Everi (EVRI) - 2019 Q2 - Quarterly Report

PART I: FINANCIAL INFORMATION Item 1: Financial Statements This section presents the unaudited condensed consolidated financial statements for Q2 2019 and 2018, including Income, Balance Sheets, Cash Flows, and Stockholders' Deficit, with notes on accounting policies, new standards, and acquisitions Financial Performance Overview | Financial Metric | Q2 2019 ($) | Q2 2018 ($) | Change | Six Months 2019 ($) | Six Months 2018 ($) | Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $129.7 million | $118.7 million | +9.3% | $253.5 million | $229.7 million | +10.4% | | Operating Income | $24.9 million | $22.6 million | +10.2% | $50.8 million | $47.1 million | +7.8% | | Net Income | $5.5 million | $1.5 million | +272% | $11.3 million | $6.1 million | +86% | | Diluted EPS | $0.07 | $0.02 | +250% | $0.15 | $0.08 | +87.5% | Balance Sheet Summary | Balance Sheet Item | June 30, 2019 ($) | Dec 31, 2018 ($) | | :--- | :--- | :--- | | Total Assets | $1,596.3 million | $1,548.3 million | | Total Liabilities | $1,680.7 million | $1,657.2 million | | Total Stockholders' Deficit | ($84.4 million) | ($108.9 million) | - For the six months ended June 30, 2019, net cash used in operating activities was $87.7 million, a significant shift from the $49.2 million provided by operating activities in the same period of 2018. This change was primarily driven by fluctuations in settlement receivables and liabilities within the FinTech segment[21][277] - On March 8, 2019, the company acquired certain assets of Atrient, Inc., a developer of gaming patron loyalty applications, for an expected total consideration of approximately $50 million. This acquisition expands the company's offerings in its FinTech segment[95] Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2019 financial results, highlighting revenue growth in Games and FinTech segments, including contributions from the Atrient acquisition, and reviews liquidity and capital resources Segment Revenue Performance | Segment Revenue (Q2 2019 vs Q2 2018) | Q2 2019 ($) | Q2 2018 ($) | Change | | :--- | :--- | :--- | :--- | | Games | $69.4 million | $65.9 million | +5% | | FinTech | $60.3 million | $52.7 million | +14% | | Total | $129.7 million | $118.7 million | +9% | - The 14% increase in FinTech revenues for Q2 2019 was primarily due to increased equipment and information services revenues, which included approximately $4.9 million from the newly acquired loyalty operations (Atrient)[233] - As of June 30, 2019, the company had cash and cash equivalents of $123.8 million and an undrawn revolving credit facility of $35.0 million. Management believes cash flow from operations and available credit are sufficient to meet operating and capital expenditure needs for the foreseeable future[271][272] - The company has off-balance sheet arrangements with third-party vendors to provide cash for certain ATMs. The outstanding balance of ATM cash utilized was approximately $243.9 million as of June 30, 2019, which is not reflected on the company's Balance Sheets[283][286] Item 3: Quantitative and Qualitative Disclosures About Market Risk The company discloses market risks, primarily interest rate risk from variable-rate credit facilities and ATM cash arrangements, while foreign currency exchange risk is deemed immaterial - The company is exposed to interest rate risk on its $790.0 million variable-rate Credit Facilities. Each 100 basis point increase in the applicable LIBOR would result in an approximate $7.9 million impact on interest expense over a 12-month period[292] - An additional interest rate risk exists for the $243.9 million in third-party vendor cash used for ATMs. Each 100 basis point increase in the federal funds rate would have an approximate $2.4 million impact on income before tax over a 12-month period[291] - Exposure to foreign currency exchange risk from international operations is not considered material to the company's financial results[290] Item 4: Controls and Procedures Management, including the CEO and CFO, concluded the company's disclosure controls and procedures were effective as of June 30, 2019, with changes made for ASC 842 adoption - Based on an evaluation as of June 30, 2019, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures are effective[293] - The company implemented changes to its internal control over financial reporting during the quarter to accommodate the adoption of the new lease accounting standard, ASC 842. No other changes that materially affected, or are reasonably likely to materially affect, internal controls were reported[295][296] PART II: OTHER INFORMATION Item 1: Legal Proceedings The company is involved in several legal proceedings, including FACTA class actions and an antitrust suit, for which no liabilities have been accrued due to unpredictable outcomes - The company is a defendant in three putative class action lawsuits (Rehman, Jessop, Donahue) alleging violations of the Fair and Accurate Credit Transactions Act (FACTA)[301][302][303] - NRT Technology Corp. filed a civil action against the company alleging monopolization of the market for unmanned, integrated kiosks, fraudulent patent procurement, and sham litigation[304] - No accrual for legal contingencies has been recorded as the company cannot reasonably estimate the size or range of possible loss for these matters[299][300] Item 1A: Risk Factors This section refers to the risk factors disclosed in the company's Annual Report on Form 10-K for FY2018, noting no material changes to previously disclosed factors - There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018[306] Item 2: Unregistered Sales of Equity Securities and Use of Proceeds The company reports on the withholding of 86,200 equity shares at an average price of $11.18 per share during Q2 2019 to satisfy employee tax obligations from restricted stock vesting Shares Withheld for Tax Obligations | Period | Total Shares Purchased (in thousands) | Average Price Paid per Share ($) | | :--- | :--- | :--- | | April 2019 | 0.9 | $10.26 | | May 2019 | 84.5 | $11.20 | | June 2019 | 0.8 | $11.14 | | Total Q2 2019 | 86.2 | $11.18 | - The shares were withheld to satisfy the minimum statutory tax withholding requirements applicable to the vesting of employee restricted stock[308] Item 3: Defaults Upon Senior Securities The company reports no defaults upon senior securities during the period - None[311] Item 4: Mine Safety Disclosures This item is not applicable to the company - Not applicable[313] Item 5: Other Information The company reports no other information to disclose for the period - None[315] Item 6: Exhibits This section lists exhibits filed with the Form 10-Q, including management compensatory plans, CEO and CFO certifications, and XBRL data files - The exhibits filed with this report include CEO and CFO certifications pursuant to the Sarbanes-Oxley Act of 2002 and interactive data files (XBRL)[317]