|
$ |
7.41 |
|
6.6 |
|
$ |
1,212 |
|
|
Granted |
|
4,242 |
|
|
1.65 |
|
|
|
|
|
|
|
Exercised |
|
— |
|
|
— |
|
|
|
|
|
|
|
Canceled or forfeited |
|
(3,367) |
|
|
7.30 |
|
|
|
|
|
|
|
Outstanding, September 30, 2016 |
|
18,315 |
|
$ |
6.09 |
|
6.6 |
|
$ |
3,518 |
|
|
Vested and expected to vest, September 30, 2016 |
|
16,201 |
|
$ |
6.21 |
|
6.5 |
|
$ |
2,770 |
|
|
Exercisable, September 30, 2016 |
|
9,335 |
|
$ |
7.28 |
|
5.0 |
|
$ |
42 |
|
There were 0.2 million and 4.2 million options granted for the three and nine months ended September 30, 2016, respectively. There were 0.4 million and 6.5 million options granted for the three and nine months ended September 30, 2015, respectively. The weighted average grant date fair value per share of the options granted was $0.89 and $0.81 for the three and nine months ended September 30, 2016, respectively. The weighted average grant date fair value per share of the options granted was $2.32 and $2.48 for the three and nine months ended September 30, 2015, respectively. No options were exercised during the three and nine months ended September 30, 2016. The total intrinsic value of options exercised was $30,561 and $0.8 million for the three and nine months ended September 30, 2015, respectively.
There was $13.5 million in unrecognized compensation expense related to options expected to vest as of September 30, 2016. This cost is expected to be recognized on a straight-line basis over a weighted average period of 2.3 years. We recorded $3.8 million in non-cash compensation expense related to options granted that were expected to vest for the nine months ended September 30, 2016. There were no proceeds received from the exercise of options as no exercises occurred during the period.
There was $20.4 million in unrecognized compensation expense related to options expected to vest as of September 30, 2015. This cost was expected to be recognized on a straight-line basis over a weighted average period of 2.8 years. We recorded $5.4 million in non-cash compensation expense related to options granted that were expected to vest as of September 30, 2015. We received $1.8 million in cash from the exercise of options for the nine months ended September 30, 2015.
Restricted Stock
The following is a summary of non-vested share awards for our time-based restricted stock:
|
|
|
|
|
Weighted |
|
|
|
|
|
Shares |
|
Average Grant |
|
|
|
|
|
Outstanding |
|
Date Fair Value |
|
|
|
|
|
(in thousands) |
|
(per share) |
|
|
|
Outstanding, December 31, 2015 |
|
310 |
|
$ |
7.11 |
|
|
Granted |
|
— |
|
|
— |
|
|
Vested |
|
(30) |
|
|
7.09 |
|
|
Forfeited |
|
(155) |
|
|
7.12 |
|
|
Outstanding, September 30, 2016 |
|
125 |
|
$ |
7.12 |
|
There were no shares of restricted stock granted for the three and nine months ended September 30, 2016 and 2015. The total fair value of restricted stock vested was $23,393 and $74,100 for the three and nine months ended September 30, 2016, respectively. The total fair value of restricted stock vested was $0.1 million and $0.2 million for the three and nine months ended September 30, 2015, respectively.
There was $1.3 million in unrecognized compensation expense related to shares of time based restricted stock expected to vest as of September 30, 2016. This cost is expected to be recognized on a straight-line basis over a weighted average period of 1.9 years. There were 30,000 shares of restricted stock that vested and we recorded $0.3 million in non-cash compensation expense related to the restricted stock granted that was expected to vest during the nine months ended September 30, 2016.
There was $2.2 million in unrecognized compensation expense related to shares of time-based restricted shares expected to vest as of September 30, 2015. This cost was expected to be recognized on a straight-line basis over a weighted average period of 2.6 years. There were 32,500 shares of time-based restricted shares vested and we recorded $0.6 million in non-cash compensation expense related to the restricted stock granted that was expected to vest for the nine months ended September 30, 2015.
|
|||
17.INCOME TAXES
The provision for income tax reflected an effective income tax rate benefit of 37.7% and 39.4% for the three and nine months ended September 30, 2016, respectively, which was higher than the statutory federal rate of 35.0% primarily due to state taxes, the lower foreign tax rate applicable to our foreign source income, and the benefit from a research credit, which was partially offset by non-statutory stock options that expired during 2016. The provision for income tax reflected an effective income tax rate expense of 39.3% and 37.0% for the same periods in the prior year, respectively, which was higher than the statutory federal rate of 35.0% primarily due to state taxes and the lower foreign tax rate applicable to our foreign source income, which was partially offset by non-statutory stock options that expired during 2015.
We have analyzed filing positions in all of the federal, state and foreign jurisdictions where we are required to file income tax returns, as well as all open tax years in these jurisdictions. As part of our acquisition of Everi Games Holding in 2014, the Company recorded $0.7 million of unrecognized tax benefits. The Company has not accrued any penalties and interest for its unrecognized tax benefits. Other than the unrecognized tax benefit related to the acquisition of Everi Games Holding, we believe that our income tax filing positions and deductions will be sustained upon audit and we do not anticipate any adjustments that will result in a material change to our financial position. We may from time to time be assessed interest or penalties by tax jurisdictions, although any such assessments historically have been minimal and immaterial to our financial results. Our policy for recording interest and penalties associated with audits and unrecognized tax benefits is to record such items as a component of income tax expense.
|
|||
18.SEGMENT INFORMATION
Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-making group in deciding how to allocate resources and in assessing performance. Our chief operating decision-making group consists of the Chief Executive Officer and the Chief Financial Officer. This group manages the business, allocates resources and measures profitability based on our operating segments. The operating segments are reviewed separately because each represents products that can be sold separately to our customers.
Our chief operating decision-making group has determined the following to be the operating segments for which we conduct business: (a) Games and (b) Payments. We have reported our financial performance based on our segments in both the current and prior periods. Each of these segments is monitored by our management for performance against its internal forecast and is consistent with our internal management reporting.
|
· |
The Games segment provides solutions directly to gaming establishments to offer their patrons gaming entertainment related experiences including: leased gaming equipment; sales and maintenance related services of gaming equipment; gaming systems; and ancillary products and services. |
|
· |
The Payments segment provides solutions directly to gaming establishments to offer their patrons cash access related services and products, including: access to cash at gaming facilities via ATM cash withdrawals, credit card cash access transactions and point of sale debit card transactions; check-related services; fully integrated kiosks and maintenance services; compliance, audit and data software; casino credit data and reporting services and other ancillary offerings. |
Corporate overhead expenses have been allocated to the segments either through specific identification or based on a reasonable methodology. In addition, we allocate depreciation and amortization expenses to the business segments.
Our business is predominantly domestic, with no specific regional concentrations and no significant assets in foreign locations.
The accounting policies of the operating segments are generally the same as those described in the summary of significant accounting policies.
The following tables present segment information (in thousands):
|
|
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
||||||||
|
|
|
2016 |
|
2015 |
|
|
2016 |
|
2015 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games |
|
$ |
56,218 |
|
$ |
53,983 |
|
|
$ |
158,660 |
|
$ |
163,896 |
|
Payments |
|
|
165,959 |
|
|
154,763 |
|
|
|
483,286 |
|
|
458,687 |
|
Total revenues |
|
$ |
222,177 |
|
$ |
208,746 |
|
|
$ |
641,946 |
|
$ |
622,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games |
|
$ |
(4,183) |
|
$ |
2,368 |
|
|
$ |
(14,638) |
|
$ |
7,180 |
|
Payments |
|
|
15,755 |
|
|
12,348 |
|
|
|
36,054 |
|
|
52,012 |
|
Total operating income |
|
$ |
11,572 |
|
$ |
14,716 |
|
|
$ |
21,416 |
|
$ |
59,192 |
|
|
|
At September 30, 2016 |
|
At December 31, 2015 |
||
|
Total assets |
|
|
|
|
|
|
|
Games |
|
$ |
1,056,064 |
|
$ |
1,086,147 |
|
Payments |
|
|
400,149 |
|
|
464,238 |
|
Total assets |
|
$ |
1,456,213 |
|
$ |
1,550,385 |
Major Customers. For the three and nine months ended September 30, 2016 and 2015, no single customer accounted for more than 10% of our revenues. Our five largest customers accounted for approximately 30% and 31% for the three and nine months ended September 30, 2016, respectively, and 29% and 30% for the three and nine months ended September 30, 2015, respectively.
|
|||
19.CONDENSED CONSOLIDATING FINANCIAL INFORMATION
We conduct substantially all of our business through our U.S. and foreign subsidiaries. Everi Payments’ (“Subsidiary Issuer”) obligations under the Unsecured Notes are fully and unconditionally guaranteed, subject to certain customary release provisions, on a joint and several basis by Holdings (“Parent”) and substantially all of our 100%-owned U.S. subsidiaries other than Subsidiary Issuer (the “Guarantor Subsidiaries” and, together with Parent, the “Guarantors” and each a “Guarantor”). The guarantees of our Unsecured Notes will be released under the following customary circumstances: (i) the sale or disposition of all or substantially all of the assets of the Guarantor (by way of merger, consolidation, or otherwise) to a person that is not (either before or after giving effect to such transaction) Parent, Subsidiary Issuer or a restricted subsidiary; (ii) the sale or disposition of sufficient capital stock of the Guarantor to a person that is not (either before or after giving effect to such transaction) Parent, Subsidiary Issuer or a restricted subsidiary and the Guarantor ceases to be a restricted subsidiary of Subsidiary Issuer as a result of the sale or other disposition; (iii) the designation of the Guarantor as an unrestricted subsidiary in accordance with the indenture governing the Unsecured Notes; or (iv) the legal or covenant defeasance of the Unsecured Notes or the satisfaction and discharge of the indenture governing the Unsecured Notes.
Presented below is condensed consolidating financial information for (a) Parent, (b) Subsidiary Issuer, (c) the Guarantor Subsidiaries and (d) our U.S. subsidiaries that are not Guarantor Subsidiaries and our foreign subsidiaries (collectively, the “Non-Guarantor Subsidiaries”) as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015. The condensed consolidating financial information has been presented to show the nature of assets held and the results of operations and cash flows of Parent, Subsidiary Issuer, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries assuming that the guarantee structure of the Unsecured Notes had been in effect at the beginning of the periods presented.
|
|
Three Months Ended September 30, 2016 |
||||||||||||||||
|
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games |
$ |
— |
|
$ |
— |
|
$ |
56,218 |
|
$ |
— |
|
$ |
— |
|
$ |
56,218 |
|
Payments |
|
— |
|
|
153,145 |
|
|
7,519 |
|
|
5,417 |
|
|
(122) |
|
|
165,959 |
|
Total revenues |
|
— |
|
|
153,145 |
|
|
63,737 |
|
|
5,417 |
|
|
(122) |
|
|
222,177 |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games cost of revenue (exclusive of depreciation and amortization) |
|
— |
|
|
— |
|
|
15,467 |
|
|
— |
|
|
— |
|
|
15,467 |
|
Payments cost of revenue (exclusive of depreciation and amortization) |
|
— |
|
|
122,316 |
|
|
2,206 |
|
|
2,689 |
|
|
— |
|
|
127,211 |
|
Operating expenses |
|
— |
|
|
16,491 |
|
|
10,148 |
|
|
479 |
|
|
(122) |
|
|
26,996 |
|
Research and development |
|
— |
|
|
— |
|
|
4,460 |
|
|
— |
|
|
— |
|
|
4,460 |
|
Depreciation |
|
— |
|
|
1,892 |
|
|
10,447 |
|
|
28 |
|
|
— |
|
|
12,367 |
|
Amortization |
|
— |
|
|
3,128 |
|
|
20,439 |
|
|
537 |
|
|
— |
|
|
24,104 |
|
Total costs and expenses |
|
— |
|
|
143,827 |
|
|
63,167 |
|
|
3,733 |
|
|
(122) |
|
|
210,605 |
|
Operating income |
|
— |
|
|
9,318 |
|
|
570 |
|
|
1,684 |
|
|
— |
|
|
11,572 |
|
Other expenses (income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income |
|
— |
|
|
1,371 |
|
|
23,399 |
|
|
45 |
|
|
— |
|
|
24,815 |
|
Equity in loss (income) of subsidiaries |
|
8,254 |
|
|
(4,306) |
|
|
— |
|
|
— |
|
|
(3,948) |
|
|
— |
|
Total other expenses (income) |
|
8,254 |
|
|
(2,935) |
|
|
23,399 |
|
|
45 |
|
|
(3,948) |
|
|
24,815 |
|
(Loss) income before income tax |
|
(8,254) |
|
|
12,253 |
|
|
(22,829) |
|
|
1,639 |
|
|
3,948 |
|
|
(13,243) |
|
Income tax provision (benefit) |
|
— |
|
|
3,849 |
|
|
(9,261) |
|
|
423 |
|
|
— |
|
|
(4,989) |
|
Net (loss) income |
|
(8,254) |
|
|
8,404 |
|
|
(13,568) |
|
|
1,216 |
|
|
3,948 |
|
|
(8,254) |
|
Foreign currency translation |
|
(394) |
|
|
— |
|
|
— |
|
|
(394) |
|
|
394 |
|
|
(394) |
|
Comprehensive (loss) income |
$ |
(8,648) |
|
$ |
8,404 |
|
$ |
(13,568) |
|
$ |
822 |
|
$ |
4,342 |
|
$ |
(8,648) |
|
|
Three Months Ended September 30, 2015 |
||||||||||||||||
|
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games |
$ |
— |
|
$ |
— |
|
$ |
53,983 |
|
$ |
— |
|
$ |
— |
|
$ |
53,983 |
|
Payments |
|
— |
|
|
143,031 |
|
|
7,127 |
|
|
4,767 |
|
|
(162) |
|
|
154,763 |
|
Total revenues |
|
— |
|
|
143,031 |
|
|
61,110 |
|
|
4,767 |
|
|
(162) |
|
|
208,746 |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games cost of revenue (exclusive of depreciation and amortization) |
|
— |
|
|
— |
|
|
12,421 |
|
|
— |
|
|
— |
|
|
12,421 |
|
Payments cost of revenue (exclusive of depreciation and amortization) |
|
— |
|
|
112,344 |
|
|
2,549 |
|
|
2,503 |
|
|
— |
|
|
117,396 |
|
Operating expenses |
|
— |
|
|
19,085 |
|
|
6,932 |
|
|
440 |
|
|
(162) |
|
|
26,295 |
|
Research and development |
|
— |
|
|
— |
|
|
5,463 |
|
|
— |
|
|
— |
|
|
5,463 |
|
Depreciation |
|
— |
|
|
1,881 |
|
|
9,018 |
|
|
44 |
|
|
— |
|
|
10,943 |
|
Amortization |
|
— |
|
|
2,448 |
|
|
18,487 |
|
|
577 |
|
|
— |
|
|
21,512 |
|
Total costs and expenses |
|
— |
|
|
135,758 |
|
|
54,870 |
|
|
3,564 |
|
|
(162) |
|
|
194,030 |
|
Operating income |
|
— |
|
|
7,273 |
|
|
6,240 |
|
|
1,203 |
|
|
— |
|
|
14,716 |
|
Other expense (income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income |
|
— |
|
|
1,365 |
|
|
23,266 |
|
|
65 |
|
|
— |
|
|
24,696 |
|
Equity in loss (income) of subsidiaries |
|
6,110 |
|
|
(3,365) |
|
|
— |
|
|
— |
|
|
(2,745) |
|
|
— |
|
Loss on extinguishment of debt |
|
— |
|
|
87 |
|
|
— |
|
|
— |
|
|
— |
|
|
87 |
|
Total other expense (income) |
|
6,110 |
|
|
(1,913) |
|
|
23,266 |
|
|
65 |
|
|
(2,745) |
|
|
24,783 |
|
(Loss) income before income tax |
|
(6,110) |
|
|
9,186 |
|
|
(17,026) |
|
|
1,138 |
|
|
2,745 |
|
|
(10,067) |
|
Income tax provision (benefit) |
|
— |
|
|
2,356 |
|
|
(6,606) |
|
|
293 |
|
|
— |
|
|
(3,957) |
|
Net (loss) income |
|
(6,110) |
|
|
6,830 |
|
|
(10,420) |
|
|
845 |
|
|
2,745 |
|
|
(6,110) |
|
Foreign currency translation |
|
(788) |
|
|
— |
|
|
— |
|
|
(788) |
|
|
788 |
|
|
(788) |
|
Comprehensive (loss) income |
$ |
(6,898) |
|
$ |
6,830 |
|
$ |
(10,420) |
|
$ |
57 |
|
$ |
3,533 |
|
$ |
(6,898) |
|
|
Nine Months Ended September 30, 2016 |
||||||||||||||||
|
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games |
$ |
— |
|
$ |
— |
|
$ |
158,660 |
|
$ |
— |
|
$ |
— |
|
$ |
158,660 |
|
Payments |
|
— |
|
|
447,762 |
|
|
22,622 |
|
|
13,769 |
|
|
(867) |
|
|
483,286 |
|
Total revenues |
|
— |
|
|
447,762 |
|
|
181,282 |
|
|
13,769 |
|
|
(867) |
|
|
641,946 |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games cost of revenue (exclusive of depreciation and amortization) |
|
— |
|
|
— |
|
|
36,871 |
|
|
— |
|
|
— |
|
|
36,871 |
|
Payments cost of revenue (exclusive of depreciation and amortization) |
|
— |
|
|
359,265 |
|
|
6,754 |
|
|
7,347 |
|
|
— |
|
|
373,366 |
|
Operating expenses |
|
— |
|
|
53,912 |
|
|
33,230 |
|
|
1,460 |
|
|
(867) |
|
|
87,735 |
|
Research and development |
|
— |
|
|
— |
|
|
14,499 |
|
|
— |
|
|
— |
|
|
14,499 |
|
Depreciation |
|
— |
|
|
6,376 |
|
|
30,707 |
|
|
89 |
|
|
— |
|
|
37,172 |
|
Amortization |
|
— |
|
|
9,370 |
|
|
59,830 |
|
|
1,687 |
|
|
— |
|
|
70,887 |
|
Total costs and expenses |
|
— |
|
|
428,923 |
|
|
181,891 |
|
|
10,583 |
|
|
(867) |
|
|
620,530 |
|
Operating income (loss) |
|
— |
|
|
18,839 |
|
|
(609) |
|
|
3,186 |
|
|
— |
|
|
21,416 |
|
Other expense (income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income |
|
— |
|
|
4,880 |
|
|
69,500 |
|
|
168 |
|
|
— |
|
|
74,548 |
|
Equity in loss (income) of subsidiaries |
|
32,202 |
|
|
(11,120) |
|
|
— |
|
|
— |
|
|
(21,082) |
|
|
— |
|
Total other expense (income) |
|
32,202 |
|
|
(6,240) |
|
|
69,500 |
|
|
168 |
|
|
(21,082) |
|
|
74,548 |
|
(Loss) income before income tax |
|
(32,202) |
|
|
25,079 |
|
|
(70,109) |
|
|
3,018 |
|
|
21,082 |
|
|
(53,132) |
|
Income tax provision (benefit) |
|
— |
|
|
5,785 |
|
|
(27,642) |
|
|
927 |
|
|
— |
|
|
(20,930) |
|
Net (loss) income |
|
(32,202) |
|
|
19,294 |
|
|
(42,467) |
|
|
2,091 |
|
|
21,082 |
|
|
(32,202) |
|
Foreign currency translation |
|
(1,314) |
|
|
— |
|
|
— |
|
|
(1,314) |
|
|
1,314 |
|
|
(1,314) |
|
Comprehensive (loss) income |
$ |
(33,516) |
|
$ |
19,294 |
|
$ |
(42,467) |
|
$ |
777 |
|
$ |
22,396 |
|
$ |
(33,516) |
|
|
Nine Months Ended September 30, 2015 |
||||||||||||||||
|
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games |
$ |
— |
|
$ |
— |
|
$ |
163,896 |
|
$ |
— |
|
$ |
— |
|
$ |
163,896 |
|
Payments |
|
— |
|
|
424,259 |
|
|
22,023 |
|
|
12,853 |
|
|
(448) |
|
|
458,687 |
|
Total revenues |
|
— |
|
|
424,259 |
|
|
185,919 |
|
|
12,853 |
|
|
(448) |
|
|
622,583 |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games cost of revenue (exclusive of depreciation and amortization) |
|
— |
|
|
— |
|
|
36,745 |
|
|
— |
|
|
— |
|
|
36,745 |
|
Payments cost of revenue (exclusive of depreciation and amortization) |
|
— |
|
|
333,592 |
|
|
6,971 |
|
|
6,754 |
|
|
— |
|
|
347,317 |
|
Operating expenses |
|
— |
|
|
42,084 |
|
|
26,027 |
|
|
1,319 |
|
|
(448) |
|
|
68,982 |
|
Research and development |
|
— |
|
|
— |
|
|
15,369 |
|
|
— |
|
|
— |
|
|
15,369 |
|
Depreciation |
|
— |
|
|
5,442 |
|
|
26,440 |
|
|
155 |
|
|
— |
|
|
32,037 |
|
Amortization |
|
— |
|
|
6,858 |
|
|
54,222 |
|
|
1,861 |
|
|
— |
|
|
62,941 |
|
Total costs and expenses |
|
— |
|
|
387,976 |
|
|
165,774 |
|
|
10,089 |
|
|
(448) |
|
|
563,391 |
|
Operating income |
|
— |
|
|
36,283 |
|
|
20,145 |
|
|
2,764 |
|
|
— |
|
|
59,192 |
|
Other expense (income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income |
|
— |
|
|
5,977 |
|
|
69,089 |
|
|
243 |
|
|
— |
|
|
75,309 |
|
Equity in loss (income) of subsidiaries |
|
18,382 |
|
|
(10,077) |
|
|
— |
|
|
— |
|
|
(8,305) |
|
|
— |
|
Loss on extinguishment of debt |
|
— |
|
|
13,063 |
|
|
— |
|
|
— |
|
|
— |
|
|
13,063 |
|
Total other expense (income) |
|
18,382 |
|
|
8,963 |
|
|
69,089 |
|
|
243 |
|
|
(8,305) |
|
|
88,372 |
|
(Loss) income before income tax |
|
(18,382) |
|
|
27,320 |
|
|
(48,944) |
|
|
2,521 |
|
|
8,305 |
|
|
(29,180) |
|
Income tax provision (benefit) |
|
— |
|
|
7,378 |
|
|
(19,050) |
|
|
874 |
|
|
— |
|
|
(10,798) |
|
Net (loss) income |
|
(18,382) |
|
|
19,942 |
|
|
(29,894) |
|
|
1,647 |
|
|
8,305 |
|
|
(18,382) |
|
Foreign currency translation |
|
(850) |
|
|
— |
|
|
— |
|
|
(850) |
|
|
850 |
|
|
(850) |
|
Comprehensive (loss) income |
$ |
(19,232) |
|
$ |
19,942 |
|
$ |
(29,894) |
|
$ |
797 |
|
$ |
9,155 |
|
$ |
(19,232) |
|
|
At September 30, 2016 |
||||||||||||||||
|
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
— |
|
$ |
62,494 |
|
$ |
10,964 |
|
$ |
17,030 |
|
$ |
— |
|
$ |
90,488 |
|
Settlement receivables |
|
— |
|
|
31,120 |
|
|
— |
|
|
4,599 |
|
|
— |
|
|
35,719 |
|
Trade receivables, net |
|
— |
|
|
4,787 |
|
|
43,606 |
|
|
— |
|
|
— |
|
|
48,393 |
|
Other receivables |
|
— |
|
|
3,679 |
|
|
657 |
|
|
133 |
|
|
— |
|
|
4,469 |
|
Inventory |
|
— |
|
|
7,216 |
|
|
13,561 |
|
|
— |
|
|
— |
|
|
20,777 |
|
Prepaid expenses and other assets |
|
— |
|
|
6,360 |
|
|
3,566 |
|
|
8,836 |
|
|
— |
|
|
18,762 |
|
Intercompany balances |
|
— |
|
|
99,613 |
|
|
183,185 |
|
|
1,879 |
|
|
(284,677) |
|
|
— |
|
Total current assets |
|
— |
|
|
215,269 |
|
|
255,539 |
|
|
32,477 |
|
|
(284,677) |
|
|
218,608 |
|
Non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, equipment and leasehold improvements, net |
|
— |
|
|
16,891 |
|
|
85,365 |
|
|
251 |
|
|
— |
|
|
102,507 |
|
Goodwill |
|
— |
|
|
151,417 |
|
|
634,811 |
|
|
631 |
|
|
— |
|
|
786,859 |
|
Other intangible assets, net |
|
— |
|
|
26,306 |
|
|
306,262 |
|
|
5,230 |
|
|
— |
|
|
337,798 |
|
Other receivables |
|
— |
|
|
1,784 |
|
|
9 |
|
|
— |
|
|
— |
|
|
1,793 |
|
Investment in subsidiaries |
|
107,833 |
|
|
168,980 |
|
|
— |
|
|
86 |
|
|
(276,899) |
|
|
— |
|
Deferred tax asset |
|
— |
|
|
55,030 |
|
|
— |
|
|
— |
|
|
(55,030) |
|
|
— |
|
Other assets |
|
— |
|
|
5,707 |
|
|
2,609 |
|
|
332 |
|
|
— |
|
|
8,648 |
|
Intercompany balances |
|
— |
|
|
1,141,413 |
|
|
— |
|
|
— |
|
|
(1,141,413) |
|
|
— |
|
Total non-current assets |
|
107,833 |
|
|
1,567,528 |
|
|
1,029,056 |
|
|
6,530 |
|
|
(1,473,342) |
|
|
1,237,605 |
|
Total assets |
$ |
107,833 |
|
$ |
1,782,797 |
|
$ |
1,284,595 |
|
$ |
39,007 |
|
$ |
(1,758,019) |
|
$ |
1,456,213 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement liabilities |
$ |
— |
|
$ |
108,253 |
|
$ |
169 |
|
$ |
9,512 |
|
$ |
— |
|
$ |
117,934 |
|
Accounts payable and accrued expenses |
|
— |
|
|
73,011 |
|
|
24,165 |
|
|
1,643 |
|
|
— |
|
|
98,819 |
|
Current portion of long-term debt |
|
— |
|
|
10,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
10,000 |
|
Intercompany balances |
|
— |
|
|
184,872 |
|
|
93,646 |
|
|
6,159 |
|
|
(284,677) |
|
|
— |
|
Total current liabilities |
|
— |
|
|
376,136 |
|
|
117,980 |
|
|
17,314 |
|
|
(284,677) |
|
|
226,753 |
|
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability |
|
— |
|
|
— |
|
|
60,415 |
|
|
— |
|
|
(55,030) |
|
|
5,385 |
|
Long-term debt, less current portion |
|
— |
|
|
1,112,765 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,112,765 |
|
Other accrued expenses and liabilities |
|
— |
|
|
2,926 |
|
|
351 |
|
|
— |
|
|
— |
|
|
3,277 |
|
Intercompany balances |
|
— |
|
|
— |
|
|
1,141,413 |
|
|
— |
|
|
(1,141,413) |
|
|
— |
|
Total non-current liabilities |
|
— |
|
|
1,115,691 |
|
|
1,202,179 |
|
|
— |
|
|
(1,196,443) |
|
|
1,121,427 |
|
Total liabilities |
|
— |
|
|
1,491,827 |
|
|
1,320,159 |
|
|
17,314 |
|
|
(1,481,120) |
|
|
1,348,180 |
|
Stockholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
91 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
91 |
|
Convertible preferred stock |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Additional paid-in capital |
|
262,166 |
|
|
83,343 |
|
|
4,906 |
|
|
21,101 |
|
|
(109,350) |
|
|
262,166 |
|
Retained earnings |
|
22,978 |
|
|
208,823 |
|
|
(40,670) |
|
|
3,271 |
|
|
(171,424) |
|
|
22,978 |
|
Accumulated other comprehensive (loss) income |
|
(1,196) |
|
|
(1,196) |
|
|
200 |
|
|
(2,679) |
|
|
3,875 |
|
|
(996) |
|
Treasury stock, at cost |
|
(176,206) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(176,206) |
|
Total stockholders’ equity |
|
107,833 |
|
|
290,970 |
|
|
(35,564) |
|
|
21,693 |
|
|
(276,899) |
|
|
108,033 |
|
Total liabilities and stockholders’ equity |
$ |
107,833 |
|
$ |
1,782,797 |
|
$ |
1,284,595 |
|
$ |
39,007 |
|
$ |
(1,758,019) |
|
$ |
1,456,213 |
|
|
At December 31, 2015 |
||||||||||||||||
|
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
6 |
|
$ |
87,078 |
|
$ |
3,900 |
|
$ |
11,046 |
|
$ |
— |
|
$ |
102,030 |
|
Settlement receivables |
|
— |
|
|
42,437 |
|
|
— |
|
|
2,496 |
|
|
— |
|
|
44,933 |
|
Trade receivables, net |
|
— |
|
|
10,750 |
|
|
41,634 |
|
|
(2) |
|
|
— |
|
|
52,382 |
|
Other receivables |
|
— |
|
|
4,063 |
|
|
833 |
|
|
32 |
|
|
— |
|
|
4,928 |
|
Inventory |
|
— |
|
|
12,772 |
|
|
15,966 |
|
|
— |
|
|
— |
|
|
28,738 |
|
Prepaid expenses and other assets |
|
— |
|
|
6,464 |
|
|
5,160 |
|
|
9,148 |
|
|
— |
|
|
20,772 |
|
Intercompany balances |
|
— |
|
|
39,810 |
|
|
168,659 |
|
|
1,431 |
|
|
(209,900) |
|
|
— |
|
Total current assets |
|
6 |
|
|
203,374 |
|
|
236,152 |
|
|
24,151 |
|
|
(209,900) |
|
|
253,783 |
|
Non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, equipment and leasehold improvements, net |
|
— |
|
|
26,472 |
|
|
79,514 |
|
|
322 |
|
|
— |
|
|
106,308 |
|
Goodwill |
|
— |
|
|
154,395 |
|
|
634,811 |
|
|
597 |
|
|
— |
|
|
789,803 |
|
Other intangible assets, net |
|
— |
|
|
32,000 |
|
|
343,629 |
|
|
6,833 |
|
|
— |
|
|
382,462 |
|
Other receivables |
|
— |
|
|
3,256 |
|
|
3,399 |
|
|
— |
|
|
— |
|
|
6,655 |
|
Investment in subsidiaries |
|
137,414 |
|
|
159,735 |
|
|
— |
|
|
86 |
|
|
(297,235) |
|
|
— |
|
Deferred tax asset |
|
— |
|
|
65,577 |
|
|
— |
|
|
— |
|
|
(65,577) |
|
|
— |
|
Other assets |
|
— |
|
|
7,256 |
|
|
3,667 |
|
|
451 |
|
|
— |
|
|
11,374 |
|
Intercompany balances |
|
— |
|
|
1,136,505 |
|
|
— |
|
|
— |
|
|
(1,136,505) |
|
|
— |
|
Total non-current assets |
|
137,414 |
|
|
1,585,196 |
|
|
1,065,020 |
|
|
8,289 |
|
|
(1,499,317) |
|
|
1,296,602 |
|
Total assets |
$ |
137,420 |
|
$ |
1,788,570 |
|
$ |
1,301,172 |
|
$ |
32,440 |
|
$ |
(1,709,217) |
|
$ |
1,550,385 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement liabilities |
$ |
— |
|
$ |
136,109 |
|
$ |
162 |
|
$ |
3,548 |
|
$ |
— |
|
$ |
139,819 |
|
Accounts payable and accrued expenses |
|
— |
|
|
67,736 |
|
|
32,593 |
|
|
1,183 |
|
|
— |
|
|
101,512 |
|
Current portion of long-term debt |
|
— |
|
|
10,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
10,000 |
|
Intercompany balances |
|
— |
|
|
170,091 |
|
|
32,732 |
|
|
7,077 |
|
|
(209,900) |
|
|
— |
|
Total current liabilities |
|
— |
|
|
383,936 |
|
|
65,487 |
|
|
11,808 |
|
|
(209,900) |
|
|
251,331 |
|
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability |
|
— |
|
|
— |
|
|
93,221 |
|
|
— |
|
|
(65,577) |
|
|
27,644 |
|
Long-term debt, less current portion |
|
— |
|
|
1,129,899 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,129,899 |
|
Other accrued expenses and liabilities |
|
— |
|
|
3,624 |
|
|
467 |
|
|
— |
|
|
— |
|
|
4,091 |
|
Intercompany balances |
|
— |
|
|
— |
|
|
1,136,505 |
|
|
— |
|
|
(1,136,505) |
|
|
— |
|
Total non-current liabilities |
|
— |
|
|
1,133,523 |
|
|
1,230,193 |
|
|
— |
|
|
(1,202,082) |
|
|
1,161,634 |
|
Total liabilities |
|
— |
|
|
1,517,459 |
|
|
1,295,680 |
|
|
11,808 |
|
|
(1,411,982) |
|
|
1,412,965 |
|
Stockholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
91 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
91 |
|
Convertible preferred stock |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Additional paid-in capital |
|
258,020 |
|
|
80,443 |
|
|
3,670 |
|
|
21,101 |
|
|
(105,214) |
|
|
258,020 |
|
Retained earnings |
|
55,180 |
|
|
190,375 |
|
|
1,797 |
|
|
1,180 |
|
|
(193,352) |
|
|
55,180 |
|
Accumulated other comprehensive income (loss) |
|
318 |
|
|
293 |
|
|
25 |
|
|
(1,649) |
|
|
1,331 |
|
|
318 |
|
Treasury stock, at cost |
|
(176,189) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(176,189) |
|
Total stockholders’ equity |
|
137,420 |
|
|
271,111 |
|
|
5,492 |
|
|
20,632 |
|
|
(297,235) |
|
|
137,420 |
|
Total liabilities and stockholders’ equity |
$ |
137,420 |
|
$ |
1,788,570 |
|
$ |
1,301,172 |
|
$ |
32,440 |
|
$ |
(1,709,217) |
|
$ |
1,550,385 |
|
|
Nine Months Ended September 30, 2016 |
||||||||||||||||
|
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
$ |
(32,202) |
|
$ |
19,294 |
|
$ |
(42,467) |
|
$ |
2,091 |
|
$ |
21,082 |
|
$ |
(32,202) |
|
Adjustments to reconcile net (loss) income to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
— |
|
|
15,746 |
|
|
90,537 |
|
|
1,776 |
|
|
— |
|
|
108,059 |
|
Amortization of financing costs |
|
— |
|
|
5,023 |
|
|
— |
|
|
— |
|
|
— |
|
|
5,023 |
|
Loss on sale or disposal of assets |
|
— |
|
|
1,349 |
|
|
1,205 |
|
|
— |
|
|
— |
|
|
2,554 |
|
Accretion of contract rights |
|
— |
|
|
— |
|
|
6,521 |
|
|
— |
|
|
— |
|
|
6,521 |
|
Provision for bad debts |
|
— |
|
|
18 |
|
|
7,174 |
|
|
— |
|
|
— |
|
|
7,192 |
|
Write-down of assets |
|
— |
|
|
— |
|
|
4,289 |
|
|
— |
|
|
— |
|
|
4,289 |
|
Reserve for obsolescence |
|
— |
|
|
484 |
|
|
458 |
|
|
— |
|
|
— |
|
|
942 |
|
Equity loss (income) |
|
32,202 |
|
|
(11,120) |
|
|
— |
|
|
— |
|
|
(21,082) |
|
|
— |
|
Stock-based compensation |
|
— |
|
|
2,910 |
|
|
1,236 |
|
|
— |
|
|
— |
|
|
4,146 |
|
Other non-cash items |
|
— |
|
|
— |
|
|
(38) |
|
|
— |
|
|
— |
|
|
(38) |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net settlement receivables and liabilities |
|
— |
|
|
(16,538) |
|
|
6 |
|
|
3,690 |
|
|
— |
|
|
(12,842) |
|
Other changes in operating assets and liabilities |
|
1 |
|
|
(16,609) |
|
|
8,777 |
|
|
(5) |
|
|
— |
|
|
(7,836) |
|
Net cash provided by operating activities |
|
1 |
|
|
557 |
|
|
77,698 |
|
|
7,552 |
|
|
— |
|
|
85,808 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
— |
|
|
(7,330) |
|
|
(59,622) |
|
|
(73) |
|
|
— |
|
|
(67,025) |
|
Acquisitions, net of cash acquired |
|
— |
|
|
(694) |
|
|
— |
|
|
— |
|
|
— |
|
|
(694) |
|
Proceeds from sale of fixed assets |
|
— |
|
|
4,608 |
|
|
— |
|
|
— |
|
|
— |
|
|
4,608 |
|
Advances under development and placement agreements |
|
— |
|
|
— |
|
|
(11,187) |
|
|
— |
|
|
— |
|
|
(11,187) |
|
Changes in restricted cash and cash equivalents |
|
— |
|
|
88 |
|
|
— |
|
|
— |
|
|
— |
|
|
88 |
|
Intercompany Investing Activities |
|
10 |
|
|
499 |
|
|
175 |
|
|
(67) |
|
|
(617) |
|
|
— |
|
Net cash provided by (used in) investing activities |
|
10 |
|
|
(2,829) |
|
|
(70,634) |
|
|
(140) |
|
|
(617) |
|
|
(74,210) |
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of credit facility |
|
— |
|
|
(21,900) |
|
|
— |
|
|
— |
|
|
— |
|
|
(21,900) |
|
Debt issuance costs |
|
— |
|
|
(480) |
|
|
— |
|
|
— |
|
|
— |
|
|
(480) |
|
Purchase of treasury stock |
|
(17) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(17) |
|
Intercompany financing activities |
|
— |
|
|
68 |
|
|
— |
|
|
(685) |
|
|
617 |
|
|
— |
|
Net cash used in financing activities |
|
(17) |
|
|
(22,312) |
|
|
— |
|
|
(685) |
|
|
617 |
|
|
(22,397) |
|
Effect of exchange rates on cash |
|
— |
|
|
— |
|
|
— |
|
|
(743) |
|
|
— |
|
|
(743) |
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase for the period |
|
(6) |
|
|
(24,584) |
|
|
7,064 |
|
|
5,984 |
|
|
— |
|
|
(11,542) |
|
Balance, beginning of the period |
|
6 |
|
|
87,078 |
|
|
3,900 |
|
|
11,046 |
|
|
— |
|
|
102,030 |
|
Balance, end of the period |
$ |
— |
|
|
62,494 |
|
|
10,964 |
|
|
17,030 |
|
|
— |
|
|
90,488 |
|
|
Nine Months Ended September 30, 2015 |
||||||||||||||||
|
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
$ |
(18,382) |
|
$ |
19,942 |
|
$ |
(29,894) |
|
$ |
1,647 |
|
$ |
8,305 |
|
$ |
(18,382) |
|
Adjustments to reconcile net income to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
— |
|
|
12,300 |
|
|
80,662 |
|
|
2,016 |
|
|
— |
|
|
94,978 |
|
Amortization of financing costs |
|
— |
|
|
5,459 |
|
|
— |
|
|
— |
|
|
— |
|
|
5,459 |
|
Gain on sale or disposal of assets |
|
— |
|
|
(60) |
|
|
(3,352) |
|
|
— |
|
|
— |
|
|
(3,412) |
|
Accretion of contract rights |
|
— |
|
|
— |
|
|
6,006 |
|
|
— |
|
|
— |
|
|
6,006 |
|
Provision for bad debts |
|
— |
|
|
— |
|
|
6,967 |
|
|
— |
|
|
— |
|
|
6,967 |
|
Reserve for obsolescence |
|
— |
|
|
160 |
|
|
341 |
|
|
— |
|
|
— |
|
|
501 |
|
Loss on early extinguishment of debt |
|
— |
|
|
13,063 |
|
|
— |
|
|
— |
|
|
— |
|
|
13,063 |
|
Equity in loss (income) of subsidiaries |
|
18,382 |
|
|
(10,077) |
|
|
— |
|
|
— |
|
|
(8,305) |
|
|
— |
|
Stock-based compensation |
|
— |
|
|
5,144 |
|
|
944 |
|
|
— |
|
|
— |
|
|
6,088 |
|
Other non-cash items |
|
— |
|
|
— |
|
|
127 |
|
|
— |
|
|
— |
|
|
127 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net settlement receivables and liabilities |
|
— |
|
|
7,510 |
|
|
(9) |
|
|
(1,949) |
|
|
— |
|
|
5,552 |
|
Other changes in operating assets and liabilities |
|
(5) |
|
|
8,003 |
|
|
(20,701) |
|
|
(881) |
|
|
— |
|
|
(13,584) |
|
Net cash (used in) provided by operating activities |
|
(5) |
|
|
61,444 |
|
|
41,091 |
|
|
833 |
|
|
— |
|
|
103,363 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
— |
|
|
(13,688) |
|
|
(35,512) |
|
|
(334) |
|
|
— |
|
|
(49,534) |
|
Acquisitions, net of cash acquired |
|
— |
|
|
(10,857) |
|
|
— |
|
|
— |
|
|
— |
|
|
(10,857) |
|
Proceeds from sale of fixed assets |
|
— |
|
|
103 |
|
|
2,000 |
|
|
— |
|
|
— |
|
|
2,103 |
|
Advances under development and placement agreements |
|
— |
|
|
— |
|
|
(2,813) |
|
|
— |
|
|
— |
|
|
(2,813) |
|
Repayments under development agreements |
|
— |
|
|
— |
|
|
3,104 |
|
|
— |
|
|
— |
|
|
3,104 |
|
Changes in restricted cash and cash equivalents |
|
— |
|
|
(66) |
|
|
— |
|
|
— |
|
|
— |
|
|
(66) |
|
Intercompany investing activities |
|
(4,020) |
|
|
6,600 |
|
|
— |
|
|
(58) |
|
|
(2,522) |
|
|
— |
|
Net cash used in investing activities |
|
(4,020) |
|
|
(17,908) |
|
|
(33,221) |
|
|
(392) |
|
|
(2,522) |
|
|
(58,063) |
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of credit facility |
|
— |
|
|
(7,500) |
|
|
— |
|
|
— |
|
|
— |
|
|
(7,500) |
|
Repayments of secured notes |
|
— |
|
|
(350,000) |
|
|
— |
|
|
— |
|
|
— |
|
|
(350,000) |
|
Proceeds from issuance of secured notes |
|
— |
|
|
335,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
335,000 |
|
Debt issuance costs |
|
— |
|
|
(1,146) |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,146) |
|
Issuance of warrant |
|
2,246 |
|
|
(2,246) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Proceeds from exercise of stock options |
|
1,833 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,833 |
|
Purchase of treasury stock |
|
(54) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(54) |
|
Intercompany financing activities |
|
— |
|
|
25 |
|
|
— |
|
|
(2,547) |
|
|
2,522 |
|
|
— |
|
Net cash provided by (used in) financing activities |
|
4,025 |
|
|
(25,867) |
|
|
— |
|
|
(2,547) |
|
|
2,522 |
|
|
(21,867) |
|
Effect of exchange rates on cash |
|
— |
|
|
— |
|
|
— |
|
|
(1,055) |
|
|
— |
|
|
(1,055) |
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) for the period |
|
— |
|
|
17,669 |
|
|
7,870 |
|
|
(3,161) |
|
|
— |
|
|
22,378 |
|
Balance, beginning of the period |
|
— |
|
|
68,143 |
|
|
6,489 |
|
|
14,463 |
|
|
— |
|
|
89,095 |
|
Balance, end of the period |
$ |
— |
|
$ |
85,812 |
|
$ |
14,359 |
|
$ |
11,302 |
|
$ |
— |
|
$ |
111,473 |
|
|||
20.SUBSEQUENT EVENTS
As of the date of filing, we had not identified, and were not aware of, any subsequent events for the current period.
|
|||
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 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 presentation of results for the interim periods have been made. The results for the three and nine months ended September 30, 2016 are not necessarily indicative of results to be expected for the full fiscal year. The condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
There have been no changes to our basis of presentation and significant accounting policies since the most recent filing of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
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, settlement receivables, trade receivables, other receivables, settlement liabilities, accounts payable and accrued expenses approximates fair value due to the short-term maturities of these instruments. The fair value of our borrowings are 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.
|
|
|
Level of |
|
|
|
|
Outstanding |
|
|
|
September 30, 2016 |
|
Hierarchy |
|
Fair Value |
|
Balance |
|
||
|
Term loan |
|
1 |
|
$ |
450,546 |
|
$ |
468,100 |
|
|
Senior secured notes |
|
3 |
|
$ |
322,438 |
|
$ |
335,000 |
|
|
Senior unsecured notes |
|
1 |
|
$ |
336,438 |
|
$ |
350,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015 |
|
|
|
|
|
|
|
|
|
|
Term loan |
|
1 |
|
$ |
445,900 |
|
$ |
490,000 |
|
|
Senior secured notes |
|
3 |
|
$ |
314,900 |
|
$ |
335,000 |
|
|
Senior unsecured notes |
|
1 |
|
$ |
297,500 |
|
$ |
350,000 |
|
The senior secured notes were fair valued using a Level 3 input as there was no market activity or observable inputs as of September 30, 2016 and December 31, 2015. During the current period, the fair value of the senior secured notes was derived using the same rate as the term loan given that both were treated similarly. During the prior period, the fair value of the senior secured notes was derived using a Level 3 input by evaluating the trading activities of similar debt instruments.
Reclassification of Prior Year Balances
Reclassifications were made to the prior-period financial statements to conform to the current period presentation.
Recent Accounting Guidance
Recently Adopted Accounting Guidance
In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, which provides guidance to simplify the presentation of debt issuance costs. These amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The pronouncement is effective for annual periods beginning after December 15, 2015, and interim periods within those fiscal years, and early adoption is permitted for financial statements that have not been previously issued. This guidance was further clarified in ASU No. 2015-15, which addressed the treatment of debt issuance costs related to line-of credit arrangements. It noted that as ASU No. 2015-03 did not provide guidance on debt issuance costs related to line-of credit arrangements, the SEC would not object to an entity deferring and presenting these specific debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. We adopted the guidance in ASU Nos. 2015-03 and 2015-15 retrospectively to reclassify all debt issuance costs not associated with line-of-credit arrangements from the non-current portion of other assets to contra-liabilities and presented them as reductions to the face amount of each respective long-term debt instrument on our Condensed Consolidated Balance Sheets and related notes during the current period.
In January 2015, the FASB issued ASU No. 2015-01, which eliminates the requirement that an entity separately classify, present and disclose extraordinary events and transactions. The pronouncement is effective for annual periods ending after December 15, 2015. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. We adopted this guidance during the current period. There was no impact on our Condensed Consolidated Financial Statements, as we do not have any extraordinary items.
In June 2014, the FASB issued ASU No. 2014-12, which requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. The standard is effective for annual reporting periods beginning after December 15, 2015, with early adoption permitted. We adopted this guidance during the current period. There was no impact on our Condensed Consolidated Financial Statements.
Recent Accounting Guidance Not Yet Adopted
In October 2016, the FASB issued ASU No. 2016-16, which provides updated guidance on the recognition of the income tax consequences of intra-entity transfers of assets other than inventory when the transfer occurs, and this eliminates the exception for an intra-entity transfer of such assets. The new standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. This guidance will be applied using a modified retrospective approach through a cumulative-effective adjustment directly to retained earnings as of the beginning of the period of adoption. Early adoption is permitted during the first interim period of the year this guidance is adopted. We are currently evaluating the impact of adopting this guidance on our Condensed Consolidated Financial Statements and disclosures included within Notes to the Condensed Consolidated Financial Statements.
In August 2016, the FASB issued ASU No. 2016-15, which provides updated guidance on the classification of certain cash receipts and cash payments in the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. This guidance will be applied using a retrospective approach. If it is impracticable to apply the amendments retrospectively for some of the issues within this ASU, the amendments for those issues would be applied prospectively as of the earliest date practicable. Early adoption is permitted including adoption in an interim period. We are currently evaluating the impact of adopting this guidance on our Condensed Consolidated Financial Statements and disclosures included within Notes to the Condensed Consolidated Financial Statements.
In June 2016, the FASB issued ASU No. 2016-13, which provides updated guidance on credit losses for financial assets measured at amortized cost basis and available-for sale debt securities. The new standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. This guidance will be applied using a modified retrospective approach for the cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective and using a prospective approach for debt securities for which an other-than-temporary impairment had been recognized before the effective date. Early adoption is permitted for fiscal years beginning after December 15, 2018. We are currently evaluating the impact of adopting this guidance on our Condensed Consolidated Financial Statements and disclosures included within Notes to the Condensed Consolidated Financial Statements.
In March 2016, the FASB issued ASU No. 2016-09, which simplifies several aspects of the accounting for share-based payment transactions, including the accounting for income taxes, statutory tax withholding requirements and classification on the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. This guidance will be applied either prospectively, retrospectively or using a modified retrospective transition method, depending on the area covered in this update. Early adoption is permitted. We are currently evaluating the impact of adopting this guidance on our Condensed Consolidated Financial Statements and disclosures included within Notes to the Condensed Consolidated Financial Statements.
In February 2016, the FASB issued ASU No. 2016-02, which provides guidance on the accounting treatment of leases. The ASU establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years and early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of adopting this guidance on our Condensed Consolidated Financial Statements and disclosures included within Notes to the Condensed Consolidated Financial Statements.
In July 2015, the FASB issued ASU No. 2015-11, which provides guidance on the measurement of inventory value. The amendments require an entity to measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using last-in, first-out (“LIFO”) or the retail inventory method. The amendments do not apply to inventory that is measured using LIFO or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (“FIFO”) or average cost. The pronouncement is effective for annual periods beginning after December 15, 2016, and interim periods within those fiscal years, and early adoption is permitted. We are currently evaluating the impact of adopting this guidance on our Condensed Consolidated Financial Statements and disclosures included within Notes to the Condensed Consolidated Financial Statements.
In August 2014, the FASB issued ASU No. 2014-15, which provides guidance on determining when and how reporting entities must disclose going-concern uncertainties in their financial statements. The pronouncement is effective for annual periods ending after December 15, 2016, and interim periods thereafter, and early adoption is permitted. We are currently evaluating the impact of adopting this guidance on our Condensed Consolidated Financial Statements and disclosures included within Notes to the Condensed Consolidated Financial Statements.
In May 2014, the FASB issued ASU No. 2014-09, which creates FASB Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” and supersedes ASC Topic 605, “Revenue Recognition”. The guidance replaces industry-specific guidance and establishes a single five-step model to identify and recognize revenue. The core principle of the guidance is that an entity should recognize revenue upon transfer of control of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Additionally, the guidance requires the entity to disclose further quantitative and qualitative information regarding the nature and amount of revenues arising from contracts with customers, as well as other information about the significant judgments and estimates used in recognizing revenues from contracts with customers. The guidance in ASU 2014-09 was further updated by ASU 2016-08 in March 2016, which provides clarification on the implementation of the principal vs agent considerations in ASU 2014-09. In April 2016, the FASB issued ASU 2016-10, which provides clarification on the implementation of performance obligations and licensing in ASU 2014-09. In May 2016, the FASB issued ASU 2016-11, which amends guidance provided in two SEC Staff Announcements at the March 3, 2016 Emerging Issues Task Force meeting over various topics relating to ASU 606. In May 2016, the FASB issued ASU 2016-12, which clarified various topics in ASU 606. This guidance was originally effective for interim and annual reporting periods beginning after December 15, 2016. However, in August 2015, the FASB issued ASU No. 2015-14, which extended the effective date to interim and annual periods beginning after December 15, 2017. Early application is permitted only as of annual reporting periods beginning after December 15, 2015, including interim reporting periods within that reporting period. This guidance may be adopted retrospectively or under a modified retrospective method where the cumulative effect is recognized at the date of initial application. We are currently evaluating the impact of adopting this guidance on our Condensed Consolidated Financial Statements and disclosures included within our Notes to the Condensed Consolidated Financial Statements.
|
|||
|
|
|
Level of |
|
|
|
|
Outstanding |
|
|
|
September 30, 2016 |
|
Hierarchy |
|
Fair Value |
|
Balance |
|
||
|
Term loan |
|
1 |
|
$ |
450,546 |
|
$ |
468,100 |
|
|
Senior secured notes |
|
3 |
|
$ |
322,438 |
|
$ |
335,000 |
|
|
Senior unsecured notes |
|
1 |
|
$ |
336,438 |
|
$ |
350,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015 |
|
|
|
|
|
|
|
|
|
|
Term loan |
|
1 |
|
$ |
445,900 |
|
$ |
490,000 |
|
|
Senior secured notes |
|
3 |
|
$ |
314,900 |
|
$ |
335,000 |
|
|
Senior unsecured notes |
|
1 |
|
$ |
297,500 |
|
$ |
350,000 |
|
|
|||
The balance of trade receivables consisted of the following (in thousands):
|
. |
At September 30, |
|
At December 31, |
|
||
|
2016 |
2015 |
|||||
|
Trade receivables, net |
|
|
|
|
|
|
|
Games trade receivables |
$ |
40,724 |
|
$ |
38,064 |
|
|
Payments trade receivables |
|
7,669 |
|
|
14,318 |
|
|
Total trade receivables, net |
$ |
48,393 |
|
$ |
52,382 |
|
|
|||
The balance of other receivables consisted of the following (in thousands):
|
|
At September 30, |
|
At December 31, |
|
||
|
2016 |
2015 |
|||||
|
Other receivables |
|
|
|
|
|
|
|
Notes and loans receivable, net of discount of $0 and $699 at September 30, 2016 and December 31, 2015, respectively |
$ |
4,908 |
|
$ |
9,930 |
|
|
Federal and state income tax receivable |
|
657 |
|
|
421 |
|
|
Other |
|
697 |
|
|
1,232 |
|
|
Total other receivables |
|
6,262 |
|
|
11,583 |
|
|
Less: non-current portion of notes and loans receivable |
|
1,793 |
|
|
6,655 |
|
|
Total other receivables, current portion |
$ |
4,469 |
|
$ |
4,928 |
|
|
|||
The balance of the current portion of prepaid and other assets consisted of the following (in thousands):
|
|
At September 30, |
|
At December 31, |
|
|
||
|
|
2016 |
|
2015 |
|
|
||
|
Prepaid expenses and other assets |
|
|
|
|
|
|
|
|
Prepaid expenses |
$ |
6,334 |
|
$ |
8,255 |
|
|
|
Deposits |
|
8,680 |
|
|
8,946 |
|
|
|
Other |
|
3,748 |
|
|
3,571 |
|
|
|
Total prepaid expenses and other assets |
$ |
18,762 |
|
$ |
20,772 |
|
|
The balance of the non-current portion of other assets consisted of the following (in thousands):
|
|
At September 30, |
|
At December 31, |
|
|
||
|
|
2016 |
|
2015 |
|
|
||
|
Other assets |
|
|
|
|
|
|
|
|
Debt issuance costs |
$ |
747 |
|
$ |
919 |
|
|
|
Prepaid expenses and deposits |
|
3,984 |
|
|
4,521 |
|
|
|
Other |
|
3,917 |
|
|
5,934 |
|
|
|
Total other assets |
$ |
8,648 |
|
$ |
11,374 |
|
|
|
|||
Inventory consisted of the following (in thousands):
|
|
At September 30, |
|
At December 31, |
|
|
||
|
|
2016 |
|
2015 |
|
|
||
|
Inventory |
|
|
|
|
|
|
|
|
Raw materials and component parts, net of reserves of $937 and $912 at September 30, 2016 and December 31, 2015, respectively |
$ |
14,667 |
|
$ |
23,663 |
|
|
|
Work in progress |
|
2,071 |
|
|
1,495 |
|
|
|
Finished goods |
|
4,039 |
|
|
3,580 |
|
|
|
Total inventory |
$ |
20,777 |
|
$ |
28,738 |
|
|
|
|||
Property, equipment and leased assets consist of the following (in thousands):
|
|
|
|
|
At September 30, 2016 |
|
At December 31, 2015 |
|
||||||||||||||||
|
|
|
Useful Life |
|
|
|
|
Accumulated |
|
Net Book |
|
|
|
Accumulated |
|
Net Book |
|
|||||||
|
|
|
(Years) |
|
Cost |
|
Depreciation |
|
Value |
|
Cost |
|
Depreciation |
|
Value |
|
||||||||
|
Property, equipment and leased assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental pool - deployed |
|
2 |
- |
4 |
|
$ |
117,074 |
|
$ |
52,096 |
|
$ |
64,978 |
|
$ |
91,743 |
|
$ |
29,993 |
|
$ |
61,750 |
|
|
Rental pool - undeployed |
|
2 |
- |
4 |
|
|
14,680 |
|
|
5,644 |
|
|
9,036 |
|
|
11,950 |
|
|
3,361 |
|
|
8,589 |
|
|
ATM equipment |
|
|
5 |
|
|
|
16,786 |
|
|
10,883 |
|
|
5,903 |
|
|
20,601 |
|
|
12,885 |
|
|
7,716 |
|
|
Leasehold and building improvements |
|
Lease Term |
|
|
9,978 |
|
|
3,263 |
|
|
6,715 |
|
|
7,564 |
|
|
2,038 |
|
|
5,526 |
|
||
|
Cash advance equipment |
|
|
3 |
|
|
|
8,510 |
|
|
3,955 |
|
|
4,555 |
|
|
7,662 |
|
|
2,711 |
|
|
4,951 |
|
|
Machinery, office and other equipment |
|
2 |
- |
5 |
|
|
29,999 |
|
|
18,679 |
|
|
11,320 |
|
|
32,313 |
|
|
14,537 |
|
|
17,776 |
|
|
Total |
|
|
|
|
|
$ |
197,027 |
|
$ |
94,520 |
|
$ |
102,507 |
|
$ |
171,833 |
|
$ |
65,525 |
|
$ |
106,308 |
|
|
|||
Other intangible assets consist of the following (in thousands):
|
|
|
|
|
At September 30, 2016 |
|
At December 31, 2015 |
||||||||||||||||
|
|
|
Useful Life |
|
|
|
|
Accumulated |
|
Net Book |
|
|
|
|
Accumulated |
|
Net Book |
||||||
|
|
|
(years) |
|
Cost |
|
Amortization |
|
Value |
|
Cost |
|
Amortization |
|
Value |
||||||||
|
Other intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract rights under development and placement fee agreements |
|
1 |
- |
7 |
|
$ |
24,858 |
|
$ |
11,477 |
|
$ |
13,381 |
|
$ |
16,453 |
|
$ |
7,612 |
|
$ |
8,841 |
|
Customer contracts |
|
7 |
- |
14 |
|
|
50,975 |
|
|
39,019 |
|
|
11,956 |
|
|
50,177 |
|
|
34,755 |
|
|
15,422 |
|
Customer relationships |
|
8 |
- |
12 |
|
|
231,100 |
|
|
37,447 |
|
|
193,653 |
|
|
231,100 |
|
|
21,723 |
|
|
209,377 |
|
Developed technology and software |
|
1 |
- |
6 |
|
|
218,269 |
|
|
110,998 |
|
|
107,271 |
|
|
197,658 |
|
|
63,591 |
|
|
134,067 |
|
Patents, trademarks and other |
|
1 |
- |
17 |
|
|
28,205 |
|
|
16,668 |
|
|
11,537 |
|
|
28,240 |
|
|
13,485 |
|
|
14,755 |
|
Total |
|
|
|
|
|
$ |
553,407 |
|
$ |
215,609 |
|
$ |
337,798 |
|
$ |
523,628 |
|
$ |
141,166 |
|
$ |
382,462 |
|
|||
The following table presents our accounts payable and accrued expenses (in thousands):
|
|
At September 30, |
|
At December 31, |
|
||
|
|
2016 |
|
2015 |
|
||
|
Accounts payable and accrued expenses |
|
|
|
|
|
|
|
Trade accounts payable |
$ |
47,956 |
|
$ |
67,139 |
|
|
Accrued interest |
|
15,036 |
|
|
73 |
|
|
Payroll and related expenses |
|
8,600 |
|
|
8,565 |
|
|
Deferred and unearned revenues |
|
9,833 |
|
|
10,836 |
|
|
Cash access processing and related expenses |
|
4,666 |
|
|
4,662 |
|
|
Accrued taxes |
|
3,084 |
|
|
1,654 |
|
|
Other |
|
9,644 |
|
|
8,583 |
|
|
Total accounts payable and accrued expenses |
$ |
98,819 |
|
$ |
101,512 |
|
|
|||
The following table summarizes our outstanding indebtedness (in thousands):
|
|
At September 30, |
|
At December 31, |
|
|
||
|
|
2016 |
|
2015 |
|
|
||
|
Long-term debt |
|
|
|
|
|
|
|
|
Senior secured term loan |
$ |
468,100 |
|
$ |
490,000 |
|
|
|
Senior secured notes |
|
335,000 |
|
|
335,000 |
|
|
|
Senior unsecured notes |
|
350,000 |
|
|
350,000 |
|
|
|
Total debt |
|
1,153,100 |
|
|
1,175,000 |
|
|
|
Less: debt issuance costs and warrant discount |
|
(30,335) |
|
|
(35,101) |
|
|
|
Total debt after debt issuance costs and discount |
|
1,122,765 |
|
|
1,139,899 |
|
|
|
Less: current portion of long-term debt |
|
(10,000) |
|
|
(10,000) |
|
|
|
Long-term debt, less current portion |
$ |
1,112,765 |
|
$ |
1,129,899 |
|
|
|
|||
The weighted average number of shares of common stock outstanding used in the computation of basic and diluted earnings per share is as follows (in thousands):
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||
|
|
|
2016 |
|
2015 |
|
|
2016 |
|
2015 |
|
|
Weighted average shares |
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic |
|
66,049 |
|
65,941 |
|
|
66,041 |
|
65,804 |
|
|
Potential dilution from equity grants(1) |
|
— |
|
— |
|
|
— |
|
— |
|
|
Weighted average number of common shares outstanding - diluted |
|
66,049 |
|
65,941 |
|
|
66,041 |
|
65,804 |
|
|
(1) |
The Company was in a net loss position for the three and nine months ended September 30, 2016 and 2015, respectively, and therefore, no potential dilution from the application of the treasury stock method was applicable. Equity awards to purchase approximately 18.5 million and 15.9 million shares of common stock for the three and nine months ended September 30, 2016, respectively, and 16.5 million and 12.3 million shares of common stock for the three and nine months ended September 30, 2015, respectively, were excluded from the computation of diluted net loss per share as this effect would have been antidilutive. |
|
|||
A summary of award activity is as follows (in thousands):
|
|
|
Stock Options |
|
Restricted Stock |
|
|
|
|
Granted |
|
Granted |
|
|
Outstanding, December 31, 2015 |
|
17,440 |
|
310 |
|
|
Additional authorized shares |
|
— |
|
— |
|
|
Granted |
|
4,242 |
|
— |
|
|
Exercised options or vested shares |
|
— |
|
(30) |
|
|
Canceled or forfeited |
|
(3,367) |
|
(155) |
|
|
Outstanding, September 30, 2016 |
|
18,315 |
|
125 |
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Number of |
|
Weighted Average |
|
Average Life |
|
Aggregate |
|
||
|
|
|
Common Shares |
|
Exercise Price |
|
Remaining |
|
Intrinsic Value |
|
||
|
|
|
(in thousands) |
|
(per share) |
|
(years) |
|
(in thousands) |
|
||
|
Outstanding, December 31, 2015 |
|
17,440 |
|
$ |
7.41 |
|
6.6 |
|
$ |
1,212 |
|
|
Granted |
|
4,242 |
|
|
1.65 |
|
|
|
|
|
|
|
Exercised |
|
— |
|
|
— |
|
|
|
|
|
|
|
Canceled or forfeited |
|
(3,367) |
|
|
7.30 |
|
|
|
|
|
|
|
Outstanding, September 30, 2016 |
|
18,315 |
|
$ |
6.09 |
|
6.6 |
|
$ |
3,518 |
|
|
Vested and expected to vest, September 30, 2016 |
|
16,201 |
|
$ |
6.21 |
|
6.5 |
|
$ |
2,770 |
|
|
Exercisable, September 30, 2016 |
|
9,335 |
|
$ |
7.28 |
|
5.0 |
|
$ |
42 |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Shares |
|
Average Grant |
|
|
|
|
|
Outstanding |
|
Date Fair Value |
|
|
|
|
|
(in thousands) |
|
(per share) |
|
|
|
Outstanding, December 31, 2015 |
|
310 |
|
$ |
7.11 |
|
|
Granted |
|
— |
|
|
— |
|
|
Vested |
|
(30) |
|
|
7.09 |
|
|
Forfeited |
|
(155) |
|
|
7.12 |
|
|
Outstanding, September 30, 2016 |
|
125 |
|
$ |
7.12 |
|
|
|
|
Nine months ended |
|||
|
|
|
September 30, |
|||
|
|
|
2016 |
|
2015 |
|
|
Risk-free interest rate |
|
1 |
% |
1 |
% |
|
Expected life of options (in years) |
|
5 |
|
4 |
|
|
Expected volatility |
|
51 |
% |
43 |
% |
|
Expected dividend yield |
|
— |
% |
— |
% |
|
|
|
Nine months ended |
|||
|
|
|
September 30, |
|||
|
|
|
2016 |
|
2015 |
|
|
Risk-free interest rate |
|
2 |
% |
1 |
% |
|
Measurement period (in years) |
|
10 |
|
4 |
|
|
Expected volatility |
|
68 |
% |
43 |
% |
|
Expected dividend yield |
|
— |
% |
— |
% |
|
|||
The following tables present segment information (in thousands):
|
|
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
||||||||
|
|
|
2016 |
|
2015 |
|
|
2016 |
|
2015 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games |
|
$ |
56,218 |
|
$ |
53,983 |
|
|
$ |
158,660 |
|
$ |
163,896 |
|
Payments |
|
|
165,959 |
|
|
154,763 |
|
|
|
483,286 |
|
|
458,687 |
|
Total revenues |
|
$ |
222,177 |
|
$ |
208,746 |
|
|
$ |
641,946 |
|
$ |
622,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games |
|
$ |
(4,183) |
|
$ |
2,368 |
|
|
$ |
(14,638) |
|
$ |
7,180 |
|
Payments |
|
|
15,755 |
|
|
12,348 |
|
|
|
36,054 |
|
|
52,012 |
|
Total operating income |
|
$ |
11,572 |
|
$ |
14,716 |
|
|
$ |
21,416 |
|
$ |
59,192 |
|
|
|
At September 30, 2016 |
|
At December 31, 2015 |
||
|
Total assets |
|
|
|
|
|
|
|
Games |
|
$ |
1,056,064 |
|
$ |
1,086,147 |
|
Payments |
|
|
400,149 |
|
|
464,238 |
|
Total assets |
|
$ |
1,456,213 |
|
$ |
1,550,385 |
|
|||
|
|
Three Months Ended September 30, 2016 |
||||||||||||||||
|
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games |
$ |
— |
|
$ |
— |
|
$ |
56,218 |
|
$ |
— |
|
$ |
— |
|
$ |
56,218 |
|
Payments |
|
— |
|
|
153,145 |
|
|
7,519 |
|
|
5,417 |
|
|
(122) |
|
|
165,959 |
|
Total revenues |
|
— |
|
|
153,145 |
|
|
63,737 |
|
|
5,417 |
|
|
(122) |
|
|
222,177 |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games cost of revenue (exclusive of depreciation and amortization) |
|
— |
|
|
— |
|
|
15,467 |
|
|
— |
|
|
— |
|
|
15,467 |
|
Payments cost of revenue (exclusive of depreciation and amortization) |
|
— |
|
|
122,316 |
|
|
2,206 |
|
|
2,689 |
|
|
— |
|
|
127,211 |
|
Operating expenses |
|
— |
|
|
16,491 |
|
|
10,148 |
|
|
479 |
|
|
(122) |
|
|
26,996 |
|
Research and development |
|
— |
|
|
— |
|
|
4,460 |
|
|
— |
|
|
— |
|
|
4,460 |
|
Depreciation |
|
— |
|
|
1,892 |
|
|
10,447 |
|
|
28 |
|
|
— |
|
|
12,367 |
|
Amortization |
|
— |
|
|
3,128 |
|
|
20,439 |
|
|
537 |
|
|
— |
|
|
24,104 |
|
Total costs and expenses |
|
— |
|
|
143,827 |
|
|
63,167 |
|
|
3,733 |
|
|
(122) |
|
|
210,605 |
|
Operating income |
|
— |
|
|
9,318 |
|
|
570 |
|
|
1,684 |
|
|
— |
|
|
11,572 |
|
Other expenses (income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income |
|
— |
|
|
1,371 |
|
|
23,399 |
|
|
45 |
|
|
— |
|
|
24,815 |
|
Equity in loss (income) of subsidiaries |
|
8,254 |
|
|
(4,306) |
|
|
— |
|
|
— |
|
|
(3,948) |
|
|
— |
|
Total other expenses (income) |
|
8,254 |
|
|
(2,935) |
|
|
23,399 |
|
|
45 |
|
|
(3,948) |
|
|
24,815 |
|
(Loss) income before income tax |
|
(8,254) |
|
|
12,253 |
|
|
(22,829) |
|
|
1,639 |
|
|
3,948 |
|
|
(13,243) |
|
Income tax provision (benefit) |
|
— |
|
|
3,849 |
|
|
(9,261) |
|
|
423 |
|
|
— |
|
|
(4,989) |
|
Net (loss) income |
|
(8,254) |
|
|
8,404 |
|
|
(13,568) |
|
|
1,216 |
|
|
3,948 |
|
|
(8,254) |
|
Foreign currency translation |
|
(394) |
|
|
— |
|
|
— |
|
|
(394) |
|
|
394 |
|
|
(394) |
|
Comprehensive (loss) income |
$ |
(8,648) |
|
$ |
8,404 |
|
$ |
(13,568) |
|
$ |
822 |
|
$ |
4,342 |
|
$ |
(8,648) |
|
|
Three Months Ended September 30, 2015 |
||||||||||||||||
|
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games |
$ |
— |
|
$ |
— |
|
$ |
53,983 |
|
$ |
— |
|
$ |
— |
|
$ |
53,983 |
|
Payments |
|
— |
|
|
143,031 |
|
|
7,127 |
|
|
4,767 |
|
|
(162) |
|
|
154,763 |
|
Total revenues |
|
— |
|
|
143,031 |
|
|
61,110 |
|
|
4,767 |
|
|
(162) |
|
|
208,746 |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games cost of revenue (exclusive of depreciation and amortization) |
|
— |
|
|
— |
|
|
12,421 |
|
|
— |
|
|
— |
|
|
12,421 |
|
Payments cost of revenue (exclusive of depreciation and amortization) |
|
— |
|
|
112,344 |
|
|
2,549 |
|
|
2,503 |
|
|
— |
|
|
117,396 |
|
Operating expenses |
|
— |
|
|
19,085 |
|
|
6,932 |
|
|
440 |
|
|
(162) |
|
|
26,295 |
|
Research and development |
|
— |
|
|
— |
|
|
5,463 |
|
|
— |
|
|
— |
|
|
5,463 |
|
Depreciation |
|
— |
|
|
1,881 |
|
|
9,018 |
|
|
44 |
|
|
— |
|
|
10,943 |
|
Amortization |
|
— |
|
|
2,448 |
|
|
18,487 |
|
|
577 |
|
|
— |
|
|
21,512 |
|
Total costs and expenses |
|
— |
|
|
135,758 |
|
|
54,870 |
|
|
3,564 |
|
|
(162) |
|
|
194,030 |
|
Operating income |
|
— |
|
|
7,273 |
|
|
6,240 |
|
|
1,203 |
|
|
— |
|
|
14,716 |
|
Other expense (income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income |
|
— |
|
|
1,365 |
|
|
23,266 |
|
|
65 |
|
|
— |
|
|
24,696 |
|
Equity in loss (income) of subsidiaries |
|
6,110 |
|
|
(3,365) |
|
|
— |
|
|
— |
|
|
(2,745) |
|
|
— |
|
Loss on extinguishment of debt |
|
— |
|
|
87 |
|
|
— |
|
|
— |
|
|
— |
|
|
87 |
|
Total other expense (income) |
|
6,110 |
|
|
(1,913) |
|
|
23,266 |
|
|
65 |
|
|
(2,745) |
|
|
24,783 |
|
(Loss) income before income tax |
|
(6,110) |
|
|
9,186 |
|
|
(17,026) |
|
|
1,138 |
|
|
2,745 |
|
|
(10,067) |
|
Income tax provision (benefit) |
|
— |
|
|
2,356 |
|
|
(6,606) |
|
|
293 |
|
|
— |
|
|
(3,957) |
|
Net (loss) income |
|
(6,110) |
|
|
6,830 |
|
|
(10,420) |
|
|
845 |
|
|
2,745 |
|
|
(6,110) |
|
Foreign currency translation |
|
(788) |
|
|
— |
|
|
— |
|
|
(788) |
|
|
788 |
|
|
(788) |
|
Comprehensive (loss) income |
$ |
(6,898) |
|
$ |
6,830 |
|
$ |
(10,420) |
|
$ |
57 |
|
$ |
3,533 |
|
$ |
(6,898) |
|
|
Nine Months Ended September 30, 2016 |
||||||||||||||||
|
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games |
$ |
— |
|
$ |
— |
|
$ |
158,660 |
|
$ |
— |
|
$ |
— |
|
$ |
158,660 |
|
Payments |
|
— |
|
|
447,762 |
|
|
22,622 |
|
|
13,769 |
|
|
(867) |
|
|
483,286 |
|
Total revenues |
|
— |
|
|
447,762 |
|
|
181,282 |
|
|
13,769 |
|
|
(867) |
|
|
641,946 |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games cost of revenue (exclusive of depreciation and amortization) |
|
— |
|
|
— |
|
|
36,871 |
|
|
— |
|
|
— |
|
|
36,871 |
|
Payments cost of revenue (exclusive of depreciation and amortization) |
|
— |
|
|
359,265 |
|
|
6,754 |
|
|
7,347 |
|
|
— |
|
|
373,366 |
|
Operating expenses |
|
— |
|
|
53,912 |
|
|
33,230 |
|
|
1,460 |
|
|
(867) |
|
|
87,735 |
|
Research and development |
|
— |
|
|
— |
|
|
14,499 |
|
|
— |
|
|
— |
|
|
14,499 |
|
Depreciation |
|
— |
|
|
6,376 |
|
|
30,707 |
|
|
89 |
|
|
— |
|
|
37,172 |
|
Amortization |
|
— |
|
|
9,370 |
|
|
59,830 |
|
|
1,687 |
|
|
— |
|
|
70,887 |
|
Total costs and expenses |
|
— |
|
|
428,923 |
|
|
181,891 |
|
|
10,583 |
|
|
(867) |
|
|
620,530 |
|
Operating income (loss) |
|
— |
|
|
18,839 |
|
|
(609) |
|
|
3,186 |
|
|
— |
|
|
21,416 |
|
Other expense (income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income |
|
— |
|
|
4,880 |
|
|
69,500 |
|
|
168 |
|
|
— |
|
|
74,548 |
|
Equity in loss (income) of subsidiaries |
|
32,202 |
|
|
(11,120) |
|
|
— |
|
|
— |
|
|
(21,082) |
|
|
— |
|
Total other expense (income) |
|
32,202 |
|
|
(6,240) |
|
|
69,500 |
|
|
168 |
|
|
(21,082) |
|
|
74,548 |
|
(Loss) income before income tax |
|
(32,202) |
|
|
25,079 |
|
|
(70,109) |
|
|
3,018 |
|
|
21,082 |
|
|
(53,132) |
|
Income tax provision (benefit) |
|
— |
|
|
5,785 |
|
|
(27,642) |
|
|
927 |
|
|
— |
|
|
(20,930) |
|
Net (loss) income |
|
(32,202) |
|
|
19,294 |
|
|
(42,467) |
|
|
2,091 |
|
|
21,082 |
|
|
(32,202) |
|
Foreign currency translation |
|
(1,314) |
|
|
— |
|
|
— |
|
|
(1,314) |
|
|
1,314 |
|
|
(1,314) |
|
Comprehensive (loss) income |
$ |
(33,516) |
|
$ |
19,294 |
|
$ |
(42,467) |
|
$ |
777 |
|
$ |
22,396 |
|
$ |
(33,516) |
|
|
Nine Months Ended September 30, 2015 |
||||||||||||||||
|
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games |
$ |
— |
|
$ |
— |
|
$ |
163,896 |
|
$ |
— |
|
$ |
— |
|
$ |
163,896 |
|
Payments |
|
— |
|
|
424,259 |
|
|
22,023 |
|
|
12,853 |
|
|
(448) |
|
|
458,687 |
|
Total revenues |
|
— |
|
|
424,259 |
|
|
185,919 |
|
|
12,853 |
|
|
(448) |
|
|
622,583 |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games cost of revenue (exclusive of depreciation and amortization) |
|
— |
|
|
— |
|
|
36,745 |
|
|
— |
|
|
— |
|
|
36,745 |
|
Payments cost of revenue (exclusive of depreciation and amortization) |
|
— |
|
|
333,592 |
|
|
6,971 |
|
|
6,754 |
|
|
— |
|
|
347,317 |
|
Operating expenses |
|
— |
|
|
42,084 |
|
|
26,027 |
|
|
1,319 |
|
|
(448) |
|
|
68,982 |
|
Research and development |
|
— |
|
|
— |
|
|
15,369 |
|
|
— |
|
|
— |
|
|
15,369 |
|
Depreciation |
|
— |
|
|
5,442 |
|
|
26,440 |
|
|
155 |
|
|
— |
|
|
32,037 |
|
Amortization |
|
— |
|
|
6,858 |
|
|
54,222 |
|
|
1,861 |
|
|
— |
|
|
62,941 |
|
Total costs and expenses |
|
— |
|
|
387,976 |
|
|
165,774 |
|
|
10,089 |
|
|
(448) |
|
|
563,391 |
|
Operating income |
|
— |
|
|
36,283 |
|
|
20,145 |
|
|
2,764 |
|
|
— |
|
|
59,192 |
|
Other expense (income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income |
|
— |
|
|
5,977 |
|
|
69,089 |
|
|
243 |
|
|
— |
|
|
75,309 |
|
Equity in loss (income) of subsidiaries |
|
18,382 |
|
|
(10,077) |
|
|
— |
|
|
— |
|
|
(8,305) |
|
|
— |
|
Loss on extinguishment of debt |
|
— |
|
|
13,063 |
|
|
— |
|
|
— |
|
|
— |
|
|
13,063 |
|
Total other expense (income) |
|
18,382 |
|
|
8,963 |
|
|
69,089 |
|
|
243 |
|
|
(8,305) |
|
|
88,372 |
|
(Loss) income before income tax |
|
(18,382) |
|
|
27,320 |
|
|
(48,944) |
|
|
2,521 |
|
|
8,305 |
|
|
(29,180) |
|
Income tax provision (benefit) |
|
— |
|
|
7,378 |
|
|
(19,050) |
|
|
874 |
|
|
— |
|
|
(10,798) |
|
Net (loss) income |
|
(18,382) |
|
|
19,942 |
|
|
(29,894) |
|
|
1,647 |
|
|
8,305 |
|
|
(18,382) |
|
Foreign currency translation |
|
(850) |
|
|
— |
|
|
— |
|
|
(850) |
|
|
850 |
|
|
(850) |
|
Comprehensive (loss) income |
$ |
(19,232) |
|
$ |
19,942 |
|
$ |
(29,894) |
|
$ |
797 |
|
$ |
9,155 |
|
$ |
(19,232) |
|
|
At September 30, 2016 |
||||||||||||||||
|
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
— |
|
$ |
62,494 |
|
$ |
10,964 |
|
$ |
17,030 |
|
$ |
— |
|
$ |
90,488 |
|
Settlement receivables |
|
— |
|
|
31,120 |
|
|
— |
|
|
4,599 |
|
|
— |
|
|
35,719 |
|
Trade receivables, net |
|
— |
|
|
4,787 |
|
|
43,606 |
|
|
— |
|
|
— |
|
|
48,393 |
|
Other receivables |
|
— |
|
|
3,679 |
|
|
657 |
|
|
133 |
|
|
— |
|
|
4,469 |
|
Inventory |
|
— |
|
|
7,216 |
|
|
13,561 |
|
|
— |
|
|
— |
|
|
20,777 |
|
Prepaid expenses and other assets |
|
— |
|
|
6,360 |
|
|
3,566 |
|
|
8,836 |
|
|
— |
|
|
18,762 |
|
Intercompany balances |
|
— |
|
|
99,613 |
|
|
183,185 |
|
|
1,879 |
|
|
(284,677) |
|
|
— |
|
Total current assets |
|
— |
|
|
215,269 |
|
|
255,539 |
|
|
32,477 |
|
|
(284,677) |
|
|
218,608 |
|
Non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, equipment and leasehold improvements, net |
|
— |
|
|
16,891 |
|
|
85,365 |
|
|
251 |
|
|
— |
|
|
102,507 |
|
Goodwill |
|
— |
|
|
151,417 |
|
|
634,811 |
|
|
631 |
|
|
— |
|
|
786,859 |
|
Other intangible assets, net |
|
— |
|
|
26,306 |
|
|
306,262 |
|
|
5,230 |
|
|
— |
|
|
337,798 |
|
Other receivables |
|
— |
|
|
1,784 |
|
|
9 |
|
|
— |
|
|
— |
|
|
1,793 |
|
Investment in subsidiaries |
|
107,833 |
|
|
168,980 |
|
|
— |
|
|
86 |
|
|
(276,899) |
|
|
— |
|
Deferred tax asset |
|
— |
|
|
55,030 |
|
|
— |
|
|
— |
|
|
(55,030) |
|
|
— |
|
Other assets |
|
— |
|
|
5,707 |
|
|
2,609 |
|
|
332 |
|
|
— |
|
|
8,648 |
|
Intercompany balances |
|
— |
|
|
1,141,413 |
|
|
— |
|
|
— |
|
|
(1,141,413) |
|
|
— |
|
Total non-current assets |
|
107,833 |
|
|
1,567,528 |
|
|
1,029,056 |
|
|
6,530 |
|
|
(1,473,342) |
|
|
1,237,605 |
|
Total assets |
$ |
107,833 |
|
$ |
1,782,797 |
|
$ |
1,284,595 |
|
$ |
39,007 |
|
$ |
(1,758,019) |
|
$ |
1,456,213 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement liabilities |
$ |
— |
|
$ |
108,253 |
|
$ |
169 |
|
$ |
9,512 |
|
$ |
— |
|
$ |
117,934 |
|
Accounts payable and accrued expenses |
|
— |
|
|
73,011 |
|
|
24,165 |
|
|
1,643 |
|
|
— |
|
|
98,819 |
|
Current portion of long-term debt |
|
— |
|
|
10,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
10,000 |
|
Intercompany balances |
|
— |
|
|
184,872 |
|
|
93,646 |
|
|
6,159 |
|
|
(284,677) |
|
|
— |
|
Total current liabilities |
|
— |
|
|
376,136 |
|
|
117,980 |
|
|
17,314 |
|
|
(284,677) |
|
|
226,753 |
|
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability |
|
— |
|
|
— |
|
|
60,415 |
|
|
— |
|
|
(55,030) |
|
|
5,385 |
|
Long-term debt, less current portion |
|
— |
|
|
1,112,765 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,112,765 |
|
Other accrued expenses and liabilities |
|
— |
|
|
2,926 |
|
|
351 |
|
|
— |
|
|
— |
|
|
3,277 |
|
Intercompany balances |
|
— |
|
|
— |
|
|
1,141,413 |
|
|
— |
|
|
(1,141,413) |
|
|
— |
|
Total non-current liabilities |
|
— |
|
|
1,115,691 |
|
|
1,202,179 |
|
|
— |
|
|
(1,196,443) |
|
|
1,121,427 |
|
Total liabilities |
|
— |
|
|
1,491,827 |
|
|
1,320,159 |
|
|
17,314 |
|
|
(1,481,120) |
|
|
1,348,180 |
|
Stockholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
91 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
91 |
|
Convertible preferred stock |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Additional paid-in capital |
|
262,166 |
|
|
83,343 |
|
|
4,906 |
|
|
21,101 |
|
|
(109,350) |
|
|
262,166 |
|
Retained earnings |
|
22,978 |
|
|
208,823 |
|
|
(40,670) |
|
|
3,271 |
|
|
(171,424) |
|
|
22,978 |
|
Accumulated other comprehensive (loss) income |
|
(1,196) |
|
|
(1,196) |
|
|
200 |
|
|
(2,679) |
|
|
3,875 |
|
|
(996) |
|
Treasury stock, at cost |
|
(176,206) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(176,206) |
|
Total stockholders’ equity |
|
107,833 |
|
|
290,970 |
|
|
(35,564) |
|
|
21,693 |
|
|
(276,899) |
|
|
108,033 |
|
Total liabilities and stockholders’ equity |
$ |
107,833 |
|
$ |
1,782,797 |
|
$ |
1,284,595 |
|
$ |
39,007 |
|
$ |
(1,758,019) |
|
$ |
1,456,213 |
|
|
At December 31, 2015 |
||||||||||||||||
|
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
6 |
|
$ |
87,078 |
|
$ |
3,900 |
|
$ |
11,046 |
|
$ |
— |
|
$ |
102,030 |
|
Settlement receivables |
|
— |
|
|
42,437 |
|
|
— |
|
|
2,496 |
|
|
— |
|
|
44,933 |
|
Trade receivables, net |
|
— |
|
|
10,750 |
|
|
41,634 |
|
|
(2) |
|
|
— |
|
|
52,382 |
|
Other receivables |
|
— |
|
|
4,063 |
|
|
833 |
|
|
32 |
|
|
— |
|
|
4,928 |
|
Inventory |
|
— |
|
|
12,772 |
|
|
15,966 |
|
|
— |
|
|
— |
|
|
28,738 |
|
Prepaid expenses and other assets |
|
— |
|
|
6,464 |
|
|
5,160 |
|
|
9,148 |
|
|
— |
|
|
20,772 |
|
Intercompany balances |
|
— |
|
|
39,810 |
|
|
168,659 |
|
|
1,431 |
|
|
(209,900) |
|
|
— |
|
Total current assets |
|
6 |
|
|
203,374 |
|
|
236,152 |
|
|
24,151 |
|
|
(209,900) |
|
|
253,783 |
|
Non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, equipment and leasehold improvements, net |
|
— |
|
|
26,472 |
|
|
79,514 |
|
|
322 |
|
|
— |
|
|
106,308 |
|
Goodwill |
|
— |
|
|
154,395 |
|
|
634,811 |
|
|
597 |
|
|
— |
|
|
789,803 |
|
Other intangible assets, net |
|
— |
|
|
32,000 |
|
|
343,629 |
|
|
6,833 |
|
|
— |
|
|
382,462 |
|
Other receivables |
|
— |
|
|
3,256 |
|
|
3,399 |
|
|
— |
|
|
— |
|
|
6,655 |
|
Investment in subsidiaries |
|
137,414 |
|
|
159,735 |
|
|
— |
|
|
86 |
|
|
(297,235) |
|
|
— |
|
Deferred tax asset |
|
— |
|
|
65,577 |
|
|
— |
|
|
— |
|
|
(65,577) |
|
|
— |
|
Other assets |
|
— |
|
|
7,256 |
|
|
3,667 |
|
|
451 |
|
|
— |
|
|
11,374 |
|
Intercompany balances |
|
— |
|
|
1,136,505 |
|
|
— |
|
|
— |
|
|
(1,136,505) |
|
|
— |
|
Total non-current assets |
|
137,414 |
|
|
1,585,196 |
|
|
1,065,020 |
|
|
8,289 |
|
|
(1,499,317) |
|
|
1,296,602 |
|
Total assets |
$ |
137,420 |
|
$ |
1,788,570 |
|
$ |
1,301,172 |
|
$ |
32,440 |
|
$ |
(1,709,217) |
|
$ |
1,550,385 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement liabilities |
$ |
— |
|
$ |
136,109 |
|
$ |
162 |
|
$ |
3,548 |
|
$ |
— |
|
$ |
139,819 |
|
Accounts payable and accrued expenses |
|
— |
|
|
67,736 |
|
|
32,593 |
|
|
1,183 |
|
|
— |
|
|
101,512 |
|
Current portion of long-term debt |
|
— |
|
|
10,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
10,000 |
|
Intercompany balances |
|
— |
|
|
170,091 |
|
|
32,732 |
|
|
7,077 |
|
|
(209,900) |
|
|
— |
|
Total current liabilities |
|
— |
|
|
383,936 |
|
|
65,487 |
|
|
11,808 |
|
|
(209,900) |
|
|
251,331 |
|
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability |
|
— |
|
|
— |
|
|
93,221 |
|
|
— |
|
|
(65,577) |
|
|
27,644 |
|
Long-term debt, less current portion |
|
— |
|
|
1,129,899 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,129,899 |
|
Other accrued expenses and liabilities |
|
— |
|
|
3,624 |
|
|
467 |
|
|
— |
|
|
— |
|
|
4,091 |
|
Intercompany balances |
|
— |
|
|
— |
|
|
1,136,505 |
|
|
— |
|
|
(1,136,505) |
|
|
— |
|
Total non-current liabilities |
|
— |
|
|
1,133,523 |
|
|
1,230,193 |
|
|
— |
|
|
(1,202,082) |
|
|
1,161,634 |
|
Total liabilities |
|
— |
|
|
1,517,459 |
|
|
1,295,680 |
|
|
11,808 |
|
|
(1,411,982) |
|
|
1,412,965 |
|
Stockholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
91 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
91 |
|
Convertible preferred stock |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Additional paid-in capital |
|
258,020 |
|
|
80,443 |
|
|
3,670 |
|
|
21,101 |
|
|
(105,214) |
|
|
258,020 |
|
Retained earnings |
|
55,180 |
|
|
190,375 |
|
|
1,797 |
|
|
1,180 |
|
|
(193,352) |
|
|
55,180 |
|
Accumulated other comprehensive income (loss) |
|
318 |
|
|
293 |
|
|
25 |
|
|
(1,649) |
|
|
1,331 |
|
|
318 |
|
Treasury stock, at cost |
|
(176,189) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(176,189) |
|
Total stockholders’ equity |
|
137,420 |
|
|
271,111 |
|
|
5,492 |
|
|
20,632 |
|
|
(297,235) |
|
|
137,420 |
|
Total liabilities and stockholders’ equity |
$ |
137,420 |
|
$ |
1,788,570 |
|
$ |
1,301,172 |
|
$ |
32,440 |
|
$ |
(1,709,217) |
|
$ |
1,550,385 |
|
|
Nine Months Ended September 30, 2016 |
||||||||||||||||
|
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
$ |
(32,202) |
|
$ |
19,294 |
|
$ |
(42,467) |
|
$ |
2,091 |
|
$ |
21,082 |
|
$ |
(32,202) |
|
Adjustments to reconcile net (loss) income to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
— |
|
|
15,746 |
|
|
90,537 |
|
|
1,776 |
|
|
— |
|
|
108,059 |
|
Amortization of financing costs |
|
— |
|
|
5,023 |
|
|
— |
|
|
— |
|
|
— |
|
|
5,023 |
|
Loss on sale or disposal of assets |
|
— |
|
|
1,349 |
|
|
1,205 |
|
|
— |
|
|
— |
|
|
2,554 |
|
Accretion of contract rights |
|
— |
|
|
— |
|
|
6,521 |
|
|
— |
|
|
— |
|
|
6,521 |
|
Provision for bad debts |
|
— |
|
|
18 |
|
|
7,174 |
|
|
— |
|
|
— |
|
|
7,192 |
|
Write-down of assets |
|
— |
|
|
— |
|
|
4,289 |
|
|
— |
|
|
— |
|
|
4,289 |
|
Reserve for obsolescence |
|
— |
|
|
484 |
|
|
458 |
|
|
— |
|
|
— |
|
|
942 |
|
Equity loss (income) |
|
32,202 |
|
|
(11,120) |
|
|
— |
|
|
— |
|
|
(21,082) |
|
|
— |
|
Stock-based compensation |
|
— |
|
|
2,910 |
|
|
1,236 |
|
|
— |
|
|
— |
|
|
4,146 |
|
Other non-cash items |
|
— |
|
|
— |
|
|
(38) |
|
|
— |
|
|
— |
|
|
(38) |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net settlement receivables and liabilities |
|
— |
|
|
(16,538) |
|
|
6 |
|
|
3,690 |
|
|
— |
|
|
(12,842) |
|
Other changes in operating assets and liabilities |
|
1 |
|
|
(16,609) |
|
|
8,777 |
|
|
(5) |
|
|
— |
|
|
(7,836) |
|
Net cash provided by operating activities |
|
1 |
|
|
557 |
|
|
77,698 |
|
|
7,552 |
|
|
— |
|
|
85,808 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
— |
|
|
(7,330) |
|
|
(59,622) |
|
|
(73) |
|
|
— |
|
|
(67,025) |
|
Acquisitions, net of cash acquired |
|
— |
|
|
(694) |
|
|
— |
|
|
— |
|
|
— |
|
|
(694) |
|
Proceeds from sale of fixed assets |
|
— |
|
|
4,608 |
|
|
— |
|
|
— |
|
|
— |
|
|
4,608 |
|
Advances under development and placement agreements |
|
— |
|
|
— |
|
|
(11,187) |
|
|
— |
|
|
— |
|
|
(11,187) |
|
Changes in restricted cash and cash equivalents |
|
— |
|
|
88 |
|
|
— |
|
|
— |
|
|
— |
|
|
88 |
|
Intercompany Investing Activities |
|
10 |
|
|
499 |
|
|
175 |
|
|
(67) |
|
|
(617) |
|
|
— |
|
Net cash provided by (used in) investing activities |
|
10 |
|
|
(2,829) |
|
|
(70,634) |
|
|
(140) |
|
|
(617) |
|
|
(74,210) |
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of credit facility |
|
— |
|
|
(21,900) |
|
|
— |
|
|
— |
|
|
— |
|
|
(21,900) |
|
Debt issuance costs |
|
— |
|
|
(480) |
|
|
— |
|
|
— |
|
|
— |
|
|
(480) |
|
Purchase of treasury stock |
|
(17) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(17) |
|
Intercompany financing activities |
|
— |
|
|
68 |
|
|
— |
|
|
(685) |
|
|
617 |
|
|
— |
|
Net cash used in financing activities |
|
(17) |
|
|
(22,312) |
|
|
— |
|
|
(685) |
|
|
617 |
|
|
(22,397) |
|
Effect of exchange rates on cash |
|
— |
|
|
— |
|
|
— |
|
|
(743) |
|
|
— |
|
|
(743) |
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase for the period |
|
(6) |
|
|
(24,584) |
|
|
7,064 |
|
|
5,984 |
|
|
— |
|
|
(11,542) |
|
Balance, beginning of the period |
|
6 |
|
|
87,078 |
|
|
3,900 |
|
|
11,046 |
|
|
— |
|
|
102,030 |
|
Balance, end of the period |
$ |
— |
|
|
62,494 |
|
|
10,964 |
|
|
17,030 |
|
|
— |
|
|
90,488 |
|
|
Nine Months Ended September 30, 2015 |
||||||||||||||||
|
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
$ |
(18,382) |
|
$ |
19,942 |
|
$ |
(29,894) |
|
$ |
1,647 |
|
$ |
8,305 |
|
$ |
(18,382) |
|
Adjustments to reconcile net income to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
— |
|
|
12,300 |
|
|
80,662 |
|
|
2,016 |
|
|
— |
|
|
94,978 |
|
Amortization of financing costs |
|
— |
|
|
5,459 |
|
|
— |
|
|
— |
|
|
— |
|
|
5,459 |
|
Gain on sale or disposal of assets |
|
— |
|
|
(60) |
|
|
(3,352) |
|
|
— |
|
|
— |
|
|
(3,412) |
|
Accretion of contract rights |
|
— |
|
|
— |
|
|
6,006 |
|
|
— |
|
|
— |
|
|
6,006 |
|
Provision for bad debts |
|
— |
|
|
— |
|
|
6,967 |
|
|
— |
|
|
— |
|
|
6,967 |
|
Reserve for obsolescence |
|
— |
|
|
160 |
|
|
341 |
|
|
— |
|
|
— |
|
|
501 |
|
Loss on early extinguishment of debt |
|
— |
|
|
13,063 |
|
|
— |
|
|
— |
|
|
— |
|
|
13,063 |
|
Equity in loss (income) of subsidiaries |
|
18,382 |
|
|
(10,077) |
|
|
— |
|
|
— |
|
|
(8,305) |
|
|
— |
|
Stock-based compensation |
|
— |
|
|
5,144 |
|
|
944 |
|
|
— |
|
|
— |
|
|
6,088 |
|
Other non-cash items |
|
— |
|
|
— |
|
|
127 |
|
|
— |
|
|
— |
|
|
127 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net settlement receivables and liabilities |
|
— |
|
|
7,510 |
|
|
(9) |
|
|
(1,949) |
|
|
— |
|
|
5,552 |
|
Other changes in operating assets and liabilities |
|
(5) |
|
|
8,003 |
|
|
(20,701) |
|
|
(881) |
|
|
— |
|
|
(13,584) |
|
Net cash (used in) provided by operating activities |
|
(5) |
|
|
61,444 |
|
|
41,091 |
|
|
833 |
|
|
— |
|
|
103,363 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
— |
|
|
(13,688) |
|
|
(35,512) |
|
|
(334) |
|
|
— |
|
|
(49,534) |
|
Acquisitions, net of cash acquired |
|
— |
|
|
(10,857) |
|
|
— |
|
|
— |
|
|
— |
|
|
(10,857) |
|
Proceeds from sale of fixed assets |
|
— |
|
|
103 |
|
|
2,000 |
|
|
— |
|
|
— |
|
|
2,103 |
|
Advances under development and placement agreements |
|
— |
|
|
— |
|
|
(2,813) |
|
|
— |
|
|
— |
|
|
(2,813) |
|
Repayments under development agreements |
|
— |
|
|
— |
|
|
3,104 |
|
|
— |
|
|
— |
|
|
3,104 |
|
Changes in restricted cash and cash equivalents |
|
— |
|
|
(66) |
|
|
— |
|
|
— |
|
|
— |
|
|
(66) |
|
Intercompany investing activities |
|
(4,020) |
|
|
6,600 |
|
|
— |
|
|
(58) |
|
|
(2,522) |
|
|
— |
|
Net cash used in investing activities |
|
(4,020) |
|
|
(17,908) |
|
|
(33,221) |
|
|
(392) |
|
|
(2,522) |
|
|
(58,063) |
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of credit facility |
|
— |
|
|
(7,500) |
|
|
— |
|
|
— |
|
|
— |
|
|
(7,500) |
|
Repayments of secured notes |
|
— |
|
|
(350,000) |
|
|
— |
|
|
— |
|
|
— |
|
|
(350,000) |
|
Proceeds from issuance of secured notes |
|
— |
|
|
335,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
335,000 |
|
Debt issuance costs |
|
— |
|
|
(1,146) |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,146) |
|
Issuance of warrant |
|
2,246 |
|
|
(2,246) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Proceeds from exercise of stock options |
|
1,833 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,833 |
|
Purchase of treasury stock |
|
(54) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(54) |
|
Intercompany financing activities |
|
— |
|
|
25 |
|
|
— |
|
|
(2,547) |
|
|
2,522 |
|
|
— |
|
Net cash provided by (used in) financing activities |
|
4,025 |
|
|
(25,867) |
|
|
— |
|
|
(2,547) |
|
|
2,522 |
|
|
(21,867) |
|
Effect of exchange rates on cash |
|
— |
|
|
— |
|
|
— |
|
|
(1,055) |
|
|
— |
|
|
(1,055) |
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) for the period |
|
— |
|
|
17,669 |
|
|
7,870 |
|
|
(3,161) |
|
|
— |
|
|
22,378 |
|
Balance, beginning of the period |
|
— |
|
|
68,143 |
|
|
6,489 |
|
|
14,463 |
|
|
— |
|
|
89,095 |
|
Balance, end of the period |
$ |
— |
|
$ |
85,812 |
|
$ |
14,359 |
|
$ |
11,302 |
|
$ |
— |
|
$ |
111,473 |
|
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