Everi (EVRI) - 2022 Q1 - Quarterly Report

PART I: FINANCIAL INFORMATION Item 1: Financial Statements This section presents the unaudited condensed consolidated financial statements for Q1 2022 vs Q1 2021, covering operations, balance sheets, cash flows, equity, and detailed notes on accounting policies and key financial activities Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income Q1 2022 saw total revenues increase 26% to $175.6 million, net income rise 54% to $31.5 million, and diluted EPS grow to $0.31 Q1 2022 vs. Q1 2021 Statement of Operations Highlights (in thousands, except EPS) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Total Revenues | $175,616 | $139,113 | | Operating Income | $52,591 | $40,194 | | Net Income | $31,522 | $20,534 | | Diluted EPS | $0.31 | $0.21 | Revenue by Segment (in thousands) | Segment | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Games Total Revenues | $98,336 | $76,151 | | FinTech Total Revenues | $77,280 | $62,962 | Unaudited Condensed Consolidated Balance Sheets Total assets slightly decreased to $1.616 billion, liabilities fell to $1.404 billion, and stockholders' equity rose to $211.7 million by March 31, 2022 Balance Sheet Summary (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $269,400 | $302,009 | | Total current assets | $516,390 | $552,638 | | Total assets | $1,616,022 | $1,635,650 | | Total current liabilities | $407,045 | $471,794 | | Long-term debt, less current portion | $974,642 | $975,525 | | Total liabilities | $1,404,310 | $1,461,150 | | Total stockholders' equity | $211,712 | $174,500 | Unaudited Condensed Consolidated Statements of Cash Flows Operating cash flow significantly decreased to $5.3 million in Q1 2022, while cash used in investing activities increased to $36.9 million Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $5,274 | $111,606 | | Net cash used in investing activities | $(36,900) | $(29,955) | | Net cash (used in) provided by financing activities | $(1,201) | $1,799 | | Net (decrease) increase for the period | $(32,691) | $83,330 | Unaudited Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity increased to $211.7 million by March 31, 2022, primarily driven by $31.5 million in net income - Stockholders' equity increased by $37.2 million during Q1 2022, moving from $174.5 million to $211.7 million, mainly due to net income of $31.5 million[19] Notes to Unaudited Condensed Consolidated Financial Statements Notes detail accounting policies, segments (Games, FinTech), the ecash acquisition, debt structure, legal contingencies, and subsequent events like the Intuicode acquisition and a new share repurchase program - The company operates and reports financial performance across two business segments: Games and Financial Technology Solutions (FinTech)[23] - On March 1, 2022, the company acquired ecash Holdings Pty Limited, an Australian provider of cash handling and payment solutions, for a total purchase consideration of approximately $30.9 million USD[69][73] - As of March 31, 2022, total outstanding debt was $997.0 million, primarily consisting of a $600 million New Term Loan due 2028 and $400 million in 5.00% Unsecured Notes due 2029[103] - Subsequent to the quarter end, on April 30, 2022, the company acquired Intuicode Gaming Corporation to accelerate its entry into the Historical Horse Racing (HHR) games market[146] - On May 4, 2022, the Board of Directors authorized a new share repurchase program for up to $150 million, superseding the previous program[150] Management's Discussion and Analysis of Financial Condition and Results of Operations Q1 2022 saw 26% revenue growth to $175.6 million, with operating income up 31% and net income up 54%, though operating cash flow significantly decreased Q1 2022 vs. Q1 2021 Performance Summary (in thousands) | Metric | Q1 2022 | Q1 2021 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $175,616 | $139,113 | 26% | | Games Revenues | $98,336 | $76,151 | 29% | | FinTech Revenues | $77,280 | $62,962 | 23% | | Operating Income | $52,591 | $40,194 | 31% | | Net Income | $31,522 | $20,534 | 54% | - The increase in Games revenue was driven by a larger installed base, higher average daily win per unit, and an increase in the number of gaming machines sold[183] - FinTech revenue growth was fueled by increased transaction volumes, contributions from the newly acquired ecash business, and higher kiosk sales[184] - Interest expense decreased by 39% to $11.3 million due to savings from the debt refinancing completed in Q3 2021[194] - Net cash from operating activities decreased by $106.3 million, primarily due to changes in working capital associated with settlement receivables and liabilities in the FinTech segment[204] Quantitative and Qualitative Disclosures About Market Risk Market risks primarily involve interest rate fluctuations on variable-rate debt; a 100 basis point increase in federal funds rate or LIBOR would impact income and interest expense - A 100 basis point increase in the target federal funds rate would have an approximate $3.9 million annual impact on income before tax, based on the $390.4 million outstanding balance of third-party vendor funds[217] - A 100 basis point increase in the applicable LIBOR would result in an approximate $6.0 million increase in annual interest expense on the $597.0 million outstanding New Term Loan[219] - The company is evaluating the transition from LIBOR to the Secured Overnight Financing Rate (SOFR) and does not anticipate a material impact on its business or financial results[221] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal controls - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2022[223] - There were no changes during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[224] PART II: OTHER INFORMATION Legal Proceedings The company is involved in ongoing legal proceedings, including an antitrust matter, a patent infringement suit, and a FACTA violation claim, which it plans to defend vigorously - The company is defending against an antitrust lawsuit filed by NRT Technology Corp., with a trial currently set for September 26, 2022[121] - Sightline Payments LLC has filed a patent infringement lawsuit related to Everi's CashClub Wallet product[124] - A new civil action was filed by Mary Parrish on December 28, 2021, alleging a violation of the Fair and Accurate Credit Transactions Act (FACTA)[125] Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's 2021 Annual Report on Form 10-K - The risk factors included in the company's 2021 Annual Report have not materially changed[227] Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2022, 18,300 shares were withheld for tax obligations from vested restricted stock awards, with no share repurchases under the program - A total of 18,300 shares of common stock were withheld during Q1 2022 to satisfy tax withholding obligations related to the vesting of restricted stock awards[228] - No shares were repurchased under the company's share repurchase program during the three months ended March 31, 2022[230] Other Information On May 4, 2022, a new $150 million share repurchase program was authorized for 18 months, replacing the prior authorization - A new share repurchase program was authorized on May 4, 2022, for an amount not to exceed $150 million over an 18-month period[236] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications required by Sarbanes-Oxley Act and XBRL data - The report includes required certifications from the CEO and CFO under Sections 302 and 906 of the Sarbanes-Oxley Act[238]