Everi (EVRI) - 2019 Q1 - Quarterly Report

PART I: FINANCIAL INFORMATION Item 1: Financial Statements This section presents Everi Holdings Inc.'s unaudited condensed consolidated financial statements for Q1 2019 and 2018, covering income, balance sheets, cash flows, and notes Unaudited Condensed Consolidated Statements of Income and Comprehensive Income Total revenues for Q1 2019 increased 11.5% to $123.8 million, with net income rising to $5.9 million and diluted EPS to $0.08 Consolidated Statements of Income (Q1 2019 vs. Q1 2018) | Financial Metric | Q1 2019 (In thousands) | Q1 2018 (In thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $123,775 | $111,001 | +11.5% | | Games Revenues | $67,427 | $60,217 | +12.0% | | FinTech Revenues | $56,348 | $50,784 | +11.0% | | Operating Income | $25,872 | $24,491 | +5.6% | | Net Income | $5,860 | $4,609 | +27.1% | | Diluted EPS | $0.08 | $0.06 | +33.3% | Unaudited Condensed Consolidated Balance Sheets As of March 31, 2019, total assets increased to $1.63 billion, total liabilities to $1.73 billion, and stockholders' deficit reduced to $95.8 million Consolidated Balance Sheets (As of March 31, 2019 vs. Dec 31, 2018) | Account | March 31, 2019 (In thousands) | Dec 31, 2018 (In thousands) | | :--- | :--- | :--- | | Total Current Assets | $518,568 | $488,940 | | Cash and cash equivalents | $139,857 | $297,532 | | Goodwill | $673,447 | $640,537 | | Total Assets | $1,632,004 | $1,548,261 | | Total Current Liabilities | $515,318 | $471,636 | | Long-term debt, less current portion | $1,153,807 | $1,155,016 | | Total Liabilities | $1,727,806 | $1,657,156 | | Total Stockholders' Deficit | ($95,802) | ($108,895) | Unaudited Condensed Consolidated Statements of Cash Flows For Q1 2019, net cash used in operating activities was $112.2 million, a significant shift from $32.8 million provided in Q1 2018 Consolidated Statements of Cash Flows (Q1 2019 vs. Q1 2018) | Cash Flow Activity | Q1 2019 (In thousands) | Q1 2018 (In thousands) | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($112,188) | $32,751 | | Net cash used in investing activities | ($47,490) | ($30,910) | | Net cash provided by financing activities | $2,621 | $2,000 | | Net (decrease) increase for the period | ($157,400) | $3,988 | - The significant increase in cash used in operating activities was primarily due to a $175.7 million increase in settlement receivables, compared to a $73.6 million decrease in the prior-year period[21] Notes to Unaudited Condensed Consolidated Financial Statements This section details the company's accounting policies and financial results, including business segments, ASC 842 adoption, and the Atrient acquisition - The company operates through two segments: Games (gaming machines, systems, interactive) and FinTech (cash access, compliance, loyalty solutions), with the 'Payments' segment renamed to 'FinTech' effective April 1, 2018[29][30][31] - On March 8, 2019, the company acquired certain assets of Atrient, Inc. for an expected purchase price of approximately $50 million, including $20 million paid at closing[89] - The company adopted the new lease accounting standard ASC 842 on January 1, 2019, recognizing $14.1 million in operating lease Right-of-Use (ROU) assets and corresponding liabilities[72][80][81] Segment Performance (Q1 2019 vs Q1 2018) | Segment | Metric | Q1 2019 (In thousands) | Q1 2018 (In thousands) | | :--- | :--- | :--- | :--- | | Games | Revenues | $67,427 | $60,217 | | | Operating Income | $3,104 | $4,353 | | FinTech | Revenues | $56,348 | $50,784 | | | Operating Income | $22,768 | $20,138 | Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2019 financial results, highlighting a 12% revenue increase to $123.8 million driven by Games and FinTech segment growth Results of Operations Summary (Q1 2019 vs. Q1 2018) | Metric | Q1 2019 (In thousands) | Q1 2018 (In thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $123,775 | $111,001 | +12% | | Games Revenues | $67,427 | $60,217 | +12% | | FinTech Revenues | $56,348 | $50,784 | +11% | | Operating Income | $25,872 | $24,491 | +6% | | Net Income | $5,860 | $4,609 | +27% | - The increase in Games revenue was driven by higher unit sales, a greater average daily win per unit from the installed base, and growth in interactive revenue[215] - The increase in FinTech revenue was due to higher transaction volumes from cash access services and increased equipment sales at higher average selling prices[216] - Research and development costs increased by 75% to $7.5 million, primarily due to higher payroll and related expenses in both Games and FinTech segments[222] Net Cash Position (Non-GAAP) | Component | March 31, 2019 (In thousands) | Dec 31, 2018 (In thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $139,857 | $297,532 | | Settlement receivables | $259,288 | $82,359 | | Settlement liabilities | ($354,402) | ($334,198) | | Net cash position | $44,743 | $45,693 | | Undrawn revolving credit facility | $35,000 | $35,000 | | Net cash available | $79,743 | $80,693 | Item 3: Quantitative and Qualitative Disclosures about Market Risk The company is exposed to market risks, primarily from interest rate fluctuations, with a 1% increase in federal funds rate impacting pre-tax income by $2.7 million - The company is exposed to interest rate risk on its ATM cash funding arrangements, where a 1% increase in the federal funds rate would impact income before tax by approximately $2.7 million annually, based on $267.0 million of ATM cash utilized[265] - A 1% increase in LIBOR would impact interest expense by $8.1 million annually, based on the $805.7 million outstanding variable-rate debt from Credit Facilities[266] - Exposure to foreign currency exchange risk from foreign operations is considered not material, and the company does not currently hedge this risk[264] Item 4: Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2019 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[268] - Changes were made to internal control over financial reporting to address the adoption of ASC 842 (Leases), but these did not materially affect the overall internal control structure[269][270] PART II: OTHER INFORMATION Item 1: Legal Proceedings The company is involved in various legal proceedings but does not expect a material adverse impact on its financial position or operations - Information regarding legal proceedings is referenced in 'Note 13 — Commitments and Contingencies', stating the company does not expect any material adverse impact from current legal matters[272][155] Item 1A: Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for FY2018 - The risk factors included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2018 have not materially changed[273] Item 2: Unregistered Sales of Equity Securities and Use of Proceeds During the quarter, the company withheld 2,100 shares of common stock at an average price of $7.02 per share to satisfy tax withholding requirements Issuer Purchases of Equity Securities (Q1 2019) | Period | Total Shares Purchased (in thousands) | Average Price per Share | | :--- | :--- | :--- | | Jan 2019 | 0.5 | $5.39 | | Feb 2019 | 0.5 | $6.83 | | Mar 2019 | 1.1 | $7.83 | | Total | 2.1 | $7.02 | - The shares were withheld from vested restricted stock awards to satisfy minimum statutory tax withholding requirements[275] Item 6: Exhibits This section lists the exhibits filed with the Form 10-Q, including employment agreements, CEO and CFO certifications, and XBRL data files - The report includes certifications from the CEO and CFO as required by Sections 302 and 906 of the Sarbanes-Oxley Act[285]