Everi Holdings Inc.
2018 ANNUAL REPORT
The Annual Meeting of Stockholders
of Everi Holdings Inc. will be held:
Tuesday, May 21, 2019
Everi Holdings Inc. Corporate Headquarters
7250 S. Tenaya Way, Ste. 100
Las Vegas, NV 89113
NOTICE OF 2019 ANNUAL MEETING OF STOCKHOLDERS
To the Holders of Common Stock of Everi Holdings Inc.:
The 2019 Annual Meeting of Stockholders of Everi Holdings Inc. (the “Annual Meeting”) will be held as follows:
When:
9:00 a.m. Pacific Time, Tuesday, May 21, 2019
Where:
Everi Holdings Inc. Corporate Headquarters
7250 S. Tenaya Way, Suite 100
Las Vegas, Nevada 89113
The purpose of the Annual Meeting is to consider and take action on the following proposals:
1.
2.
3.
4.
To elect the three Class II director nominees named in this Proxy Statement;
To vote on an advisory (non-binding) resolution to approve the compensation of our named executive officers as
shown in this Proxy Statement;
To ratify the appointment of BDO USA, LLP as our independent registered public accounting firm for the fiscal year
ending December 31, 2019; and
To transact such other business as may properly be brought before the Annual Meeting or any adjournment or
postponement thereof.
Holders of record of Everi Holdings Inc. common stock at the close of business on April 5, 2019 are entitled to notice of and to
vote at the Annual Meeting or any adjournment or postponement thereof.
YOUR PROXY IS IMPORTANT TO ASSURE A QUORUM AT THE ANNUAL MEETING. You are urgently requested to
submit the enclosed proxy by telephone or through the Internet in accordance with the instructions provided to you. You may also
date, sign and mail the Proxy Card in the postage-paid envelope that is provided. Your proxy is revocable in accordance with the
procedures set forth in the accompanying Proxy Statement.
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be held on May 21, 2019.
Our Proxy Statement is attached. Financial and other information concerning Everi Holdings Inc. is contained in our Annual Report
to Stockholders for the fiscal year ended December 31, 2018 (the “2018 Annual Report”). A complete set of proxy materials
relating to our Annual Meeting is available on the Internet. These materials, consisting of the Notice of 2019 Annual Meeting of
Stockholders, Proxy Statement, Proxy Card and 2018 Annual Report are available and may be viewed at www.proxyvote.com.
By Order of the Board of Directors,
/s/ Michael D. Rumbolz
Michael D. Rumbolz
President and Chief Executive Officer
April 22, 2019
[This page intentionally left blank]
PROXY STATEMENT TABLE OF CONTENTS
1
4
4
10
14
24
25
PROXY STATEMENT SUMMARY ...................................................................................................................................................................
PROXY STATEMENT ........................................................................................................................................................................................
QUESTIONS AND ANSWERS ...........................................................................................................................................................................
PROPOSAL 1 ELECTION OF THREE CLASS II DIRECTORS .......................................................................................................................
BOARD AND CORPORATE GOVERNANCE MATTERS ...............................................................................................................................
TRANSACTIONS WITH RELATED PERSONS ...............................................................................................................................................
EXECUTIVE OFFICERS.....................................................................................................................................................................................
PROPOSAL 2 ADVISORY (NON-BINDING) VOTE TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE
26
OFFICERS (SAY ON PAY) .................................................................................................................................................................................
27
EXECUTIVE COMPENSATION .........................................................................................................................................................................
27
Compensation Discussion and Analysis ....................................................................................................................................................
28
I. Executive Summary .....................................................................................................................................................................
29
2018 Compensation Program Highlights ...................................................................................................................................................
29
II. Compensation Philosophy and Objectives ..................................................................................................................................
31
Components of Our Compensation Program .............................................................................................................................................
32
2018 Target Total Compensation ...............................................................................................................................................................
32
2018 Say on Pay Vote and Stockholder Outreach .....................................................................................................................................
32
III. Compensation Decision Making Process ..................................................................................................................................
33
Role of the Board .......................................................................................................................................................................................
33
Role of the Compensation Committee .......................................................................................................................................................
33
Role of Management ..................................................................................................................................................................................
34
Role of Compensation Consultants ............................................................................................................................................................
34
Compensation Risk Oversight ...................................................................................................................................................................
34
IV. Compensation Competitive Analysis ........................................................................................................................................
35
Peer Group .................................................................................................................................................................................................
36
V. Elements of Compensation .........................................................................................................................................................
36
Base Salary Compensation ........................................................................................................................................................................
36
Annual Cash Incentives .............................................................................................................................................................................
37
2018 Performance Metrics .........................................................................................................................................................................
37
2018 Performance and Actual Payouts ......................................................................................................................................................
38
Long-Term Equity Incentive Awards ........................................................................................................................................................
39
2018 Awards ..............................................................................................................................................................................................
39
VI. Additional Compensation Policies and Practices ......................................................................................................................
39
Equity Ownership Policy ...........................................................................................................................................................................
40
Clawback Policy ........................................................................................................................................................................................
40
Anti-Hedging and Anti-Pledging Policies .................................................................................................................................................
40
Tax Deductibility .......................................................................................................................................................................................
41
Retirement Plans ........................................................................................................................................................................................
41
Severance Benefits.....................................................................................................................................................................................
41
Compensation Committee Report ..............................................................................................................................................................
41
Members of the Compensation Committee ................................................................................................................................................
42
Compensation of Named Executive Officers .............................................................................................................................................
42
Summary Compensation Table .......................................................................................................................................................
43
Grants of Plan-Based Awards .........................................................................................................................................................
44
Outstanding Equity Awards ...........................................................................................................................................................
46
2018 Option Exercises and Stock Vested ........................................................................................................................................
46
Pay Ratio .........................................................................................................................................................................................
47
Employment Contracts and Equity Agreements, Termination of Employment and Change in Control Arrangements ..................
49
Pension Benefits and Nonqualified Deferred Compensation ..........................................................................................................
50
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ...........................................................................
52
PROPOSAL 3 RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ...............
54
REPORT OF THE AUDIT COMMITTEE ............................................................................................................................................................
55
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE ...................................................................................................
55
OTHER MATTERS...............................................................................................................................................................................................
55
ANNUAL REPORT TO STOCKHOLDERS AND ANNUAL REPORT ON FORM 10-K .................................................................................
APPENDIX A RECONCILIATION OF NON-GAAP MEASURES .................................................................................................................... A-1
[This page intentionally left blank]
PROXY STATEMENT SUMMARY
This Proxy Statement is being furnished in connection with the solicitation of proxies by the Board of Directors of Everi Holdings
Inc. for use at the 2019 Annual Meeting of Stockholders and at any adjournment or postponement thereof. On or about April 22,
2019, we will begin distributing to each stockholder entitled to vote at the 2019 Annual Meeting of Stockholders this Proxy
Statement, a proxy card or voting instruction form and our 2018 Annual Report to stockholders. Shares represented by a properly
executed proxy will be voted in accordance with the instructions provided by the stockholder. This summary highlights information
contained elsewhere in this Proxy Statement, however, it does not contain all of the information you should consider. You should
read the entire Proxy Statement before casting your vote.
General Information
Date and Time:
Tuesday, May 21, 2019
9:00 a.m. Pacific Time
Record Date:
April 5, 2019
Place:
Voting:
Everi Holdings Inc. Corporate Headquarters
7250 S. Tenaya Way, Suite 100
Las Vegas, Nevada 89113
Stockholders of record as of April 5, 2019 may cast their votes in any of the following ways:
Internet
Phone
Mail
In Person
Visit www.proxyvote.com.
You will need the 16-digit
number
in your
included
proxy card, voting instruction
form or notice.
Call 1-800-690-6903 or the
number on your voting
instruction form. You will
need
the 16-digit number
included in your proxy card,
voting instruction form or
notice.
Send your completed and
signed proxy card or voting
instruction form to the address
on your proxy card or voting
instruction form.
If you plan to attend the
meeting in person, you will
need to bring a government-
issued picture ID and proof of
ownership of Everi Holdings
Inc. common stock as of the
record date.
1
Voting Matters and Board Recommendations
Proposal
1
Description
Election of three Class II director nominees named in this
Proxy Statement.
2
3
Approval, on an advisory basis, of the compensation of
our named executive officers.
Ratification of the appointment of BDO USA, LLP as our
independent registered public accounting firm for the
fiscal year ending December 31, 2019.
Board Recommendation
FOR the Board’s nominees
Page (for more detail)
10
FOR
FOR
26
52
Stockholders will also transact any other business that properly comes before the meeting.
Qualifications of Our Class II Director Nominees:
ü
ü
ü
Messrs. Judge and Congemi are independent.
All three nominees have at least 5+ years of service on our Board of Directors.
All three nominees are highly-qualified individuals with a diverse set of skills, background and experience.
Name
Age Director Since
Principal (or Most Recent) Occupation
Current Committees
Geoffrey P. Judge
65
2006
Former Partner at iNovia Capital, a
manager of early stage venture capital
funds
•
•
•
Audit Committee
Compensation Committee
(Chair)
Nominating and Corporate
Governance (“Nom Gov”)
Committee
Michael D. Rumbolz
Ronald V. Congemi
65
72
2010
2013
President and Chief Executive Officer
of the Company
None
Member of the Philadelphia Federal
Reserve’s Payments Advisory Council
•
•
•
Audit Committee
Compensation Committee
Nom Gov Committee
2
Corporate Governance Highlights
WHAT WE DO
WHAT WE DON’T DO
X No Related Party Transactions
X No Poison Pill
X No Pledging of Our Securities
X No Hedging of Our Securities
þ 86% Independent Directors
þ Entirely Independent Committees
þ Independent Chairman
þ Separate Chairman and Chief Executive Officer Roles
þ “Plurality-Plus” Voting for Directors (mandatory
resignation policy for nominees who fail to receive an
affirmative majority of votes cast)
þ Audit Committee Financial Experts
þ Regular Executive Sessions of Independent Directors
þ Limitations on Outside Board Service
þ All Directors Attended at Least 75% of Board and
Respective Committee Meetings
þ Annual Board and Committee Self-Evaluations
þ Stock Ownership Guidelines for Officers and Directors
þ Executive Compensation Based on Pay-for-Performance
Philosophy
þ Annual Say on Pay Advisory Vote
þ Cash and Equity Compensation Clawback Policy
þ Double-Trigger for Change in Control Severance
Payments
þ Executive Succession Planning Process
þ Code of Business Conduct, Standards and Ethics (and
related training)
3
PROXY STATEMENT
QUESTIONS AND ANSWERS
Why am I receiving these proxy materials?
The Board of Directors (the “Board”) of Everi Holdings Inc., a Delaware corporation (the “Company”), is furnishing these proxy
materials to you in connection with the Company’s 2019 Annual Meeting of Stockholders (the “Annual Meeting”). The Annual
Meeting will be held on Tuesday, May 21, 2019, at the Company’s Corporate Headquarters located at 7250 S. Tenaya Way, Suite
100, Las Vegas, Nevada 89113 beginning at 9:00 a.m. Pacific Time. You are invited to attend the Annual Meeting and are entitled
and requested to vote on the proposals outlined in this proxy statement (“Proxy Statement”).
This Proxy Statement is dated April 22, 2019 and is first being mailed to stockholders on or about April 22, 2019.
What proposals will be voted on at the Annual Meeting, and what are the recommendations of the Board?
There are three proposals scheduled to be voted on at the Annual Meeting. The proposals, and the Board’s voting recommendations
with respect to such proposals, are as follows:
Proposal
1
2
3
Election of three Class II directors to serve until the Company’s 2022 annual
meeting of stockholders.
Approval, on an advisory basis, of the compensation of our named executive
officers as shown in this Proxy Statement.
Ratification of the appointment of BDO USA, LLP as the Company’s
independent registered public accounting firm (“independent auditors”) for
the fiscal year ending December 31, 2019.
Board’s Voting Recommendations
FOR the Board’s nominees
FOR
FOR
Management does not know of any matters to be presented at the Annual Meeting other than those set forth in this Proxy Statement
and in the Notice of 2019 Annual Meeting of Stockholders accompanying this Proxy Statement. If other matters should properly
come before the Annual Meeting, the proxy holders will vote on such matters in accordance with their best judgment. Our
stockholders have no dissenter’s or appraisal rights in connection with any of the proposals to be presented at the Annual Meeting.
What is the record date and what does it mean?
The record date for the Annual Meeting is April 5, 2019 (the “Record Date”). Only holders of shares of the Company’s common
stock, par value $0.001 per share (“Common Stock”), at the close of business on the Record Date are entitled to receive notice of,
and to vote at, the Annual Meeting and any adjournments or postponements thereof. At the close of business on April 5, 2019,
there were approximately 71,070,548 shares of Common Stock outstanding and entitled to vote.
Shares held in treasury by the Company are not treated as being issued or outstanding for purposes of determining the number of
shares of Common Stock entitled to vote.
How many votes do I have?
Each holder of shares of Common Stock is entitled to one vote for each share of Common Stock owned as of the Record Date.
4
Who is a “stockholder of record,” and who is a “beneficial holder”?
You are a stockholder of record if your shares of our Common Stock are registered directly in your own name with our transfer
agent, Broadridge Financial Solutions, Inc. (“Broadridge”), as of the Record Date. You are a beneficial owner if a bank, brokerage
firm, trustee or other agent (each, a “nominee”) holds your stock. This is often called ownership in “street name” because your
name does not appear in the records of our transfer agent. If your shares are held in street name, you will receive instructions from
the holder of record. You must follow the instructions of the holder of record in order for your shares to be voted. Internet voting
also will be offered to stockholders owning shares through certain banks and brokers. If your shares are not registered directly in
your own name and you plan to vote your shares in person at the Annual Meeting, you should contact your nominee to obtain a
legal proxy and bring it to the Annual Meeting in order to vote. For additional requirements to attend the Annual Meeting, see the
information provided on page 1.
Who votes shares held in “street name”?
If you are a beneficial owner of shares held in “street name” by a nominee or other holder of record, and you do not give that
nominee or other record holder specific instructions as to how to vote those shares, under the rules of the New York Stock Exchange
(the “NYSE”), your nominee or other record holder may exercise discretionary authority to vote your shares only on routine
proposals, which, in this Proxy Statement, includes only the ratification of the appointment of the Company’s independent auditors
(Proposal 3). Without your specific instructions, however, your nominee or other record holder cannot vote your shares on non-
routine proposals, which, in this Proxy Statement, include Proposals 1 and 2. Accordingly, if you do not instruct your nominee or
other record holder how to vote with respect to Proposals 1 and 2, no votes will be cast on your behalf with respect to such proposals
(this is referred to as a “broker non-vote”). Your nominee or other record holder, however, will continue to have discretion to vote
any uninstructed shares on Proposal 3. If you hold your shares in street name, please refer to the information forwarded by your
nominee or other holder of record for procedures on voting your shares or revoking or changing your proxy. We encourage you
to provide instructions to your nominee or other holder of record regarding the voting of your shares.
What constitutes a quorum?
The presence at the Annual Meeting, in person or represented by proxy, of a majority of the shares of Common Stock outstanding
and entitled to vote on the Record Date will constitute a quorum permitting the proposals described herein to be acted upon at the
Annual Meeting. Abstentions and broker non-votes are counted as present and are, therefore, included for purposes of determining
whether a quorum of shares of Common Stock is present at the Annual Meeting.
What is the voting requirement to approve each of the proposals?
Voting Item
Board Recommendation
Voting Standard
Election of Directors
Say on Pay(3)
Auditor Ratification
___________________
For
For
For
Plurality(1) of Votes
Represented at the Meeting
and Entitled to Vote Thereon
Majority(4) of Votes
Represented at the Meeting
and Entitled to Vote Thereon
Majority(4) of Votes
Represented at the Meeting
and Entitled to Vote Thereon
Treatment of Abstentions & Broker Non-
Votes
No effect on the outcome of the
election(2)
Broker Non-Votes: No effect on the
outcome of this proposal
Abstentions: Same effect as a vote
“Against” this proposal
Broker Non-Votes: No effect on the
outcome of this proposal
Abstentions: Same effect as a vote
“Against” this proposal
(1) Director nominees who receive the highest number of shares voted “For” his or her election are elected.
(2) If a nominee in an uncontested election (such as this one) does not receive the vote of at least the majority of the votes
cast, it may trigger the Company’s guideline regarding majority voting for directors. Votes to withhold authority are
included in the total number of votes cast with respect to the director’s election. Full details of the guideline are set out
in our Corporate Governance Guidelines, which are publicly available at the Corporate Governance section of the
“Investors” page on our website at ir.everi.com/investor-relations/corporate-governance/governance-documents.
5
(3) Although this vote is advisory and non-binding on our Board, the Board and the Compensation Committee will consider
the voting results, along with other relevant factors, in connection with their ongoing evaluation of our compensation
program.
(4) Number of shares voted “For” exceeds 50% of the number of votes cast.
All valid proxies received prior to the Annual Meeting will be exercised. All shares represented by a proxy will be voted, and
where a proxy specifies a stockholder’s choice with respect to any matter to be acted upon, the shares will be voted in accordance
with that specification. If you are a stockholder of record and sign and return your proxy card or vote electronically without making
any specific selections, then your shares will be voted in accordance with the recommendations of the proxy holders on all matters
presented in this Proxy Statement and as the proxy holders may determine in their discretion regarding any other matters properly
presented for a vote at the Annual Meeting.
How do I vote my shares?
You can either attend the Annual Meeting and vote in person or give a proxy to be voted at the Annual Meeting. A proxy may be
given in one of the following three ways:
•
•
•
electronically by using the Internet;
over the telephone by calling a toll-free number; or
by mailing the enclosed proxy card.
Specific instructions for stockholders who wish to use the Internet or telephone voting procedures are set forth on the enclosed
proxy card. If your shares are held in street name through a nominee or other holder of record, you will receive instructions from
the nominee or other record holder that you must follow in order to have your shares voted.
How are the proxy card votes counted?
If the accompanying proxy card is properly completed, signed and returned to us, and not subsequently revoked, it will be voted
as directed by you. If the proxy card is submitted, but voting instructions are not provided, the proxy will be voted: (i) “For” each
of the director nominees; (ii) “For” the advisory approval of the compensation of our named executive officers; and (iii) “For”
the ratification of the appointment of BDO USA, LLP as our independent registered public accounting firm for the fiscal year
ending December 31, 2019.
Can I change my vote after submitting my proxy?
You can change your vote at any time before your proxy is exercised at the Annual Meeting. You may do so in one of the following
four ways:
•
•
•
•
submitting another proxy card bearing a later date;
sending a written notice revoking your proxy to the Corporate Secretary of the Company at 7250
South Tenaya Way, Suite 100, Las Vegas, Nevada 89113, or via e-mail to secretary@everi.com;
submitting new voting instructions via telephone or the Internet (if initially able to vote in that manner);
or
attending the Annual Meeting and voting in person.
If you hold your shares in “street name” through a nominee or other holder of record and you have instructed the nominee or other
holder of record to vote your shares, you must follow the directions received from the nominee or other holder of record to change
those instructions. Please refer to the information sent by your nominee or other holder of record for procedures on revoking or
changing your proxy.
6
Who is paying for this proxy solicitation?
This proxy solicitation is being made by the Company. The Company will bear the cost of soliciting proxies, including the cost
of preparing, assembling, printing and mailing this Proxy Statement. The Company also will reimburse brokerage firms and other
persons representing beneficial owners of shares for their expenses in forwarding solicitation materials to such beneficial owners.
In addition, proxies may be solicited by certain of the Company’s directors, officers and regular employees, either personally, by
telephone, facsimile or e-mail. None of such persons will receive any additional compensation for their services.
How can I find out the voting results?
The Company will report the voting results in a Current Report on Form 8-K to be filed with the Securities and Exchange
Commission (“SEC”) within four business days after the end of the Annual Meeting.
How do I receive electronic access to proxy materials for future annual meetings?
Stockholders can elect to view future proxy statements and annual reports over the Internet instead of receiving paper copies,
which results in cost savings for the Company and benefits the environment. If you are a stockholder of record and would like to
receive future proxy materials electronically, you can elect this option by following the instructions provided when you vote your
proxy over the Internet at www.proxyvote.com. If you choose to view future proxy statements and annual reports over the Internet,
you will receive an e-mail notification next year with instructions containing the Internet address of those materials. Your choice
to view future proxy statements and annual reports over the Internet will remain in effect until you contact either your nominee
or other holder of record or the Company to rescind your instructions. You do not have to elect Internet access each year.
If your shares of Common Stock are registered in the name of a brokerage firm, you still may be eligible to vote your shares of
Common Stock electronically over the Internet. A large number of brokerage firms are participating in the Broadridge online
program, which provides eligible stockholders who receive a paper copy of this Proxy Statement the opportunity to vote via the
Internet. If your brokerage firm is participating in Broadridge’s program, your proxy materials will provide instructions for voting
online. If your proxy materials do not reference Internet information, please complete and return your voting instruction form.
What should I do if I receive more than one notice of internet availability or more than one set of proxy materials?
There are circumstances under which you may receive multiple copies of the notice of internet availability, proxy materials, proxy
cards or voting instruction form. For example, if you hold your shares in more than one brokerage account, you may receive
separate notices for each such brokerage account. In addition, if you are a stockholder of record and your shares are registered in
more than one name, you may receive more than one notice. Please authorize your proxy in accordance with the instructions of
each notice separately, since each one represents different shares that you own.
What is “householding”?
The SEC has adopted rules that permit companies and intermediaries (such as brokers) to satisfy delivery requirements for annual
reports and proxy statements with respect to two or more stockholders sharing the same address by delivering a single annual
report or proxy statement addressed to those stockholders. This process, which is commonly referred to as “householding,” provides
extra convenience for stockholders, cost savings for companies and benefits the environment. Brokers with account holders who
are stockholders of the Company may be householding the Company’s proxy materials. Once you have received notice from your
broker that it will be householding materials to your address, householding will continue until you are notified otherwise or until
you revoke your consent. If, at any time, you no longer wish to participate in householding and would prefer to receive a separate
annual report or proxy statement, or if you are receiving multiple copies thereof and wish to receive only one, please notify your
broker or notify the Company by sending a written request to the Corporate Secretary of the Company at 7250 South Tenaya
Way, Suite 100, Las Vegas, Nevada 89113, or via e-mail to secretary@everi.com, or by calling (702) 855-3000. The Company,
if contacted, will undertake to promptly deliver the requested materials.
7
When are stockholder proposals due for the 2020 Annual Meeting of Stockholders?
Stockholder proposals may be included in our proxy materials for an annual meeting so long as they are provided to us on a timely
basis and satisfy certain other conditions established by the SEC, including specifically under Rule 14a-8 of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”). To be timely, a proposal to be included in our proxy statement must be received
at our principal executive offices, addressed to our Corporate Secretary of the Company, not less than 120 calendar days before
the date our proxy statement was released to stockholders in connection with the previous year’s annual meeting. Accordingly,
for a stockholder proposal to be included in our proxy materials for our 2020 Annual Meeting of Stockholders, the proposal must
be received at our principal executive offices, addressed to our Corporate Secretary of the Company, not later than the close of
business on December 24, 2019.
Subject to certain exceptions, stockholder business that is not intended for inclusion in our proxy materials may be brought before
an annual meeting so long as notice of the proposal as specified by, and subject to the conditions set forth in, our Bylaws, is
received at our principal executive offices, addressed to our Corporate Secretary of the Company, not earlier than the close of
business on the 120th day, nor later than the close of business on the 90th day, prior to the first anniversary of the date of the
preceding year’s annual meeting. For our 2020 Annual Meeting of Stockholders, proper notice of business that is not intended for
inclusion in our proxy statement must be received no earlier than the close of business on January 22, 2020, nor later than the
close of business on February 21, 2020.
A stockholder’s notice to the Corporate Secretary of the Company must set forth as to each matter the stockholder proposes to
bring before the annual meeting:
•
•
Director Nomination: all information relating to such proposed nominee that is required to be disclosed in solicitations
of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation
14A under the Exchange Act and Rule 14a-4(d) thereunder (including such person’s written consent to being named in
the proxy statement as a nominee and to serving as a director if elected); and
Stockholder Proposals: a brief description of the business desired to be brought before the meeting, the reasons for
conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made.
Each stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made must
also include (a) the name and address of such stockholder, as they appear on the Company’s books, and of such beneficial owner,
(b) the class and number of shares of the Company which are owned beneficially and of record by such stockholder and such
beneficial owner, and (c) whether either such stockholder or beneficial owner intends to deliver a proxy statement and form of
proxy to holders of, in the case of the proposal, at least the percentage of the Company’s voting shares required under applicable
law to carry the proposal or, in the case of a nomination or nominations, a sufficient number of holders of the Company’s voting
shares to elect such nominee or nominees.
8
2018 Performance Highlights
Throughout 2018, we executed on key initiatives, which led to consistent improvement in our financial performance. For the full
year, revenue increased by 14.3% to approximately $469.5 million, net cash provided by operating activities increased by
approximately $198.0 million, and our free cash flow increased by 78% to approximately $24.8 million. The strong growth that
was experienced in revenue for the full year was entirely organic in nature, and it reflects the tremendous success that we are
achieving as a result of the investments that we have made in improving and expanding our product portfolio over the last several
years.
The results achieved for the fiscal year ended December 31, 2018 represent a return to profitability for the Company, with a
reported full-year net income of approximately $12.4 million and net income in each quarter. This was the first full year of
profitability since the acquisition of the Games business in late 2014. Profitability was achieved primarily as a result of the increase
in year-over-year revenues of approximately $36.8 million, or 17%, for the Games segment, and $22.0 million, or 12%, for the
FinTech segment.
Key financial highlights for 2018:
Diluted Earnings per Share of $0.17
Games segment record unit sales of 4,513 units
Growth in same store transactions and total dollars processed all four quarters in 2018, reaching 17 consecutive quarters
Completion of a repricing of the $820 million Term Loan Facility in May 2018, resulting in approximately $4 million
in interest savings over the first twelve months following the repricing
Key business highlights for 2018:
Games: British Columbia Lottery Corporation selected our TournEvent® system as its slot tournament system of choice
for casinos in the province
Games: Extended agreement with the New York Lottery to provide their Video Gaming Central System for an additional
2-year period
FinTech: Extended cash access services contract with Penn National Gaming, the nation’s largest regional operator
with 40 properties in 18 jurisdictions throughout the United States
FinTech: Extended FinTech Central Credit agreement with Caesars Entertainment Corporation
For more information on our 2018 results and other related financial measures, we refer you to our 2018 Annual Report. We look
forward to continuing to execute on all aspects of our business strategy and believe we will continue to be successful in delivering
long-term value and strong total returns to our stockholders.
CAUTIONARY INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This Proxy Statement contains “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the
Private Securities Litigation Reform Act of 1995. From time to time, we also provide forward-looking statements in other materials
we release to the public, as well as oral forward-looking statements. We have tried, wherever possible, to identify such statements
by using words such as “goal,” “target,” “future,” “estimate,” “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “project,”
“may,” “should,” “will,” “likely,” “will likely result,” “will continue,” “forecast,” “observe,” “strategy,” and other words and terms
of similar meaning. Forward-looking statements include, but are not limited to, statements regarding our ability to execute on all
aspects of our business strategy and our ability to deliver long-term value and strong total returns to our stockholders. Forward-
looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current
beliefs, expectations, and assumptions regarding the future of our business, future plans and strategies, projections, anticipated
events and trends, the economy, and other future conditions.
9
PROPOSAL 1
ELECTION OF THREE CLASS II DIRECTORS
(Item No. 1 on the Proxy Card)
Our Certificate of Incorporation provides that the number of directors that shall constitute the Board shall be exclusively fixed by
resolutions adopted by a majority of the authorized directors constituting the Board. The Company’s Bylaws state that the number
of directors of the Company shall be fixed in accordance with the Company’s certificate of incorporation as then in effect. The
authorized number of directors of the Company is currently set at seven. Our Certificate of Incorporation and Bylaws provide that
the Board shall be divided into three classes constituting the entire Board. The members of each class of directors serve staggered
three-year terms. Proxies cannot be voted for a greater number of persons than the number of nominees named in this Proxy
Statement.
Currently, the Board is composed of the following seven members:
Class
Directors
Term Commencement
Term Expiration
I
II
III
E. Miles Kilburn and Eileen F. Raney
Geoffrey P. Judge, Michael D.
Rumbolz and Ronald V. Congemi
Linster W. Fox and Maureen T.
Mullarkey(1)
2018 Annual Meeting of
Stockholders
2016 Annual Meeting of
Stockholders
2017 Annual Meeting of
Stockholders
___________________
2021 Annual Meeting of
Stockholders
2019 Annual Meeting of
Stockholders
2020 Annual Meeting of
Stockholders
(1) Ms. Mullarkey’s term of office began on March 7, 2018, when she was appointed to the Board.
Upon the recommendation of the Nom Gov Committee of the Board, the Board has nominated Geoffrey P. Judge, Michael D.
Rumbolz and Ronald V. Congemi, who are currently Class II Directors of the Company, for reelection as Class II Directors of the
Company. If reelected, each will serve a three-year term until the 2022 Annual Meeting of Stockholders and until his or her
successor is each duly elected and qualified or until his or her earlier resignation or removal. Messrs. Judge, Rumbolz and Congemi
have consented, if reelected as Class II Directors of the Company, to serve until their respective terms expire. The Board believes
that Messrs. Judge, Rumbolz and Congemi will serve if elected, but if a nominee should become unavailable to serve as a director,
and if the Board designates a substitute nominee, the person or persons named as proxy in the enclosed form of proxy may vote
for a substitute nominee recommended by the Nom Gov Committee and approved by the Board.
Information Concerning the Director Nominees
Information regarding the business experience of our nominees for election as Class II Directors is provided below, as well as a
description of the skills and qualifications that are desirable in light of our business and structure and led to the conclusion that
each nominee should serve as a director.
Geoffrey P. Judge
Age 65
Independent
Director since 2006
Geoffrey P. Judge was a Partner at iNovia Capital, a manager of early stage venture capital funds,
from 2010 to 2016. He has been an active private equity investor since 2002. From 2003 to 2005, he
was an investor in and the Chief Operating Officer of Preclick, a digital photography software firm.
In 2002, he was the Chief Operating Officer of Media Solution Services, Inc., a provider of credit
card billing insert media. From 1997 to 2002, Mr. Judge was a co-founder and Senior Vice President
and General Manager of the media division of 24/7 Real Media. From 1995 to 1997, he was a Vice
President of Marketing for iMarket, Inc., a software company. From 1985 to 1994, Mr. Judge was a
Vice President and General Manager in the credit card division of American Express.
Skills and Qualifications: Mr. Judge is valuable to our Board due to his extensive knowledge of the
Company’s business and his experience in the financial services and payments industries.
10
Michael D. Rumbolz
Age 65
Director since 2010
Ronald V. Congemi
Age 72
Independent
Director since 2013
Michael D. Rumbolz has served as our President and Chief Executive Officer since May 2016, having
previously served as our Interim President and Chief Executive Officer since February 2016 and
previously as an independent member of our Board since 2010 until his February 2016 appointment
to the Interim President and Chief Executive Officer position. From 2008 to 2010, Mr. Rumbolz
served as a consultant to the Company advising on various strategic, product development, and
customer relations matters following the Company’s acquisition of Cash Systems, Inc., a provider
of cash access services to the gaming industry, in 2008. Mr. Rumbolz served as Chairman and Chief
Executive Officer of Cash Systems, Inc. from January 2005 until August 2008. Mr. Rumbolz is the
former Vice Chairman of the Board of Casino Data Systems, was the President and Chief Executive
Officer of Anchor Gaming, was the Director of Development for Circus Circus Enterprises (later
Mandalay Bay Group) and was the President of Casino Windsor at the time of its opening in Windsor,
Ontario. Mr. Rumbolz also has provided various consulting services and held various public and
private sector employment positions in the gaming industry, including serving as Member and
Chairman of the Nevada Gaming Control Board from January 1985 to December 1988. In addition,
Mr. Rumbolz is the former Chief Deputy Attorney General of the State of Nevada. Mr. Rumbolz
currently serves as Chairman of the Board of Directors of Employers Holdings, Inc. (NYSE: EIG),
a holding company whose subsidiaries are engaged in the commercial property and casualty industry.
In addition, Mr. Rumbolz currently serves as a member of the Board of Directors of VICI Properties
Inc. (NYSE: VICI) and Seminole Hard Rock Entertainment, LLC.
Skills and Qualifications: Mr. Rumbolz’s vast experience in and knowledge of the highly regulated
gaming industry, both as an operator and as a regulator, as well as his experience in the cash access
business and skills gained from previous and current public and private board service are valuable
to our Company and our Board.
Ronald V. Congemi is an active member of the Philadelphia Federal Reserve’s Payments Advisory
Council and served as a member of the Board of Directors of Clearent LLC, a merchant processing
company, from 2007 to 2015, and as a consultant to the Acxsys Corporation of Canada, the operating
arm of the Interac debit network of Canada from 2009 to 2011. He was also a paid advisor to the
Gerson Lehrman Group, a global advisory firm. Mr. Congemi previously served as the Chief
Executive Officer of First Data’s Debit Services Group from 2004 until his retirement in 2009. Mr.
Congemi also served as Senior Vice President of Concord EFS, Inc., a payment and network services
company (which was acquired by First Data Corporation in February 2004), and Concord’s Network
Services Group from 2001 to 2004. Mr. Congemi founded Star Systems, Inc., an ATM and Personal
Identification Number, or PIN, debit network in the United States, and served as its President and
Chief Executive Officer from 1984 to 2001.
Skills and Qualifications: Mr. Congemi is valuable to our Board due to his extensive management
experience in the payments industry.
11
THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE ELECTION TO
THE BOARD OF THE NOMINEES NAMED ABOVE.
Directors Whose Terms Will Expire in Future Years
Each of the Company’s directors listed below will continue in office for the remainder of his or her term and until a successor is
duly elected and qualified or until his or her earlier resignation or removal. Information regarding the business experience, skills
and qualifications, and directorships, of each such director is provided below.
Class I Directors Whose Terms Will Expire in 2021
E. Miles Kilburn
Age 56
Independent
Director since 2005
Eileen F. Raney
Age 69
Independent
Director since 2016
E. Miles Kilburn currently serves as Chairman of the Board. Mr. Kilburn is the co-founder and a
partner of Mosaik Partners, LLC, a venture capital firm focused on financial and commerce enabling
technology he founded in 2012. He has been a private investor focused on the electronic payments
sector since June 2004. Prior to that, Mr. Kilburn was Executive Vice President and Chief Strategy
Officer of Concord EFS, Inc., a payment and network services company (which was acquired by
First Data Corporation in February 2004), from 2003 to 2004, and Senior Vice President of Business
Strategy and Corporate Development from 2001 to 2003. He served as Chief Executive Officer of
Primary Payment Systems, Inc. (now Early Warning Services, LLC), a subsidiary of Concord EFS,
Inc., from 2002 to 2003, and Chief Financial Officer from 1997 to 1999. From 1995 to 2001, Mr.
Kilburn served in various roles at Star Systems, Inc., ultimately as Group Executive Vice President
and Chief Financial Officer.
Skills and Qualifications: Mr. Kilburn has valuable knowledge and skills in management due to his
experience in investment and financial technology and payments industries, as well as his status as
an “audit committee financial expert.”
Eileen F. Raney, from January 2011 to November 2013, served as a member of the Board and a
member of the Audit, Compensation and Governance Committees of the Board of SHFL
entertainment, Inc., a global gaming supplier that was acquired by Bally Technologies, Inc. in
November 2013. In 2018, Ms. Raney completed her certification as a NACD Board Leadership
Fellow. Ms. Raney has been a member of the Advisory Board for the University of Nevada-Las Vegas
Libraries since 2010, and a member of the Advisory Board of Fino Consulting since June 2015. She
served on the Board of the University Medical Center of Southern Nevada from 2014 to 2017, as
Vice Chair of the Board of Governors and as Chair of both the Strategy Committee and the Audit
and Finance Committee. From April 2013 to April 2015, she also served as a member of the Board
and Finance Committee of the Board of Nevada Health Centers, a federally qualified health center
in Nevada. From 1988 to 2007, Ms. Raney held numerous positions with Deloitte & Touche USA,
LLP, where she was hired as a Director in 1988 and made Principal in 1990. Her last position prior
to retirement was National Managing Principal, Research & Development and Member, Deloitte &
Touche USA Executive Committee, from 2003 to 2007. She was a member of the Deloitte Board of
Directors from 2000 to 2003 while serving as the Human Capital E-Business Leader. She also held
the positions of Global Leader, Integrated Health Group from 1996 to 2000; and Western Regional
Leader and National Co-Leader, Integrated Health Group from 1988 to 1996.
Skills and Qualifications: Ms. Raney is valuable to our Board due to her experience in the gaming
industry, as well as her financial skills and status as an “audit committee financial expert.”
12
Class III Directors Whose Term Will Expire in 2020
Linster W. Fox
Age 70
Independent
Director since 2016
Maureen T. Mullarkey
Age 59
Independent
Director since 2018
Linster W. Fox is retired and previously served as Executive Vice President, Chief Financial Officer
and Secretary of SHFL entertainment, Inc., a global gaming supplier, from 2009 up until the company’s
acquisition by Bally Technologies, Inc. in November 2013. He served on the Executive Advisory
Board of the Lee Business School at the University of Nevada-Las Vegas from 2015 to 2016, served
as interim Chief Financial Officer of Vincotech in 2009 and as Executive Vice President, Chief
Financial Officer and Secretary of Cherokee International Corp. from 2005 to 2009. He has also
served in a variety of executive roles over the course of 18 years at Anacomp, Inc., including Executive
Vice President and Chief Financial Officer and as a member of the company’s Board of Directors.
He began his career as an accountant at PricewaterhouseCoopers LLC, is a Certified Public
Accountant and has a B.S.B.A. from Georgetown University in Washington, D.C.
Skills and Qualifications: Mr. Fox’s experience in the gaming industry, as well as his financial
background and status as an “audit committee financial expert” are valuable to our Board.
Maureen T. Mullarkey retired in 2007 as Executive Vice President and Chief Financial Officer of
International Game Technology (currently known as International Game Technology PLC), a leading
supplier of gaming equipment and technology, a position Ms. Mullarkey held from 1998 to 2007.
She served in a variety of financial and executive management positions in her 18 years with the
company. Ms. Mullarkey has served since 2014 as a director of PNM Resources, Inc. (NYSE: PNM),
a holding company with two regulated utilities providing electricity and electric services in the State
of New Mexico and Texas. Ms. Mullarkey previously served as a director of NV Energy, Inc. from
2008 to 2013 when the company was sold to Mid-American Energy Holdings Company, a subsidiary
of Berkshire Hathaway, Inc. Ms. Mullarkey served as Entrepreneur in Residence with The Nevada
Institute of Renewable Energy Commercialization from 2009 to 2011. Ms. Mullarkey has a B.S. from
the University of Texas and an M.B.A. from the University of Nevada-Las Vegas.
Skills and Qualifications: Ms. Mullarkey provides valuable knowledge and skills to our Board due
to her experience in the gaming industry, as well as her financial skills and status as an “audit committee
financial expert.”
13
BOARD AND CORPORATE GOVERNANCE MATTERS
Corporate Governance Philosophy
The business and affairs of the Company are managed under the direction of the Board in accordance with the Delaware General
Corporation Law, as implemented by the Company’s Certificate of Incorporation and Bylaws. The role of the Board is to effectively
oversee the affairs of the Company for the benefit of its stockholders and other constituencies. The Board strives to ensure the
success and continuity of business through the selection of qualified management. It is also responsible for reviewing the Company’s
compliance programs so that the Company’s activities are conducted in a responsible and ethical manner. The Company is committed
to having sound corporate governance principles. Highlights of our corporate governance structure and policies include:
WHAT WE DO
þ 86% Independent Directors. Six of our seven directors
have been determined by us to be “independent” as defined
by the SEC and NYSE listing standards, which the Board
has adopted as our standards.
þ “Plurality-Plus” Voting
for Directors. Director
nominees are elected by the highest number of shares cast
“For” a director (mandatory resignation policy for
nominees who fail to receive an affirmative majority of
votes cast).
WHAT WE DON’T DO
X No Related Party Transactions. For fiscal year 2018, we
did not have any related party transactions.
X No Poison Pill. We do not have a “poison pill” or
stockholder rights plan.
X No Pledging of Our Securities. Our officers and directors
are prohibited from pledging our stock to secure loans of
any type.
X No Hedging of Our Securities. Our officers and directors
are prohibited from engaging in any hedging or other
speculative trading in our stock.
þ Independent Chairman. Our Chairman of the Board is
an independent director, which we believe ensures a
greater role for the non-employee directors in setting
agendas and establishing priorities and procedures for the
work of the Board, as well as enables the independent
directors to raise issues and concerns for Board
consideration
involving
management.
immediately
without
þ Separate Chairman and Chief Executive Officer Roles.
Our Board believes the separation of these roles promotes
the balance between the Board’s independent authority to
oversee our business and determine long-term strategy and
implementation and
the Chief Executive Officer’s
execution with his management team of our strategic
direction and oversight of the day-to-day operations and
performance of the Company.
þ Entirely Independent Committees. All of the members
of our Audit, Compensation, and Nom Gov Committees
are independent.
þ Audit Committee Financial Experts. Four of the six
members of our Audit Committee qualify as an “audit
committee financial expert” as defined by the SEC. The
remaining two members qualify as “financially literate.”
þ Regular Executive Sessions of Independent Directors.
Our independent directors regularly meet in executive
session without management’s participation.
þ Limitations on Outside Board Service. Our directors
may not serve on more than three public company boards
without the approval of our Nom Gov Committee.
þ All Directors Attended at Least 75% of Board and
Respective Committee Meetings. Each director attended
at least 75% of the aggregate of the total number of
meetings of the Board and the total number of meetings
held by all Committees of the Board on which he or she
serves held during 2018.
14
þ Annual Board and Committee Self-Evaluations. Our
Board and Committee members conduct self-evaluations
at least annually to determine whether the Board and its
Committees are functioning effectively.
þ Executive Succession Planning Process. Our Board
oversees Chief Executive Officer and senior management
succession planning, which is reviewed at least annually.
þ Code of Business Conduct, Standards and Ethics (and
related training). We have adopted a Code of Business
Conduct, Standards and Ethics for our non-employee
directors and all employees and provide training on
compliance.
Code of Business Conduct, Standards and Ethics and Corporate Governance Guidelines
We have adopted a Code of Business Conduct, Standards and Ethics for our non-employee directors and all employees (including
officers) that is designed to qualify as a “code of ethics” within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002
and the rules promulgated thereunder. The Code of Business Conduct, Standards and Ethics is available on our website at
ir.everi.com/investor-relations/corporate-governance/governance-documents. To the extent required by law, any amendments to,
or waivers from, any provision of the Code of Business Conduct, Standards and Ethics will be promptly disclosed to the public.
To the extent permitted by such legal requirements, we intend to make such public disclosure by posting the relevant material on
our website within four business days following the date of the amendment or waiver in accordance with SEC rules. We have also
adopted Corporate Governance Guidelines to assist the Board in the exercise of its responsibilities.
Whistleblower Hotline
Procedures for (i) the receipt, retention and treatment of complaints regarding improper or questionable accounting internal controls
or auditing matters or practices, and (ii) the confidential, anonymous submission of such complaints are set forth in the Company’s
Code of Business Conduct, Standards and Ethics. In order to facilitate the submission of such complaints, we have implemented
a secure whistleblower hotline and website. The whistleblower hotline and website are operated by an independent service provider
and are available for the anonymous submission of complaints. The Code of Business Conduct, Standards and Ethics is available
on our website at ir.everi.com/investor-relations/corporate-governance/governance-documents.
Policies Related to Equity Ownership
Equity ownership. On February 25, 2016, the Board adopted a Policy on Equity Ownership (the “Equity Ownership Policy”) for
its named executive officers, other executive officers and non-employee directors, which provides that such persons shall, within
five years of the later of: (i) February 25, 2016; and (ii) the date such person first becomes subject to this policy, own shares of
the Company’s Common Stock with a certain value as detailed in this Proxy Statement. At December 31, 2018, all current named
executive officers, other executive officers, and non-employee directors either met the ownership guidelines or were within the
five-year phase-in period. For more information on the Equity Ownership Policy, see “Executive Compensation — Compensation
Discussion and Analysis — Additional Compensation Policies and Practices — Equity Ownership Policy.”
Clawback. In February 2016, the Board adopted an Incentive Compensation Clawback Policy (the “Clawback Policy”). Pursuant
to the Company’s Clawback Policy, in the event of a restatement of the Company’s financial results due to the misconduct of any
employee, the Board or, if so designated by the Board, the Compensation Committee of the Board, is authorized to take action to
recoup all or part of any incentive compensation received by a Section 16 or executive officer of the Company. In determining
whether to take action to recoup any incentive compensation received by a Section 16 or executive officer of the Company, the
Board or, if so designated, the Compensation Committee of the Board, will take into consideration whether the Section 16 or
executive officer engaged in the misconduct or was in a position, including in a supervisory role, to have been able to have
reasonably prevented the misconduct that caused the restatement. For more information on the Clawback Policy, see “Executive
Compensation — Compensation Discussion and Analysis — Additional Compensation Policies and Practices — Clawback Policy”
and our website at ir.everi.com/investor-relations/corporate-governance/governance-documents.
15
No hedging. We do not believe our executive officers or directors should speculate or hedge their interests in our Common Stock.
Our Insider Trading Policy therefore prohibits them from making short sales of our Common Stock or from purchasing or selling
puts, calls or other derivative securities involving our stock.
No pledging. Our Insider Trading Policy prohibits our executive officers and directors from pledging our Common Stock.
Access to Corporate Governance Policies
Stockholders may access the Board Committee charters, our Code of Business Conduct, Standards and Ethics, our Corporate
Governance Guidelines and Clawback Policy at the Corporate Governance section of the “Investors” page on our website at
ir.everi.com/investor-relations/corporate-governance/governance-documents. Copies of our Board Committee charters, Code of
Business Conduct, Standards and Ethics, Corporate Governance Guidelines and Clawback Policy will be provided to any
stockholder upon written request to the Corporate Secretary, Everi Holdings Inc., 7250 South Tenaya Way, Suite 100, Las
Vegas, Nevada 89113, or via e-mail to secretary@everi.com.
Board Leadership Structure
Our Board recognizes that one of its key responsibilities is to evaluate and determine its optimal leadership structure so as to
provide independent oversight of management. Our Board is chaired by Mr. Kilburn, one of our independent directors. Mr. Kilburn’s
service as Chairman enhances the Board’s independent oversight of management, while continuing to provide the effective
leadership necessary for our Chairman. From his 14-year tenure as a member of our Board, Mr. Kilburn has acquired a deep
knowledge of our history and culture as well as the issues, opportunities and challenges facing our business.
Currently, we separate the roles and responsibilities of the Chief Executive Officer and Chairman of the Board in recognition of
the differences between the two roles and to promote the balance between the Board’s independent authority to oversee our business
and determine long-term strategy and the Chief Executive Officer’s implementation and execution with his management team of
our strategic direction and oversight of the day-to-day operations and performance of the Company. The Chairman of the Board:
ü As the current Presiding Director, generally presides at meetings of the Board (including all executive sessions);
ü Serves as the liaison between the Chief Executive Officer and the independent and non-employee directors;
ü Establishes the agenda and presides at executive sessions of the independent and non-employee directors;
ü Generally, approves information provided to the Board; and
ü In conjunction with the Compensation Committee, reviews and approves corporate goals and objectives relevant to the
Chief Executive Officer’s compensation, evaluates the Chief Executive Officer’s compensation based upon such
evaluation, and communicates with the Chief Executive Officer regarding the foregoing.
Board Role in Risk Oversight
Our Board is responsible for oversight of our risk assessment process. The Board’s role in the Company’s risk oversight process
includes receiving regular reports from members of our management team with respect to material risks that the Company faces,
including, but not limited to: operational, financial, legal and regulatory, cybersecurity, strategic and reputational risks. The Board,
or the applicable Committee of the Board, receives these reports from members of our management team to enable it to identify
material risks and assess management’s risk management and mitigation strategies.
In connection with the respective Committee charters, our Audit Committee:
ü assesses risks relating to the Company’s financial statements and cybersecurity matters, including information technology
risks (inclusive of but not limited to data privacy and security issues); and
ü oversees both the Company’s external and internal audit functions and oversees the Company’s compliance with applicable
laws and regulations.
16
Our Compensation Committee:
ü oversees the management of risks relating to the Company’s executive compensation plans and arrangements.
Our Nom Gov Committee:
ü reviews, no less than annually, the independence of our Board and potential conflicts of interest concerning our Board
and senior executives.
While each Committee is responsible for evaluating certain risks and overseeing the management of such risks, our entire Board
is regularly informed through Committee reports about such risks and mitigation strategies.
Executive Sessions of Non-Employee Directors
Pursuant to our Corporate Governance Guidelines and the NYSE listing standards, in order to promote open discussion among
non-employee directors, our non-employee directors regularly meet in executive session without management participation. Our
non-employee directors designate one non-employee director to serve for a one-year term as the Presiding Director to chair the
Board’s executive sessions. The executive sessions occur after each regularly scheduled meeting of the entire Board and at such
other times that the non-employee directors deem necessary or appropriate. These sessions are presided over by the Chairman of
the Board who is currently the designated Presiding Director.
Board Meetings and Annual Meeting of Stockholders Attendance
During fiscal year 2018, our Board held 14 meetings. Each director attended at least 75% of the aggregate of the total number of
meetings of the Board and the total number of meetings held by all Committees of the Board on which he or she serves, in each
case held during 2018. The Company encourages, but does not require, its Board members to attend annual meetings of stockholders.
All of the Company’s then-current Board members attended the Company’s 2018 Annual Meeting of Stockholders, in person or
via teleconference.
Director Independence
Our Corporate Governance Guidelines provide that a majority of our directors serving on our Board must be independent as
required by the listing standards of the NYSE.
We define “independent director” by reference to the rules, regulations and listing qualifications of the NYSE. In general, a director
is deemed independent if the director has no relationship to us that may interfere with the exercise of the director’s independence
from management and our Company. Our Board, after broadly considering all relevant facts and circumstances regarding the past
and current relationships, if any, of each director with the Company, has affirmatively determined that all of the Company’s non-
employee directors, Messrs. Kilburn, Judge, Fox and Congemi and Mses. Raney and Mullarkey, are independent directors, and
determined that there are no material relationships that would interfere with the exercise of such directors’ independent from
management and our Company.
Regular Board and Committee Evaluations
The Board and the Audit, Compensation, and Nom Gov Committees have an annual evaluation of the Committees and of the
Board as a whole. In 2018, there was an evaluation process for the Audit Committee and a combined evaluation process for the
Board and its Committees, which focused on their roles and effectiveness, as well as fulfillment of their fiduciary duties. The
evaluations were completed anonymously to encourage candid feedback. The results of the evaluations are reported to and reviewed
by the full Board. Each Committee and the Board was satisfied with its performance and considered itself to be operating effectively,
with appropriate balance among governance, oversight, strategic and operational matters.
Committees of the Board
The Board has established three standing Committees: the Audit Committee, the Compensation Committee, and the Nom Gov
Committee. In addition, from time to time, special committees may be established under the direction of the Board when necessary
to address specific issues. The composition of the Board Committees complies with the applicable rules of the SEC, the NYSE,
and applicable law. Our Board has adopted written charters for its Audit Committee, Compensation Committee, and Nom Gov
Committee.
17
The table below depicts Committee membership during fiscal year 2018, the current Committee membership as of the date of this
Proxy Statement, as well as the number of times the Committees met during fiscal year 2018. Our Board believes that at this time,
it is appropriate for each of the Board’s non-employee/independent directors to serve on each of our Committees. This approach
encourages focused discussions that benefit from the variety of perspectives and experiences represented by each of our non-
employee directors. Our Board also benefits from a majority of members being apprised of Committee activities, which allows
for the Board to respond quickly as needed to issues that arise. Our Board has determined that each of the members of our standing
Committees identified below was “independent,” as defined under and required by the rules of the SEC and the NYSE. Since
February 2016, when he became our Interim President and Chief Executive Officer (prior to becoming our President and Chief
Executive Officer in May 2016) and director, Mr. Rumbolz has not served as a member of any Committees of the Board.
Name
E. Miles Kilburn*
Geoffrey P. Judge
Ronald V. Congemi
Eileen F. Raney*
Linster W. Fox*
Maureen T. Mullarkey*
___________________
* Audit Committee Financial Expert
Audit
(4 meetings in 2018)
X
Compensation
(6 meetings in 2018)
X
Nom Gov Committee
(5 meetings in 2018)
X
X
X
X
Chair
X
Chair
X
X
X
X
X
X
Chair
X
X
Audit Committee. The Audit Committee has responsibility to, among other things, review and discuss with management and our
independent auditor, each, as appropriate:
•
•
•
•
•
•
the integrity of our financial statements in accordance with generally accepted accounting principles (“GAAP”) and
applicable rules and regulations of the SEC and the NYSE, including the Company’s annual and quarterly audited
financial statements;
the performance and adequacy of the Company’s internal audit function and internal auditor;
policies with respect to risk assessment and risk management, including information technology risks (inclusive of
but not limited to data privacy and security issues) and material financial risk, and the steps management has taken
to monitor and control such exposures (further detail about the role of the Audit Committee in risk assessment and
risk management is included in the section entitled “Board and Corporate Governance Matters - Board Role in Risk
Oversight” above);
the performance and independence of the Company’s independent auditor;
our compliance with certain legal and regulatory requirements, including reports from the Company’s independent
auditor in connection with the preparation of the Company’s financial statements; and
related-party transactions.
The duties and responsibilities of our Audit Committee are more fully described in our Audit Committee Charter, which is available
at the Corporate Governance section of the “Investors” page on our website at ir.everi.com/investor-relations/corporate-governance/
governance-documents.
The Board has determined that Mr. Fox, the Chair of our Audit Committee, and each of Mr. Kilburn, Ms. Raney and Ms. Mullarkey,
members of our Audit Committee, are each an “audit committee financial expert” and “independent” as defined under applicable
NYSE standards and federal securities laws. Messrs. Congemi and Judge are each “financially literate” as defined under applicable
NYSE standards.
Compensation Committee. The Compensation Committee reviews and approves the compensation and benefits of our executive
officers and directors, administers and makes recommendations to our Board regarding our non-Chief Executive Officer
compensation and incentive compensation and equity-based plans, produces an annual report on executive compensation for
inclusion in our annual report or proxy statement, and publishes an annual Compensation Committee report for our stockholders.
The duties and responsibilities of our Compensation Committee are more fully described in our Compensation Committee Charter,
which is available at the Corporate Governance section of the “Investors” page on our website at ir.everi.com/investor-relations/
corporate-governance/governance-documents.
18
Pursuant to the authority granted to it in its charter, during 2018 the Compensation Committee engaged Aon Hewitt (“Aon”) as
its independent executive compensation consultant. Please refer to the discussion of the “Compensation Decision Making Process
— Role of Compensation Consultants” in the “Compensation Discussion and Analysis” section of this Proxy Statement for further
details.
None of the Company’s management participated in the Compensation Committee’s decision to retain Aon; however, the
Company’s management regularly interacted with Aon and provided information upon Aon’s request. Aon reported directly to our
Compensation Committee, and the Compensation Committee may replace Aon or hire additional consultants at any time. Aon
attended meetings of our Compensation Committee, as requested, and communicated with the Chair of the Compensation
Committee between meetings; however, our Compensation Committee made all decisions regarding the compensation of the
Company’s executive officers.
Our Compensation Committee regularly reviews the services provided by its outside consultants and believes that Aon is
independent in providing executive compensation consulting services. Our Compensation Committee conducted a specific review
of its relationship with Aon in 2018 and determined that Aon’s work for the Compensation Committee did not raise any conflicts
of interest, consistent with the guidance provided under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the
“Dodd-Frank Act”), the SEC, and the NYSE. In making this determination, the Compensation Committee noted that during 2018:
•
•
•
•
•
•
Aon did not provide any services to the Company or its management, other than services to our Compensation
Committee, and its services were limited to executive and director compensation consulting. Specifically, it did not
provide, directly, or indirectly through affiliates, any non-executive compensation services, including, but not limited
to, pension consulting or human resource outsourcing;
Fees from the Company were less than 1% of Aon’s total revenue;
Aon maintains a Conflicts Policy with specific policies and procedures designed to ensure independence;
None of the Aon consultants who worked on Company matters had any business or personal relationship with the
Compensation Committee members;
None of the Aon consultants who worked on Company matters, or Aon, as a whole, had any business or personal
relationship with executive officers of the Company; and
None of the Aon consultants who worked on Company matters directly own Company stock.
Our Compensation Committee continues to monitor the independence of its compensation consultant on a periodic basis.
All of the members of our Compensation Committee are independent for purposes of the listing standards of the NYSE.
Nom Gov Committee. The Nom Gov Committee (i) compiles and presents to the Board potential criteria for prospective members
of our Board, conducts candidate searches and interviews, and formally proposes the slate of directors to be elected at each annual
meeting of our stockholders, (ii) develops and recommends to our Board adoption of our Corporate Governance Guidelines, our
Code of Business Conduct and our policies with respect to conflicts of interest, (iii) makes recommendations to the Board of
Directors as to the membership of Committees of the Board, (iv) oversees and evaluates our Board and management, (v) evaluates
from time to time the appropriate size and composition of our Board and recommends, as appropriate, increases, decreases and
changes in the composition of our Board, and (vi) monitors our compliance with applicable laws, rules and regulations. The duties
and responsibilities of our Nom Gov Committee are more fully described in our Nom Gov Committee Charter, which is available
at the Corporate Governance section of the “Investors” page on our website at ir.everi.com/investor-relations/corporate-governance/
governance-documents.
All of the members of our Nom Gov Committee are independent for purposes of the listing standards of the NYSE.
Director Nomination Process
Our Nom Gov Committee is responsible for recommending director candidates and nominees to the full Board of Directors, in
collaboration with the Chairman of the Board.
As provided in the charter of the Nom Gov Committee, nominations for director may be made by the Nom Gov Committee or by
a stockholder of record entitled to vote. The Nom Gov Committee will consider and make recommendations to the Board regarding
any stockholder recommendations for candidates to serve on the Board. Stockholders wishing to recommend candidates for
consideration by the Nom Gov Committee may do so in accordance with the instructions set forth under “When are stockholder
proposals due for the 2020 Annual Meeting of Stockholders?” section of this Proxy Statement.
19
Director Selection Process
Our Nom Gov Committee seeks to identify candidates based on input provided by a number of sources, including (i) other members
of the Board, (ii) officers and employees of the Company, and (iii) stockholders of the Company.
Our Nom Gov Committee will also seek ongoing input from the incumbent directors and the Chief Executive Officer, with the
goal of identifying and informally approaching possible director candidates in advance of actual need. The Company does not pay
any third party to identify or assist in identifying or evaluating potential nominees. The Board shall itself determine in each case
the manner by which an invitation to join the Board shall be extended to director nominees, other than those nominated directly
by the Company’s stockholders.
Key factors the Nom Gov Committee considers when determining whether to recommend directors for nomination include:
• Experience - Particular skills and leadership that are relevant to the Company’s industry
• Diversity - Diversity of background, race, gender, qualifications, attributes and skills
• Age and Tenure - The age and Board tenure of each incumbent director
• Board Size - The Nom Gov Committee periodically evaluates the size of the Board, depending on the Board’s needs
• Board Independence - Independence of candidates for director nominees, including the appearance of any conflict in
serving as a director
• Board Contribution - Integrity, business judgment and commitment
• Willingness to Continue to Serve - as applies to current directors if re-nominated
Once director candidates have been identified, the Nom Gov Committee will then evaluate each candidate in light of his or her
qualifications and credentials, and any additional factors that the Nom Gov Committee deems necessary or appropriate. Existing
directors who are being considered for re-nomination will be re-evaluated in connection with the Nom Gov Committee’s process
of recommending director candidates. There are no differences in the manner in which the Nom Gov Committee evaluates nominees
for director based on whether the nominee is recommended by the Nom Gov Committee or a stockholder.
A detailed description of the criteria used by the Nom Gov Committee in evaluating potential candidates may be found in the
charter of the Nom Gov Committee which is available at the Corporate Governance section of the “Investors” page on our website
at ir.everi.com/investor-relations/corporate-governance/governance-documents.
Board Diversity
Our Board believes that the Company’s directors should possess a combination of skills, professional experience, expertise, and
diversity of backgrounds necessary to enable the Board to perform its oversight function effectively. Our Board maintains there
are certain attributes every director should possess, as reflected in the Board’s membership criteria as discussed above in the
“Director Selection Process.” Accordingly, our Board and our Nom Gov Committee consider the qualifications of directors and
director candidates individually and in the context of the Board’s overall composition and the Company’s current and anticipated
future needs. The Board assesses the effectiveness of this goal as part of its annual evaluation process.
Board Refreshment
We periodically review our Board’s composition to ensure that we have the right mix of skills, background and tenure. Our Board
currently consists of seven directors divided into three equal classes, who each serve a three-year term. The background and skills
of these directors contribute significantly to the Company’s strategy for future growth and long-term value creation.
Our Board also believes that directors develop an understanding of the Company and an ability to work effectively as a group
over time that provides substantial value and a significant degree of continuity year-over-year beneficial to our stockholders.
20
As a result of healthy refreshment of the Board, the current tenure, independence, and diversity composition of our Board is as
follows:
Tenure
43% < 5 Years
29% 5 - 10 Years
28% > 10 Years
Independence
86% Independent
14% Non-Independent
Diversity
71% Male
29% Female
Communication Between Interested Parties and Directors
Stockholders and other interested parties may communicate with individual directors (including the Presiding Director), the
members of a Committee of the Board, the independent directors as a group or the Board as a whole by addressing the communication
to the named director, the Committee, the independent directors as a group or the Board as a whole, c/o Corporate Secretary,
Everi Holdings Inc., 7250 South Tenaya Way, Suite 100, Las Vegas, NV 89113, or via e-mail to secretary@everi.com. The
Company’s Corporate Secretary will forward all correspondence to the named director, the Committee, the independent directors
as a group or the Board as a whole, except for spam, junk mail, mass mailings, product complaints or inquiries, job inquiries,
surveys, business solicitations or advertisements or patently offensive or otherwise inappropriate material. The Company’s
Corporate Secretary may forward certain correspondence, such as product-related inquiries, elsewhere within the Company for
review and possible response.
Relationships Among Directors or Executive Officers
There are no family relationships among any of the Company’s directors or executive officers.
Executive Employment Agreements
We are party to employment agreements with each of our named executive officers. The material terms of the employment
agreements with our named executive officers are described under “Executive Compensation — Compensation of Named Executive
Officers — Employment Contracts and Equity Agreements, Termination of Employment and Change in Control Arrangements.”
Director and Officer Indemnification Agreements
We have entered into an indemnification agreement with each of our directors and executive officers. Insofar as indemnification
for liabilities arising under the Securities Act of 1933, as amended (the “Securities Act”) may be permitted to directors or executive
officers, we have been informed that in the opinion of the SEC such indemnification is against public policy and is therefore
unenforceable. We have purchased and maintain insurance on behalf of all of our directors and executive officers against liability
asserted against or incurred by them in their official capacities, whether or not we are required to have the power to indemnify
them against the same liability.
2018 Director Compensation
Historically, our independent director compensation was delivered in the form of cash retainers for Board and Board Committee
service, annual grants of stock options, and a one-time award of stock options upon initial appointment to the Board. In the fourth
quarter 2017, the Compensation Committee reviewed the structure of our compensation program and made adjustments based
upon a competitive market assessment, the Company’s share price at the time of equity grants, and input from its independent
compensation consultant.
For 2018, the Compensation Committee adopted the following changes to the compensation of our independent directors:
•
•
•
The values of cash retainers were increased to better align to competitive market practice;
The form of equity portion of compensation was changed from stock options to restricted stock units, which vest
33% per year for three years and settle upon the earlier of the director’s separation from service, the occurrence of
a Change in Control, or the ten-year anniversary of the date of grant; and
The number of restricted stock units was determined based on stated cash value consistent with competitive market
practice and converted to restricted stock units of equivalent value as of the date of grant.
21
In 2018, our non-employee directors were compensated through equity awards and annual cash retainers for Board and Board
Committee service, as follows:
All non-employee Board Members
Chairman of the Board
Audit Committee Member
Audit Committee Chair
Compensation Committee Member
Compensation Committee Chair
Nom Gov Committee Member
Nom Gov Committee Chair
___________________
Annual Cash Retainer
$75,000
$100,000
($75,000 retainer plus $25,000 Chair fee)
$12,500
$25,000
$10,000
$20,000
$9,375
$15,000
Restricted Stock Units(1)
17,687(2)
27,891(3)
None
None
None
None
None
None
(1) Vest in equal installments on each of the first three anniversary dates of the grant date and settle on the earliest of the
following events: (i) March 7, 2028; (ii) death; (iii) the occurrence of a Change in Control (as defined in the Amended
and Restated 2014 Plan), subject to qualifying conditions; or (iv) the date that is six months following the separation
from service, subject to qualifying conditions.
(2) Represents equity units initially calculated based on a value of $130,000. The actual value at the date of grant is disclosed
in the following table.
(3) Represents equity units initially calculated based on a value of $205,000. The actual value at the date of grant is disclosed
in the following table.
The following table sets forth the compensation of our independent members of the Board for the fiscal year ended December 31,
2018:
Name
Fees earned
or paid in cash
Stock
awards(1)
Total
E. Miles Kilburn(2)
Geoffrey P. Judge(2)
Ronald V. Congemi(2)
Eileen F. Raney(2)
Linster W. Fox(2)
Maureen T. Mullarkey(2)
___________________
$
$
131,875
116,875
106,875
112,500
119,375
87,339
$
217,550
137,959
137,959
137,959
137,959
137,959
349,425
254,834
244,834
250,459
257,334
225,298
(1) Represents the fair value of the directors’ restricted stock unit awards in fiscal year 2018, as calculated in accordance
with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, Stock
Compensation. The time-based restricted stock units awards granted in 2018 to independent members of our Board vest
in equal installments on each of the first three anniversary dates of the grant date and settle on the earliest of the following
events: (i) March 7, 2028; (ii) death; (iii) the occurrence of a Change in Control (as defined in the Amended and Restated
2014 Plan), subject to qualifying conditions; or (iv) the date that is six months following the separation from service,
subject to qualifying conditions. For a discussion on the assumptions made in the valuation of the directors’ restricted
stock unit awards, see the notes to the consolidated financial statements contained in the Company’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2018.
22
(2) At December 31, 2018, our independent directors had the following aggregate numbers of unvested restricted stock unit
awards and shares underlying unvested option awards:
Name
Unvested stock
awards
Shares underlying
unvested option
awards
E. Miles Kilburn
Geoffrey P. Judge
Ronald V. Congemi
Eileen F. Raney
Linster W. Fox
Maureen T. Mullarkey
27,891
17,687
17,687
17,687
17,687
17,687
156,248
94,998
94,998
95,000
95,000
—
Compensation Committee Interlocks and Insider Participation
During fiscal year 2018, no member of the Compensation Committee was, or formerly was, an officer or employee of the Company
or its subsidiaries. During fiscal year 2018, no interlocking relationship existed between any member of the Company’s Board or
Compensation Committee and any member of the Board or Compensation Committee of any other company, nor has such
interlocking relationship existed in the past.
Chief Executive Officer and Senior Management Succession Planning
Our Board oversees Chief Executive Officer and senior management succession planning, which is reviewed at least annually.
Our Chief Executive Officer, after consultation with other members of management, provides the Board with a list of key individuals
with immediate impact, the critical area of such individual’s impact, short-term/interim action and long-term action. Our Board
reviews this information with our Chief Executive Officer. Further, our Board periodically reviews the overall composition of our
senior management’s qualifications, tenure and experience.
23
Review, Approval or Ratification of Transactions with Related Persons
TRANSACTIONS WITH RELATED PERSONS
Under written procedures adopted by the Board, any transaction that is required to be reported under Item 404(a) of Regulation
S-K promulgated by the SEC must be reviewed, approved or ratified by the Audit Committee. The types of transactions subject
to these procedures include, but are not limited to: (i) the purchase, sale or lease of assets to or from a related person; (ii) the
purchase or sale of products or services to or from a related person; or (iii) the lending or borrowing of funds from or to a related
person. Approval of transactions with related persons shall be at the discretion of the Audit Committee, but the Audit Committee
shall consider: (a) the consequences to the Company of consummating or not consummating the transaction; (b) the extent to
which the Company has a reasonable opportunity to obtain the same or a substantially similar benefit of the transaction from a
person or entity other than the related person; and (c) the extent to which the terms and conditions of such transaction are more
or less favorable to the Company and its stockholders than the terms and conditions upon which the Company could reasonably
be expected to negotiate with a person or entity other than the related person. Further, our Code of Business Conduct, Standards
and Ethics requires our non-employee directors and our officers and employees to raise with our General Counsel any material
transaction or relationship that could reasonably be expected to give rise to a personal conflict of interest. Our Corporate Governance
Guidelines also prohibit the Company’s making of any personal loans to directors, executive officers or their immediate family
members.
Transactions with Related Persons in 2018
During fiscal year 2018, the Company did not engage in any transactions, and there are not currently proposed any transactions,
or series of similar transactions, to which the Company was or will be a party, with related parties that required review, approval
or ratification of the Audit Committee or any other Committee.
24
EXECUTIVE OFFICERS
Set forth below is certain information regarding each of our current executive officers, other than Mr. Rumbolz, whose biographical
information is presented under “Information Concerning the Director Nominees.”
Name
Michael D. Rumbolz
Randy L. Taylor
Edward A. Peters
Dean A. Ehrlich
Harper H. Ko
Age
65
56
56
50
45
Position
President and Chief Executive Officer
Executive Vice President and Chief Financial Officer
Executive Vice President, Sales and Marketing
Executive Vice President, Games Business Leader
Executive Vice President, Chief Legal Officer, General Counsel and Corporate Secretary
Randy L. Taylor has served as our Executive Vice President and Chief Financial Officer since March 2014, having previously
served as the Company’s Senior Vice President and Controller since November 2011. Prior to joining the Company, Mr. Taylor
served in various positions for Citadel Broadcasting Corporation, a radio broadcasting company, from April 1999 to September
2005 and from September 2006 to September 2011, including as Chief Financial Officer, from 2008 to 2011. In December 2009,
Citadel Broadcasting Corporation filed a petition for voluntary reorganization under Chapter 11 of the U.S. Bankruptcy Code and
emerged from reorganization under Chapter 11 in June 2010. Mr. Taylor also served as the Vice President of Finance and Corporate
Controller of Bally Technologies, Inc. from September 2005 to September 2006.
Edward A. Peters has served as our Executive Vice President, Sales and Marketing since January 2015, having previously served
as Senior Vice President, Sales for the Company since November 2014. Prior to joining the Company, Mr. Peters served in various
senior executive positions, including as Senior Vice President Business Development in Global Commercial Services from February
2010 through November 2014 for Fidelity Information Services, a services and global business solutions company; Chief
Information Officer for Silverton Bank from August 2004 through February 2010; and Senior Vice President for Prudential Bank
from December 2000 through July 2004.
Dean A. Ehrlich has served as our Executive Vice President, Games Business Leader since January 2017, having previously
served as an Executive Consultant to the Company since August 2016. Prior to joining the Company, Mr. Ehrlich served in various
senior executive positions with WMS Industries Inc., an electronic gaming and amusement manufacturer, from May 2003 through
July 2015, which was acquired by Scientific Games Corporation in late 2013, including as Senior Vice President Global Gaming
Operations. Mr. Ehrlich spent several years at Anchor Gaming from October 1994 until May 2003, which was acquired by
International Game Technology in late 2001, serving in multiple leadership roles, including as General Manager for its Proprietary
Games division.
Harper H. Ko has served as our Executive Vice President, Chief Legal Officer, General Counsel and Corporate Secretary since
December 2017. Prior to joining the Company, Ms. Ko served as Deputy General Counsel, Gaming for Scientific Games
Corporation, a leading gaming and lottery equipment and services supplier, from 2014 to 2017. From November 2007 to November
2014, Ms. Ko served as Assistant General Counsel for Bally Technologies, Inc., a manufacturer of casino equipment and games,
joining Scientific Games following its acquisition of Bally Technologies, Inc. Ms. Ko also served as a Contract Attorney with
Harrah’s Operating Company from 2006 to 2007, as Associate Corporate Counsel for Aristocrat Technologies, Inc. from 2004 to
2006, and as counsel for WMS Industries, Inc. from 2000 to 2004.
25
PROPOSAL 2
ADVISORY (NON-BINDING) VOTE TO APPROVE THE COMPENSATION OF OUR
NAMED EXECUTIVE OFFICERS
(SAY ON PAY)
(Item No. 2 on the Proxy Card)
As required by Item 24 of Schedule 14A, we are asking for stockholder approval, on a non-binding, advisory basis, of the
compensation of our named executive officers as disclosed in this Proxy Statement, which disclosures include the disclosures
under “Compensation Discussion and Analysis,” the compensation tables, and the narrative discussion following the compensation
tables. This proposal, commonly known as “Say on Pay” proposal, is not intended to address any specific item of compensation,
but rather the overall compensation of our named executive officers and the policies and practices described in this Proxy Statement.
We believe that the Company has created a compensation program deserving of stockholder support. At our 2018 annual meeting
of stockholders, over 99% of the votes cast supported our executive compensation program for 2017. Our Compensation Committee,
which is responsible for designing and administering our executive compensation program, has designed our executive
compensation program to provide a competitive and internally equitable compensation and benefits package that reflects Company
performance, job complexity and the strategic value of the applicable position, while ensuring long-term retention, motivation
and alignment with the long-term interests of the Company’s stockholders.
Please read “Compensation Discussion and Analysis” for additional details about our executive compensation program, including
information about the 2018 compensation of our named executive officers.
The Board unanimously recommends that stockholders vote in favor of the following resolution:
“RESOLVED, that the stockholders of Everi Holdings Inc. approve, on a
non-binding advisory basis, the compensation paid to the Company’s named
executive officers, as disclosed pursuant to Item 402 of Regulation S-K, set
forth in the Company’s definitive proxy statement for the 2019 Annual
Meeting of Stockholders.”
Approval of this non-binding, advisory “Say on Pay” resolution requires the affirmative vote of the holders of a majority of the
votes cast at the Annual Meeting at which a quorum is present.
The vote on this proposal is non-binding and advisory in nature and will not affect any compensation already paid or awarded to
any named executive officer, and it will not be binding on or overrule any decisions by our Board or our Compensation Committee.
Nevertheless, our Board highly values input from our stockholders, and our Compensation Committee will carefully consider the
result of this vote when making future decisions about executive compensation.
THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE RESOLUTION
APPROVING THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THIS
PROXY STATEMENT.
26
EXECUTIVE COMPENSATION
The Company is a holding company, the principal asset of which is the capital stock of Everi Payments Inc. (“Everi Payments”),
and the capital stock of Everi Games Holding Inc. (“Everi Games Holding”), which is the parent of Everi Games Inc. (“Everi
Games”). All of the executive officers of the Company are employees of Everi Payments, other than Mr. Ehrlich who is an employee
of Everi Games. All references in this Proxy Statement to executive compensation relate to the executive compensation paid by
Everi Payments or Everi Games to such executive officers.
Compensation Discussion and Analysis
The following Compensation Discussion and Analysis (“CD&A”) describes the philosophy, objectives and structure of our 2018
executive compensation program. This CD&A is intended to be read in conjunction with the Compensation of Named Executive
Officers section contained within this Executive Compensation portion of the proxy, which provides further historical compensation
information for our following named executive officers as of December 31, 2018 (“named executive officers” or “NEOs”):
Name
Michael D. Rumbolz
Randy L. Taylor
Edward A. Peters
Dean A. Ehrlich
Harper H. Ko
President and Chief Executive Officer
Current Title
Executive Vice President and Chief Financial Officer
Executive Vice President, Sales and Marketing
Executive Vice President, Games Business Leader
Executive Vice President, Chief Legal Officer, General Counsel and Corporate Secretary
Quick CD&A Reference Guide
Executive Summary
Compensation Philosophy and Objectives
Compensation Decision Making Process
Compensation Competitive Analysis
Elements of Compensation
Additional Compensation Practices and Policies
Section I
Section II
Section III
Section IV
Section V
Section VI
27
I. Executive Summary
Throughout 2018, the Company successfully implemented strategies that have stabilized the business and strengthened the
Company going forward. This has included improving efficiencies, innovating new content and increasing infrastructure related
to information technology and information security systems. The Company has also improved product offerings and currently has
its most diverse portfolio of Games and FinTech solutions.
The Company’s executive compensation program is designed to pay for performance - that is, to reward executives in a manner
that is proportionate to the achievement of established goals. These goals may be expressed in terms of Company-wide performance,
operating segment performance or individual performance.
2018 Performance Highlights
Throughout 2018 the Company executed on key initiatives which led to consistent improvement in financial performance which
provides the foundation for future growth. Some highlights of our accomplishments in 2018:
•
Total revenues adjusted for the net versus gross retrospective impact of ASC 606 increased by approximately $58.8
million, or 14%, to approximately $469.5 million;
◦
Games segment revenues increased by approximately $36.8 million, or 17%, and FinTech segment revenues
increased by approximately $22.0 million, or 12%;
•
Reported Net Income of approximately $12.4 million as a result of net income in each quarter;
◦
◦
First year of profitability since the acquisition of the Games business in late 2014;
Profitability driven by increased year-over-year revenues in both the Games and in FinTech segments;
•
•
•
Achieved Diluted Earnings per Share of $0.17 in 2018;
Record unit sales of 4,513 units in our Games segment;
Installed base of gaming machines of 13,999 units in our Games segment.
28
2018 Compensation Program Highlights
We believe our pay program is effective, and, consistent with past years, 2018 is a strong affirmation of this belief. Our business
performance in 2018 has been reflected in our executive pay outcomes and Compensation Committee decisions. For example:
•
•
•
•
•
Performance-Based Compensation: Executive compensation includes substantial variable compensation components,
including short-term incentive compensation in the form of annual non-equity incentive cash bonuses that are contingent
upon achievement of certain financial targets as well as long-term incentive compensation in the form of both (i)
performance-based equity grants that are contingent upon achievement of pre-determined revenue and Adjusted Earnings
Before Interest Taxes Depreciation and Amortization (“AEBITDA”) targets by December 31, 2020, and (ii) time-based
equity grants for which full value can only be realized upon continued employment with the Company through the entirety
of the four-year vesting period.
Short-Term Incentive Opportunities: To better align our NEOs (less the Chief Executive Officer) with the outcomes of
our annual performance, target short-term incentive opportunities were increased to 75% of base salary for 2018.
Short-Term Incentive Payouts: Our AEBITDA was $230.4 million, slightly above our target performance level. As such,
executives received annual non-equity incentives for this financial goal. Average achieved target payout for named
executive employees was approximately 80% of individual annual short-term incentive target. (See Appendix A to this
Proxy Statement for a reconciliation of financial measures prepared in accordance with GAAP to non-GAAP financial
measures disclosed in this CD&A. Non-GAAP financial measures should be viewed in addition to, and not as an alternative
for, financial results prepared in accordance with GAAP).
Equity Grants in 2018: Consistent with past years, the Compensation Committee concluded that executive equity grants
are a beneficial vehicle for retaining and motivating the executive team to pursue the creation of long-term sustainable
stockholder value. In 2018, the Compensation Committee modified the way it delivers long-term awards by replacing
the stock option design used in 2017 with a mix of performance- and time-based restricted share units. The performance-
based restricted share units link executive pay outcomes to three-year corporate revenue growth and AEBITDA growth
goals and time-based restricted share units vest over a four-year period.
Certain Base Salary Increases: In light of strong corporate performance in 2017, the Compensation Committee determined
that the Chief Executive Officer and the Chief Financial Officer should receive merit increases to their respective base
salaries in 2018.
II. Compensation Philosophy and Objectives
The principal objective of the Company’s executive compensation policies is to align the executives’ incentives with the
achievement of the Company’s strategic goals, which are in turn designed to enhance stockholder value. The Company designed
its executive compensation policies to be both fair and reasonable in light of performance, competitive with the compensation
paid to executives of similarly situated companies, and to incent its executives to achieve the Company’s strategic goals, while at
the same time discouraging them and other employees from taking excessive risk.
Our primary objectives can be summed up as such:
ü Align the interests of our executives with those of stockholders;
ü Link executive compensation to the Company’s short-term and long-term performance;
ü Attract, motivate and retain high performing executive officers through competitive compensation arrangements; and
ü Promote long-term value creation and growth strategies.
29
Compensation Governance Practices
The following is an overview of the highlights of our compensation structure, and the fundamental compensation policies and
practices we do and do not use:
WHAT WE DO
þ Executive Compensation Based
on Pay-for-
Performance Philosophy. We align the interests of our
executives and stockholders
the use of
performance-based annual cash incentive compensation
and service and performance-based long-term equity
incentive compensation.
through
WHAT WE DON’T DO
X No Pledging of Our Securities. Our officers and directors
are prohibited from pledging our stock to secure loans of
any type.
þ Double-Trigger Severance Payments. A Change in
Control by itself is not sufficient to trigger severance
payments, it must also be accompanied by a qualifying
termination.
X No Hedging of Our Securities. Our officers and directors
are prohibited from engaging in any hedging or other
speculative trading in our stock.
regarding
þ Cash and Equity Clawback Policy. We have a clawback
policy
incentive
compensation if an executive officer willfully committed
an illegal act, fraud, intentional misconduct or gross
recklessness that caused a mandatory restatement of our
financials.
recoupment of
the
þ Stock Ownership Guidelines
for Officers and
Directors. Our officers and directors are required to
accumulate stock holdings over a reasonable period of time
that is a multiple of their respective base salaries or Board
retainers, as applicable.
X No Defined Benefit or Supplemental Retirement Plans.
We do not provide pension arrangements, retirement plans
or nonqualified deferred compensation plans or
arrangements to our executives, other than benefits
generally available to our employees.
X No Excise Tax Gross-Ups. Our NEOs are not entitled to
any such gross-up.
þ Independent Committee Members. Our Compensation
Committee is comprised of entirely independent members.
X No Excessive Perquisites. We do not provide perquisites
or other personal benefits to executive officers that are not
available to all employees.
þ Independent Compensation Consultant. We engage an
independent compensation consultant to review and
provide recommendations regarding our executive
compensation program.
þ Peer Group Analysis. We
total direct
compensation (base salary, annual cash incentive and long-
term incentive payments) and the mix of compensation
components for the NEOs relative to the peer group as one
of the factors in determining if compensation is adequate
to attract and retain executive officers.
review
þ Annual Say on Pay Advisory Vote.
30
Components of Our Compensation Program
The Compensation Committee oversees our executive compensation program, which includes several compensation elements that
have each been tailored to incentivize and reward specific aspects of Company performance that our Board believes are central
to delivering long-term stockholder value. Key components of our 2018 compensation program are:
Type
Fixed
Element
Performance
Period
Base Salary
Annual
Performance -
based
Annual Cash
Bonus
Annual
Objective
Performance Measured and Rewarded
Recognizes an individual’s role
and responsibilities and serves
as an important retention vehicle
Short-Term Incentive Plan
Rewards achievement of annual
financial objectives and
individual performance goals
Long-Term Incentive Plan
• Reviewed annually and set based on
market competitiveness, individual
performance and internal equity
considerations
• Corporate AEBITDA (37.5%)
• Segment AEBITDA (37.5%)
• Individual Performance Goals (25%)
Performance -
based
Performance-
Based
Restricted Stock
Units
Time-Based
Restricted Stock
Units
Long-Term Supports the achievement of
long-term financial objectives
and share price
• Revenue growth (50%)
• AEBITDA growth (50%)
• Three year performance period
Long-Term Aligns the interests of
• Vests ratably over four years
management and stockholders
and supports share price growth
31
2018 Target Total Compensation
Consistent with our desire to align pay and performance, we take the above-mentioned elements and more heavily weight their
distribution towards variable (or, “at-risk”) compensation. Although our Compensation Committee does not target a specific
allocation for each pay element, the Compensation Committee attempts to deliver an appropriate balance between fixed and
variable elements, as well as short- and long-term incentives, as evidenced here in the following 2018 target pay mix allocation
charts:
2018 Say on Pay Results
At our 2018 Annual Meeting of Stockholders, the Say on Pay proposal received the support of approximately 99.6% of the shares
voted, which we believe indicates strong support for our compensation program and practices. Our Compensation Committee
believes the support for our ongoing efforts to improve and refine our compensation program and further align management and
stockholder interests was reflected in the strong support for our 2018 Say on Pay proposal.
III. Compensation Decision Making Process
Paying for Performance: Realizable Pay
Paying for performance continues to be the foundation of our compensation program, and we put much of our executive’s pay
“at-risk”. In 2016 and 2017, we granted premium priced and market-priced stock options that do not vest unless significant stock
price increases are achieved. In 2018, we granted time-based and performance-based restricted stock unit awards to retain and
motivate our executives to deliver long-term performance. Given that a significant portion of the compensation packages are
variable with our performance, oftentimes the grant date value of compensation packages (as reported annually on the Summary
Compensation Table) is not always reflective of the actual realizable pay value that may be received by the executive team.
32
The following chart shows the difference between the reported pay, as disclosed in the Summary Compensation Table of our NEO
team and the realizable pay values of those awards as of the end of the 2018 fiscal year.
“SCT” pay is the pay disclosed in the Summary Compensation Table, including actual base salary, actual annual bonuses received,
and long-term incentive components (restricted stock awards and annual stock option grants) based on the grant date fair value.
“Realizable as of FYE” pay is defined as the compensation earned or deliverable, including: actual salary received, actual annual
bonuses received, and the intrinsic value of long-term incentive plan components, as valued on December 28, 2018 (the last trading
day of the 2018 fiscal year) using the year-end share price of $5.15 per share.
Role of the Board
Our Board has appointed a Compensation Committee, consisting exclusively of independent directors. The Compensation
Committee’s charter authorizes our Compensation Committee to review and approve or to recommend for approval to the full
Board, the compensation of our Chief Executive Officer and other executives. Our Board has authorized our Compensation
Committee to make various decisions with respect to executive compensation. However, the Board also may make determinations
and approve compensation in its discretion, including where the Compensation Committee recommends that the Board considers
such executive compensation matters.
Role of the Compensation Committee
Our Compensation Committee evaluates the performance of our Chief Executive Officer and approves the compensation for our
Chief Executive Officer in light of the goals and objectives of our compensation program for that year. Our Compensation Committee
annually assesses the performance of our other executives, and, based in part on the recommendations from our Chief Executive
Officer, approves the compensation of these executives. Our Compensation Committee may delegate its authority to subcommittees,
but retains, and does not delegate, any of its responsibility to determine executive compensation.
Role of Management
At the request of our Compensation Committee, our Chief Executive Officer may attend a portion of our Compensation Committee
meetings, including meetings at which our Compensation Committee’s compensation consultants are present. This enables our
Compensation Committee to review, with our Chief Executive Officer, the corporate and individual goals that the Chief Executive
Officer regards as important to achieve our overall business objectives. Our Compensation Committee also requests that our Chief
Executive Officer assesses the performance of, and our goals and objectives for, certain other officers as deemed appropriate,
including our other NEOs. In addition, our Compensation Committee may request certain other executives to provide input on
executive compensation, including assessing individual performance and future potential, market data analyses and various
compensation decisions relating to bonuses, equity awards and other pay during the year. None of our executives generally attends
any portion of Compensation Committee meetings at which his or her compensation is discussed.
33
Role of Compensation Consultants
Pursuant to the authority granted to it in its charter, the Compensation Committee may engage an independent executive
compensation consultant. The consultant reports directly to the Compensation Committee, who may replace the consultant or hire
additional consultants at any time. The compensation consultant attends meetings of the Compensation Committee, as requested,
and may communicate with the Chair of the Compensation Committee between meetings; however, the Compensation Committee
makes all decisions regarding the compensation of the Company’s executive officers.
The compensation consultant provides services to the Compensation Committee, including, but not limited to: advice on
compensation philosophy, incentive plan design, executive job compensation analysis, stockholder engagement and CD&A
disclosure, among other compensation topics. The compensation consultant provides no additional services to the Company, other
than the consulting services provided to the Compensation Committee. In 2018, Aon served as the Compensation Committee’s
independent compensation consultant and provided the foregoing services to the Compensation Committee.
Our Compensation Committee conducted a specific review of its relationship with Aon in 2018, and determined that Aon’s work
for the Compensation Committee did not raise any conflicts of interest. Aon’s work has conformed to the independence factors
and guidance provided by the Dodd-Frank Act, the SEC and the NYSE.
Compensation Risk Oversight
The Compensation Committee has reviewed and discussed the concept of risk as it relates to the Company’s compensation policies
and it does not believe that the Company’s compensation policies encourage excessive or inappropriate risk taking. Further, the
Compensation Committee has endorsed and adopted several measures to further discourage risk-taking, such as robust stock
ownership guidelines for its executives and non-employee directors, and a clawback policy that grants the Compensation Committee
broad discretion to recover incentive awards from Section 16 officers in the unlikely event that incentive plan award decisions
were based on financial results that are subsequently restated.
The Compensation Committee identified no material risks in the compensation programs in 2018.
IV. Compensation Competitive Analysis
The Compensation Committee worked with its independent consultant, Aon, to create a meaningful peer group for the purposes
of assessing the competitiveness and appropriateness of the Company’s NEO compensation in the market. To formulate this peer
group, the Compensation Committee looked to identify two types of businesses: Games and FinTech, which represent the two
core businesses of the Company. From there, the Compensation Committee and Aon screened potential peers for similar size and
complexity, using revenue, market capitalization, and enterprise value as its guiding metrics.
Given the complexities and volatility of the industry, the Compensation Committee believes it is not appropriate to rigidly
benchmark executive pay to a specific percentile of the group. Instead, the Compensation Committee uses the comparative data
merely as a reference point in exercising its judgment about compensation design and setting appropriate target pay levels.
34
Our peer group consists of the following companies:
Comparator Company
Boyd Gaming Corporation
Scientific Games Corp.
Churchill Downs Inc.
JAKKS Pacific, Inc.
Zynga, Inc.
Glu Mobile, Inc.
Pinnacle Entertainment(1)
Red Rock Resorts, Inc.
Eldorado Resorts, Inc.
Tropicana Entertainment Inc.(1)
Golden Entertainment Inc.
VeriFone Systems, Inc.(1)
Euronet Worldwide, Inc.
Moneygram International Inc.
Blackhawk Network Holdings, Inc.(1)
Cardtronics, Inc.
WEX Inc.
Green Dot Corporation
ACI Worldwide, Inc.
Evertec, Inc.
___________________
20 Peers
(1) Peer company was acquired since the completion of the last benchmarking analysis.
Ticker
BYD
SGMS
CHDN
JAKK
ZNGA
GLUU
PNK
RRR
ERI
TPCA
GDEN
PAY
EEFT
MGI
HAWK
CATM
WEX
GDOT
ACIW
EVTC
Type
Gaming
Gaming
Gaming
Gaming
Gaming
Gaming
Gaming
Gaming
Gaming
Gaming
Gaming
Payments
Payments
Payments
Payments
Payments
Payments
Payments
Payments
Payments
35
V. Elements of Compensation
The Company’s executive compensation policy is simple and transparent in design, and consists primarily of base salary, annual
cash incentive awards and long-term equity incentive awards for fiscal year 2018.
Base Salary Compensation
Base salary compensation is intended to provide an appropriate level of assured cash compensation that is sufficient to retain the
services of our executives. Base salary compensation is reviewed annually in connection with the Company’s performance review
process, and are determined based upon the following factors:
•
•
•
•
•
Position and responsibility;
Job performance, and expected contribution to the Company’s future performance;
Market factors, including the market compensation profile for similar jobs and the need to attract and
retain qualified candidates for high-demand positions;
Internal value of the executive’s role based on the relative importance of the job as compared to the
Company’s other executive officers, as measured by the scope of responsibility and performance
expectations; and
Retention risk and the Company’s need to retain high performing and high potential executives.
In 2018, base salary compensation was as follows:
NEO
Michael D. Rumbolz(1)
Randy L. Taylor(1)
Edward A. Peters
Dean A. Ehrlich
Harper H. Ko
___________________
$
2017 Base Salary
2018 Base Salary
$
600,000
400,000
400,000
400,000
—
700,000
475,000
400,000
400,000
350,000
(1) In connection with the Company’s performance review process, the Compensation Committee increased the base salary
for Mr. Rumbolz and Mr. Taylor to $700,000 and $475,000, respectively, effective November 6, 2017.
Annual Cash Incentives
All of our NEOs were eligible for the 2018 annual non-equity cash incentive plan, which promoted the Company’s pay-for-
performance philosophy by providing executives with direct financial incentives in the form of annual cash incentive bonuses for
achieving pre-determined individual and Company performance goals.
Each NEO’s annual non-equity cash incentive bonus target is established as a percentage of base salary. Such target cash bonus
percentage was either negotiated and set forth in the NEO’s employment agreement or otherwise established by the Compensation
Committee. The following targets were effective in 2018:
Name
Michael D. Rumbolz
Randy L. Taylor
Edward A. Peters
Dean A. Ehrlich
Harper H. Ko
Target
Maximum
(As a % of base salary)
100%
75%
75%
75%
75%
150%
150%
150%
150%
150%
36
2018 Performance Metrics
For 2018, the Company’s annual non-equity incentive plan for executives consisted of four performance metrics. The metrics and
their associated weightings in the incentive plan are as follows:
Metric
Michael D. Rumbolz
Randy L. Taylor
Edward A. Peters
Dean A. Ehrlich
Harper H. Ko
Corporate AEBITDA
37.5%
37.5%
37.5%
37.5%
37.5%
Games Segment
AEBITDA
18.75%
18.75%
18.75%
37.5%
18.75%
FinTech Segment
AEBITDA
18.75%
18.75%
18.75%
—
18.75%
Personal Goals
25.0%
25.0%
25.0%
25.0%
25.0%
The goals associated with the AEBITDA components of the annual incentive plan and the associated payouts are as follows:
Component
Corporate AEBITDA
Games AEBITDA
FinTech AEBITDA
______________
Performance Ranges
Target
$228M - $230M
$128M - $129M
$100M - $101M
Payout Ranges
Target(1)
100%
100%
100%
(1) Maximum awards are capped at 150% of each executive’s target award value based on Board discretion.
In 2018, the Individual Performance Goals, established by the Compensation Committee, and weighted equally, consisted of goals
related to Corporate Strategy, Leadership, and Enhancing Customer and Community Relationships. In order for any portion of
the Individual Performance Goals to be paid, the minimum level of Games Segment AEBITDA and FinTech Segment AEBITDA
must be achieved (other than Mr. Ehrlich who must achieve only the minimum Games Segment AEBITDA). The Individual
Performance Goals consist of:
Corporate Strategy
• Continue to lead in product innovation and technology for the gaming
industry.
• Maintain and expand the Company’s operating footprint through strategic
acquisitions, alliances or technology development to achieve growth
targets.
• Continue to improve internal processes to align with provision of best in
class products and services to our customers.
Leadership
• Implement corporate leadership training programs to educate and contribute
to career development of senior and executive leaders.
Enhance Customer and Community
Relationships
• Enhance the Company’s customer communications efforts with efficient
and effective resources to ensure targeted and accurate information
dissemination.
• Implement additional employee benefits and procedures to measure
employee satisfaction to invest in employee retention and better align
employees with the Company’s strategic goals.
2018 Performance and Actual Payouts
For the year ended December 31, 2018, we had the following achievements:
•
•
AEBITDA - $230.4 million (100% of target)
Games AEBITDA - $126.8 million (less than target)
37
76.4%
80.0%
88.3%
73.3%
83.8%
Total
Target
100%
700,000
356,250
300,000
300,000
262,500
Total
Achieved
100%
•
FinTech AEBITDA - $103.6 million (100% of target)
Based upon this performance, the NEOs received an average of approximately 80% of the target payout with respect to the
Company’s AEBITDA objectives and Individual Performance Goals. Final earned payouts were adjusted slightly for certain NEOs
based on the Compensation Committee’s assessment of their individual contributions during the past year.
Target Short-Term
Incentive
Opportunity as a %
of Base Salary
Target Short-Term
Incentive
Opportunity ($)
Total Short-
Term Incentive
Payment
Achieved Short-Term
Incentive
Opportunity as a %
of Base Salary
Name
Base Salary
Michael D. Rumbolz
Randy L. Taylor
Edward A. Peters
Dean A. Ehrlich
Harper H. Ko
$
700,000
475,000
400,000
400,000
350,000
100% $
75%
75%
75%
75%
700,000 $
356,250
300,000
300,000
262,500
535,000
285,000
265,000
220,000
220,000
Target Split
Corporate
Split FinTech
Split Games
Games Only
Personal
Name
37.5%
18.75%
18.75%
37.5%
25.0%
Michael D. Rumbolz
Randy L. Taylor
$
262,500 $
133,594
131,250 $
66,797
131,250 $
66,797
— $
—
175,000 $
89,063
Edward A. Peters
Dean A. Ehrlich
Harper H. Ko
112,500
112,500
98,438
56,250
—
49,219
56,250
—
49,219
—
112,500
—
75,000
75,000
65,625
Corporate
Split FinTech
Split Games
Games Only
Personal
Name
37.5%
18.75%
18.75%
37.5%
25.0%
Actual Split
Michael D. Rumbolz
$
Randy L. Taylor
Edward A. Peters
Dean A. Ehrlich
Harper H. Ko
262,500 $
133,594
112,500
112,500
98,438
131,250 $
66,797
56,250
—
49,219
39,375 $
20,039
16,875
—
14,766
— $
—
—
33,750
—
101,875 $
64,570
79,375
73,750
57,579
535,000
285,000
265,000
220,000
220,000
Long-Term Equity Incentive Awards
We believe that the award of stock-based compensation and incentives is an effective way of aligning our executives’ interests
with the goal of enhancing stockholder value. Due to the direct relationship between the value of an equity award and the Company’s
stock price, we believe that equity awards motivate executives to manage the Company’s business in a manner that is consistent
with stockholder interests. Through the grant of restricted stock unit awards that vest over time, we can align executives’ interests
with the long-term interests of our stockholders who seek appreciation in the value of our Common Stock. To that end, the time-
based equity awards that we grant to executives typically vest and become fully-exercisable over a four-year period.
Correspondingly, the performance-based equity awards that we grant to executives typically vest over a performance period based
on the achievement of certain revenue and AEBITDA targets that must be approved by the Compensation Committee of the Board.
In 2018, the Compensation Committee redesigned the long-term incentive plan. The use of market- (or tied to stock price
performance) and time-based stock options was discontinued. In its place, the Compensation Committee implemented a program
that includes performance- and time-based restricted share units. The new plan was adopted to continue a pay for performance
philosophy, align executives with key financial metrics, and align with a common market-based compensation approach.
38
The principal factors considered in granting restricted stock unit awards and determining the size of grants to executives were
prior performance, level of responsibility, the amounts of other compensation attainable by the executive and the executive’s ability
to influence the Company’s long-term growth and profitability. Our Compensation Committee does not apply any quantitative
method for weighing these factors and a decision to grant an award is primarily based upon a subjective evaluation of the executive’s
past performance as well as anticipated future performance.
2018 Awards
In keeping with the Company’s commitment to strengthening its overall corporate governance, including its compensation program,
the Company continued the practice of granting a mix of performance- and time-based awards. For 2018, 60% of the restricted
stock unit awards consisted of performance-based restricted stock and 40% of the restricted stock unit awards consisted of time-
based restricted stock in order to continue to incentivize, motivate and retain the executive team, while further strengthening and
demonstrating the alignment of management and stockholder interests.
VI. Additional Compensation Policies and Practices
Equity Ownership Policy
The Company and its stockholders are best served by a board and executive team that manage the business with a long-term
perspective. As such, the Company adopted the Equity Ownership Policy in February 2016, as the Company believes stock
ownership is an important tool to strengthen the alignment of interests among stockholders, directors, NEOs, and other officers.
The policy provides that the applicable required level of equity ownership is expected to be satisfied by our directors, NEOs, and
other officers within five years of the later of: (i) February 25, 2016; and (ii) the date such person first becomes subject to the
Equity Ownership Policy.
The Compensation Committee will receive periodic reports of the ownership achieved by each director, executive officer and
other officers. Until such time as such person satisfies the equity ownership requirement, the achievement level of ownership will
be determined by reference to the average closing stock price of our Common Stock during the fiscal year ended immediately
prior to the determination date. Once the equity ownership requirement has been satisfied, future increases or decreases in the
equity price of our Common Stock will not impact the compliance of our directors, executive officers, and other officers with
these guidelines, as long as such person holds the number of shares he or she had at the time he or she achieved the required
ownership level.
The following table sets forth the required salary multiples for each category of person subject to the policy:
Current NEO
Required Salary Multiple
President and Chief Executive Officer
All other NEOs
Other officers
Non-employee directors
6x base salary
3x base salary
1x to 2x base salary
5x annual cash retainer
The value of all of the following types of Company stock or stock options owned by or granted to an executive, other officer or
director qualifies toward the participant’s attainment of the target multiple of pay:
•
•
•
•
Shares owned outright/shares beneficially owned (including by a family member and/or in a trust);
Vested restricted stock;
Shares owned through the Company’s 401(k) plan (if applicable); and
Shares underlying vested, but unexercised, stock options (based on the excess of the market price of the
stock over the exercise price and after deducting any tax withholding obligations).
At December 31, 2018, all current named executive officers, other officers, and non-employee directors either met the ownership
guidelines or were within the five-year phase-in period.
39
Clawback Policy
The Board of the Company adopted an Incentive Compensation Clawback Policy in February 2016, which entitles the Company
to recover certain compensation previously paid to its Section 16 and executive officers. The policy provides that, in the event of
a restatement of the Company’s financial statement for any fiscal year commencing after December 31, 2015 that is due to the
misconduct of any employee, the Board or, if so designated by the Board, the Compensation Committee of the Board, is authorized
to take action to recoup all or part of any incentive compensation received by a Section 16 and executive officer of the Company.
For purposes of this policy, incentive compensation includes any cash compensation or an award of equity compensation from
the Company that is based in whole or in part on the achievement of financial results by the Company, including, but not limited
to, any bonus, incentive arrangement or equity award, but excluding base salary. The policy defines misconduct as the willful
commission of an illegal act, fraud, intentional misconduct or gross recklessness in the performance of an employee’s duties and
responsibilities. In determining whether to take action to recoup any incentive compensation received by a Section 16 or executive
officer of the Company, the Board or, if so designated, the Compensation Committee of the Board, will take into consideration
whether the Section 16 or executive officer engaged in the misconduct or was in a position, including in a supervisory role, to
have been able to have reasonably prevented the misconduct that caused the restatement.
Anti-Hedging and Anti-Pledging Policies
Under our Insider Trading Policy, directors and executive officers, as well as other employees, are prohibited from engaging in
the following activities with respect to the Company’s Common Stock:
•
•
Hedging their interest in Company shares by selling short or trading or purchasing “put” or “call” options
on our Common Stock or engaging in similar transactions; and
Pledging any shares of our Common Stock without prior clearance from our Corporate Compliance Officer
as outlined in our Insider Trading Policy.
As of the date of this Proxy Statement, no shares of Company Common Stock were pledged by any director or executive officer.
Tax Deductibility
Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) generally limits the corporate tax deduction for
compensation paid to the Chief Executive Officer and the three other most highly compensated executives (other than the Chief
Financial Officer) to $1.0 million annually, unless certain requirements are satisfied. To maximize the corporate tax deduction,
our incentive plans in 2017 were designed so that certain awards under those plans could comply with the requirements of Section
162(m) of the Code. As the $1.0 million limit does not apply to compensatory amounts that qualify as performance-based
compensation under Section 162(m), certain of our performance-based awards made pursuant to these plans were intended to
qualify for corporate tax deductibility. The ability to rely on this performance-based compensation exclusion was generally
eliminated in connection with the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) that was enacted on December 22, 2017
and the limitation on deductibility generally was expanded to include all named executive officers, including the Chief Financial
Officer position, which was a function that was previously excluded from the then existing provisions set forth in the Code. As a
result, the Company may no longer take a deduction for any compensation paid to its named executive officers to the extent NEO
compensation is in excess of $1.0 million, unless it qualifies for transition relief applicable to certain arrangements in place as of
November 2, 2017. As a general matter, in making its previous NEO compensation decisions, the Compensation Committee
endeavored to maximize deductibility of compensation under Section 162(m) to the extent practicable while maintaining
competitive compensation; however, the Compensation Committee believes that it is important for it to retain maximum flexibility
in designing compensation programs that are in the best interests of the Company and its stockholders, which may result in
uncertainty and ambiguity with respect to the application and interpretation of the provisions set forth in Section 162(m) of the
Code as amended by the enactment of the 2017 Tax Act. Furthermore, the Compensation Committee intends to continue its use
of performance-based compensation to the extent that compliance with Code requirements does not conflict with the Company’s
compensation objectives. In some cases, the Compensation Committee believes the loss of some portion of a corporate tax deduction
may be necessary and appropriate in order to provide the compensation necessary to attract and retain qualified executives.
40
Retirement Plans
We have established and maintain a retirement savings plan under Section 401(k) of the Code to cover our eligible employees,
including our executive officers. The Code allows eligible employees to defer a portion of their compensation, within prescribed
limits, on a tax deferred basis through contributions to the 401(k) plan. Our 401(k) plan is intended to constitute a qualified plan
under Section 401(a) of the Code and its associated trust is intended to be exempt from federal income taxation under Section 501
(a) of the Code. We make contributions on behalf of certain executive officers consistent with Company contributions to all eligible
non-executive employees.
Severance Benefits
In order to retain the ongoing services of our NEOs, we have provided the assurance and security of severance benefits and change
in control payments, which are described below under the caption “Employment Contracts and Equity Agreements, Termination
of Employment and Change in Control Arrangements.”
We believe that these severance benefits and change in control payments reflect the fact that it may be difficult for such executives
to find comparable employment within a short period of time and that providing such benefits should eliminate, or at least reduce,
the reluctance of senior executives to pursue potential change in control transactions that may be in the best interests of stockholders.
We believe that these benefits are appropriate in size relative to the overall value of the Company.
Compensation Committee Report
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based
upon such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion
and Analysis be included in this Proxy Statement.
Members of the Compensation Committee:
Geoffrey P. Judge (Chair)
Ronald V. Congemi
Linster W. Fox
E. Miles Kilburn
Eileen F. Raney
Maureen T. Mullarkey
41
Compensation of Named Executive Officers
2018 Summary Compensation Table
The following table sets forth the total compensation earned for services rendered in 2018 by the NEOs.
Name and principal
position
Year
Salary
Bonus
Stock
awards(1)(2)
Option
awards(1)
Michael D. Rumbolz
2018
$ 700,000
$
— $ 2,988,000
$
— $
Non-equity
incentive plan
compensation(3)
535,000
All other
compensation(4)
Total
$
17,718
$ 4,240,718
9,787
2,206,795
17,348
1,258,579
16,748
1,971,948
9,793
9,779
1,081,096
690,738
15,910
1,196,161
7,366
1,010,508
16,751
65,714
16,198
1,129,951
1,070,206
687,157
603,497
132,377
285,000
254,365
65,000
220,000
197,300
265,000
198,650
55,000
373,500
—
220,000
10,416
953,917
—
—
266,400
712,316
— 601,162
— 1,195,200
—
— 405,842
— 215,959
560,250
—
— 405,842
448,200
—
— 405,842
— 215,959
—
—
—
—
—
—
—
—
—
President and Chief
Executive Officer
Randy L. Taylor
Executive Vice President,
Chief Financial Officer
Dean A. Ehrlich(5)
Executive Vice President,
Games Business Leader
2017
2016
2018
2017
2016
2018
2017
614,795
507,692
475,000
411,096
400,000
400,000
400,000
Edward A. Peters
Executive Vice President,
Sales Marketing
2018
2017
2016
400,000
400,000
400,000
Harper H. Ko(6)
2018
350,000
Executive Vice President,
Chief Legal Officer,
General Counsel
and Corporate Secretary
___________________
(1) Represents the fair value of the stock and option awards granted to the NEOs, as calculated in accordance with FASB
ASC Topic 718, Stock Compensation. For a discussion of the assumptions made in determining the valuation of these
equity awards, see our notes to the financial statements in the Company’s Annual Report on Form 10-K for the years
ended December 31, 2018, 2017 and 2016.
(2) The restricted stock units granted in 2018 were comprised of both time- and performance-based awards: (a) with 40%
of those restricted stock units granted in 2018 being time-based awards that will vest ratably over a period of four years;
and (b) with 60% of those restricted stock units granted in 2018 being performance-based awards and vesting will be
evaluated by our Compensation Committee of our Board after a performance period, beginning on the date of grant
through December 31, 2020, as a result of certain revenue and AEBITDA growth rate metrics being met, with achievement
of each measure to be determined independently of one another. If the performance criteria of the metrics have been
achieved and are then approved by our Compensation Committee, the eligible awards will become vested on the third
anniversary of the grant dates.
(3) Represents the amount of non-equity incentive compensation earned under the Company’s annual short-term incentive
plan for the fiscal year. Amounts earned for a particular calendar year are typically paid to the NEOs in the first quarter
of the following fiscal year.
(4) Includes contributions made by the Company under its 401(k) plan and cost of short-term and long-term disability
coverage. We make contributions on behalf of certain executive officers consistent with Company contributions to all
eligible non-executive employees.
42
All Other
Stock
Awards:
Number of
Shares of
Stock
Units (#)(3)
Grant date
fair value of
RSUs
awarded
($)(4)
(5) Mr. Ehrlich has served as our Executive Vice President, Games Business Leader since January 2017, having previously
served as an Executive Consultant to the Company since August 2016.
(6) Ms. Ko has served as our Executive Vice President, Chief Legal Officer, General Counsel, and Corporate Secretary since
December 2017.
Grants of Plan-Based Awards
The following table sets forth certain information concerning grants of plan-based awards made to each NEO for the fiscal year
ended December 31, 2018:
Estimated future payouts under non-
equity incentive plan compensation(1)
Estimated future payouts under
equity incentive plan compensation(2)
Name
Michael D. Rumbolz
Grant
Date
Threshold
($)
Target
($)
$
— $ 700,000
Maximum
($)
$1,050,000
Threshold
(#)
Target
(#)
Maximum
(#)
—
—
—
— $
—
Randy L. Taylor
— 356,250
712,500
—
—
—
—
—
5/22/2018
—
—
— 120,000
240,000
480,000
160,000
2,988,000
Dean A. Ehrlich
— 300,000
600,000
—
—
—
—
—
5/22/2018
—
—
—
48,000
96,000
192,000
64,000
1,195,200
Edward A. Peters
— 300,000
600,000
—
—
—
—
—
5/22/2018
—
—
—
22,500
45,000
90,000
30,000
560,250
Harper H. Ko
— 262,500
525,000
—
—
—
—
—
5/22/2018
—
—
—
18,000
36,000
72,000
24,000
448,200
5/22/2018
—
—
—
15,000
30,000
60,000
20,000
373,500
___________________
(1) Represents amounts potentially payable to the NEOs under the Company’s annual cash incentive plan. A more detailed
discussion of how the target is determined and calculated is found in the CD&A above.
(2) The number of performance-based RSUs that are ultimately earned will range from 0% to 200% of the target number
shown above. The number earned will be based upon the attainment of Revenue Growth goals and AEBITDA Growth
goals measured over the three-year period ending on December 31, 2020. The Revenue Growth goals and AEBITDA
Growth goals will apply to 50% of the target number of performance-based RSUs in the table above. The parameters set
forth in the grant notice for these performance-based restricted stock unit awards are as follows:
Performance Ranges
Weighting
50%
Below
Threshold
Threshold
Target Maximum
< 6.3%
6.3%
7.9%
9.5%
50%
< 7.7%
7.7%
9.6%
11.5%
Revenue
Growth
AEBITDA
Growth
Performance-based RSUs Earned
(as a percent of target)
Threshold
Target Maximum
Below
Threshold
0%
0%
50%
100%
200%
50%
100%
200%
(3) Time-based RSUs vest at a rate of 25% per year over the four years from the date of grant.
(4) Represents the total fair value of the NEOs’ restricted stock unit awards granted to the NEOs, as calculated in accordance
with FASB ASC Topic 718 Stock Compensation. For a discussion of the assumptions made in the valuation, please see
the notes to the financial statements in the Company’s Annual Report on Form 10-K for the years ended December 31,
2018, 2017 and 2016.
43
Outstanding Equity Awards
The following table sets forth certain information for our NEOs concerning unexercised stock options, unvested restricted stock
and equity incentive plan awards outstanding at December 31, 2018:
Option awards
Equity Incentive
Plan Awards:
Name
Date
Granted
Number of
securities
underlying
unexercised
exercisable
options
Number of
securities
underlying
unexercised
unexercisable
options
Number of
securities
underlying
unexercised
unearned
options
Stock awards
Number of
shares or
units of
unvested
unearned
stock
Number of
shares or
units of
unearned
unvested
stock
Market
value of
shares or
units of stock
that have not
vested
Michael D. Rumbolz
8/30/2010
100,000
3/1/2011
3/2/2012
3/6/2013
5/2/2014
4/22/2015
2/13/2016
3/8/2017
3/8/2017
5/5/2017
5/22/2018
5/22/2018
12/7/2011
3/2/2012
3/6/2013
5/2/2014
4/22/2015
5/13/2016
5/13/2016
3/8/2017
3/8/2017
5/22/2018
5/22/2018
12/8/2016
12/8/2016
3/8/2017
3/8/2017
5/22/2018
5/22/2018
12/4/2014
4/22/2015
5/13/2016
5/13/2016
3/8/2017
3/8/2017
5/22/2018
5/22/2018
12/29/2017
12/29/2017
5/22/2018
5/22/2018
40,000
40,000
19,424
50,000
37,500
465,116
62,326
30,698
—
—
—
15,000
16,875
11,859
100,000
—
88,776
43,726
35,510
17,490
—
—
21,450
43,550
17,490
35,510
—
—
300,000
—
21,863
44,388
17,490
35,510
—
—
20,625
—
—
—
Randy L. Taylor
Dean A. Ehrlich
Edward A. Peters
Harper H. Ko
—
—
—
—
—
12,500 (1)
—
—
92,093 (1)
—
—
—
—
—
—
—
—
—
43,724 (1)
—
52,470 (1)
—
— —
21,450 (1)
—
52,470 (1)
—
—
— —
—
—
43,724 (1)
—
52,470 (1)
—
—
—
61,875 (1)
—
—
—
Option
exercise
price
Option
expiration
date
$ 3.72
8/30/2020
3.41
5.58
7.09
6.59
7.74
2.78
3.29
3.29
—
—
—
4.57
5.58
7.09
6.59
7.74
1.46
1.46
3.29
3.29
—
—
2.40
2.40
3.29
3.29
—
—
7.61
7.74
1.46
1.46
3.29
3.29
—
—
3/1/2021
3/2/2022
3/6/2023
5/2/2024
4/22/2025
2/13/2026
3/8/2027
3/8/2027
—
—
—
12/7/2021
3/2/2022
3/6/2023
5/2/2024
4/22/2022
5/13/2026
5/13/2026
3/8/2027
3/8/2027
—
—
12/8/2026
12/8/2026
3/8/2027
3/8/2027
—
—
12/4/2024
4/22/2022
5/13/2026
5/13/2026
3/8/2027
3/8/2027
—
—
7.54 12/29/2027
—
—
—
—
—
—
—
186,976
(2)
—
—
—
—
—
—
—
— (7)
(5)
400,000
88,774
(6)
—
106,530
(2)
—
—
— —
—
43,550
(5)
—
106,530
(2)
—
— —
—
200,000
(5)
—
88,774
(6)
—
106,530
(2)
—
—
—
27,500
(6)
7.54 12/29/2027
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8,330
160,000
(3)
(1)
—
—
—
—
—
—
—
—
—
64,000
(1)
—
—
—
—
—
30,000
(1)
—
—
—
—
—
—
—
24,000
(1)
—
—
—
20,000
(1)
—
—
—
—
—
—
—
—
—
—
—
$
—
—
—
—
—
—
—
—
—
42,900
824,000
240,000
(4)
1,236,000
—
—
—
—
—
—
—
—
—
—
96,000
(4)
—
—
—
—
—
45,000
(4)
—
—
—
—
—
—
—
36,000
(4)
—
—
—
—
—
—
—
—
—
—
—
—
329,600
494,400
—
—
—
—
154,500
231,750
—
—
—
—
—
—
123,600
185,400
—
—
103,000
154,500
—
30,000
(4)
___________________
(1) These equity awards vest ratably over the first four anniversaries of the grant date.
44
(2) These equity awards vest at a rate of 25% per year on each of the first four anniversaries of the grant date, provided that
as of the vesting date for each vesting tranche, the closing price of the Company’s shares on the NYSE is at least a
specified price hurdle of $4.11, defined as a 25% 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 such tranche shall vest and become vested shares on the last
day of a period of 30 consecutive trading days during which the closing price is at least the price hurdle. If these target
prices are not met during the life of the grant, the unvested shares underlying the options will terminate, except upon the
termination of service without cause or by the participant without good reason within ten days prior to, or within eighteen
months after a change in control of the Company as defined in the Amended 2014 Plan, in which case, the unvested
shares underlying such options shall become fully vested on the effective date of such change in control.
(3) These equity awards vest over two years from the date of grant, with an equal number of shares vesting each monthly
period.
(4) These equity awards have vesting conditions that will be evaluated by our Compensation Committee of our Board after
a performance period, beginning on the date of grant through December 31, 2020, as a result of certain revenue and
AEBITDA growth rate metrics being met, with achievement of each measure to be determined independently of one
another. If the performance criteria of the metrics have been achieved and are then approved by our Compensation
Committee, the eligible awards will become vested on the third anniversary of the grant dates. The parameters set forth
in the grant notice for these performance-based restricted stock unit awards are as follows:
Performance Ranges
Weighting
Below
Threshold
Threshold
Target Maximum
50%
< 6.3%
6.3%
7.9%
9.5%
50%
< 7.7%
7.7%
9.6%
11.5%
Revenue
Growth
AEBITDA
Growth
Performance-based RSUs Earned
(as a percent of target)
Threshold
Target Maximum
Below
Threshold
0%
0%
50%
100%
200%
50%
100%
200%
(5) These equity awards vest if our average stock price in any period of 30 consecutive trading days meets certain target
prices of $18 and $21 per share during a four-year period that commenced on the date of grant for these options. These
equity awards will expire on the seventh anniversary of the date of grant, except upon the termination of service without
cause within ten days prior to, or within eighteen months after a change in control of the Company as defined in the
Amended 2014 Plan, in which case, the unvested shares underlying such options shall become fully vested on the effective
date of such change in control.
(6) These equity awards vest at a rate of 25% per year on each of the first four anniversaries of the grant date, provided that
as of the vesting date for each vesting tranche, the closing price of the Company’s shares on the NYSE is at least a
specified price hurdle of $2.19, defined as a 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 such tranche shall vest and become vested shares on the last
day of a period of 30 consecutive trading days during which the closing price is at least the price hurdle. If these target
prices are not met during the life of the grant, the unvested shares underlying the options will terminate, except upon the
termination of service without cause or by the participant without good reason within ten days prior to, or within eighteen
months after a change in control of the Company as defined in the Amended 2014 Plan, in which case, the unvested
shares underlying such options shall become fully vested on the effective date of such change in control.
(7) The market-based option awards of 120,000 were canceled in 2018 due to not meeting the vesting requirements related
to the option award granted in 2014.
45
2018 Option Exercises and Stock Vested
The following table sets forth certain information concerning the exercise of stock options, and the vesting of restricted stock, for
each NEO for the fiscal year ended December 31, 2018:
Name
Michael D. Rumbolz
Randy L. Taylor
Edward A. Peters
Dean A. Ehrlich
Harper H. Ko
___________________
Option Awards
Stock Awards
Number of shares
acquired on
exercise
85,000
—
66,251
—
—
Value realized
on exercise(1)
190,850
$
—
503,348
—
—
Number of shares
acquired on
vesting
20,001
11,000
—
—
10,000
Value realized
on vesting(2)
148,608
$
76,010
—
—
49,400
(1) The value realized on exercise equals (i) the closing price of our Common Stock on the date of exercise minus the
exercise price of options exercised, multiplied by (ii) the number of shares that were exercised.
(2) The value realized on vesting equals (i) the closing price of our Common Stock on the vesting date, multiplied by
(ii) the number of shares that vested.
Pay Ratio
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation
S-K, we are providing the following information about the relationship of the annual total compensation of our employees and
the annual total compensation of Mr. Rumbolz, our President and Chief Executive Officer. The pay ratio included in this information
is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K.
For 2018, our last completed fiscal year:
•
•
•
the median of the annual total compensation (inclusive of base salary, bonus and other items, as described
below) of all our employees, other than Mr. Rumbolz, was $68,204; and
the annual total compensation of Mr. Rumbolz, as reported in the Summary Compensation Table included
elsewhere in this Proxy Statement, was $4,240,718.
Based on this information, for 2018, the ratio of the annual total compensation of Mr. Rumbolz, our President
and Chief Executive Officer, to the median of the annual total compensation of all employees was 62.2 to 1.
To identify the median of the annual total compensation of all our employees, as well as to determine the annual total compensation
of the “median employee,” we took the following steps:
1.
2.
We determined that, as of December 31, 2018, we had approximately 1,250 employees, with approximately
93% and 7% of the individuals located domestically in the United States (the “U.S.”) and internationally
in various foreign jurisdictions, respectively.
The relevant payroll and other compensation data for our employee population are maintained in a single
system located at our principal headquarters in the U.S. and were utilized to identify the “median employee”
from our employee population. To identify the “median employee” from our employee population, we
compared the amount of base salary of our employees as reflected in our payroll records and included as
part of the total compensation reported to the Internal Revenue Service on Form W-2 for 2018. We identified
our median employee using this compensation measure, which was consistently applied to all our employees
included in the calculation.
46
3.
Once we identified our median employee, we combined all of the elements of such employee’s compensation
for 2018 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in the annual
total compensation presented in the pay ratio calculation. The difference between such employee’s base
salary and the employee’s annual total compensation represents company matching contributions on behalf
of the employee to our 401(k) employee savings plan and cost of short-term and long-term disability
coverage. Since we do not maintain a defined benefit or other actuarial plan for our employees, and do not
otherwise provide a plan for payments or other benefits at, following, or in connection with retirement, the
“median employee’s” annual total compensation did not include amounts attributable to those types of
arrangements.
Name and principal
position
Michael D. Rumbolz -
President and Chief
Executive Officer
Median Employee(4)
Pay Ratio
___________________
Salary
Year
2019 $700,000
Bonus
Stock
awards(1)
$
— $2,988,000
Option
awards(1)
$
— $
Non-equity
incentive plan
compensation(2)
535,000
All other
compensation(3)
17,718
$
Total
$4,240,718
2019
66,209
—
—
—
—
1,995
68,204
62.2x
(1) Represents the fair value of the equity awards, as calculated in accordance with FASB ASC Topic 718, Stock
Compensation. For a discussion of the assumptions made in determining the valuation of the restricted stock awards, see
our notes to the financial statements in the Company’s Annual Report on Form 10-K for the years ended December 31,
2018, 2017 and 2016.
(2) Represents the amount of non-equity incentive compensation earned under the Company’s annual short-term incentive
plan for the fiscal year. Amounts earned for a particular calendar year are typically paid to the NEOs in the first quarter
of the following fiscal year.
(3) Includes contributions made by the Company under its 401(k) plan as well as short-term and long-term disability payments
made by the Company.
(4) Represents the total annual compensation of the middle-most employee, excluding the President and Chief Executive
Officer.
Employment Contracts and Equity Agreements, Termination of Employment and Change in Control Arrangements
The Company is a party to employment agreements with our NEOs, which provide that, in the event of the termination of the
executive’s employment by the Company, the executive is entitled to the severance benefits described below. The severance
benefits discussed above are all subject to the executive’s execution of a release of claims in favor of the Company. The employment
agreements contain restrictive covenants not to compete with our Company or solicit our employees for a period of two years
immediately following termination of employment, subject to certain exceptions, as well as confidentiality and preservation of
intellectual property obligations.
Mr. Rumbolz:
In the event of termination by the Company without cause or by the executive for good reason (as such terms are defined in the
employment agreement), Mr. Rumbolz’s employment agreement provides for twenty-four months of salary continuation; and
continued group health insurance for the executive and the executive’s eligible dependents over eighteen months. The employment
agreement defers to the equity grants with respect to treatment of outstanding awards in connection with a termination of
employment or a Change in Control (as defined in the Amended 2014 Plan) which provide for accelerated vesting in full of all
unvested equity awards in the event of termination of the executive’s employment by the Company without cause or by the
executive for good reason for 2016 and 2017 equity awards, within eighteen months following a Change in Control event, and
for the 2018 and 2019 equity awards, within twenty-four months of a Change in Control event. In the event of death or incapacity,
Mr. Rumbolz is entitled to base salary and employee benefits earned through the date of such death or incapacity, and, for the
remainder of the term of his agreement, periodic disability payments equal to sixty percent of his then-current base salary at the
time of such death or incapacity. Beginning February 1, 2021, Mr. Rumbolz’s employment agreement will renew for one year
periods on February 1st of each year, unless either party provides 6 months’ notice of nonrenewal.
47
Messrs. Taylor and Peters:
In the event of termination by the Company without cause or by the executive for good reason, Messrs. Taylor’s and Peters’
employment agreements each provides for twelve months of salary continuation plus one times the executive’s target bonus amount
for the year of termination payable over twelve months; continued group health insurance for the executives and the executives’
eligible dependents over twelve months; and accelerated vesting in full of all unvested time-based equity awards. The employment
agreements also provide for accelerated vesting of all unvested equity awards in the event of Change in Control. All equity grants
subject to the single-trigger acceleration benefit have either vested or, with respect to certain market-based equity grants, as of
December 31, 2018, the Closing Price (as such term is defined in the agreement) has not equaled or exceeded the Price Hurdle
(as such term is defined in the agreement). Equity grant agreements in 2015, 2016, and 2017 provide for accelerated vesting in
full of all unvested equity awards in the event of both a Change in Control and a termination of the executive’s employment by
the Company without cause or by the executive for good reason within ten days prior to, or within eighteen months of a Change
in Control event. Equity grant agreements in 2018 provide for accelerated vesting in full of all unvested equity awards in the event
of both a Change in Control and a termination of the executive’s employment by the Company without cause or by the executive
for good reason within twenty-four months of a Change in Control event. In the event of death or incapacity, Messrs. Taylor and
Peters are entitled to base salary and employee benefits earned through the date of such death or incapacity.
Mr. Ehrlich:
In the event of termination by the Company without cause or by the executive for good reason, Mr. Ehrlich’s employment agreement
provides for twelve months of salary continuation plus one times his target bonus amount for the year of termination payable over
twelve months; and continued group health insurance for the executive and the executive’s eligible dependents over twelve months.
Equity grant agreements in 2016 and 2017 provide for accelerated vesting in full of all unvested equity awards in the event of
termination of the executive’s employment by the Company without cause or by the executive for good reason for the 2017 equity
award, within eighteen months following a Change in Control event, and for the 2018 equity award, within twenty-four months
following a Change in Control event. In the event of death or incapacity, Mr. Ehrlich is entitled to base salary and employee benefits
earned through the date of such death or incapacity. Mr. Ehrlich’s employment agreement will renew for one year periods on
January 1st of each year, unless either party provides six months’ notice of nonrenewal.
Ms. Ko:
In the event of termination by the Company without cause or by the executive for good reason (as such terms are defined in the
employment agreement), Ms. Ko’s employment agreement provides for twelve months of salary continuation plus one times the
executive’s target bonus amount for the year of termination payable over twelve months; continued group health insurance for the
executive and the executive’s eligible dependents over eighteen months; accelerated vesting in full of all unvested equity awards
granted on the Effective Date (as such term is defined in the agreement); provided that, in the case of market-based equity awards,
the Closing Price (as such term is defined in the agreement) equals or exceeds the Price Hurdle (as such term is defined in the
agreement) with respect to such award. Equity grant agreements provide accelerated vesting in full of all unvested equity awards
in the event of termination of the executive’s employment by the Company without cause or by the executive for good reason: as
an additional acceleration trigger for that equity granted as of the Effective Date, within eighteen months following a Change in
Control event, and for the 2018 equity award, within twenty-four months following a Change in Control event. In the event of
death or incapacity, Ms. Ko is entitled to base salary and employee benefits earned through the date of such death or incapacity.
Beginning December 29, 2020, Ms. Ko’s employment agreement will renew for one-year periods on December 29th of each year,
unless either party provides six months’ notice of nonrenewal.
48
Treatment of Equity Upon a Termination Without Cause or For Good Reason or in Connection with a Change in Control
The following table sets forth the estimated payments and benefits to the NEOs based upon: (i) a hypothetical termination without
cause by the Company or for good reason by the executive on December 31, 2018 that is not in connection with a Change in
Control event; (ii) a hypothetical Change in Control event on December 31, 2018; and (iii) a hypothetical termination without
cause by the Company or for good reason on December 31, 2018 by the executive in connection with a Change in Control event:
Termination without Cause or For Good Reason
Termination without Cause or For Good Reason
following a Change in Control Event
Acceleration
of Stock and
Options
(3)
Total
Change in
Control
Event
Acceleration
of Stock and
Options
(3)
Cash
Payment
(1)
$
— $ 1,426,666
$
— $ 1,400,000
$
—
—
—
—
865,135
732,103
730,019
655,015
—
—
—
—
831,250
700,000
700,000
612,500
Acceleration
of Stock and
Options
(3)
$ 2,621,968
1,608,658
1,093,658
Total
$ 4,048,634
2,473,792
1,825,761
860,740
1,590,759
257,500
912,515
Benefits
(2)
26,666
33,885
32,103
30,019
42,515
Cash
Payment
Benefits
Name
Michael D. Rumbolz
(1)
$ 1,400,000
$
Randy L. Taylor
Edward A. Peters
Dean A. Ehrlich
Harper H. Ko
831,250
700,000
700,000
612,500
___________________
(2)
26,666
33,885
32,103
30,019
42,515
(1) Based on the NEO’s salary and target bonus in effect at the date of termination.
(2) Estimated value of continued coverage under group health insurance plans through the end of the applicable severance
period.
(3) The value attributable to the hypothetical acceleration of the vesting of any restricted stock awards held by a NEO is
determined by multiplying the number of unvested shares of restricted stock accelerated by $5.15 (the closing price of
our Common Stock on December 28, 2018). The value attributable to the hypothetical acceleration of the vesting of any
stock option awards held by a NEO is determined by multiplying (i) the difference, if greater than zero, between the
exercise price of the applicable stock option award and the closing price of our Common Stock on December 28, 2018
of $5.15 by (ii) the number of unvested shares underlying the applicable stock option. The equity awards held by the
NEO that are subject to possible acceleration are described as unexercisable or not vested in the table entitled “Outstanding
Equity Awards at December 31, 2018.”
Pension Benefits and Nonqualified Deferred Compensation
We do not currently offer, nor do we have plans to provide, pension arrangements, retirement plans or nonqualified deferred
compensation plans or arrangements to our executives, other than the retirement benefits generally available to employees.
49
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company with respect to the beneficial ownership as of March
25, 2019 (except as otherwise noted in the footnotes to the table) by: (i) all persons who are beneficial owners of 5% or more of
our Common Stock; (ii) each director and nominee; (iii) each of our NEOs; and (iv) all current directors and executive officers
as a group.
There were 70,613,515 shares of our Common Stock issued and outstanding as of the close of business on March 25, 2019. The
amounts and percentages of our Common Stock beneficially owned are reported on the basis of regulations of the SEC governing
the determination of beneficial ownership of securities. Under the SEC rules, a person is deemed to be a “beneficial owner” of a
security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or
“investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed
to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days of the
close of business on March 25, 2019. Under these rules, more than one person may be deemed a beneficial owner of securities as
to which such person has no economic interest.
Name
Principal stockholders
Indaba Capital Management, L.P.(2)
Eagle Asset Management, Inc.(3)
BlackRock, Inc.(4)
Private Capital Management, LLC (5)
Directors and named executive officers(6)
Michael D. Rumbolz(7)
E. Miles Kilburn(8)
Edward A. Peters(9)
Randy L. Taylor(10)
Geoffrey P. Judge(11)
Ronald V. Congemi(12)
Dean A. Ehrlich(13)
Eileen F. Raney(14)
Linster W. Fox(15)
Harper H. Ko(16)
Maureen T. Mullarkey(17)
Shares Beneficially Owned
Percentage(1)
Number
7,009,118
5,929,002
4,785,799
3,854,840
1,094,293
700,531
550,500
517,946
420,347
302,251
178,500
164,000
105,000
33,190
—
9.9%
8.4%
6.8%
5.5%
1.5%
*
*
*
*
*
*
*
*
*
*
Directors and current named executive officers as a group (11 persons)
4,066,558
5.5%
___________________
*
Represents beneficial ownership of less than 1%.
(1) The percentage of beneficial ownership as to any person as of a particular date is calculated by dividing the number of
shares beneficially owned by such person, which includes the number of shares as to which such person has the right to
acquire voting or investment power within 60 days after such date, by the sum of the number of shares outstanding as of
such date plus the number of shares as to which such person has the right to acquire voting or investment power within
60 days after such date. Consequently, the numerator and denominator for calculating beneficial ownership percentages
may be different for each beneficial owner.
(2) As reported on Schedule 13G filed on February 14, 2019 for shares held by Indaba Capital Management, L.P. (“Indaba”)
jointly on behalf of Indaba, IC GP, LLC (“IC”), and Derek C. Schrier. According to Schedule 13G, Indaba, IC and Mr.
Schrier all have shared voting and dispositive power over all 7,009,118 shares. The address for Indaba is One Letterman
Drive, Building D, Suite DM700, San Francisco, California 94129.
(3) As reported on Schedule 13G/A filed on January 11, 2019 for shares held by Eagle Asset Management, Inc. (“Eagle”)
on its own behalf. According to Schedule 13G/A, Eagle has sole voting and dispositive power over all 5,929,002 shares.
The address for Eagle is 880 Carillon Parkway, St. Petersburg, FL 33716.
50
(4) As reported on Schedule 13G/A filed on February 4, 2019 for shares held by BlackRock, Inc. (“BlackRock”) on its own
behalf. According to the Schedule 13G/A, BlackRock has sole voting power over 4,651,944 shares and sole dispositive
power over all 4,785,799 shares. The address for BlackRock is 55 East 52nd Street, New York, NY 10055.
(5) As reported on Schedule 13G/A filed on February 8, 2019 for shares held by Private Capital Management, LLC (“Private
Capital”) on its own behalf. According to the Schedule 13G/A, Private Capital has sole voting and dispositive power
over 980,546 shares and shared voting and dispositive power over 2,874,294 shares. The address for Private Capital is
8889 Pelican Bay Boulevard, Suite 500, Naples, Florida 34108.
(6) Includes shares owned and shares issuable upon exercise of stock options that are currently exercisable or exercisable
within 60 days.
(7) Consists of 143,705 shares owned by Mr. Rumbolz and 950,588 shares issuable upon the exercise of stock options that
are currently exercisable or exercisable within 60 days for Mr. Rumbolz.
(8) Consists of 207,645 shares owned by Mr. Kilburn and 492,886 shares issuable upon the exercise of stock options that
are currently exercisable or exercisable within 60 days for Mr. Kilburn.
(9) Consists of 12,000 shares owned by Mr. Peters and 538,500 shares issuable upon the exercise of stock options that are
currently exercisable or exercisable within 60 days for Mr. Peters.
(10) Consists of 69,461 shares owned by Mr. Taylor and 448,485 shares issuable upon the exercise of stock options that are
currently exercisable or exercisable within 60 days for Mr. Taylor.
(11) Consists of 104,672 shares owned by Mr. Judge and 315,675 shares issuable upon the exercise of stock options that are
currently exercisable or exercisable within 60 days for Mr. Judge.
(12) Consists of 16,000 shares owned by Mr. Congemi and 286,251 shares issuable upon the exercise of stock options that
are currently exercisable or exercisable within 60 days for Mr. Congemi.
(13) Consists of 7,500 shares owned by Mr. Ehrlich and 171,000 shares issuable upon the exercise of stock options that are
currently exercisable or exercisable within 60 days for Mr. Ehrlich.
(14) Consists of 59,000 shares owned by Ms. Raney and 105,000 shares issuable upon the exercise of stock options that are
currently exercisable or exercisable within 60 days for Ms. Raney.
(15) Consists of 105,000 shares issuable upon the exercise of stock options that are currently exercisable or exercisable within
60 days for Mr. Fox.
(16) Consists of 12,565 shares owned by Ms. Ko and 20,625 shares issuable upon the exercise of stock options that are currently
exercisable or exercisable within 60 days for Ms. Ko.
(17) As of the date of this filing, Ms. Mullarkey is not a beneficial owner of any securities nor does she have a right to acquire
beneficial ownership within 60 days.
51
PROPOSAL 3
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(Item No. 3 on the Proxy Card)
Ratification of BDO USA, LLP
The Board has appointed BDO USA, LLP to serve as the Company’s independent registered public accounting firm for the
Company’s fiscal year ending December 31, 2019.
Our Board and Audit Committee engaged BDO USA, LLP, effective March 18, 2015, as our independent registered public
accounting firm, beginning with the audit for the year ending December 31, 2015, including the 2015 quarterly reviews.
Although the Company is not required to seek stockholder approval of its selection of an independent registered public accounting
firm, the Board believes it to be sound corporate governance to do so. If the appointment is not ratified, the Board will investigate
the reasons for stockholder rejection and will reconsider its selection of its independent registered public accounting firm. However,
because of the difficulty in making any substitution so long after the beginning of the current year, the appointment of BDO USA,
LLP for fiscal 2019 will stand, unless the Audit Committee finds other good reason for making a change and doing so is in the
best interests of the Company and its stockholders. Even if the appointment is ratified, the Audit Committee, in its discretion, may
direct the appointment of a different independent registered public accounting firm at any time during the fiscal year if the Audit
Committee determines that such a change would be in the Company’s and its stockholders’ best interests. Proxies solicited by our
Board will, unless otherwise directed, be voted to ratify the appointment of BDO USA, LLP as our independent registered public
accounting firm for the fiscal year ending December 31, 2019.
Attendance at Annual Meeting
A representative of BDO USA, LLP is expected to be present at the Annual Meeting, will have an opportunity to make a statement,
if he or she so desires, although we do not expect him or her to do so, and will be available to respond to appropriate questions
from stockholders.
THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE RATIFICATION OF
THE APPOINTMENT OF BDO USA, LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2019.
Audit and Non-Audit Fees
The following table represents fees invoiced for professional audit services rendered by BDO USA, LLP, our independent registered
public accounting firm for the years ended December 31, 2018 and 2017, for the audit of the Company’s annual financial statements
and fees invoiced for other services rendered by BDO USA, LLP for each respective year (amounts in thousands):
Audit fees(1)
Audit-related fees(2)
Tax fees(3)
Total
___________________
Year Ended
December 31,
2018
2017
$
$
1,193
48
7
1,248
$
$
1,303
55
—
1,358
(1) Audit fees include amounts for the following professional services:
•
•
•
•
•
audit of the Company’s annual financial statements for fiscal years 2018 and 2017;
attestation services, technical consultations and advisory services in connection with Section 404 of the
Sarbanes‑Oxley Act of 2002;
reviews of the financial statements included in the Company’s Quarterly Reports on Form 10‑Q;
statutory and regulatory audits, consents and other services related to SEC matters; and
professional services provided in connection with other statutory and regulatory filings.
52
(2) Audit-related fees include amounts for the following professional services:
•
•
•
audit of the Company’s employee benefit program;
evaluations of service organization controls under the Statement on Standards for Attestation Engagements
(SSAE) No. 18; and
professional services provided in connection with proposed accounting and reporting standards.
(3) Tax Fees include amounts for planning (domestic and international), advisory and compliance services.
In making its recommendation to ratify the appointment of BDO USA, LLP as the Company’s independent registered public
accounting firm for the fiscal year ending December 31, 2019, the Audit Committee has considered whether services other than
audit and audit-related services provided by BDO USA, LLP are compatible with maintaining the independence of BDO USA,
LLP.
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting
Firm
The Audit Committee pre-approves all audit and permissible non-audit services provided by its independent registered public
accounting firm. These services may include audit services, audit-related services, tax services and other services. The Audit
Committee has adopted a policy for the pre-approval of services provided by its independent registered public accounting firm.
Under the policy, pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service
or category of services and is subject to a specific budget. In addition, the Audit Committee may also pre-approve particular
services on a case-by-case basis. For each proposed service, the independent registered public accounting firm is required to
provide detailed back-up documentation at the time of approval. The hours expended on the engagement to audit the Company’s
financial statements for fiscal year 2018 were not attributed to work performed by persons other than BDO USA, LLP’s full-time,
permanent employees. All of the services described in the table above were approved in conformity with the Audit Committee’s
pre-approval process for independent registered public accounting firm fees.
53
REPORT OF THE AUDIT COMMITTEE
The information contained in the following report shall not be deemed to be “soliciting material” or to be “filed” with the Securities
and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically
incorporates it by reference in such filing.
The Audit Committee of the Board currently consists of Messrs. Kilburn, Fox, Judge, and Congemi and Mses. Raney and Mullarkey.
Mr. Fox serves as Chair of the Audit Committee. The Board has determined that each member of the Audit Committee meets the
experience requirements of the rules and regulations of the NYSE and the SEC, as currently applicable to the Company. The Board
has also determined that each member of the Audit Committee meets the independence requirements of the rules and regulations
of the NYSE and the SEC, as currently applicable to the Company.
The Audit Committee operates under a written charter approved by the Board. A copy of the charter is available on our website
at ir.everi.com/investor-relations/corporate-governance/governance-documents.
The primary function of the Audit Committee is to assist the Board in fulfilling its oversight responsibilities by reviewing financial
reports and other financial information provided by the Company to any governmental body or the public, the Company’s systems
of internal controls regarding finance, accounting, legal compliance and ethics that management and the Board have established,
and the Company’s auditing, accounting and financial reporting processes generally. The Audit Committee annually recommends
to the Board the appointment of an independent registered public accounting firm to audit the consolidated financial statements
and internal controls over financial reporting of the Company and meets with such personnel of the Company to review the scope
and the results of the annual audits, the amount of audit fees, the Company’s internal controls over financial reporting, the Company’s
consolidated financial statements in the Company’s Annual Report on Form 10-K and other related matters.
The Audit Committee has reviewed and discussed with management the consolidated financial statements for fiscal year 2018
audited by BDO USA, LLP, the Company’s independent registered public accounting firm for its fiscal year ended December 31,
2018, and management’s assessment of internal controls over financial reporting. The Audit Committee has discussed with BDO
USA, LLP various matters related to the financial statements, including those matters required to be discussed under the applicable
standards of the Public Company Accounting Oversight Board. The Audit Committee has also received the written disclosures
regarding auditors’ independence required by the Public Company Accounting Oversight Board’s applicable rules and has discussed
with BDO USA, LLP its independence. Based upon such review and discussions, the Audit Committee recommended to the Board
that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2018 for filing with the SEC.
The Audit Committee and the Board also has recommended, subject to stockholder ratification, the selection of BDO USA, LLP
as our independent registered public accounting firm for the year ending December 31, 2019.
Members of the Audit Committee:
Linster W. Fox (Chair)
E. Miles Kilburn
Geoffrey P. Judge
Ronald V. Congemi
Eileen F. Raney
Maureen T. Mullarkey
54
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company’s directors, executive officers and any persons who directly or indirectly
hold more than 10% of our Common Stock (“Reporting Persons”) to file reports of ownership and changes in ownership with the
SEC. Reporting Persons are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received and written representations from certain Reporting Persons that
no such forms were required, the Company believes that during fiscal year 2018, all Reporting Persons complied with the applicable
filing requirements on a timely basis.
OTHER MATTERS
As of the date of this Proxy Statement, the Company knows of no other matters that will be presented for consideration at the
Annual Meeting. If any other matters properly come before the Annual Meeting, it is intended that proxies in the enclosed form
will be voted in respect thereof in accordance with the judgments of the person voting the proxies.
ANNUAL REPORT TO STOCKHOLDERS AND ANNUAL REPORT ON FORM 10-K
The 2018 Annual Report, including the Company’s audited financial statements, is being delivered with this Proxy Statement, but
is not incorporated into this Proxy Statement and is not to be considered a part of these proxy materials or subject to Regulations
14A or 14C or to the liabilities of Section 18 of the Exchange Act. The information contained in the “Compensation Committee
Report” and the “Report of the Audit Committee” shall not be deemed “filed” with the SEC or subject to Regulations 14A or 14C
or to the liabilities of Section 18 of the Exchange Act.
We will provide a copy of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, to each
stockholder as of the Record Date, without charge, upon written request to Corporate Secretary, Everi Holdings Inc., 7250
South Tenaya Way, Suite 100, Las Vegas, Nevada, 89113, or via e-mail to secretary@everi.com. Any exhibits listed in the
Annual Report on Form 10-K for the fiscal year ended December 31, 2018 also will be furnished upon written request at the actual
expense we incur in furnishing such exhibits.
By Order of the Board of Directors,
/s/ Michael D. Rumbolz
Michael D. Rumbolz
President and Chief Executive Officer
Las Vegas, Nevada
April 22, 2019
55
Appendix A
RECONCILIATION OF NON-GAAP MEASURES
The following table presents a reconciliation of our GAAP financial measure to AEBITDA, the most comparable non-GAAP
financial measure included in this Proxy Statement:
Net income
Income tax benefit
Loss on extinguishment of debt
Interest expense, net of interest income
Operating income
Plus: depreciation and amortization
EBITDA
Non-cash stock compensation expense
Accretion of contract rights
Non-recurring professional fees
Adjustment of certain purchase accounting liabilities
Write-off of inventory and fixed assets
AEBITDA
Year Ended
December 31, 2018
Reconciliation of Net
Income to EBITDA and
AEBITDA
(in thousands)
$
$
$
$
12,356
(9,710)
166
83,001
85,813
126,470
212,283
7,251
8,421
408
(550)
2,575
230,388
We present AEBITDA as we use this measure to manage our business and consider this measure to be supplemental to our operating
performance. We also make certain compensation decisions based, in part, on our operating performance, as measured by
AEBITDA; and our credit facility, senior secured notes and senior unsecured notes require us to comply with a consolidated
secured leverage ratio that includes performance metrics substantially similar to AEBITDA. AEBITDA is not a measure of financial
performance under GAAP. Accordingly, AEBITDA should not be considered in isolation, or as a substitute for, and should be read
in conjunction with, our operating income data prepared in accordance with GAAP.
A-1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
OR
□ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
TO
Commission File Number: 001-32622
EVERI HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization)
7250 S. Tenaya Way, Suite 100, Las Vegas, Nevada
(Address of principal executive offices)
20-0723270
(I.R.S. Employer
Identification No.
)
89113
(Zip Code)
(800) 833-7110
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.001 par value per share
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes □ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes □ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes ☒ No □
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required
to submit such files). Yes ☒ No □
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ ‘‘smaller reporting company,’’ and
‘‘emerging growth company’’ in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
Accelerated filer
Smaller reporting company
□
□
□
☒
□
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. □
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes □ No ☒
As of June 29, 2018, the aggregate market value of the registrant’s common stock held by non-affiliates was approximately $500.2 million
based on the closing sale price as reported on the New York Stock Exchange.
There were 70,320,028 shares of the registrant’s common stock issued and outstanding as of the close of business on March 1, 2019.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant’s Definitive Proxy Statement for its 2019 Annual Meeting of Stockholders (which is expected to be filed
with the Securities and Exchange Commission within 120 days after the end of the registrant’s 2018 fiscal year) are incorporated by reference
into Part III of this Annual Report on Form 10-K. Except as expressly incorporated by reference, the registrant’s Proxy Statement shall not be
deemed to be a part of this Annual Report on Form 10-K.
EVERI HOLDINGS INC.
ANNUAL REPORT ON FORM 10‑K
FOR FISCAL YEAR ENDED DECEMBER 31, 2018
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
5
Business .......................................................................................................................................................
Risk Factors ................................................................................................................................................. 15
Unresolved Staff Comments ........................................................................................................................ 30
Properties ..................................................................................................................................................... 30
Legal Proceedings ........................................................................................................................................ 30
Mine Safety Disclosures .............................................................................................................................. 36
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities ......................................................................................................................................................
Selected Financial Data ................................................................................................................................ 33
Management’s Discussion and Analysis of Financial Condition and Results of Operations ....................... 34
Quantitative and Qualitative Disclosures about Market Risk ...................................................................... 47
Financial Statements and Supplementary Data ............................................................................................ 48
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ....................... 91
Controls and Procedures .............................................................................................................................. 91
Other Information ........................................................................................................................................ 92
32
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance ........................................................................... 94
Executive Compensation .............................................................................................................................. 94
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ..... 94
Certain Relationships and Related Transactions, and Director Independence ............................................. 94
Principal Accountant Fees and Services ...................................................................................................... 94
PART IV
Item 15.
Item 16.
Exhibits and Financial Statement Schedules ................................................................................................ 95
Form 10-K Summary ................................................................................................................................... 99
SIGNATURES .................................................................................................................................................................... 100
In this filing, we refer to: (i) our audited consolidated financial statements and notes thereto as our “Financial Statements,” (ii)
our audited Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) as our “Statements of Income
(Loss),” (iii) our audited Consolidated Balance Sheets as our “Balance Sheets,” and (iv) Item 7. Management’ s Discussion and
Analysis of Financial Condition and Results of Operations as our “Results of Operations.”
ꢀ
CAUTIONARY INFORMATION REGARDING
FORWARD-LOOKING STATEMENTS
EveriꢀHoldingsꢀInc.ꢀ(“EveriꢀHoldings,”ꢀ“Holdings,”ꢀorꢀ“Everi”)ꢀisꢀaꢀholdingꢀcompany,ꢀtheꢀassetsꢀofꢀwhichꢀareꢀtheꢀissuedꢀand
outstandingꢀsharesꢀofꢀcapitalꢀstockꢀofꢀeachꢀofꢀEveriꢀGamesꢀHoldingꢀInc.ꢀ(“EveriꢀGamesꢀHolding”),ꢀwhichꢀownsꢀallꢀofꢀtheꢀissued
andꢀ outstandingꢀ sharesꢀ ofꢀ capitalꢀ stockꢀ ofꢀ Everiꢀ Gamesꢀ Inc.ꢀ (“Everiꢀ Games”ꢀ orꢀ “Games”),ꢀ andꢀ Everiꢀ Paymentsꢀ Inc.ꢀ (“Everi
Payments”).ꢀUnlessꢀotherwiseꢀindicated,ꢀtheꢀtermsꢀtheꢀ“Company,”ꢀ“we,”ꢀ“us,”ꢀandꢀ“our”ꢀreferꢀtoꢀEveriꢀHoldingsꢀtogetherꢀwith
itsꢀconsolidatedꢀsubsidiaries.
OurꢀdisclosureꢀandꢀanalysisꢀinꢀthisꢀAnnualꢀReportꢀonꢀFormꢀ10-Kꢀcontainꢀ“forward-looking”ꢀstatementsꢀwithinꢀtheꢀmeaningꢀof
Sectionꢀ27AꢀofꢀtheꢀSecuritiesꢀActꢀofꢀ1933,ꢀasꢀamendedꢀ(theꢀ“SecuritiesꢀAct”),ꢀSectionꢀ21EꢀofꢀtheꢀSecuritiesꢀExchangeꢀActꢀofꢀ1934,
asꢀamendedꢀ(theꢀ“ExchangeꢀAct”),ꢀandꢀtheꢀPrivateꢀSecuritiesꢀLitigationꢀReformꢀActꢀofꢀ1995.ꢀFromꢀtimeꢀtoꢀtime,ꢀweꢀalsoꢀprovide
forward-lookingꢀstatementsꢀinꢀotherꢀmaterialsꢀweꢀreleaseꢀtoꢀtheꢀpublic,ꢀasꢀwellꢀasꢀoralꢀforward-lookingꢀstatements.ꢀWeꢀhaveꢀtried,
whereverꢀpossible,ꢀtoꢀidentifyꢀsuchꢀstatementsꢀbyꢀusingꢀwordsꢀsuchꢀasꢀ“goal,”ꢀ“target,”ꢀ“future,”ꢀ“estimate,”ꢀ“expect,”ꢀ“anticipate,”
“intend,”ꢀ“plan,”ꢀ“believe,”ꢀ“seek,”ꢀ“project,”ꢀ“may,”ꢀ“should,”ꢀ“will,”ꢀ“likely,”ꢀ“willꢀlikelyꢀresult,”ꢀ“willꢀcontinue,”ꢀ“forecast,”
“observe,”ꢀ“strategy,”ꢀandꢀotherꢀwordsꢀandꢀtermsꢀofꢀsimilarꢀmeaning.ꢀTheꢀforward-lookingꢀstatementsꢀinꢀthisꢀAnnualꢀReportꢀon
Formꢀ10-KꢀreflectꢀtheꢀCompany’sꢀcurrentꢀviewsꢀwithꢀrespectꢀtoꢀfutureꢀeventsꢀandꢀfinancialꢀperformance.
Forward-lookingꢀ statementsꢀ include,ꢀ butꢀ areꢀ notꢀ limitedꢀ to,ꢀ statementsꢀ regardingꢀ theꢀ followingꢀ matters:ꢀ trendsꢀ inꢀ gaming
establishmentꢀ andꢀ patronꢀ usageꢀ ofꢀ ourꢀ products;ꢀ benefitsꢀ realizedꢀ byꢀ usingꢀ ourꢀ productsꢀ andꢀ services;ꢀ productꢀ development,
includingꢀtheꢀreleaseꢀofꢀnewꢀgameꢀfeaturesꢀandꢀadditionalꢀgameꢀandꢀsystemꢀreleasesꢀinꢀtheꢀfuture;ꢀregulatoryꢀapprovals;ꢀgaming
regulatory,ꢀcardꢀassociation,ꢀandꢀstatutoryꢀcompliance;ꢀtheꢀimplementationꢀofꢀnewꢀorꢀamendedꢀcardꢀassociationꢀandꢀpayment
networkꢀ rules;ꢀ consumerꢀ collectionꢀ activities;ꢀ futureꢀ competition;ꢀ futureꢀ taxꢀ liabilities;ꢀ futureꢀ goodwillꢀ impairmentꢀ charges;
internationalꢀexpansion;ꢀresolutionꢀofꢀlitigation;ꢀdividendꢀpolicy;ꢀnewꢀcustomerꢀcontractsꢀandꢀcontractꢀrenewals;ꢀfutureꢀresultsꢀof
operationsꢀ(includingꢀrevenue,ꢀexpenses,ꢀmargins,ꢀearnings,ꢀcashꢀflowꢀandꢀcapitalꢀexpenditures);ꢀfutureꢀinterestꢀratesꢀandꢀinterest
expense;ꢀfutureꢀborrowings;ꢀandꢀfutureꢀequityꢀincentiveꢀactivityꢀandꢀcompensationꢀexpense.ꢀ
Forward-lookingꢀstatementsꢀareꢀneitherꢀhistoricalꢀfactsꢀnorꢀassurancesꢀofꢀfutureꢀperformance.ꢀInstead,ꢀtheyꢀareꢀbasedꢀonlyꢀonꢀour
currentꢀ beliefs,ꢀ expectations,ꢀ andꢀ assumptionsꢀ regardingꢀ theꢀ futureꢀ ofꢀ ourꢀ business,ꢀ futureꢀ plansꢀ andꢀ strategies,ꢀ projections,
anticipatedꢀeventsꢀandꢀtrends,ꢀtheꢀeconomy,ꢀandꢀotherꢀfutureꢀconditions.ꢀBecauseꢀforward-lookingꢀstatementsꢀrelateꢀtoꢀtheꢀfuture,
theyꢀareꢀsubjectꢀtoꢀinherentꢀrisks,ꢀuncertaintiesꢀandꢀchangesꢀinꢀcircumstancesꢀthatꢀareꢀoftenꢀdifficultꢀtoꢀpredictꢀandꢀmanyꢀofꢀwhich
areꢀbeyondꢀourꢀcontrol.ꢀOurꢀactualꢀresultsꢀandꢀfinancialꢀconditionꢀmayꢀdifferꢀmateriallyꢀfromꢀthoseꢀindicatedꢀinꢀforward-looking
statements.ꢀImportantꢀfactorsꢀthatꢀcouldꢀcauseꢀourꢀactualꢀresultsꢀandꢀfinancialꢀconditionꢀtoꢀdifferꢀmateriallyꢀfromꢀthoseꢀindicated
inꢀtheꢀforward-lookingꢀstatementsꢀinclude,ꢀwithoutꢀlimitation:
•
•
•
•
•
•
•
•
•
•
ourꢀhistoryꢀofꢀnetꢀlossesꢀandꢀourꢀabilityꢀtoꢀgenerateꢀprofitsꢀinꢀtheꢀfuture;
ourꢀsubstantialꢀleverage,ꢀrestrictionsꢀunderꢀourꢀindebtedness,ꢀandꢀourꢀabilityꢀtoꢀraiseꢀadditionalꢀcashꢀtoꢀfundꢀoperations,
workingꢀcapital,ꢀandꢀcapitalꢀexpenditures,ꢀandꢀtoꢀserviceꢀallꢀofꢀourꢀindebtedness;
ourꢀabilityꢀtoꢀcompeteꢀinꢀtheꢀgamingꢀindustry,ꢀmanageꢀcompetitiveꢀpressures,ꢀnavigateꢀgamingꢀmarketꢀcontractions,ꢀand
continueꢀoperatingꢀinꢀNativeꢀAmericanꢀgamingꢀmarkets;
ourꢀabilityꢀtoꢀprotectꢀourꢀintellectualꢀpropertyꢀrights;
theꢀimpactꢀofꢀchangesꢀinꢀU.S.ꢀfederalꢀcorporateꢀtaxꢀlaws;
ourꢀabilityꢀtoꢀmaintainꢀourꢀcurrentꢀcustomers,ꢀreplaceꢀrevenueꢀassociatedꢀwithꢀterminatedꢀcontracts,ꢀandꢀaddressꢀmargin
degradationꢀfromꢀcontractꢀrenewals;
ourꢀabilityꢀtoꢀprevent,ꢀmitigate,ꢀorꢀtimelyꢀrecoverꢀfromꢀcybersecurityꢀbreaches,ꢀattacks,ꢀandꢀcompromises;
ourꢀabilityꢀtoꢀexecuteꢀonꢀmergers,ꢀacquisitions,ꢀorꢀstrategicꢀalliances,ꢀincludingꢀourꢀabilityꢀtoꢀintegrateꢀandꢀoperateꢀsuch
acquisitionsꢀconsistentꢀwithꢀourꢀforecasts;
expectationsꢀregardingꢀourꢀexistingꢀandꢀfutureꢀinstalledꢀbaseꢀandꢀwinꢀperꢀday,ꢀourꢀproductꢀportfolio,ꢀandꢀdevelopment
andꢀplacementꢀfeeꢀarrangements;
expectationsꢀregardingꢀcustomers’,ꢀgamingꢀestablishments’,ꢀandꢀpatrons’ꢀpreferencesꢀandꢀdemandsꢀforꢀfutureꢀgaming
offerings;
3
•
•
•
•
•
•
•
•
•
•
•
nationalꢀandꢀinternationalꢀeconomicꢀconditions,ꢀincludingꢀtheꢀoverallꢀgrowthꢀofꢀtheꢀgamingꢀindustry,ꢀifꢀany;
ourꢀabilityꢀtoꢀcomplyꢀwithꢀtheꢀEuropay,ꢀMasterCard,ꢀandꢀVisaꢀglobalꢀstandardꢀforꢀcardsꢀequippedꢀwithꢀsecurityꢀchip
technologyꢀ(“EMV”);
technologicalꢀ obsolescence,ꢀ expenditures,ꢀ andꢀ productꢀ development,ꢀ andꢀ ourꢀ abilityꢀ toꢀ introduceꢀ newꢀ productsꢀ and
services,ꢀincludingꢀthird-partyꢀlicensedꢀcontent;
anticipatedꢀsalesꢀperformance;
employeeꢀturnover;
changesꢀinꢀgamingꢀregulatory,ꢀcardꢀassociation,ꢀandꢀstatutoryꢀrequirements,ꢀasꢀwellꢀasꢀregulatoryꢀandꢀlicensingꢀdifficulties;
operationalꢀlimitations;
uncertaintyꢀofꢀlitigationꢀoutcomes;
businessꢀprospects;
unanticipatedꢀexpensesꢀorꢀcapitalꢀneeds,ꢀinterestꢀrateꢀfluctuations,ꢀorꢀinaccuraciesꢀinꢀunderlyingꢀoperatingꢀassumptions;
and
thoseꢀotherꢀrisksꢀandꢀuncertaintiesꢀdiscussedꢀinꢀ“Itemꢀ7.ꢀManagement’sꢀDiscussionꢀandꢀAnalysisꢀofꢀFinancialꢀCondition
andꢀResultsꢀofꢀOperations”ꢀandꢀ“Itemꢀ1A.ꢀRiskꢀFactors”ꢀofꢀthisꢀAnnualꢀReportꢀonꢀFormꢀ10-K.
Inꢀlightꢀofꢀtheseꢀrisksꢀandꢀuncertainties,ꢀthereꢀcanꢀbeꢀnoꢀassuranceꢀthatꢀtheꢀforward-lookingꢀinformationꢀcontainedꢀinꢀthisꢀAnnual
ReportꢀonꢀFormꢀ10-Kꢀwillꢀinꢀfactꢀtranspireꢀorꢀproveꢀtoꢀbeꢀaccurate.ꢀReadersꢀareꢀcautionedꢀtoꢀconsiderꢀtheꢀspecificꢀriskꢀfactors
describedꢀhereinꢀandꢀinꢀ“Itemꢀ1A.ꢀRiskꢀFactors”ꢀofꢀthisꢀAnnualꢀReportꢀonꢀFormꢀ10-Kꢀandꢀnotꢀtoꢀplaceꢀundueꢀrelianceꢀonꢀthe
forward-lookingꢀstatementsꢀcontainedꢀherein,ꢀwhichꢀareꢀbasedꢀonlyꢀonꢀinformationꢀcurrentlyꢀavailableꢀtoꢀusꢀandꢀspeakꢀonlyꢀasꢀof
theꢀdateꢀhereof.
Weꢀundertakeꢀnoꢀobligationꢀtoꢀupdateꢀorꢀpubliclyꢀreviseꢀanyꢀforward-lookingꢀstatement,ꢀwhetherꢀwrittenꢀorꢀoral,ꢀthatꢀmayꢀbeꢀmade
fromꢀtimeꢀtoꢀtime,ꢀwhetherꢀasꢀaꢀresultꢀofꢀnewꢀinformation,ꢀfutureꢀdevelopmentsꢀorꢀotherwise.ꢀAllꢀsubsequentꢀwrittenꢀorꢀoralꢀforward-
lookingꢀstatementsꢀattributableꢀtoꢀusꢀorꢀpersonsꢀactingꢀonꢀourꢀbehalfꢀareꢀexpresslyꢀqualifiedꢀinꢀtheirꢀentiretyꢀbyꢀthisꢀparagraph.
Youꢀareꢀadvised,ꢀhowever,ꢀtoꢀconsultꢀanyꢀfurtherꢀdisclosuresꢀweꢀmakeꢀonꢀrelatedꢀsubjectsꢀinꢀourꢀreportsꢀandꢀotherꢀfilingsꢀwithꢀthe
SecuritiesꢀandꢀExchangeꢀCommissionꢀ(theꢀ“SEC”).ꢀ
4
Item 1. Business.
Overview
PART I
Everiꢀisꢀaꢀleadingꢀsupplierꢀofꢀtechnologyꢀsolutionsꢀforꢀtheꢀcasinoꢀgamingꢀindustry.ꢀWeꢀprovideꢀcasinoꢀoperatorsꢀwithꢀaꢀdiverse
portfolioꢀofꢀproductsꢀincludingꢀinnovativeꢀgamingꢀmachinesꢀthatꢀpowerꢀtheꢀcasinoꢀfloor,ꢀandꢀcasinoꢀoperationalꢀandꢀmanagement
systemsꢀthatꢀincludeꢀcomprehensiveꢀend-to-endꢀpaymentsꢀsolutions,ꢀcriticalꢀintelligenceꢀofferings,ꢀandꢀgamingꢀoperationsꢀefficiency
technologies.
EveriꢀHoldingsꢀreportsꢀitsꢀresultsꢀofꢀoperationsꢀbasedꢀonꢀtwoꢀoperatingꢀsegments:ꢀGamesꢀandꢀFinTech.ꢀEffectiveꢀAprilꢀ1,ꢀ2018,
weꢀchangedꢀtheꢀnameꢀofꢀtheꢀoperatingꢀsegmentꢀpreviouslyꢀreferredꢀtoꢀasꢀ“Payments”ꢀtoꢀ“FinancialꢀTechnologyꢀSolutions”ꢀ(“Everi
FinTech”ꢀ orꢀ “FinTech”).ꢀWeꢀ believeꢀ thisꢀ referenceꢀ moreꢀ accuratelyꢀ reflectsꢀ theꢀ focusꢀ ofꢀ theꢀ businessꢀ segmentꢀ onꢀ delivering
innovativeꢀandꢀintegratedꢀsolutionsꢀtoꢀenhanceꢀtheꢀefficiencyꢀofꢀtheꢀcasinoꢀoperator,ꢀsupportꢀtheꢀcomprehensiveꢀregulatoryꢀand
taxꢀrequirementsꢀofꢀtheirꢀgamingꢀcustomers,ꢀandꢀimproveꢀplayers’ꢀgamingꢀexperienceꢀbyꢀprovidingꢀeasyꢀaccessꢀtoꢀtheirꢀfundsꢀand
paymentꢀofꢀwinnings.
EveriꢀGamesꢀprovidesꢀgamingꢀoperatorsꢀproductsꢀandꢀservices,ꢀincluding:ꢀ(a)ꢀgamingꢀmachinesꢀprimarilyꢀcomprisedꢀofꢀClassꢀII
andꢀClassꢀIIIꢀslotꢀmachinesꢀplacedꢀunderꢀparticipationꢀorꢀfixedꢀfeeꢀleaseꢀarrangementsꢀorꢀsoldꢀtoꢀcasinoꢀcustomers,ꢀincluding
TournEvent®ꢀthatꢀallowsꢀoperatorsꢀtoꢀswitchꢀfromꢀin-revenueꢀgamingꢀtoꢀout-of-revenueꢀtournaments;ꢀ(b)ꢀsystemꢀsoftware,ꢀlicenses,
ancillaryꢀequipment,ꢀandꢀmaintenance;ꢀandꢀ(c)ꢀbusiness-to-consumerꢀandꢀbusiness-to-businessꢀinteractiveꢀactivities.ꢀInꢀaddition,
EveriꢀGamesꢀdevelopsꢀandꢀmanagesꢀtheꢀcentralꢀdeterminantꢀsystemꢀforꢀtheꢀvideoꢀlotteryꢀterminalsꢀ(“VLTs”)ꢀinstalledꢀinꢀtheꢀState
ofꢀNewꢀYorkꢀandꢀitꢀalsoꢀprovidesꢀsimilarꢀtechnologyꢀinꢀcertainꢀtribalꢀjurisdictions.
EveriꢀFinTechꢀprovidesꢀgamingꢀoperatorsꢀcashꢀaccessꢀandꢀrelatedꢀproductsꢀandꢀservices,ꢀincluding:ꢀ(a)ꢀaccessꢀtoꢀcashꢀatꢀgaming
facilitiesꢀviaꢀAutomatedꢀTellerꢀMachineꢀ(“ATM”)ꢀcashꢀwithdrawals,ꢀcreditꢀcardꢀcashꢀaccessꢀtransactions,ꢀpointꢀofꢀsaleꢀ(“POS”)
debitꢀcardꢀcashꢀaccessꢀtransactions,ꢀandꢀcheckꢀverificationꢀandꢀwarrantyꢀservices;ꢀ(b)ꢀequipmentꢀthatꢀprovidesꢀcashꢀaccessꢀand
efficiency-relatedꢀservices;ꢀ(c)ꢀproductsꢀandꢀservicesꢀthatꢀimproveꢀcreditꢀdecisionꢀmaking,ꢀautomateꢀcashierꢀoperations,ꢀandꢀenhance
patronꢀmarketingꢀactivitiesꢀforꢀgamingꢀestablishments;ꢀ(d)ꢀcompliance,ꢀaudit,ꢀandꢀdataꢀsolutions;ꢀandꢀ(e)ꢀonlineꢀpaymentꢀprocessing
solutionsꢀforꢀgamingꢀoperatorsꢀinꢀstatesꢀthatꢀofferꢀintrastate,ꢀInternet-basedꢀgaming,ꢀandꢀlotteryꢀactivities.
Everiꢀ Holdingsꢀ wasꢀ formedꢀ asꢀ aꢀ Delawareꢀ limitedꢀ liabilityꢀ companyꢀ onꢀ Februaryꢀ 4,ꢀ 2004ꢀ andꢀ wasꢀ convertedꢀ toꢀ aꢀ Delaware
corporationꢀonꢀMayꢀ14,ꢀ2004.ꢀOurꢀprincipalꢀexecutiveꢀofficesꢀareꢀlocatedꢀatꢀ7250ꢀSouthꢀTenayaꢀWay,ꢀSuiteꢀ100,ꢀLasꢀVegas,ꢀNevada
89113.ꢀOurꢀtelephoneꢀnumberꢀisꢀ(800)ꢀ833-7110.ꢀOurꢀwebsiteꢀaddressꢀisꢀwww.everi.com.ꢀTheꢀinformationꢀonꢀourꢀwebsiteꢀisꢀnot
partꢀofꢀthisꢀAnnualꢀReportꢀonꢀFormꢀ10-KꢀorꢀourꢀotherꢀfilingsꢀwithꢀtheꢀSEC.
Our Business Segments
Weꢀreportꢀourꢀfinancialꢀperformance,ꢀandꢀorganizeꢀandꢀmanageꢀourꢀoperations,ꢀacrossꢀtheꢀfollowingꢀtwoꢀbusinessꢀsegments:ꢀ(a)
Games;ꢀandꢀ(b)ꢀFinTech.ꢀForꢀadditionalꢀinformationꢀonꢀourꢀsegmentsꢀandꢀtheꢀrevenuesꢀgeneratedꢀbyꢀourꢀproductsꢀandꢀservicesꢀsee
“Itemꢀ7.ꢀManagement’sꢀDiscussionꢀandꢀAnalysisꢀofꢀFinancialꢀConditionꢀandꢀResultsꢀofꢀOperationsꢀ—ꢀResultsꢀofꢀOperations”ꢀand
“Noteꢀ18ꢀ—ꢀSegmentꢀInformation”ꢀincludedꢀelsewhereꢀinꢀthisꢀAnnualꢀReportꢀonꢀFormꢀ10-K.
Our Products and Services
Everi Games
OurꢀGamesꢀproductsꢀandꢀservicesꢀincludeꢀcommercialꢀdevices,ꢀsuchꢀasꢀNativeꢀAmericanꢀClassꢀIIꢀofferingsꢀandꢀotherꢀbingoꢀproducts,
ClassꢀIIIꢀofferings,ꢀvideoꢀlotteryꢀterminals,ꢀaccountingꢀandꢀcentralꢀdeterminantꢀsystems,ꢀandꢀotherꢀbackꢀofficeꢀsystems.ꢀWeꢀconduct
ourꢀGamesꢀsegmentꢀbusinessꢀbasedꢀonꢀresultsꢀgeneratedꢀfromꢀtheꢀfollowingꢀmajorꢀrevenueꢀstreams:ꢀ(a)ꢀGamingꢀOperations;ꢀ(b)
GamingꢀEquipmentꢀandꢀSystems;ꢀandꢀ(c)ꢀGamingꢀOther.
Gaming Operations
WithꢀrespectꢀtoꢀourꢀGamingꢀOperationsꢀrevenueꢀstream,ꢀweꢀprimarilyꢀoffer:ꢀ(a)ꢀleasedꢀgamingꢀequipmentꢀonꢀaꢀparticipationꢀorꢀa
fixedꢀdailyꢀfeeꢀbasis;ꢀ(b)ꢀlocal-areaꢀprogressiveꢀmachines;ꢀ(c)ꢀwide-areaꢀprogressiveꢀmachinesꢀ(“WAP”);ꢀ(d)ꢀTournEvent®ꢀmachines;
(e)ꢀaccountingꢀandꢀcentralꢀdeterminantꢀsystems;ꢀandꢀ(f)ꢀinteractiveꢀgamingꢀactivities.ꢀ
5
Inꢀconnectionꢀwithꢀourꢀleasedꢀgamingꢀequipment,ꢀweꢀgenerallyꢀretainꢀownershipꢀofꢀtheꢀmachinesꢀinstalledꢀatꢀcustomerꢀfacilities.
Weꢀreceiveꢀrecurringꢀrevenueꢀbasedꢀonꢀaꢀpercentageꢀofꢀtheꢀnetꢀwinꢀperꢀdayꢀgeneratedꢀbyꢀtheꢀleasedꢀgamingꢀequipmentꢀorꢀaꢀfixed
dailyꢀfee.ꢀWeꢀcontinueꢀtoꢀexpandꢀourꢀgameꢀplacementsꢀintoꢀnewꢀjurisdictions,ꢀincreaseꢀinvestmentꢀinꢀresearchꢀandꢀdevelopment,
andꢀintroduceꢀpremiumꢀgameꢀhardwareꢀandꢀthemeꢀcontent.ꢀFromꢀourꢀhistoricalꢀfocusꢀonꢀplacementꢀofꢀgamesꢀintoꢀtheꢀOklahoma
andꢀWashingtonꢀtribalꢀmarkets,ꢀEveriꢀGamesꢀhasꢀdiversifiedꢀitsꢀinstalledꢀbaseꢀinꢀrecentꢀyearsꢀwithꢀentryꢀintoꢀnewꢀcommercialꢀand
tribalꢀ markets.ꢀ Everiꢀ Gamesꢀ hasꢀ grownꢀ premiumꢀ gameꢀ installationsꢀ withꢀ approximatelyꢀ 2,859ꢀ unitsꢀ installedꢀ (representing
approximatelyꢀ20.4%ꢀofꢀourꢀinstalledꢀbaseꢀasꢀofꢀDecemberꢀ31,ꢀ2018)ꢀsinceꢀenteringꢀtheꢀcategoryꢀapproximatelyꢀsixꢀyearsꢀago.ꢀ
InꢀconnectionꢀwithꢀourꢀWAPꢀoffering,ꢀmachinesꢀplacedꢀunderꢀsuchꢀarrangementsꢀfallꢀintoꢀtheꢀleasedꢀgamingꢀequipmentꢀcategory
andꢀweꢀretainꢀownershipꢀofꢀsuchꢀmachines.ꢀWeꢀdebutedꢀourꢀfirstꢀWAPꢀinꢀClassꢀIIꢀmarketsꢀinꢀ2017ꢀandꢀareꢀnowꢀoperatingꢀinꢀClass
IIIꢀtribalꢀmarketsꢀasꢀwell.ꢀSpanningꢀthreeꢀproductꢀlines,ꢀourꢀWAPꢀisꢀofferedꢀtoꢀcustomersꢀon the Player Classic, Core HDX, and
Empire MPX cabinets.ꢀTheꢀoriginalꢀClassꢀIIꢀoffering,ꢀJackpot Lockdown®,ꢀdebutedꢀwithꢀtwoꢀthemesꢀ—ꢀJackpot Lockdown Mega
Meltdown™ꢀandꢀJackpot Lockdown High Voltage™.ꢀWithꢀtheꢀreleaseꢀofꢀDiamond Blaze™ꢀalongꢀwithꢀmultipleꢀotherꢀproduct
offeringsꢀactiveꢀonꢀtheꢀlink,ꢀtheꢀoriginalꢀClassꢀIIꢀofferingꢀhasꢀexpandedꢀtoꢀEveri’sꢀnewꢀpremiumꢀsignꢀpackageꢀoffering,ꢀRenegade
3600™.ꢀ
GamingꢀoperationsꢀalsoꢀincludeꢀrevenuesꢀgeneratedꢀunderꢀourꢀarrangementꢀtoꢀprovideꢀtheꢀNewꢀYorkꢀStateꢀGamingꢀCommission
withꢀanꢀaccountingꢀandꢀcentralꢀdeterminantꢀsystemꢀforꢀtheꢀVLTsꢀinꢀoperationꢀatꢀlicensedꢀStateꢀofꢀNewꢀYorkꢀgamingꢀfacilities.ꢀIn
Januaryꢀ2018,ꢀanꢀamendmentꢀtoꢀtheꢀagreementꢀbetweenꢀEveriꢀGamesꢀandꢀtheꢀNewꢀYorkꢀStateꢀGamingꢀCommissionꢀwasꢀapproved
andꢀbecameꢀeffective.ꢀUnderꢀthisꢀamendment,ꢀEveriꢀGamesꢀwillꢀcontinueꢀtoꢀprovideꢀandꢀmaintainꢀtheꢀcentralꢀdeterminantꢀsystem
forꢀtheꢀNewꢀYorkꢀLotteryꢀthroughꢀDecemberꢀ2019.ꢀAsꢀofꢀDecemberꢀ31,ꢀ2018,ꢀthisꢀsystemꢀisꢀconnectedꢀtoꢀapproximatelyꢀ18,500
VLTsꢀandꢀhasꢀtheꢀabilityꢀtoꢀinterfaceꢀwith,ꢀprovideꢀoutcomesꢀto,ꢀandꢀmanageꢀtheꢀVLTs.ꢀPursuantꢀtoꢀourꢀagreementꢀwithꢀtheꢀNew
YorkꢀStateꢀGamingꢀCommission,ꢀweꢀreceiveꢀaꢀportionꢀofꢀtheꢀnetwork-wideꢀnetꢀwinꢀ(generally,ꢀcash-inꢀlessꢀprizesꢀpaid)ꢀperꢀday
inꢀ exchangeꢀ forꢀ provisionꢀ andꢀ maintenanceꢀ ofꢀ theꢀ centralꢀ determinantꢀ system.ꢀ Weꢀ alsoꢀ provideꢀ centralꢀ determinantꢀ system
technologyꢀtoꢀNativeꢀAmericanꢀtribesꢀinꢀotherꢀlicensedꢀjurisdictionsꢀforꢀwhichꢀweꢀreceiveꢀaꢀportionꢀofꢀtheꢀrevenueꢀgeneratedꢀfrom
theꢀVLTsꢀconnectedꢀtoꢀtheꢀsystem.
Inꢀconnectionꢀwithꢀourꢀinteractiveꢀactivities,ꢀEveriꢀoperatesꢀinꢀtheꢀfollowingꢀtwoꢀareas:ꢀ(a)ꢀbusiness-to-consumerꢀ(“B2C”);ꢀand
(b)ꢀbusiness-to-businessꢀ(“B2B”).ꢀB2Cꢀrelatesꢀtoꢀgamesꢀofferedꢀdirectlyꢀtoꢀconsumersꢀthroughꢀourꢀsocial,ꢀmobileꢀapplication,
whichꢀcanꢀbeꢀplayedꢀusingꢀvirtualꢀcurrency.ꢀTheꢀCompanyꢀearnsꢀrevenuesꢀbyꢀprovidingꢀtheꢀvirtualꢀcurrencyꢀtoꢀtheꢀconsumers,ꢀor
theꢀplayers,ꢀwheneverꢀtheꢀconsumersꢀpurchaseꢀadditionalꢀvirtualꢀcurrency.ꢀThisꢀofferingꢀisꢀlimitedꢀtoꢀtheꢀareaꢀofꢀfree-to-playꢀalso
referredꢀtoꢀasꢀsocialꢀcasinos,ꢀandꢀisꢀofferedꢀthroughꢀconnectivityꢀwithꢀFacebookꢀasꢀwellꢀasꢀmobileꢀplatformsꢀsuchꢀasꢀtheꢀApple
AppꢀStoreꢀforꢀAppleꢀdevicesꢀandꢀtheꢀGoogleꢀPlayꢀStoreꢀforꢀAndroidꢀdevices.ꢀB2Bꢀrelatesꢀtoꢀgamesꢀofferedꢀtoꢀtheꢀonlineꢀbusiness
partnersꢀwhoꢀthenꢀofferꢀtheꢀgamesꢀtoꢀconsumers.ꢀEveriꢀhasꢀdevelopedꢀitsꢀownꢀremoteꢀgamingꢀserverꢀ(“RGS”)ꢀleveragingꢀour
extensiveꢀlibraryꢀofꢀland-basedꢀcontentꢀthatꢀisꢀdeliveredꢀthroughꢀtheꢀRGS.ꢀThisꢀlibraryꢀcontainsꢀcasino-themedꢀsocialꢀandꢀmobile
games,ꢀandꢀgamesꢀavailableꢀforꢀrealꢀmoneyꢀgamingꢀ(“RMG”)ꢀofferedꢀtoꢀtheꢀonlineꢀbusinessꢀpartnersꢀthatꢀoperateꢀinꢀplay-for-fun,
orꢀ socialꢀ casinos,ꢀ andꢀ theꢀ regulatedꢀ onlineꢀ casinosꢀ thatꢀ operateꢀ inꢀ theꢀ RMGꢀ regulatedꢀ markets.ꢀWeꢀ enterꢀ intoꢀ revenueꢀ share
agreementsꢀwithꢀonlineꢀbusinessꢀpartnersꢀofferingꢀEveri'sꢀvirtualꢀgames.
Gaming Equipment and Systems
WithꢀrespectꢀtoꢀourꢀGamingꢀEquipmentꢀandꢀSystemsꢀrevenueꢀstream,ꢀweꢀenterꢀintoꢀdirectꢀsalesꢀcontractsꢀgenerallyꢀforꢀsome
combinationꢀof:ꢀ(a)ꢀgamingꢀequipmentꢀandꢀplayerꢀterminals,ꢀincludingꢀTournEvent®ꢀmachines;ꢀ(b)ꢀgameꢀcontent;ꢀ(c)ꢀlicenseꢀfees;
(d)ꢀancillaryꢀequipment;ꢀandꢀ(e)ꢀmaintenance.
Gaming Other
WithꢀrespectꢀtoꢀourꢀGamingꢀOtherꢀrevenueꢀstream,ꢀweꢀofferꢀourꢀTournEvent of Champions®ꢀthatꢀallowsꢀwinnersꢀofꢀlocalꢀand
regionalꢀtournamentsꢀthroughoutꢀtheꢀyearꢀtoꢀparticipateꢀinꢀaꢀnationalꢀtournamentꢀthatꢀresultsꢀinꢀtheꢀdeterminationꢀofꢀaꢀfinalꢀchampion.
OurꢀGamesꢀproductsꢀinclude:
Classic Mechanical Reel Games.ꢀOurꢀ fullꢀ rangeꢀ ofꢀ classicꢀ mechanicalꢀ reelꢀ gamesꢀ providesꢀ playersꢀ withꢀ aꢀ traditional,ꢀ high
denominationꢀslotꢀgamingꢀexperience.ꢀTheseꢀgamesꢀleverageꢀourꢀlong-standingꢀexperienceꢀinꢀbuildingꢀenduringꢀbrands,ꢀsuchꢀas
Black Diamond® and Wild Wild Gems®,ꢀandꢀfeatureꢀaꢀuniqueꢀtakeꢀonꢀtraditionalꢀslotꢀgamesꢀwithꢀeye-catchingꢀfeatures. Super
Jackpot Series™ꢀoffersꢀlargeꢀlinkedꢀprogressivesꢀonꢀtheꢀPlayer Classic®ꢀcabinetꢀpackagedꢀwithꢀoverheadꢀsignageꢀtoꢀdisplayꢀrolling
progressiveꢀmetersꢀandꢀexcitingꢀwinꢀcelebrationsꢀfromꢀacrossꢀtheꢀcasinoꢀfloor.ꢀTheꢀpremium Skyline™ꢀtopꢀboxꢀisꢀaꢀvintage-inspired
bezelꢀforꢀtheꢀPlayer Classicꢀcabinetꢀshowcasingꢀredꢀgreenꢀblueꢀlightingꢀandꢀaꢀ24-inchꢀliquidꢀcrystalꢀdisplayꢀ(“LCD”)ꢀpanel,ꢀwith
titlesꢀincluding Double Jackpot Gems®, Kingmaker®,ꢀBlazin’ Gems®, and licensedꢀbrands,ꢀsuchꢀas Smokin’ Hot Stuff® and Casper®.
6
Video Reel Games.ꢀWeꢀofferꢀaꢀgrowingꢀrangeꢀofꢀdual-screenꢀandꢀportraitꢀsingleꢀscreenꢀvideoꢀreelꢀgamesꢀthatꢀprovideꢀaꢀuniquely
entertainingꢀslotꢀgamingꢀexperience.ꢀTheꢀmostꢀrecentꢀreleasedꢀtitlesꢀleverageꢀCore HDX® andꢀEmpire MPX™ꢀcabinetsꢀ(E43ꢀand
E5527)ꢀthatꢀdeliverꢀeye-catchingꢀgraphicsꢀandꢀfull,ꢀrichꢀsound. Aꢀrangeꢀofꢀprogressiveꢀfeaturesꢀroundꢀoutꢀourꢀlibraryꢀinꢀgamesꢀon
theꢀE43,ꢀsuchꢀas Lighting Zap Jackpots™,ꢀDiamond Rain®,ꢀDiamond Rain Jackpot Wheel™,ꢀCash Money®, and Diamond Money™.
TheꢀE5527ꢀcabinetꢀincludesꢀtitles,ꢀsuchꢀas Smokin’ Hot Stuff Wicked Wheel®,ꢀandꢀtheꢀrecentlyꢀintroducedꢀShark Weekꢀwithꢀtheꢀnew
Nitro™ꢀtechnologyꢀenablingꢀdisplayꢀfeaturesꢀacrossꢀmultipleꢀdevices.
Core HDX. The Core HDX cabinet enhancesꢀtheꢀplayerꢀgamingꢀexperienceꢀwithꢀitsꢀdualꢀwidescreenꢀ23-inchꢀmonitorsꢀwithꢀ1080p
highꢀdefinitionꢀ(“HD”)ꢀcapability,ꢀintegratedꢀtouchscreens,ꢀandꢀpremiumꢀ3-wayꢀsoundꢀsystem.ꢀTheꢀeye-catchingꢀcabinetꢀcommands
aꢀpresenceꢀonꢀtheꢀcasinoꢀfloorꢀwithꢀgame-controlledꢀlightingꢀandꢀaꢀcustomꢀpremiumꢀLCDꢀtopper,ꢀApex N™.ꢀSelect Core HDX
gamesꢀfeatureꢀEveriꢀBet™,ꢀtheꢀbetꢀconfigurationꢀsystemꢀthatꢀgivesꢀcasinoꢀoperatorsꢀtheꢀpowerꢀtoꢀoptimizeꢀtheꢀcasinoꢀfloorꢀfor
maximumꢀreturns.ꢀTheꢀvastꢀmajorityꢀofꢀourꢀstandardꢀvideoꢀlibraryꢀonꢀourꢀMForce®ꢀsoftwareꢀplatformꢀisꢀdesignedꢀtoꢀbeꢀplayable
onꢀthe Core HDX.ꢀꢀ
Empire MPX (E43).ꢀTheꢀEmpire MPX debutedꢀinꢀAprilꢀ2017 withꢀtheꢀlaunchꢀofꢀtheꢀCompany’sꢀfirstꢀpremiumꢀparticipationꢀcabinet
onꢀitsꢀWAP,ꢀandꢀthenꢀlaunchedꢀitsꢀfor-saleꢀcategoryꢀEmpire MPX productsꢀinꢀDecemberꢀ2017. Theꢀnewꢀcabinetꢀfeaturesꢀaꢀsingle-
screenꢀ43-inchꢀmonitor,ꢀfullꢀ1080pꢀHDꢀgraphicsꢀcapabilities,ꢀandꢀaꢀfully-customizableꢀtouchscreenꢀbuttonꢀpanel.ꢀItsꢀefficientꢀdesign
allowsꢀforꢀtighterꢀbankꢀconfiguration.ꢀEmpire MPX licensedꢀvideoꢀcontentꢀincludesꢀCasablanca™, Penn & Teller®,ꢀBuffy the
Vampire Slayer™,ꢀSingin’ in the Rain™,ꢀandꢀWillie Nelson™.
Empire MPX (E5527). TheꢀE5527ꢀisꢀalsoꢀuniquelyꢀdesignedꢀtoꢀoccupyꢀlessꢀspaceꢀonꢀtheꢀcasinoꢀfloor,ꢀallowingꢀforꢀeasyꢀgameꢀbank
andꢀpodꢀconfigurations.ꢀTheꢀall-newꢀpremiumꢀleaseꢀcabinetꢀfeaturesꢀaꢀportraitꢀorientedꢀ55-inchꢀupperꢀdisplayꢀandꢀlandscapeꢀoriented
27-inchꢀlowerꢀdisplayꢀthatꢀareꢀsureꢀtoꢀdazzleꢀplayers.ꢀTheꢀcabinetꢀleveragesꢀprovenꢀtechnologyꢀfromꢀEveri’sꢀEmpire MPXꢀtoꢀdeliver
anꢀexcitingꢀnewꢀplayerꢀexperienceꢀwithꢀvisualsꢀneverꢀbeforeꢀseenꢀonꢀanꢀEveriꢀgamingꢀdevice.ꢀWithꢀitsꢀleading-edgeꢀcabinetꢀdesign
andꢀinnovativeꢀtechnologyꢀfeatures,ꢀthatꢀbothꢀplayersꢀandꢀcasinoꢀoperatorsꢀwillꢀappreciate,ꢀE5527ꢀcommandsꢀattentionꢀonꢀthe
casinoꢀfloor.
The Texan HDX™. The Texan HDX isꢀanꢀ8-footꢀtallꢀcabinetꢀwithꢀdualꢀ42-inchꢀHDꢀvideoꢀscreensꢀandꢀfeaturesꢀaꢀtwo-personꢀbench
seat,ꢀintegratedꢀtouchꢀscreens,ꢀandꢀaꢀpremiumꢀthree-wayꢀsoundꢀsystem.ꢀTheꢀcabinetꢀisꢀdesignedꢀtoꢀshowcaseꢀtheꢀEveriꢀstandard
videoꢀlibraryꢀinꢀanꢀoversizedꢀformat,ꢀallowingꢀgamesꢀtoꢀbeꢀprominentlyꢀdisplayedꢀonꢀtheꢀcasinoꢀfloor.
TournEvent®.ꢀOurꢀslotꢀtournamentꢀsystemꢀthatꢀallowsꢀgamingꢀoperatorsꢀtoꢀswitchꢀfromꢀin-revenueꢀgamingꢀtoꢀout-of-revenue
tournamentsꢀandꢀtoꢀdesignꢀandꢀbuildꢀaꢀvarietyꢀofꢀflexibleꢀtournamentꢀformats,ꢀsuchꢀasꢀsoloꢀorꢀteamꢀtournamentꢀplay,ꢀsessionꢀor
roundꢀwinnerꢀadvancement,ꢀandꢀcumulativeꢀorꢀmaximumꢀscoring,ꢀincludingꢀprovidingꢀbonusꢀopportunitiesꢀthatꢀimproveꢀscores
orꢀautomaticallyꢀmoveꢀaꢀplayerꢀtoꢀfirstꢀplace.ꢀTheꢀlatest TournEvent® 5.0ꢀgameꢀversionꢀincludesꢀnewꢀsystemꢀenhancementsꢀthat
improveꢀoperatorꢀefficienciesꢀandꢀhardwareꢀandꢀoffersꢀengagingꢀtournamentꢀgamesꢀthatꢀattractꢀplayers.ꢀWithꢀtheꢀwirelessꢀtablet
option,ꢀ casinoꢀ operatorsꢀ willꢀ beꢀ ableꢀ toꢀ signꢀ upꢀ playersꢀ forꢀ tournamentsꢀ remotely,ꢀ allowingꢀ forꢀ aꢀ moreꢀ efficientꢀ tournament
registrationꢀandꢀanꢀoverallꢀbetterꢀtournamentꢀexperienceꢀforꢀtheꢀcasinosꢀandꢀplayersꢀalike.ꢀTournEvent®ꢀalsoꢀisꢀavailableꢀwith
multipleꢀ signꢀ options,ꢀ consistingꢀ ofꢀ aꢀ 65-inchꢀ television,ꢀ lightedꢀ accentꢀ dividers,ꢀ andꢀ theꢀ abilityꢀ toꢀ beꢀ featuredꢀ onꢀ newꢀ bank
configurations.
Everi FinTech
OurꢀFinTechꢀproductsꢀandꢀservicesꢀincludeꢀsolutionsꢀthatꢀweꢀprovideꢀdirectlyꢀtoꢀgamingꢀestablishmentsꢀtoꢀofferꢀtheirꢀpatronsꢀcash
access-relatedꢀservicesꢀandꢀproductsꢀincluding:ꢀaccessꢀtoꢀcashꢀatꢀgamingꢀfacilitiesꢀviaꢀATMꢀcashꢀwithdrawals,ꢀcreditꢀcardꢀcash
accessꢀtransactions,ꢀandꢀPOSꢀdebitꢀcardꢀcashꢀaccessꢀtransactions;ꢀcheck-relatedꢀservices;ꢀfullyꢀintegratedꢀkiosksꢀandꢀmaintenance
services;ꢀcompliance,ꢀaudit,ꢀandꢀdataꢀsoftware;ꢀcasinoꢀcreditꢀdataꢀandꢀreportingꢀservices;ꢀandꢀotherꢀancillaryꢀofferings.ꢀWeꢀconduct
ourꢀ FinTechꢀ segmentꢀ businessꢀ basedꢀ onꢀ resultsꢀ generatedꢀ fromꢀ theꢀ followingꢀ majorꢀ revenueꢀ streams:ꢀ (a)ꢀ CashꢀAccess;ꢀ (b)
Equipment;ꢀandꢀ(c)ꢀInformationꢀServicesꢀandꢀOther.
Cash Access
InꢀconnectionꢀwithꢀourꢀCashꢀAccessꢀservices,ꢀweꢀofferꢀtheꢀfollowing:
ATM Cash Withdrawals.ꢀATMꢀcashꢀwithdrawalꢀtransactionsꢀrepresentꢀtheꢀlargestꢀcategoryꢀofꢀelectronicꢀpaymentꢀtransactionsꢀthat
weꢀprocess,ꢀasꢀmeasuredꢀbyꢀdollarꢀandꢀtransactionꢀvolume.ꢀInꢀanꢀATMꢀcashꢀwithdrawalꢀtransaction,ꢀaꢀpatronꢀdirectlyꢀaccesses
fundsꢀfromꢀaꢀdeviceꢀenabledꢀwithꢀourꢀATMꢀserviceꢀbyꢀeitherꢀusingꢀanꢀATMꢀcardꢀorꢀaꢀdebitꢀcardꢀtoꢀwithdrawꢀfundsꢀfromꢀtheꢀpatron’s
demandꢀdepositꢀaccount,ꢀorꢀusingꢀaꢀcreditꢀcardꢀtoꢀaccessꢀtheꢀpatron’sꢀlineꢀofꢀcredit.ꢀInꢀeitherꢀevent,ꢀtheꢀpatronꢀmustꢀuseꢀtheꢀpersonal
identificationꢀnumberꢀ(“PIN”)ꢀassociatedꢀwithꢀsuchꢀcard.ꢀOurꢀprocessorꢀthenꢀroutesꢀtheꢀtransactionꢀrequestꢀthroughꢀanꢀelectronic
fundsꢀtransferꢀ(“EFT”)ꢀnetworkꢀtoꢀtheꢀpatron’sꢀbankꢀorꢀissuer,ꢀasꢀapplicable.ꢀ
7
Dependingꢀuponꢀaꢀnumberꢀofꢀfactors,ꢀincludingꢀtheꢀpatron’sꢀaccountꢀbalanceꢀorꢀcreditꢀlimitꢀandꢀdailyꢀwithdrawalꢀlimitꢀ(which
limitsꢀareꢀsetꢀbyꢀtheꢀbankꢀorꢀissuer,ꢀasꢀapplicable),ꢀtheꢀbankꢀorꢀissuerꢀwillꢀeitherꢀauthorizeꢀorꢀdeclineꢀtheꢀtransaction.ꢀIfꢀtheꢀtransaction
isꢀauthorized,ꢀthenꢀtheꢀATM-enabledꢀdeviceꢀdispensesꢀtheꢀcashꢀtoꢀtheꢀpatron.ꢀForꢀaꢀtransactionꢀusingꢀanꢀATMꢀcardꢀorꢀaꢀdebitꢀcard,
theꢀpatron’sꢀdemandꢀdepositꢀaccountꢀisꢀdebitedꢀbyꢀtheꢀamountꢀofꢀcashꢀdisbursedꢀplusꢀaꢀserviceꢀfeeꢀthatꢀweꢀassessꢀtheꢀpatronꢀfor
theꢀuseꢀofꢀtheꢀATMꢀservice.ꢀForꢀaꢀtransactionꢀusingꢀaꢀcreditꢀcardꢀwithꢀaꢀPIN,ꢀtheꢀpatron’sꢀcreditꢀcardꢀaccountꢀisꢀchargedꢀbyꢀthe
amountꢀofꢀtheꢀcashꢀdisbursedꢀplusꢀaꢀserviceꢀfeeꢀthatꢀweꢀassessꢀtheꢀpatronꢀforꢀtheꢀuseꢀofꢀtheꢀATMꢀservice.ꢀInꢀbothꢀcases,ꢀtheꢀservice
feeꢀisꢀcurrentlyꢀaꢀfixedꢀdollarꢀamountꢀandꢀnotꢀaꢀpercentageꢀofꢀtheꢀtransactionꢀsize.ꢀWeꢀalsoꢀreceiveꢀaꢀfee,ꢀwhichꢀweꢀreferꢀtoꢀasꢀa
reverseꢀinterchangeꢀfee,ꢀfromꢀtheꢀpatron’sꢀcard-issuingꢀbankꢀforꢀaccommodatingꢀtheꢀcardꢀissuer’sꢀcustomer.ꢀInꢀmostꢀcircumstances,
weꢀpayꢀaꢀpercentageꢀofꢀtheꢀserviceꢀfee thatꢀweꢀreceiveꢀfromꢀtheꢀpatronꢀand,ꢀinꢀsomeꢀcircumstances,ꢀaꢀportionꢀofꢀtheꢀreverse
interchangeꢀfeesꢀweꢀreceive,ꢀasꢀaꢀcommissionꢀtoꢀourꢀgamingꢀestablishmentꢀcustomersꢀforꢀtheꢀrightꢀtoꢀoperateꢀonꢀtheirꢀpremises.
Credit Card Cash Access Transactions and POS Debit Card Cash Access Transactions.ꢀPatronsꢀcanꢀperformꢀcreditꢀcardꢀcash
accessꢀtransactionsꢀandꢀPOSꢀdebitꢀcardꢀcashꢀaccessꢀtransactionsꢀusingꢀmanyꢀofꢀourꢀenabledꢀdevices.ꢀAꢀpatron’sꢀcreditꢀcardꢀcash
accessꢀlimitꢀisꢀusuallyꢀaꢀsub-limitꢀofꢀtheꢀtotalꢀcreditꢀlineꢀandꢀisꢀsetꢀbyꢀtheꢀcard-issuingꢀbank,ꢀnotꢀEveriꢀFinTech.ꢀTheseꢀlimitsꢀvary
significantlyꢀandꢀcanꢀbeꢀlargerꢀorꢀsmallerꢀthanꢀtheꢀPOSꢀdebitꢀcashꢀaccessꢀlimit.ꢀAꢀcreditꢀcardꢀcashꢀaccessꢀtransactionꢀobligatesꢀthe
patronꢀtoꢀrepayꢀtheꢀissuingꢀbankꢀoverꢀtimeꢀonꢀtermsꢀthatꢀareꢀpresetꢀbyꢀtheꢀcardholderꢀagreement.ꢀAꢀpatron’sꢀPOSꢀdebitꢀcardꢀallows
theꢀpatronꢀtoꢀmakeꢀcashꢀwithdrawalsꢀatꢀtheꢀPOSꢀinꢀanꢀamountꢀequalꢀtoꢀtheꢀlesserꢀofꢀtheꢀamountꢀofꢀfundsꢀinꢀtheꢀaccount,ꢀorꢀaꢀdaily
limitꢀthatꢀisꢀgenerallyꢀfiveꢀtoꢀtenꢀtimesꢀasꢀlargeꢀasꢀtheꢀpatron’sꢀdailyꢀATMꢀlimit.
WhenꢀaꢀpatronꢀrequestsꢀaꢀcreditꢀcardꢀcashꢀaccessꢀorꢀPOSꢀdebitꢀcardꢀcashꢀaccessꢀtransaction,ꢀourꢀprocessorꢀroutesꢀtheꢀtransaction
requestꢀthroughꢀoneꢀofꢀtheꢀcardꢀassociations,ꢀorꢀEFTꢀnetworks,ꢀtoꢀtheꢀissuingꢀbank.ꢀDependingꢀuponꢀseveralꢀfactors,ꢀsuchꢀasꢀthe
availableꢀcreditꢀorꢀbankꢀaccountꢀbalance,ꢀtheꢀtransactionꢀisꢀeitherꢀauthorizedꢀorꢀdeclinedꢀbyꢀtheꢀissuingꢀbank.ꢀIfꢀauthorized,ꢀthe
patron’sꢀbankꢀaccountꢀisꢀdebitedꢀorꢀtheꢀpatron’sꢀcreditꢀcardꢀbalanceꢀisꢀincreased,ꢀinꢀbothꢀcases,ꢀbyꢀanꢀamountꢀequalꢀtoꢀtheꢀfunds
requestedꢀplusꢀourꢀserviceꢀfee.ꢀTheꢀserviceꢀfeeꢀisꢀaꢀfixedꢀdollarꢀamount,ꢀaꢀpercentageꢀofꢀtheꢀtransactionꢀsize,ꢀorꢀaꢀcombinationꢀof
aꢀfixedꢀdollarꢀamountꢀandꢀpercentageꢀofꢀtheꢀtransactionꢀsize.ꢀIfꢀtheꢀtransactionꢀisꢀauthorized,ꢀtheꢀdeviceꢀinformsꢀtheꢀpatronꢀthatꢀthe
transactionꢀhasꢀbeenꢀapproved.ꢀTheꢀdeviceꢀthenꢀfurtherꢀinstructsꢀtheꢀpatronꢀtoꢀproceedꢀtoꢀtheꢀgamingꢀestablishment’sꢀcashier,ꢀor
Company-operatedꢀsatelliteꢀcageꢀ(“financialꢀservicesꢀcenter”),ꢀtoꢀcompleteꢀtheꢀtransactionꢀbecauseꢀcreditꢀcardꢀcashꢀaccessꢀand
POSꢀdebitꢀcardꢀcashꢀaccessꢀtransactionsꢀmust,ꢀinꢀmostꢀcircumstances,ꢀbeꢀcompletedꢀinꢀface-to-faceꢀenvironmentsꢀandꢀaꢀunique
signatureꢀmustꢀbeꢀreceivedꢀinꢀorderꢀtoꢀcomplyꢀwithꢀrulesꢀofꢀtheꢀcardꢀassociations.ꢀWeꢀreimburseꢀtheꢀgamingꢀestablishmentꢀforꢀthe
amountꢀofꢀcashꢀthatꢀitꢀprovidedꢀtoꢀtheꢀpatronꢀbyꢀpayingꢀtheꢀgamingꢀestablishmentꢀviaꢀwireꢀtransferꢀorꢀotherꢀsimilarꢀformꢀofꢀelectronic
payment.ꢀInꢀaddition,ꢀweꢀpayꢀtheꢀgamingꢀestablishmentꢀaꢀportionꢀofꢀtheꢀserviceꢀfeeꢀasꢀaꢀcommissionꢀforꢀtheꢀrightꢀtoꢀoperateꢀonꢀits
premises.ꢀWeꢀareꢀalsoꢀobligatedꢀtoꢀpayꢀinterchangeꢀfeesꢀtoꢀtheꢀissuingꢀbankꢀandꢀprocessingꢀcostsꢀrelatedꢀtoꢀtheꢀelectronicꢀpayment
transactionꢀtoꢀcardꢀassociations.
Check-Related Services.ꢀPatronsꢀareꢀableꢀtoꢀcashꢀchecksꢀatꢀcertainꢀgamingꢀestablishments.ꢀWhenꢀaꢀpatronꢀpresentsꢀaꢀcheckꢀtoꢀthe
cashier,ꢀtheꢀgamingꢀestablishmentꢀcanꢀacceptꢀorꢀdenyꢀtheꢀtransactionꢀbasedꢀonꢀitsꢀownꢀcustomerꢀinformationꢀandꢀatꢀitsꢀownꢀrisk,
obtainꢀthird-partyꢀverificationꢀinformationꢀaboutꢀtheꢀcheckꢀwriter,ꢀtheꢀbankꢀaccountꢀnumber,ꢀandꢀotherꢀinformationꢀrelatingꢀtoꢀthe
checkꢀtoꢀmanageꢀitsꢀrisk,ꢀorꢀobtainꢀaꢀwarrantyꢀonꢀpaymentꢀofꢀtheꢀcheck,ꢀwhichꢀentitlesꢀtheꢀgamingꢀestablishmentꢀtoꢀreimbursement
ofꢀtheꢀfullꢀamountꢀofꢀtheꢀcheckꢀifꢀitꢀisꢀdishonored.
Ifꢀaꢀgamingꢀestablishmentꢀchoosesꢀtoꢀhaveꢀaꢀcheckꢀwarranted,ꢀitꢀsendsꢀaꢀrequestꢀtoꢀaꢀcheckꢀwarrantyꢀserviceꢀprovider,ꢀinquiring
whetherꢀitꢀwouldꢀbeꢀwillingꢀtoꢀacceptꢀtheꢀriskꢀofꢀcashingꢀtheꢀcheck.ꢀIfꢀtheꢀcheckꢀwarrantyꢀproviderꢀacceptsꢀtheꢀriskꢀandꢀwarrants
theꢀcheck,ꢀtheꢀgamingꢀestablishmentꢀnegotiatesꢀtheꢀpatron’sꢀcheckꢀbyꢀprovidingꢀcashꢀforꢀtheꢀfaceꢀamountꢀofꢀtheꢀcheck.ꢀIfꢀtheꢀcheck
isꢀdishonoredꢀbyꢀtheꢀpatron’sꢀbankꢀuponꢀpresentment,ꢀtheꢀgamingꢀestablishmentꢀinvokesꢀtheꢀwarranty,ꢀandꢀtheꢀcheckꢀwarranty
serviceꢀproviderꢀpurchasesꢀtheꢀcheckꢀfromꢀtheꢀgamingꢀestablishmentꢀforꢀtheꢀfullꢀcheckꢀamountꢀandꢀthenꢀpursuesꢀcollectionꢀactivities
onꢀitsꢀown.
Forꢀthoseꢀgamingꢀestablishmentsꢀthatꢀseekꢀtoꢀmanageꢀtheirꢀownꢀrisk,ꢀweꢀprovideꢀaꢀsubscriptionꢀcheckꢀverificationꢀserviceꢀviaꢀa
databaseꢀoperatedꢀbyꢀourꢀsubsidiary,ꢀCentralꢀCredit,ꢀLLCꢀ(“CentralꢀCredit”),ꢀwhichꢀisꢀusedꢀbyꢀgamingꢀestablishmentsꢀtoꢀmake
creditꢀissuingꢀdecisions.ꢀCentralꢀCreditꢀmaintainsꢀinformationꢀonꢀtheꢀcheckꢀcashingꢀandꢀcreditꢀhistoryꢀofꢀmanyꢀgamingꢀestablishment
patrons.ꢀForꢀthoseꢀgamingꢀestablishmentsꢀthatꢀpreferꢀtoꢀobtainꢀaꢀwarranty,ꢀweꢀprovideꢀcheckꢀwarrantyꢀservicesꢀthroughꢀaꢀthird-
partyꢀcheckꢀwarrantyꢀserviceꢀprovider.ꢀWeꢀpayꢀthisꢀthird-partyꢀproviderꢀtoꢀassistꢀwithꢀtheꢀwarrantyꢀdecision,ꢀcheckꢀprocessing,
billing,ꢀandꢀcollectionꢀactivities.ꢀOnꢀourꢀbehalf,ꢀthisꢀthird-partyꢀproviderꢀchargesꢀourꢀgamingꢀestablishmentꢀcustomersꢀaꢀfeeꢀfor
theꢀcheckꢀwarrantyꢀservices,ꢀwhichꢀisꢀtypicallyꢀaꢀpercentageꢀofꢀtheꢀfaceꢀamountꢀofꢀtheꢀcheckꢀbeingꢀwarranted.ꢀInꢀsuchꢀcircumstances,
weꢀreceiveꢀallꢀofꢀtheꢀcheckꢀwarrantyꢀrevenue.ꢀWeꢀareꢀexposedꢀtoꢀriskꢀforꢀtheꢀlossesꢀassociatedꢀwithꢀanyꢀwarrantedꢀitemsꢀthatꢀcannot
beꢀcollectedꢀfromꢀpatronsꢀissuingꢀtheꢀitems.ꢀWarrantyꢀexpensesꢀareꢀdefinedꢀasꢀanyꢀamountsꢀpaidꢀbyꢀtheꢀthird-partyꢀproviderꢀto
gamingꢀestablishmentsꢀtoꢀpurchaseꢀdishonoredꢀchecksꢀthatꢀwillꢀnotꢀbeꢀcollectibleꢀfromꢀpatronsꢀandꢀanyꢀexpensesꢀrelatedꢀtoꢀthe
collectionꢀonꢀtheseꢀamounts.ꢀWeꢀalsoꢀpayꢀcertainꢀfeesꢀandꢀoperatingꢀexpensesꢀtoꢀourꢀthird-partyꢀproviderꢀrelatedꢀtoꢀtheꢀprovision
ofꢀtheseꢀservices.
8
Casino Cash Plus 3-in-1 ATMs areꢀunmanned,ꢀcash-dispensingꢀmachinesꢀthatꢀenableꢀATMꢀcashꢀwithdrawals,ꢀPOSꢀdebitꢀcardꢀcash
accessꢀtransactions,ꢀandꢀcreditꢀcardꢀcashꢀaccessꢀtransactionsꢀdirectlyꢀorꢀusingꢀourꢀ3-in-1ꢀRolloverꢀfunctionality.ꢀMostꢀfinancial
institutionsꢀthatꢀissueꢀdebitꢀcardsꢀimposeꢀdailyꢀATMꢀwithdrawalꢀlimits,ꢀand,ꢀinꢀsomeꢀinstances,ꢀaggregateꢀandꢀcountꢀFriday,ꢀSaturday,
andꢀSundayꢀasꢀaꢀsingleꢀdayꢀinꢀcalculatingꢀsuchꢀlimits.ꢀIfꢀaꢀpatronꢀhasꢀreachedꢀhisꢀorꢀherꢀdailyꢀATMꢀlimit,ꢀourꢀ3-in-1ꢀRollover
functionalityꢀautomaticallyꢀenablesꢀtheꢀpatronꢀtoꢀobtainꢀfundsꢀviaꢀaꢀPOSꢀdebitꢀcardꢀcashꢀaccessꢀtransactionꢀorꢀaꢀcreditꢀcardꢀcash
accessꢀtransactionꢀinstead.
CashClub® isꢀaꢀsoftwareꢀpaymentsꢀplatformꢀthatꢀprovidesꢀgamingꢀestablishmentsꢀwithꢀaꢀpersonalꢀcomputerꢀworkstationꢀsoftware
userꢀinterfaceꢀandꢀpoint-of-saleꢀterminalꢀthatꢀstreamlinesꢀcreditꢀandꢀdebitꢀcardꢀcashꢀaccessꢀtransactionꢀprocessingꢀandꢀcheckꢀwarranty
transactionsꢀforꢀcasinoꢀpatrons.ꢀItꢀallowsꢀforꢀelectronicꢀsignatureꢀcaptureꢀandꢀdynamicꢀcurrencyꢀconversion.ꢀItꢀalsoꢀinterfacesꢀwith
ourꢀEveriꢀComplianceꢀsolutionsꢀ(definedꢀbelow)ꢀtoꢀassistꢀcasinoꢀoperationsꢀwithꢀmeetingꢀregulatoryꢀrequirementsꢀunderꢀTitleꢀ31
ofꢀtheꢀBankꢀSecrecyꢀAct.
Equipment
InꢀconnectionꢀwithꢀourꢀEquipment,ꢀweꢀofferꢀtheꢀfollowing:
Fully Integrated Kiosks areꢀaꢀcompleteꢀlineꢀofꢀproductsꢀthatꢀprovideꢀmultipleꢀfunctionsꢀtoꢀtheꢀcasinoꢀfloor.ꢀThisꢀincludesꢀcash
accessꢀfunctionality,ꢀsuchꢀasꢀourꢀ3-in-1ꢀRollover,ꢀwhichꢀprovidesꢀcasinoꢀpatronsꢀaccessꢀtoꢀperformꢀcashꢀadvance,ꢀPOSꢀdebit,ꢀand
ATMꢀtransactions.ꢀTheꢀkiosksꢀalsoꢀprovideꢀfunctionalityꢀtoꢀperformꢀcheckꢀcashingꢀtransactions,ꢀslotꢀmachineꢀticketꢀredemption,
billꢀbreaking,ꢀandꢀloyaltyꢀprogramꢀaccessꢀasꢀwellꢀasꢀintegrationꢀwithꢀmobileꢀandꢀwalletꢀtechnology.ꢀTheꢀavailabilityꢀofꢀourꢀcash
accessꢀplatformꢀonꢀtheseꢀslotꢀticketꢀredemptionꢀdevicesꢀprovidesꢀusꢀwithꢀadditionalꢀpointsꢀofꢀcontactꢀwithꢀgamingꢀpatronsꢀat
locationsꢀthatꢀareꢀusuallyꢀcloserꢀtoꢀgamingꢀdevicesꢀthanꢀtraditionalꢀcashꢀaccessꢀdevicesꢀthatꢀareꢀtypicallyꢀlocatedꢀonꢀtheꢀperiphery
ofꢀtheꢀgamingꢀareaꢀwithinꢀtheꢀcasinoꢀfloorꢀandꢀalsoꢀprovidesꢀgamingꢀpatronsꢀwithꢀmoreꢀopportunitiesꢀtoꢀaccessꢀtheirꢀcashꢀwithꢀless
cashierꢀinvolvement.
Other Integrated Kiosk Solutions provideꢀcasinosꢀwithꢀmoreꢀefficientꢀandꢀstreamlinedꢀmethodsꢀforꢀcashꢀhandlingꢀandꢀtransaction
processing.ꢀTheseꢀproductsꢀareꢀdesignedꢀtoꢀbeꢀintegratedꢀwithꢀourꢀcashꢀaccessꢀproductsꢀandꢀcageꢀcomplianceꢀsoftwareꢀensuring
complianceꢀwithꢀanti-moneyꢀlaunderingꢀregulations,ꢀandꢀprovideꢀanꢀautomatedꢀwayꢀtoꢀprocessꢀcommonꢀtaxꢀforms,ꢀsuchꢀasꢀthe
InternalꢀRevenueꢀServiceꢀFormꢀW-2GꢀorꢀFormꢀ1042-S.ꢀInꢀaddition,ꢀweꢀofferꢀequipmentꢀinꢀtheꢀformꢀofꢀstandalone,ꢀnon-ATM
terminalsꢀthatꢀperformꢀauthorizationsꢀforꢀcreditꢀcardꢀcashꢀaccessꢀandꢀPOSꢀdebitꢀcardꢀcashꢀaccessꢀtransactions.ꢀOurꢀkioskꢀsolutions
includeꢀtheꢀfollowingꢀproducts:
•
•
•
•
JackpotXchange familyꢀofꢀkiosks, JXC 4.0, and JXC-L, enableꢀcasinoꢀpersonnelꢀtoꢀefficientlyꢀaccessꢀfundsꢀtoꢀpayꢀout
jackpotsꢀforꢀtheirꢀguests.ꢀTheseꢀkiosksꢀareꢀintegratedꢀwithꢀallꢀmajorꢀslotꢀsystemsꢀtoꢀofferꢀjackpotꢀprocessingꢀandꢀpay-out
inꢀaꢀcombinationꢀofꢀcashꢀorꢀslotꢀtickets.ꢀTheseꢀkiosksꢀofferꢀgamingꢀoperatorsꢀtheꢀabilityꢀtoꢀreduceꢀworkloadꢀatꢀtheꢀcage
andꢀforꢀslotꢀpersonnel.ꢀꢀ
JackpotXpress isꢀaꢀfull-featuredꢀjackpotꢀandꢀtaxꢀformꢀmanagementꢀplatformꢀthatꢀallowsꢀcasinoꢀpersonnelꢀtoꢀworkꢀthrough
theꢀcomplexꢀjackpotꢀprocessꢀusingꢀaꢀmobileꢀtabletꢀorꢀkiosk.ꢀJackpotXpressꢀallowsꢀgamingꢀoperatorsꢀtoꢀreduceꢀjackpot
waitꢀtimes,ꢀeliminateꢀcumbersomeꢀpaperꢀdocuments,ꢀandꢀperformꢀ“knowꢀyourꢀcustomer”ꢀchecks.ꢀItꢀisꢀfullyꢀintegrated
withꢀourꢀEveriꢀComplianceꢀ(definedꢀbelow),ꢀCageXchange,ꢀandꢀJackpotXchangeꢀproducts.ꢀꢀ
CageXchange isꢀ aꢀ cashꢀ dispensingꢀ deviceꢀ thatꢀ helpsꢀ streamlineꢀ casinoꢀ cageꢀ operations.ꢀWithꢀ CageXchange,ꢀ cashꢀ is
securelyꢀvaulted,ꢀcreatingꢀincreasedꢀsecurityꢀwhileꢀalsoꢀreducingꢀcashꢀshrinkageꢀandꢀhelpingꢀtoꢀimproveꢀcashierꢀaccuracy.
Additionalꢀefficienciesꢀareꢀachievedꢀfromꢀacceleratingꢀtheꢀprocessꢀofꢀcageꢀcashiersꢀobtainingꢀmoneyꢀfromꢀtheꢀvault.
CageXchangeꢀisꢀintegratedꢀwithꢀCashClub®ꢀtoꢀcreateꢀanꢀefficientꢀtransactionꢀforꢀcasinoꢀguests.
OurꢀCash Recycling Solutionsꢀallowꢀcasinosꢀtoꢀfullyꢀautomateꢀtheꢀcheckꢀinꢀandꢀcheckꢀoutꢀprocessꢀofꢀmoney,ꢀsavingꢀtime
andꢀexpense.ꢀAsꢀgamingꢀestablishmentsꢀvaryꢀinꢀsizeꢀandꢀcomplexity,ꢀtheseꢀCash Recycling Solutionsꢀsupportꢀaꢀnumber
ofꢀdiverseꢀresortꢀoperationsꢀsuchꢀasꢀretail,ꢀfoodꢀandꢀbeverage,ꢀentertainment,ꢀandꢀgamingꢀoperations.ꢀ
Information Services and Other
InꢀconnectionꢀwithꢀourꢀInformationꢀServicesꢀandꢀOtherꢀsolutions,ꢀweꢀofferꢀtheꢀfollowing:
Maintenance providesꢀforꢀvariousꢀformsꢀofꢀsupportꢀtoꢀmaintainꢀourꢀfullyꢀintegratedꢀkiosks.ꢀOurꢀsupportꢀoperations,ꢀfieldꢀservice,
andꢀ customerꢀ engagementꢀ teamsꢀ provideꢀ quarterlyꢀ andꢀ annualꢀ maintenanceꢀ onꢀ theseꢀ productsꢀ andꢀ softwareꢀ systemsꢀ toꢀ help
maximizeꢀtheꢀefficiencyꢀofꢀourꢀproducts.
9
Everi Compliance isꢀourꢀsuiteꢀofꢀcomplianceꢀsoftwareꢀofferingsꢀforꢀgamingꢀoperatorsꢀthatꢀhelpꢀgamingꢀestablishmentsꢀcomply
withꢀfinancialꢀservicesꢀandꢀgamingꢀregulations,ꢀwhichꢀincludeꢀsoftwareꢀtoꢀassistꢀwithꢀanti-moneyꢀlaunderingꢀregulations,ꢀsuchꢀas
filingꢀcurrencyꢀtransactionꢀreportsꢀ(“CTRs”),ꢀandꢀsuspiciousꢀactivityꢀreportsꢀ(“SARs”).ꢀInꢀaddition,ꢀtheseꢀcomplianceꢀsolutions
assistꢀwithꢀ“knowꢀyourꢀcustomer”ꢀchecksꢀtoꢀensureꢀtransactionsꢀareꢀappropriatelyꢀconducted.
Central Credit isꢀourꢀgamingꢀpatronꢀcreditꢀbureauꢀserviceꢀwhich,ꢀonꢀaꢀsubscriptionꢀbasis,ꢀallowsꢀgamingꢀestablishmentsꢀtoꢀimprove
theirꢀcredit-grantingꢀdecisionsꢀbyꢀobtainingꢀaccessꢀtoꢀaꢀdatabaseꢀcontainingꢀcreditꢀinformationꢀandꢀtransactionꢀdataꢀonꢀmillionsꢀof
gamingꢀpatrons.ꢀOurꢀgamingꢀcreditꢀreportsꢀareꢀcomprisedꢀofꢀinformationꢀrecordedꢀfromꢀpatronꢀcreditꢀhistoriesꢀatꢀhundredsꢀof
gamingꢀestablishments.ꢀWeꢀprovideꢀsuchꢀinformationꢀtoꢀgamingꢀestablishmentsꢀthatꢀsubscribeꢀtoꢀtheꢀservice.ꢀTheseꢀestablishments
thenꢀuseꢀthatꢀdata,ꢀamongꢀotherꢀthings,ꢀtoꢀdetermineꢀhowꢀmuchꢀcredit,ꢀifꢀany,ꢀtheyꢀwillꢀgrantꢀtoꢀaꢀgamingꢀpatron.ꢀWeꢀtypically
chargeꢀourꢀcustomersꢀforꢀaccessꢀtoꢀgamingꢀpatronꢀcreditꢀreportsꢀonꢀaꢀmonthlyꢀbasisꢀandꢀourꢀfeesꢀareꢀgenerallyꢀcomprisedꢀofꢀaꢀfixed
minimumꢀfeeꢀplusꢀper-transactionꢀchargesꢀforꢀcertainꢀrequests.
Otherꢀsolutionsꢀincludeꢀdatabaseꢀservicesꢀthatꢀallowꢀgamingꢀestablishmentsꢀaccessꢀtoꢀinformationꢀfromꢀourꢀproprietaryꢀpatron
transactionꢀdatabaseꢀforꢀpurposesꢀofꢀplayerꢀacquisition,ꢀdirectꢀmarketing,ꢀmarketꢀshareꢀanalysis,ꢀandꢀaꢀvarietyꢀofꢀotherꢀpatron
promotionalꢀuses.ꢀOurꢀproprietaryꢀpatronꢀtransactionꢀdatabaseꢀincludesꢀinformationꢀthatꢀisꢀcapturedꢀfromꢀtransactionsꢀweꢀprocess.
Patronsꢀmayꢀ“optꢀout”ꢀofꢀhavingꢀtheirꢀnamesꢀincludedꢀinꢀmarketingꢀmailingꢀlists.ꢀWeꢀalsoꢀofferꢀanꢀonlineꢀpaymentꢀprocessing
solutionꢀforꢀgamingꢀoperatorsꢀinꢀstatesꢀthatꢀofferꢀintra-state,ꢀInternet-basedꢀgaming,ꢀandꢀlotteryꢀactivities.
Manufacturing
Weꢀutilizeꢀcontractꢀmanufacturersꢀtoꢀproduceꢀtheꢀcabinetsꢀthatꢀmakeꢀupꢀourꢀelectronicꢀgamingꢀmachinesꢀ(“EGMs”),ꢀkioskꢀproducts,
andꢀotherꢀsub-assemblies.ꢀWeꢀhaveꢀassemblyꢀfacilitiesꢀinꢀAustin,ꢀTexasꢀandꢀLasꢀVegas,ꢀNevada,ꢀwhereꢀweꢀassembleꢀtheꢀEGMs
andꢀourꢀkioskꢀproducts,ꢀwhichꢀincludeꢀtheꢀcabinets,ꢀcomputerꢀassemblies,ꢀLCDꢀscreens,ꢀprinters,ꢀbillꢀvalidatorsꢀandꢀacceptors,ꢀand
otherꢀwiringꢀandꢀharnesses.ꢀWeꢀbelieveꢀthatꢀourꢀsourcesꢀofꢀsupplyꢀofꢀcomponentꢀpartsꢀandꢀrawꢀmaterialsꢀforꢀourꢀproductsꢀare
generallyꢀadequateꢀandꢀweꢀhaveꢀfewꢀsole-sourcedꢀparts.
Research and Development
Weꢀconductꢀresearchꢀandꢀdevelopmentꢀactivitiesꢀprimarilyꢀtoꢀdevelopꢀgamingꢀsystems,ꢀgameꢀengines,ꢀcasinoꢀdataꢀmanagement
systems,ꢀbingoꢀoutcomeꢀdeterminationꢀsystems,ꢀvideoꢀlotteryꢀoutcomeꢀdeterminationꢀsystems,ꢀgamingꢀplatforms,ꢀandꢀgaming
content,ꢀandꢀtoꢀenhanceꢀourꢀexistingꢀproductꢀlines.ꢀWeꢀbelieveꢀourꢀabilityꢀtoꢀdeliverꢀdifferentiated,ꢀappealingꢀproductsꢀandꢀservices
toꢀtheꢀmarketplaceꢀisꢀbasedꢀonꢀourꢀresearchꢀandꢀdevelopmentꢀinvestments,ꢀandꢀweꢀexpectꢀtoꢀcontinueꢀtoꢀmakeꢀsuchꢀinvestments
inꢀtheꢀfuture.ꢀResearchꢀandꢀdevelopmentꢀcostsꢀconsistꢀprimarilyꢀofꢀsalariesꢀandꢀbenefits,ꢀconsultingꢀfees,ꢀandꢀgameꢀlabꢀtestingꢀfees.
Onceꢀtheꢀtechnologicalꢀfeasibilityꢀofꢀaꢀprojectꢀhasꢀbeenꢀestablished,ꢀitꢀisꢀcapitalizedꢀuntilꢀitꢀbecomesꢀavailableꢀforꢀgeneralꢀrelease.
Customers
AsꢀofꢀDecemberꢀ31,ꢀ2018,ꢀweꢀservedꢀapproximatelyꢀ1,450ꢀcasinosꢀandꢀotherꢀgamingꢀpropertiesꢀinꢀtheꢀUnitedꢀStates,ꢀEurope,
Canada,ꢀtheꢀCaribbean,ꢀCentralꢀAmerica,ꢀandꢀAsia.ꢀInꢀcertainꢀlimitedꢀcircumstances,ꢀweꢀprovideꢀourꢀproductsꢀandꢀservicesꢀtoꢀnon-
gamingꢀestablishments,ꢀsuchꢀasꢀgasꢀstationsꢀandꢀotherꢀretailꢀbusinessesꢀassociatedꢀwithꢀgamingꢀestablishmentꢀcustomers.ꢀHowever,
theꢀrevenueꢀgeneratedꢀfromꢀtheseꢀoperationsꢀisꢀnotꢀmaterialꢀtoꢀourꢀoperationsꢀandꢀweꢀdoꢀnotꢀactivelyꢀmarketꢀorꢀtargetꢀnon-gaming
establishmentꢀcustomers.
Sales and Marketing
InꢀourꢀGamesꢀbusiness,ꢀweꢀsellꢀandꢀmarketꢀourꢀproductsꢀandꢀservicesꢀtoꢀgamingꢀestablishmentsꢀprimarilyꢀthroughꢀtheꢀuseꢀofꢀa
directꢀsalesꢀforce,ꢀwhichꢀtargetsꢀgamingꢀestablishmentsꢀinꢀtheꢀUnitedꢀStatesꢀandꢀinꢀcertainꢀinternationalꢀmarkets.ꢀWithꢀrespectꢀto
ourꢀgamingꢀproducts,ꢀweꢀparticipateꢀinꢀtheꢀClassꢀIIꢀandꢀClassꢀIIIꢀgamingꢀmachineꢀmarkets,ꢀandꢀtheꢀcentralꢀdeterminantꢀsystem
marketꢀinꢀNorthꢀAmerica,ꢀthroughꢀparticipation,ꢀorꢀrevenueꢀshare,ꢀandꢀfixedꢀfeeꢀarrangements,ꢀandꢀtheꢀsaleꢀofꢀproprietaryꢀEGMs
andꢀsystems.ꢀ
InꢀourꢀFinTechꢀbusiness,ꢀweꢀsellꢀandꢀmarketꢀCashꢀAccessꢀ(i.e.,ꢀCashꢀAdvance,ꢀATM,ꢀandꢀCheckꢀServices),ꢀEquipmentꢀ(i.e.,ꢀKiosks
Sales),ꢀInformationꢀServicesꢀandꢀOtherꢀ(i.e.,ꢀKioskꢀServices,ꢀComplianceꢀSalesꢀandꢀServices,ꢀCentralꢀCreditꢀServices,ꢀandꢀAncillary
Services)ꢀthroughꢀtheꢀuseꢀofꢀaꢀdirectꢀsalesꢀforce,ꢀwhichꢀtargetsꢀgamingꢀestablishmentsꢀinꢀtheꢀUnitedꢀStatesꢀandꢀinꢀcertainꢀinternational
markets.ꢀ
WithꢀrespectꢀtoꢀbothꢀourꢀGamesꢀandꢀFinTechꢀbusinesses,ꢀourꢀsalesꢀandꢀmarketingꢀeffortsꢀareꢀdirectedꢀbyꢀaꢀteamꢀofꢀcustomerꢀservice
executives,ꢀeachꢀofꢀwhomꢀhasꢀbusinessꢀdevelopmentꢀresponsibilityꢀforꢀgamingꢀestablishmentsꢀinꢀspecifiedꢀgeographicꢀregions.
10
Theseꢀ customerꢀ serviceꢀ executivesꢀ directꢀ theirꢀ effortsꢀ atꢀ variousꢀ levelsꢀ ofꢀ gamingꢀ establishmentꢀ personnel,ꢀ including:ꢀ senior
executives,ꢀfinanceꢀprofessionals,ꢀmarketingꢀstaff,ꢀslotꢀdirectors,ꢀandꢀcashiers,ꢀandꢀseekꢀtoꢀeducateꢀthemꢀonꢀtheꢀbenefitsꢀofꢀour
productsꢀandꢀservices.ꢀInꢀsomeꢀcases,ꢀourꢀcustomerꢀserviceꢀexecutivesꢀareꢀsupportedꢀbyꢀfieldꢀserviceꢀandꢀcustomerꢀengagement
teams,ꢀwhoꢀprovideꢀon-siteꢀcustomerꢀserviceꢀtoꢀmostꢀofꢀourꢀcustomers.ꢀInꢀotherꢀcases,ꢀourꢀsalesꢀexecutivesꢀdirectlyꢀmaintainꢀthe
customerꢀrelationships.ꢀTheseꢀcustomerꢀserviceꢀexecutivesꢀandꢀfieldꢀserviceꢀandꢀcustomerꢀengagementꢀteamsꢀgenerallyꢀresideꢀin
theꢀ vicinityꢀ ofꢀ theꢀ specificꢀ gamingꢀ establishmentsꢀ theyꢀ supportꢀ toꢀ ensureꢀ aꢀ promptꢀ responseꢀ toꢀ theꢀ needsꢀ ofꢀ thoseꢀ gaming
establishments.ꢀWeꢀalsoꢀhaveꢀjointꢀsalesꢀeffortsꢀwithꢀaꢀnumberꢀofꢀstrategicꢀpartners,ꢀincludingꢀindependentꢀsalesꢀorganizations,
whichꢀallowꢀusꢀtoꢀmarketꢀourꢀproductsꢀandꢀservicesꢀtoꢀgamingꢀestablishmentsꢀthroughꢀchannelsꢀotherꢀthanꢀourꢀdirectꢀsalesꢀforce.
Competition
WithꢀrespectꢀtoꢀourꢀGamesꢀbusiness,ꢀweꢀcompeteꢀacrossꢀdifferentꢀgamingꢀmarketsꢀwithꢀaꢀvarietyꢀofꢀgamingꢀequipmentꢀsuppliers.
Competitionꢀisꢀgenerallyꢀbasedꢀuponꢀthe:ꢀ(a)ꢀamountꢀofꢀrevenueꢀourꢀproductsꢀgenerateꢀforꢀourꢀcustomersꢀrelativeꢀtoꢀtheꢀamount
ofꢀrevenueꢀgeneratedꢀbyꢀourꢀcompetitors’ꢀproducts;ꢀ(b)ꢀpricesꢀandꢀfeesꢀweꢀandꢀourꢀcompetitorsꢀchargeꢀforꢀproductsꢀandꢀservices
offered;ꢀandꢀ(c)ꢀappealꢀofꢀourꢀcompetitors’ꢀproductsꢀtoꢀgamingꢀpatrons,ꢀwhichꢀhasꢀaꢀdirectꢀeffectꢀonꢀtheꢀvolumeꢀofꢀplayꢀgenerated
byꢀ aꢀ productꢀ and,ꢀ accordingly,ꢀ theꢀ revenuesꢀ generatedꢀ forꢀ ourꢀ customers.ꢀ Toꢀ driveꢀ customerꢀ demandꢀ andꢀ improveꢀ product
attractiveness,ꢀweꢀcontinuallyꢀworkꢀtoꢀdevelopꢀnewꢀgameꢀthemes,ꢀgameꢀengines,ꢀhardwareꢀplatforms,ꢀandꢀsystemsꢀthatꢀappealꢀto
gamingꢀpatrons,ꢀallꢀwhileꢀworkingꢀtoꢀreleaseꢀtheseꢀnewꢀproductsꢀtoꢀtheꢀmarketplaceꢀinꢀaꢀtimelyꢀmanner.
WithꢀrespectꢀtoꢀourꢀFinTechꢀbusiness,ꢀweꢀcompeteꢀwithꢀotherꢀprovidersꢀofꢀcashꢀaccessꢀservicesꢀtoꢀtheꢀgamingꢀindustryꢀasꢀwellꢀas
withꢀfinancialꢀinstitutionsꢀandꢀotherꢀregionalꢀandꢀlocalꢀbanksꢀthatꢀoperateꢀATMsꢀonꢀtheꢀpremisesꢀofꢀgamingꢀestablishments.ꢀSome
ofꢀtheseꢀotherꢀprovidersꢀandꢀfinancialꢀinstitutionsꢀhaveꢀestablishedꢀcooperativeꢀrelationshipsꢀwithꢀeachꢀotherꢀtoꢀexpandꢀtheirꢀservice
offerings.ꢀWeꢀalsoꢀfaceꢀincreasedꢀcompetitionꢀfrom:ꢀ(a)ꢀindependentꢀsalesꢀorganizations,ꢀwhichꢀprovideꢀbasicꢀservicesꢀandꢀaggressive
pricing;ꢀ(b)ꢀotherꢀmanufacturersꢀthatꢀprovideꢀsimilarꢀgoodsꢀandꢀservices;ꢀandꢀ(c)ꢀtraditionalꢀtransactionꢀprocessorsꢀthatꢀhaveꢀentered
theꢀgamingꢀpatronꢀcashꢀaccessꢀservicesꢀmarket.ꢀThisꢀincreasedꢀcompetitionꢀamongstꢀtheseꢀvariousꢀprovidersꢀofꢀcashꢀaccessꢀservices
hasꢀresultedꢀinꢀpricingꢀpressureꢀandꢀmarginꢀerosionꢀwithꢀrespectꢀtoꢀourꢀcoreꢀcashꢀaccessꢀproductsꢀandꢀservices.ꢀInꢀadditionꢀto
competingꢀwithꢀvariousꢀprovidersꢀofꢀcashꢀaccessꢀservices,ꢀFinTechꢀhasꢀexperiencedꢀcompetitionꢀfromꢀeitherꢀthoseꢀsameꢀproviders
orꢀstand-aloneꢀprovidersꢀofꢀanti-moneyꢀlaunderingꢀcomplianceꢀproductsꢀandꢀself-serviceꢀkiosksꢀforꢀticketꢀredemptionꢀandꢀjackpot
redemption.ꢀ
Intellectual Property
Weꢀbelieveꢀtheꢀabilityꢀtoꢀintroduceꢀandꢀrespondꢀtoꢀtechnologicalꢀinnovationꢀinꢀtheꢀgamingꢀindustryꢀwillꢀbeꢀanꢀincreasinglyꢀimportant
qualificationꢀ forꢀ theꢀ futureꢀ successꢀ ofꢀ anyꢀ providerꢀ ofꢀ cashꢀ accessꢀ andꢀ gaming-relatedꢀ productsꢀ andꢀ services.ꢀ Ourꢀ continued
competitivenessꢀwillꢀdependꢀon:ꢀ(a)ꢀtheꢀpaceꢀofꢀourꢀnewꢀproductꢀdevelopment;ꢀ(b)ꢀourꢀpatent,ꢀcopyright,ꢀtrademark,ꢀandꢀtrade
secretꢀprotection;ꢀandꢀ(c)ꢀourꢀrelationshipsꢀwithꢀcustomers.ꢀOurꢀbusinessꢀdevelopmentꢀpersonnelꢀworkꢀwithꢀgamingꢀestablishments,
ourꢀtechnologyꢀandꢀotherꢀstrategicꢀpartners,ꢀandꢀtheꢀsuppliersꢀofꢀtheꢀfinancialꢀservicesꢀuponꢀwhichꢀourꢀcashꢀaccessꢀservicesꢀrely,
toꢀdesignꢀandꢀdevelopꢀinnovativeꢀproductsꢀandꢀservicesꢀthatꢀappealꢀtoꢀgamingꢀpatrons.
Weꢀrelyꢀonꢀaꢀcombinationꢀofꢀpatents,ꢀtrademarks,ꢀcopyrights,ꢀtradeꢀsecrets,ꢀandꢀcontractualꢀrestrictionsꢀtoꢀprotectꢀourꢀintellectual
property.ꢀTheꢀexpirationꢀdatesꢀofꢀtheseꢀpatentsꢀvaryꢀandꢀareꢀbasedꢀonꢀtheirꢀfilingꢀandꢀissuancesꢀdates.ꢀWeꢀintendꢀtoꢀcontinueꢀto
activelyꢀfileꢀforꢀpatentꢀprotection,ꢀwhenꢀsuchꢀfilingsꢀareꢀcommerciallyꢀreasonable,ꢀwithinꢀandꢀoutsideꢀtheꢀUnitedꢀStates.ꢀWeꢀalso
seekꢀtrademarkꢀprotectionꢀforꢀourꢀnamesꢀandꢀproductsꢀandꢀhaveꢀregisteredꢀhundredsꢀofꢀtrademarksꢀinꢀtheꢀUnitedꢀStatesꢀandꢀvarious
foreignꢀcountries.ꢀUnderꢀpermissionꢀorꢀlicenseꢀagreementsꢀwithꢀthirdꢀparties,ꢀweꢀalsoꢀsellꢀgamingꢀproductsꢀcoveredꢀbyꢀindependently
filedꢀcopyrights,ꢀtrademarks,ꢀorꢀpatents.ꢀTypically,ꢀtheseꢀcontractsꢀrequireꢀusꢀtoꢀpayꢀroyaltiesꢀtoꢀtheꢀlicensingꢀparty.ꢀRoyaltyꢀexpenses
areꢀincludedꢀinꢀtheꢀcostꢀofꢀgamingꢀandꢀsystemsꢀinꢀourꢀFinancialꢀStatementsꢀincludedꢀelsewhereꢀinꢀthisꢀAnnualꢀReportꢀonꢀFormꢀ10-
K.ꢀInꢀadditionꢀtoꢀourꢀpatents,ꢀtrademarks,ꢀandꢀcopyrights,ꢀweꢀalsoꢀrelyꢀonꢀaꢀbroaderꢀscopeꢀofꢀintellectualꢀpropertyꢀincludingꢀtrade
secrets,ꢀin-houseꢀknow-how,ꢀandꢀinnovation.
Seasonality
Ourꢀrevenuesꢀandꢀcashꢀflowsꢀmayꢀfluctuateꢀthroughoutꢀtheꢀyearꢀdrivenꢀbyꢀseasonalityꢀinꢀplayerꢀdemandꢀandꢀactivity.ꢀWeꢀgenerally
experienceꢀhigherꢀoperatingꢀresultsꢀduringꢀtheꢀfirstꢀhalfꢀofꢀaꢀyearꢀandꢀlowerꢀoperatingꢀresultsꢀduringꢀtheꢀsecondꢀhalfꢀofꢀaꢀyear,
however,ꢀsuchꢀfluctuationsꢀdoꢀnotꢀhaveꢀaꢀmaterialꢀimpactꢀonꢀourꢀrevenuesꢀandꢀcashꢀflows.ꢀ
Employees
AsꢀofꢀDecemberꢀ31,ꢀ2018,ꢀweꢀhadꢀapproximatelyꢀ1,250ꢀemployees.ꢀWeꢀbelieveꢀthatꢀourꢀrelationsꢀwithꢀourꢀemployeesꢀareꢀgood.
Weꢀhaveꢀneverꢀexperiencedꢀaꢀworkꢀstoppageꢀandꢀnoneꢀofꢀourꢀemployeesꢀareꢀsubjectꢀtoꢀaꢀcollectiveꢀbargainingꢀagreement.
11
Available Information
Ourꢀwebsiteꢀaddressꢀisꢀwww.everi.com.ꢀWeꢀmakeꢀavailableꢀfreeꢀofꢀchargeꢀonꢀourꢀwebsiteꢀourꢀAnnualꢀReportsꢀonꢀFormꢀ10-K,
QuarterlyꢀReportsꢀonꢀFormꢀ10-Q,ꢀCurrentꢀReportsꢀonꢀFormꢀ8-K,ꢀandꢀallꢀamendmentsꢀtoꢀthoseꢀreportsꢀfiledꢀorꢀfurnishedꢀpursuant
toꢀSectionꢀ13(a)ꢀorꢀ15(d)ꢀofꢀtheꢀExchangeꢀAct,ꢀasꢀsoonꢀasꢀreasonablyꢀpracticableꢀafterꢀsuchꢀreportsꢀareꢀelectronicallyꢀfiledꢀwith,
orꢀfurnishedꢀto,ꢀtheꢀSEC.ꢀInꢀaddition,ꢀourꢀearningsꢀconferenceꢀcallsꢀareꢀwebꢀcastꢀliveꢀviaꢀourꢀwebsite.ꢀInꢀadditionꢀtoꢀvisitingꢀour
website,ꢀyouꢀmayꢀreadꢀanyꢀdocumentꢀweꢀfileꢀwithꢀtheꢀSECꢀatꢀwww.sec.gov.ꢀ
General
REGULATION
Weꢀ believeꢀ thatꢀ weꢀ areꢀ inꢀ substantialꢀ complianceꢀ withꢀ allꢀ materialꢀ gamingꢀ andꢀ financialꢀ institutionꢀ lawsꢀ applicableꢀ toꢀ our
business.ꢀWeꢀhaveꢀaꢀdiligentꢀinternalꢀcomplianceꢀprogramꢀtoꢀensureꢀcomplianceꢀwithꢀourꢀbusinessꢀactivities,ꢀasꢀwellꢀasꢀlegal
requirementsꢀgenerallyꢀapplicableꢀtoꢀallꢀpubliclyꢀtradedꢀcompanies.ꢀTheꢀcomplianceꢀprogramꢀisꢀdirectedꢀonꢀaꢀday-to-dayꢀbasisꢀby
ourꢀChiefꢀComplianceꢀOfficer.ꢀLegalꢀadviceꢀisꢀprovidedꢀbyꢀattorneysꢀfromꢀtheꢀCompany’sꢀlegalꢀdepartmentꢀandꢀoutsideꢀexperts.
Theꢀ complianceꢀ programꢀ isꢀ overseenꢀ byꢀ theꢀ Corporateꢀ Complianceꢀ Committee,ꢀ whichꢀ includesꢀ aꢀ gamingꢀ lawꢀ expertꢀ asꢀ an
independentꢀmember.ꢀWeꢀcanꢀgiveꢀnoꢀassurance,ꢀhowever,ꢀthatꢀourꢀbusinessꢀactivitiesꢀorꢀtheꢀactivitiesꢀofꢀourꢀcustomersꢀinꢀthe
gamingꢀindustryꢀwillꢀnotꢀbeꢀsubjectꢀtoꢀanyꢀregulatoryꢀorꢀlegalꢀenforcementꢀproceedingsꢀinꢀtheꢀfutureꢀandꢀaꢀviolationꢀofꢀapplicable
lawsꢀbyꢀusꢀorꢀanyꢀofꢀourꢀsubsidiariesꢀcouldꢀhaveꢀaꢀmaterialꢀadverseꢀeffectꢀonꢀourꢀfinancialꢀcondition,ꢀprospects,ꢀandꢀresultsꢀof
operations.ꢀDependingꢀonꢀtheꢀnatureꢀofꢀanyꢀnoncompliance,ꢀourꢀfailureꢀtoꢀcomplyꢀwithꢀsuchꢀlaws,ꢀregulations,ꢀandꢀordinances
mayꢀresultꢀinꢀtheꢀsuspensionꢀorꢀrevocationꢀofꢀanyꢀlicense,ꢀregistration,ꢀorꢀotherꢀapproval,ꢀaꢀpartialꢀorꢀcompleteꢀcessationꢀofꢀour
business,ꢀseizureꢀofꢀourꢀassets,ꢀasꢀwellꢀasꢀtheꢀimpositionꢀofꢀcivilꢀfinesꢀandꢀcriminalꢀpenalties.
Gaming Regulation
Theꢀgamingꢀindustryꢀisꢀhighlyꢀregulatedꢀunderꢀlegalꢀsystemsꢀthatꢀfrequentlyꢀevolveꢀandꢀchangeꢀbasedꢀonꢀgovernmentalꢀpublic
policies.ꢀVariousꢀaspectsꢀofꢀourꢀbusinessꢀareꢀsubjectꢀtoꢀcomprehensiveꢀlaws,ꢀregulations,ꢀandꢀordinancesꢀapplicableꢀtoꢀtheꢀownership,
management,ꢀandꢀoperationꢀofꢀgamblingꢀestablishmentsꢀasꢀwellꢀasꢀcertainꢀfinancialꢀservicesꢀconductedꢀatꢀsuchꢀestablishments.
Theꢀstatedꢀpoliciesꢀandꢀotherꢀpurposesꢀbehindꢀsuchꢀlaws,ꢀregulations,ꢀandꢀordinancesꢀareꢀgenerallyꢀto:ꢀ(i)ꢀensureꢀtheꢀpublic’sꢀtrust
andꢀ confidenceꢀ inꢀ legalizedꢀ gamblingꢀ throughꢀ aꢀ systemꢀ ofꢀ mandatedꢀ regulation,ꢀ internalꢀ controls,ꢀ accountingꢀ practices,ꢀ and
operatingꢀprocedures;ꢀandꢀ(ii)ꢀpromoteꢀeconomicꢀactivityꢀforꢀtheꢀstate,ꢀcounty,ꢀandꢀlocalꢀgovernmentsꢀthroughꢀrevenueꢀopportunities
emanatingꢀfromꢀtaxes,ꢀlicensingꢀfees,ꢀandꢀotherꢀeconomicꢀbenefitsꢀarisingꢀoutꢀofꢀgamblingꢀandꢀrelatedꢀactivities.
Aꢀdescriptionꢀofꢀtheꢀmaterialꢀregulationsꢀtoꢀwhichꢀweꢀareꢀsubjectꢀisꢀsetꢀforthꢀbelow.
Gaming Authorities.ꢀWeꢀareꢀregulatedꢀbyꢀvariousꢀcity,ꢀcounty,ꢀstate,ꢀprovincial,ꢀfederal,ꢀtribal,ꢀandꢀforeignꢀgovernmentꢀagencies
(collectively,ꢀ“GamingꢀAuthorities”)ꢀinꢀtheꢀjurisdictionsꢀwhereꢀweꢀconductꢀbusinessꢀasꢀeitherꢀa:ꢀ(i)ꢀmanufacturerꢀofꢀgamingꢀdevices,
inꢀ thoseꢀ jurisdictionsꢀ whereꢀ weꢀ manufactureꢀ gamingꢀ devicesꢀ andꢀ systems;ꢀ (ii)ꢀ supplierꢀ ofꢀ “associatedꢀ equipment,”ꢀ inꢀ those
jurisdictionsꢀwhereꢀweꢀsellꢀandꢀserviceꢀfullyꢀintegratedꢀkiosksꢀandꢀotherꢀintegratedꢀkioskꢀsolutions;ꢀandꢀ(iii)ꢀnon-gamingꢀsupplier
orꢀvendor,ꢀinꢀthoseꢀjurisdictionsꢀwhereꢀweꢀprovideꢀcashꢀaccessꢀandꢀCentralꢀCreditꢀservicesꢀonly.ꢀWeꢀmustꢀmaintainꢀthoseꢀlicenses,
registrations,ꢀorꢀotherꢀapprovalsꢀinꢀgoodꢀstandingꢀtoꢀcontinueꢀourꢀbusiness.ꢀGamingꢀAuthoritiesꢀhaveꢀbroadꢀdiscretionꢀinꢀdetermining
whetherꢀtoꢀgrantꢀaꢀlicense,ꢀregistration,ꢀorꢀotherꢀapproval.ꢀSubjectꢀtoꢀcomplyingꢀwithꢀcertainꢀproceduralꢀrequirements,ꢀGaming
Authoritiesꢀmayꢀdenyꢀanyꢀapplication,ꢀorꢀlimit,ꢀcondition,ꢀrestrict,ꢀrevokeꢀorꢀsuspendꢀanyꢀlicense,ꢀregistration,ꢀfindingꢀofꢀsuitability,
qualification,ꢀorꢀotherꢀapprovalꢀforꢀanyꢀcauseꢀdeemedꢀreasonableꢀtoꢀthem.ꢀ
Approvals, Licensing and Suitability
Theꢀprocessꢀofꢀobtainingꢀnecessaryꢀlicenses,ꢀregistrations,ꢀorꢀotherꢀapprovalsꢀoftenꢀinvolvesꢀsubstantialꢀdisclosureꢀofꢀconfidential
orꢀproprietaryꢀinformationꢀaboutꢀusꢀandꢀourꢀofficers,ꢀdirectors,ꢀkeyꢀpersonnelꢀand,ꢀinꢀcertainꢀinstances,ꢀbeneficialꢀownersꢀofꢀour
debtꢀorꢀequityꢀsecurities,ꢀandꢀrequiresꢀaꢀdeterminationꢀbyꢀtheꢀregulatorsꢀasꢀtoꢀourꢀsuitabilityꢀasꢀaꢀmanufacturer,ꢀsupplier,ꢀorꢀvendor
toꢀgamingꢀestablishments.ꢀGamingꢀregulatoryꢀauthoritiesꢀhaveꢀbroadꢀdiscretionꢀandꢀmayꢀrequireꢀanyꢀbeneficialꢀholderꢀofꢀour
securities,ꢀregardlessꢀofꢀtheꢀnumberꢀofꢀsharesꢀofꢀcommonꢀstockꢀorꢀamountꢀofꢀdebtꢀsecuritiesꢀowned,ꢀtoꢀfileꢀanꢀapplication,ꢀmake
personalꢀorꢀconfidentialꢀdisclosures,ꢀbeꢀinvestigated,ꢀandꢀbeꢀsubjectꢀtoꢀaꢀdeterminationꢀofꢀsuitability.ꢀManyꢀjurisdictionsꢀrequire
anyꢀpersonꢀwhoꢀacquiresꢀbeneficialꢀownershipꢀofꢀmoreꢀthanꢀaꢀcertainꢀpercentageꢀofꢀvotingꢀsecuritiesꢀofꢀaꢀgamingꢀcompanyꢀand,
inꢀsomeꢀjurisdictions,ꢀnon-votingꢀsecurities,ꢀtypicallyꢀ5%,ꢀtoꢀreportꢀtheꢀacquisitionꢀtoꢀGamingꢀAuthorities,ꢀandꢀGamingꢀAuthorities
mayꢀ requireꢀ suchꢀ holdersꢀ toꢀ applyꢀ forꢀ qualificationꢀ orꢀ aꢀ findingꢀ ofꢀ suitability,ꢀ subjectꢀ toꢀ limitedꢀ exceptionsꢀ forꢀ “institutional
investors”ꢀthatꢀholdꢀaꢀcompany’sꢀvotingꢀsecuritiesꢀforꢀinvestmentꢀpurposesꢀonly.
12
Product Approvals
OurꢀgamingꢀdevicesꢀandꢀcertainꢀotherꢀproductsꢀandꢀtechnologiesꢀmustꢀbeꢀcertifiedꢀorꢀapprovedꢀbyꢀGamingꢀAuthoritiesꢀinꢀmany
jurisdictionsꢀwhereꢀweꢀconductꢀbusiness.ꢀTheseꢀGamingꢀAuthoritiesꢀtestꢀtheꢀgamingꢀdevices,ꢀsystems,ꢀandꢀrelatedꢀequipment
directlyꢀorꢀthroughꢀanꢀindependentꢀtestingꢀlaboratoryꢀandꢀmayꢀalsoꢀrequireꢀaꢀfieldꢀtrialꢀunderꢀtheꢀregulator’sꢀtechnicalꢀstandards
beforeꢀallowingꢀusꢀtoꢀsellꢀtheꢀproduct.ꢀAlthoughꢀweꢀcollaborateꢀcloselyꢀwithꢀtheꢀGamingꢀAuthoritiesꢀandꢀindependentꢀtesting
laboratories,ꢀweꢀcannotꢀcontrolꢀwhetherꢀourꢀproductsꢀwillꢀbeꢀapprovedꢀorꢀtheꢀlengthꢀofꢀtimeꢀtakenꢀtoꢀreviewꢀourꢀproductsꢀforꢀsale
toꢀthirdꢀparties.ꢀMoreover,ꢀthereꢀareꢀnoꢀguaranteesꢀthatꢀweꢀwillꢀbeꢀsuccessfulꢀinꢀobtainingꢀandꢀmaintainingꢀallꢀnecessaryꢀlicenses,
permits,ꢀandꢀapprovalsꢀandꢀtoꢀcontinueꢀtoꢀholdꢀotherꢀnecessaryꢀgamingꢀlicenses,ꢀpermits,ꢀandꢀapprovalsꢀtoꢀconductꢀourꢀbusinesses
eitherꢀasꢀcurrentlyꢀbeingꢀconductedꢀbyꢀusꢀorꢀtoꢀexpandꢀourꢀbusinesses.
OurꢀNativeꢀAmericanꢀcustomersꢀareꢀregulatedꢀbyꢀtheꢀNationalꢀIndianꢀGamingꢀCommissionꢀ(“NIGC”),ꢀwhichꢀwasꢀestablishedꢀby
theꢀIndianꢀGamingꢀRegulatoryꢀActꢀofꢀ1988ꢀ(“IGRA”).ꢀTheꢀNIGCꢀhasꢀregulatoryꢀauthorityꢀoverꢀcertainꢀaspectsꢀofꢀNativeꢀAmerican
gamingꢀandꢀdefinesꢀtheꢀboundariesꢀofꢀourꢀdealingsꢀwithꢀtheꢀNativeꢀAmericanꢀmarketplaceꢀandꢀtheꢀlevelꢀofꢀregulatoryꢀauthorityꢀto
whichꢀtheseꢀgamesꢀareꢀsubject.ꢀIGRAꢀestablishesꢀthreeꢀclassesꢀofꢀgaming,ꢀeachꢀwithꢀaꢀdifferentꢀregulatoryꢀframework:
Class
I
II
III
Type of Games
SocialꢀgamingꢀforꢀminimalꢀprizesꢀandꢀtraditionalꢀIndian
gaming.
Bingoꢀ(bothꢀinꢀtraditionalꢀandꢀelectronicꢀform).
Casinoꢀstyleꢀgamesꢀ(includingꢀslotꢀmachines,ꢀblackjack,
craps,ꢀandꢀroulette).
Regulatory Oversight
Exclusiveꢀregulationꢀandꢀoversightꢀbyꢀtribal
governments.
RegulationꢀbyꢀtribalꢀgovernmentsꢀwithꢀNIGCꢀoversight.
Mustꢀbeꢀpermittedꢀbyꢀtheꢀstateꢀinꢀwhichꢀtheꢀtribeꢀis
located.ꢀTheꢀstateꢀandꢀtheꢀtribeꢀmustꢀhaveꢀnegotiatedꢀa
compactꢀapprovedꢀbyꢀNIGC,ꢀandꢀtheꢀtribeꢀmustꢀhave
adoptedꢀaꢀgamingꢀordinanceꢀapprovedꢀbyꢀtheꢀNIGC.
ꢀ
WeꢀsellꢀourꢀgamingꢀdevicesꢀandꢀsystemsꢀinꢀbothꢀClassꢀIIꢀandꢀClassꢀIIIꢀmarkets.
ClassꢀIIIꢀgamingꢀonꢀNativeꢀAmericanꢀtribalꢀlandsꢀisꢀusuallyꢀsubjectꢀtoꢀtheꢀnegotiationꢀofꢀaꢀcompactꢀbetweenꢀtheꢀtribeꢀandꢀthe
proximateꢀstateꢀattendantꢀtoꢀwhereꢀtheꢀtribeꢀintendsꢀtoꢀoperateꢀaꢀgamingꢀfacility.ꢀTheseꢀtribal-stateꢀcompactsꢀtypicallyꢀinclude
provisionsꢀentitlingꢀtheꢀstateꢀtoꢀreceiveꢀsignificantꢀsumsꢀofꢀmoneyꢀinꢀexchangeꢀforꢀtheꢀtribe’sꢀoperationꢀofꢀClassꢀIIIꢀgaming.ꢀWhile
tribal-stateꢀcompactsꢀareꢀintendedꢀtoꢀdocumentꢀtheꢀagreementꢀbetweenꢀtheꢀstateꢀandꢀaꢀtribe,ꢀtheseꢀtribal-stateꢀcompactsꢀcanꢀbe
subjectꢀtoꢀdisputesꢀrelativeꢀtoꢀpermittedꢀClassꢀIIIꢀgamingꢀoperations.
The Johnson Act.ꢀTheꢀJohnsonꢀAct,ꢀasꢀamendedꢀbyꢀtheꢀfederalꢀGamblingꢀDevicesꢀActꢀofꢀ1962ꢀ(theꢀ“JohnsonꢀAct”),ꢀrequiresꢀthat
weꢀregisterꢀannuallyꢀwithꢀtheꢀCriminalꢀDivisionꢀofꢀtheꢀUnitedꢀStatesꢀDepartmentꢀofꢀJusticeꢀandꢀrequiresꢀaꢀwideꢀvarietyꢀofꢀrecord
keepingꢀandꢀequipmentꢀidentificationꢀeffortsꢀonꢀourꢀpart.ꢀRegistrationꢀisꢀrequiredꢀinꢀorderꢀforꢀusꢀtoꢀsell,ꢀdistribute,ꢀmanufacture,
transport,ꢀorꢀreceiveꢀgamingꢀequipment,ꢀmachines,ꢀorꢀcomponentsꢀacrossꢀstateꢀlines.ꢀIfꢀweꢀfailꢀtoꢀcomplyꢀwithꢀtheꢀrequirements
setꢀforthꢀunderꢀtheꢀJohnsonꢀAct,ꢀweꢀcouldꢀbecomeꢀsubjectꢀtoꢀaꢀvarietyꢀofꢀpenalties,ꢀincluding,ꢀbutꢀnotꢀlimitedꢀto,ꢀtheꢀseizureꢀand
forfeitureꢀofꢀequipment.
Internet and Online Gaming Regulation.ꢀSeveralꢀstatesꢀhaveꢀpassedꢀimplementingꢀlegislationꢀandꢀregulationsꢀtoꢀallowꢀcertain
intra-state,ꢀwager-based,ꢀonlineꢀcasino,ꢀorꢀlotteryꢀgames,ꢀsuchꢀasꢀonlineꢀpoker,ꢀonlineꢀlottery,ꢀlotteryꢀticketꢀpurchases,ꢀorꢀlottery
ticketꢀsubscriptions.ꢀToꢀdate,ꢀseveralꢀstatesꢀhaveꢀauthorizedꢀsomeꢀformꢀofꢀInternetꢀorꢀonlineꢀgamingꢀorꢀlotteryꢀactivities.ꢀHowever,
theꢀlegislativeꢀandꢀregulatoryꢀframeworkꢀgoverningꢀtheseꢀactivitiesꢀmayꢀcontinueꢀtoꢀevolveꢀinꢀtheꢀfuture.
Financial Services Regulation
OurꢀFinTechꢀbusinessꢀisꢀalsoꢀsubjectꢀtoꢀaꢀnumberꢀofꢀfinancialꢀservicesꢀregulations:
Durbin Amendment.ꢀRulesꢀpromulgatedꢀbyꢀtheꢀBoardꢀofꢀGovernorsꢀofꢀtheꢀFederalꢀReserveꢀSystem,ꢀrequiredꢀasꢀpartꢀofꢀtheꢀDodd-
Frankꢀ Wallꢀ Streetꢀ Reformꢀ andꢀ Consumerꢀ Protectionꢀ Actꢀ ofꢀ 2010ꢀ (theꢀ “Dodd-Frankꢀ Act”),ꢀ includingꢀ theꢀ so-calledꢀ Durbin
Amendmentꢀ(theꢀ“DurbinꢀAmendment”),ꢀestablish,ꢀamongꢀotherꢀthings,ꢀstandardsꢀforꢀassessingꢀwhetherꢀdebitꢀcardꢀinterchange
feesꢀreceivedꢀbyꢀcertainꢀdebitꢀcardꢀissuersꢀareꢀreasonableꢀandꢀproportionalꢀtoꢀtheꢀcostsꢀincurredꢀbyꢀissuersꢀforꢀelectronicꢀdebit
transactions.ꢀDebitꢀcardꢀinterchangeꢀfeesꢀareꢀestablishedꢀbyꢀpaymentꢀcardꢀnetworksꢀandꢀultimatelyꢀpaidꢀbyꢀmerchantsꢀtoꢀdebitꢀcard
issuersꢀforꢀeachꢀdebitꢀtransaction.
13
Anti-Money Laundering.ꢀTheꢀUSAꢀPATRIOTꢀActꢀofꢀ2001,ꢀotherꢀfederalꢀstatutes,ꢀgenerallyꢀreferredꢀtoꢀasꢀtheꢀBankꢀSecrecyꢀAct,
andꢀimplementingꢀfederalꢀregulationsꢀrequireꢀusꢀtoꢀestablishꢀandꢀmaintainꢀanꢀanti-moneyꢀlaunderingꢀprogram.ꢀOurꢀanti-money
launderingꢀprogramꢀincludes:ꢀinternalꢀpolicies,ꢀprocedures,ꢀandꢀcontrolsꢀdesignedꢀtoꢀidentifyꢀandꢀreportꢀmoneyꢀlaundering,ꢀa
designatedꢀcomplianceꢀofficer,ꢀanꢀongoingꢀemployeeꢀtrainingꢀprogram,ꢀandꢀanꢀindependentꢀauditꢀfunctionꢀtoꢀtestꢀtheꢀprogram.ꢀIn
addition,ꢀtheꢀcashꢀaccessꢀservicesꢀthatꢀweꢀprovideꢀareꢀsubjectꢀtoꢀrecordꢀkeepingꢀandꢀreportingꢀobligationsꢀunderꢀtheꢀBankꢀSecrecy
Act.ꢀ Ourꢀ gamingꢀ establishmentꢀ customersꢀ areꢀ requiredꢀ toꢀ fileꢀ aꢀ SARꢀ withꢀ theꢀ U.S.ꢀTreasuryꢀ Department’sꢀ Financialꢀ Crimes
EnforcementꢀNetworkꢀtoꢀreportꢀanyꢀsuspiciousꢀtransactionsꢀrelevantꢀtoꢀaꢀpossibleꢀviolationꢀofꢀlawꢀorꢀregulation.ꢀWeꢀareꢀalso
requiredꢀtoꢀfileꢀaꢀSARꢀwhereꢀweꢀprovideꢀourꢀcashꢀaccessꢀservicesꢀdirectlyꢀtoꢀpatronsꢀthroughꢀfinancialꢀservicesꢀcentersꢀthatꢀwe
staffꢀandꢀoperate.ꢀToꢀbeꢀreportable,ꢀsuchꢀaꢀtransactionꢀmustꢀmeetꢀcriteriaꢀthatꢀareꢀdesignedꢀtoꢀidentifyꢀtheꢀhidingꢀorꢀdisguisingꢀof
fundsꢀderivedꢀfromꢀillegalꢀactivities.ꢀOurꢀgamingꢀestablishmentꢀcustomers,ꢀinꢀsituationsꢀwhereꢀourꢀcashꢀaccessꢀservicesꢀareꢀprovided
throughꢀ gamingꢀ establishmentꢀ cashierꢀ personnel,ꢀ andꢀ we,ꢀ inꢀ situationsꢀ whereꢀ weꢀ provideꢀ ourꢀ cashꢀ accessꢀ servicesꢀ throughꢀ a
financialꢀservicesꢀcenter,ꢀareꢀrequiredꢀtoꢀfileꢀaꢀCTRꢀofꢀeachꢀdeposit,ꢀwithdrawal,ꢀexchangeꢀofꢀcurrency,ꢀorꢀotherꢀpaymentꢀorꢀtransfer
by,ꢀthrough,ꢀorꢀtoꢀusꢀwhichꢀinvolvesꢀaꢀtransactionꢀinꢀcurrencyꢀofꢀmoreꢀthanꢀ$10,000ꢀinꢀaꢀsingleꢀday.ꢀOurꢀCashClub®ꢀproductꢀcan
assistꢀinꢀidentifyingꢀtransactionsꢀthatꢀgiveꢀriseꢀtoꢀreportingꢀobligations.ꢀ
Fund Transfers.ꢀOurꢀPOSꢀdebitꢀcardꢀcashꢀaccessꢀtransactions,ꢀcreditꢀcardꢀcashꢀaccessꢀtransactions,ꢀandꢀATMꢀservicesꢀareꢀsubject
toꢀtheꢀElectronicꢀFundꢀTransferꢀAct,ꢀwhichꢀprovidesꢀcardholdersꢀwithꢀrightsꢀwithꢀrespectꢀtoꢀelectronicꢀfundꢀtransfers,ꢀincluding
theꢀrightꢀtoꢀdisputeꢀunauthorizedꢀcharges,ꢀchargesꢀthatꢀlistꢀtheꢀwrongꢀdateꢀorꢀamount,ꢀchargesꢀforꢀgoodsꢀandꢀservicesꢀthatꢀareꢀnot
acceptedꢀorꢀdeliveredꢀasꢀagreed,ꢀmathꢀerrors,ꢀandꢀchargesꢀforꢀwhichꢀaꢀcardholderꢀasksꢀforꢀanꢀexplanationꢀorꢀwrittenꢀproofꢀof
transactionꢀalongꢀwithꢀaꢀclaimedꢀerrorꢀorꢀrequestꢀforꢀclarification.ꢀWeꢀbelieveꢀtheꢀnecessaryꢀpoliciesꢀandꢀproceduresꢀhaveꢀbeen
implementedꢀthroughoutꢀourꢀorganizationꢀinꢀorderꢀtoꢀcomplyꢀwithꢀtheꢀregulatoryꢀrequirementsꢀforꢀfundꢀtransfers.
State Money Transmission Laws.ꢀManyꢀ statesꢀ whereꢀ weꢀ completeꢀ creditꢀ cardꢀ cashꢀ accessꢀ andꢀ POSꢀ debitꢀ cardꢀ cashꢀ access
transactionsꢀorꢀofferꢀourꢀonlineꢀpaymentꢀprocessingꢀsolutionꢀrequireꢀusꢀtoꢀhaveꢀaꢀmoneyꢀtransmitterꢀlicense.
Credit Reporting.ꢀOurꢀCentralꢀCreditꢀgamingꢀpatronꢀcreditꢀbureauꢀservicesꢀandꢀcheckꢀverificationꢀandꢀwarrantyꢀservicesꢀareꢀsubject
toꢀtheꢀFairꢀCreditꢀReportingꢀActꢀ(theꢀ“FCRA”)ꢀandꢀtheꢀFairꢀandꢀAccurateꢀCreditꢀTransactionsꢀActꢀofꢀ2003ꢀ(theꢀ“FACTA”)ꢀand
theirꢀimplementingꢀrules,ꢀwhichꢀrequireꢀconsumerꢀcreditꢀbureaus,ꢀsuchꢀasꢀCentralꢀCredit,ꢀtoꢀprovideꢀcreditꢀreportꢀinformationꢀto
businessesꢀonlyꢀforꢀcertainꢀpurposesꢀandꢀtoꢀotherwiseꢀsafeguardꢀcreditꢀreportꢀinformation,ꢀtoꢀdiscloseꢀtoꢀconsumersꢀtheirꢀcredit
reportꢀonꢀrequest,ꢀandꢀtoꢀpermitꢀconsumersꢀtoꢀdisputeꢀandꢀcorrectꢀinaccurateꢀorꢀincompleteꢀinformationꢀinꢀtheirꢀcreditꢀreport.ꢀThese
lawsꢀandꢀrulesꢀalsoꢀgovernꢀtheꢀinformationꢀthatꢀmayꢀbeꢀcontainedꢀinꢀaꢀconsumerꢀcreditꢀreport.ꢀWeꢀcontinueꢀtoꢀimplementꢀpolicies
andꢀproceduresꢀasꢀwellꢀasꢀadaptꢀourꢀbusinessꢀpracticesꢀinꢀorderꢀtoꢀcomplyꢀwithꢀtheseꢀlawsꢀandꢀregulations.ꢀInꢀadditionꢀtoꢀfederal
regulations,ꢀourꢀCentralꢀCreditꢀgamingꢀpatronꢀcreditꢀbureauꢀservicesꢀareꢀsubjectꢀtoꢀtheꢀstateꢀcreditꢀreportingꢀregulationsꢀthatꢀimpose
similarꢀrequirementsꢀtoꢀtheꢀFCRAꢀandꢀtheꢀFACTA.
Debt Collection.ꢀWeꢀ currentlyꢀ outsourceꢀ mostꢀ ofꢀ ourꢀ debtꢀ collectionꢀ effortsꢀ toꢀ thirdꢀ parties.ꢀ However,ꢀ weꢀ doꢀ engageꢀ inꢀ debt
collectionꢀtoꢀcollectꢀonꢀchargebacksꢀonꢀourꢀcashꢀaccessꢀproductsꢀandꢀunpaidꢀbalances forꢀservicesꢀperformedꢀforꢀourꢀcheckꢀservices,
CentralꢀCreditꢀservices,ꢀcomplianceꢀservices,ꢀreceivablesꢀrelatingꢀtoꢀtheꢀsaleꢀandꢀserviceꢀofꢀourꢀfullyꢀintegratedꢀkiosksꢀandꢀother
integratedꢀkioskꢀsolutions,ꢀandꢀotherꢀamountsꢀowingꢀtoꢀusꢀinꢀconnectionꢀwith performingꢀvariousꢀservicesꢀforꢀourꢀcustomers.ꢀAll
suchꢀcollectionꢀpracticesꢀmayꢀbeꢀsubjectꢀtoꢀtheꢀFairꢀDebtꢀCollectionꢀPracticesꢀActꢀ(theꢀ“FDCPA”),ꢀwhichꢀprohibitsꢀunfair,ꢀdeceptive,
orꢀabusiveꢀdebtꢀcollectionꢀpractices,ꢀasꢀwellꢀasꢀconsumer-debt-collectionꢀlawsꢀandꢀregulationsꢀadoptedꢀbyꢀtheꢀvariousꢀstates.
Privacy Regulations.ꢀOurꢀcollectionꢀofꢀinformationꢀfromꢀpatronsꢀwhoꢀuseꢀourꢀfinancialꢀproductsꢀandꢀservices,ꢀsuchꢀasꢀourꢀcash
accessꢀservices,ꢀareꢀsubjectꢀtoꢀtheꢀfinancialꢀinformationꢀprivacyꢀprotectionꢀprovisionsꢀofꢀtheꢀGramm-Leach-BlileyꢀActꢀofꢀ1999
(theꢀ “GLBA”)ꢀ andꢀ itsꢀ implementingꢀ federalꢀ regulations.ꢀ Weꢀ gather,ꢀ asꢀ permittedꢀ byꢀ law,ꢀ non-public,ꢀ personally-identifiable
financialꢀinformationꢀfromꢀpatronsꢀwhoꢀuseꢀourꢀcashꢀaccessꢀservices,ꢀsuchꢀasꢀnames,ꢀaddresses,ꢀtelephoneꢀnumbers,ꢀbankꢀand
creditꢀcardꢀaccountꢀnumbers,ꢀandꢀtransactionꢀinformation.ꢀTheꢀGLBAꢀrequiresꢀusꢀtoꢀsafeguardꢀandꢀprotectꢀtheꢀprivacyꢀofꢀsuch
non-publicꢀpersonalꢀinformationꢀandꢀalsoꢀrequiresꢀusꢀtoꢀmakeꢀdisclosuresꢀtoꢀpatronsꢀregardingꢀourꢀprivacyꢀandꢀinformationꢀsharing
policiesꢀandꢀgiveꢀpatronsꢀtheꢀopportunityꢀtoꢀdirectꢀusꢀnotꢀtoꢀdiscloseꢀinformationꢀaboutꢀthemꢀtoꢀunaffiliatedꢀthirdꢀpartiesꢀinꢀcertain
situations.ꢀWeꢀareꢀalsoꢀsubjectꢀtoꢀstateꢀprivacyꢀregulationsꢀwhich,ꢀinꢀsomeꢀcases,ꢀmayꢀbeꢀevenꢀstricterꢀthanꢀfederalꢀlaw.ꢀWeꢀcontinue
toꢀimplementꢀpoliciesꢀandꢀprogramsꢀasꢀwellꢀasꢀadaptꢀourꢀbusinessꢀpracticesꢀinꢀorderꢀtoꢀcomplyꢀwithꢀfederalꢀandꢀstateꢀprivacyꢀlaws
andꢀregulations.ꢀInꢀaddition,ꢀweꢀareꢀalsoꢀsubjectꢀtoꢀforeignꢀdataꢀprotectionꢀandꢀprivacyꢀlawsꢀincluding,ꢀbutꢀnotꢀlimitedꢀto,ꢀthe
EuropeanꢀUnionꢀGeneralꢀDataꢀProtectionꢀRegulation,ꢀwhichꢀbecameꢀeffectiveꢀinꢀMayꢀ2018ꢀandꢀrequiresꢀcompaniesꢀtoꢀmeetꢀnew
requirementsꢀregardingꢀdataꢀprivacyꢀandꢀsecurity.ꢀ
ATM Operations.ꢀTheꢀElectronicꢀFundꢀTransferꢀActꢀrequiresꢀusꢀtoꢀdiscloseꢀcertainꢀnoticesꢀregardingꢀtheꢀfeesꢀthatꢀweꢀchargeꢀfor
performingꢀanꢀATMꢀtransactionꢀasꢀwellꢀasꢀtoꢀincorporateꢀsuchꢀnoticesꢀonꢀtheꢀATMꢀscreensꢀtoꢀnotifyꢀpatronsꢀofꢀsuchꢀfeesꢀpriorꢀto
completingꢀanꢀATMꢀtransaction.ꢀOurꢀATMꢀservicesꢀareꢀalsoꢀsubjectꢀtoꢀapplicableꢀstateꢀbankingꢀregulationsꢀinꢀeachꢀjurisdictionꢀin
whichꢀweꢀoperateꢀATMsꢀwhichꢀrequire,ꢀamongꢀotherꢀthings,ꢀthatꢀweꢀregisterꢀwithꢀtheꢀstateꢀbankingꢀregulatorsꢀasꢀanꢀoperatorꢀof
14
ATMs,ꢀthatꢀweꢀprovideꢀgamingꢀpatronsꢀwithꢀnoticesꢀofꢀtheꢀtransactionꢀfeesꢀassessedꢀuponꢀuseꢀofꢀourꢀATMs,ꢀthatꢀourꢀtransaction
feesꢀdoꢀnotꢀexceedꢀdesignatedꢀmaximums,ꢀthatꢀweꢀofferꢀgamingꢀpatronsꢀaꢀmeansꢀofꢀresolvingꢀdisputesꢀwithꢀus,ꢀandꢀthatꢀweꢀcomply
withꢀprescribedꢀsafetyꢀandꢀsecurityꢀrequirements.ꢀInꢀaddition,ꢀtheꢀATMsꢀthatꢀweꢀoperateꢀareꢀsubjectꢀtoꢀrequirementsꢀofꢀtheꢀAmericans
withꢀDisabilitiesꢀAct,ꢀwhichꢀinꢀgeneralꢀrequireꢀthatꢀATMsꢀbeꢀaccessibleꢀtoꢀindividualsꢀwithꢀdisabilities,ꢀsuchꢀasꢀvisually-impaired
persons.
Check Cashing.ꢀInꢀjurisdictionsꢀinꢀwhichꢀweꢀserveꢀasꢀaꢀcheckꢀcasher,ꢀweꢀareꢀrequiredꢀtoꢀbeꢀlicensedꢀbyꢀtheꢀapplicableꢀstateꢀbanking
regulatorꢀtoꢀoperateꢀasꢀaꢀcheckꢀcasher.ꢀSomeꢀstatesꢀalsoꢀimposeꢀrestrictionsꢀonꢀthisꢀactivity,ꢀsuchꢀasꢀlimitsꢀonꢀtheꢀamountsꢀofꢀservice
feesꢀthatꢀmayꢀbeꢀimposedꢀonꢀtheꢀcashingꢀofꢀcertainꢀtypesꢀofꢀchecks,ꢀrequirementsꢀasꢀtoꢀrecordsꢀthatꢀmustꢀbeꢀkeptꢀwithꢀrespectꢀto
dishonoredꢀchecksꢀandꢀrequirementsꢀasꢀtoꢀtheꢀcontentsꢀofꢀreceiptsꢀthatꢀmustꢀbeꢀdeliveredꢀtoꢀgamingꢀpatronsꢀatꢀtheꢀtimeꢀaꢀcheckꢀis
cashed.
Network and Card Association Regulations.ꢀInꢀadditionꢀtoꢀtheꢀgovernmentalꢀregulationꢀdescribedꢀabove,ꢀsomeꢀofꢀourꢀservices
areꢀalsoꢀsubjectꢀtoꢀrulesꢀpromulgatedꢀbyꢀvariousꢀpaymentꢀnetworks,ꢀEFTꢀnetworks,ꢀandꢀcardꢀassociations.ꢀForꢀexample,ꢀweꢀmust
complyꢀwithꢀtheꢀPaymentꢀCardꢀIndustryꢀ(“PCI”)ꢀDataꢀSecurityꢀStandard.ꢀWeꢀhaveꢀbeenꢀdesignatedꢀasꢀaꢀcompliantꢀserviceꢀprovider
underꢀtheꢀPCIꢀDataꢀSecurityꢀStandard.ꢀWeꢀmustꢀbeꢀcertifiedꢀtoꢀmaintainꢀourꢀstatusꢀasꢀaꢀcompliantꢀserviceꢀproviderꢀonꢀanꢀannual
basis.
EMV,ꢀdesignedꢀtoꢀdeterꢀfraudulentꢀcardꢀtransactionsꢀrelatedꢀtoꢀidentityꢀtheft,ꢀcounterfeitꢀcards,ꢀandꢀtheꢀmisuseꢀofꢀlostꢀorꢀstolen
cardsꢀviaꢀenhancedꢀcardꢀauthentication,ꢀtransactionꢀauthorization,ꢀandꢀcardholderꢀverificationꢀusingꢀchip-basedꢀsmart-cards.ꢀEMV
hasꢀbeenꢀadoptedꢀinꢀmanyꢀregionsꢀofꢀtheꢀworldꢀasꢀtheꢀglobalꢀstandardꢀforꢀfraudꢀdeterrenceꢀinꢀchip-basedꢀsmart-cardꢀpayments.ꢀIn
Octoberꢀ2015,ꢀtheꢀnetworkꢀandꢀcardꢀassociationsꢀbeganꢀshiftingꢀliabilityꢀforꢀfraudulentꢀPOSꢀandꢀATMꢀtransactionsꢀgenerated
throughꢀEMV-capableꢀcardsꢀontoꢀmerchantsꢀwhoseꢀdevicesꢀareꢀnotꢀcapableꢀofꢀprocessingꢀchip-basedꢀsmart-cardꢀEMVꢀtransactions.
Thisꢀshiftsꢀtheꢀresponsibilityꢀforꢀchargebacksꢀdueꢀtoꢀfraudulentꢀtransactionsꢀonꢀsuchꢀcardsꢀfromꢀtheꢀcardꢀissuerꢀontoꢀtheꢀmerchant.
AsꢀaꢀmerchantꢀofꢀcashꢀaccessꢀtransactionsꢀprocessedꢀthroughꢀMasterCard,ꢀVisa,ꢀDiscover,ꢀandꢀAmericanꢀExpress,ꢀallꢀwhoꢀhave
adoptedꢀtheꢀEMVꢀstandard,ꢀandꢀasꢀanꢀoperatorꢀofꢀATMs,ꢀourꢀPOS,ꢀfullyꢀintegratedꢀkiosk,ꢀandꢀATMꢀdevicesꢀareꢀsubjectꢀtoꢀtheꢀEMV
standard.ꢀThisꢀrequiresꢀusꢀtoꢀmaintainꢀourꢀfleetꢀofꢀU.S.-basedꢀPOS,ꢀfullyꢀintegratedꢀkiosk,ꢀandꢀATMꢀdevicesꢀtoꢀsupportꢀtheꢀEMV
standard.
International Regulation
Weꢀareꢀalsoꢀsubjectꢀtoꢀaꢀvarietyꢀofꢀgamingꢀandꢀfinancialꢀservicesꢀregulationsꢀandꢀotherꢀlaws,ꢀincludingꢀtheꢀForeignꢀCorruptꢀPractices
Act,ꢀinꢀtheꢀinternationalꢀmarketsꢀinꢀwhichꢀweꢀoperate.ꢀWeꢀexpectꢀtoꢀbecomeꢀsubjectꢀtoꢀadditionalꢀgamingꢀandꢀfinancialꢀservices
regulationsꢀandꢀotherꢀlawsꢀinꢀtheꢀjurisdictionsꢀintoꢀwhichꢀweꢀexpandꢀourꢀoperations.ꢀOurꢀexpansionꢀintoꢀnewꢀmarketsꢀisꢀdependent
uponꢀourꢀabilityꢀtoꢀcomplyꢀwithꢀtheꢀregulatoryꢀregimesꢀadoptedꢀbyꢀsuchꢀjurisdictions.ꢀ
Inꢀaddition,ꢀreferꢀtoꢀ“Itemꢀ1A.ꢀRiskꢀFactorsꢀ—ꢀRisksꢀRelatedꢀtoꢀRegulationꢀofꢀOurꢀIndustry”ꢀforꢀadditionalꢀindustry,ꢀstate,ꢀand
federalꢀregulationsꢀimpactingꢀourꢀbusiness.
Item 1A. Risk Factors.
The following section describes material risks and uncertainties that we believe may adversely affect our business, financial
condition, results of operations, or the market price of our stock. This section should be read in conjunction with our Financial
Statements and Results of Operations included elsewhere in this Annual Report on Form 10-K.
Risks Related to Our Business
We have recorded net losses in each of the two fiscal years prior to fiscal year 2018 and we may not generate profits in the
future.
Weꢀhadꢀnetꢀincomeꢀofꢀ$12.4ꢀmillionꢀandꢀnetꢀlossesꢀofꢀ$51.9ꢀmillionꢀandꢀ$249.5ꢀmillionꢀforꢀtheꢀyearsꢀendedꢀDecemberꢀ31,ꢀ2018,
2017,ꢀandꢀ2016,ꢀrespectively.ꢀAsꢀaꢀresultꢀofꢀtheꢀinterestꢀpaymentsꢀonꢀtheꢀindebtednessꢀincurredꢀinꢀconnectionꢀwithꢀEveriꢀHoldings’
purchaseꢀofꢀEveriꢀGamesꢀHoldingꢀinꢀDecemberꢀ2014ꢀ(theꢀ“Merger”),ꢀamortizationꢀofꢀintangibleꢀassetsꢀassociatedꢀwithꢀtheꢀMerger
andꢀotherꢀacquisitions,ꢀotherꢀrelatedꢀacquisitionꢀandꢀfinancingꢀcosts,ꢀassetꢀimpairmentꢀcharges,ꢀdepreciation,ꢀandꢀotherꢀamortization,
weꢀmayꢀnotꢀbeꢀableꢀtoꢀgenerateꢀprofitsꢀinꢀtheꢀfuture.ꢀOurꢀabilityꢀtoꢀcontinueꢀtoꢀgenerateꢀnetꢀprofitsꢀinꢀtheꢀfutureꢀwillꢀdepend,ꢀin
part,ꢀonꢀourꢀabilityꢀto:
•
establishꢀstrategicꢀbusinessꢀrelationshipsꢀwithꢀnewꢀandꢀexistingꢀcustomers;
15
•
•
•
•
•
•
•
sellꢀourꢀproductsꢀandꢀservicesꢀintoꢀnewꢀmarketsꢀandꢀtoꢀnewꢀcustomersꢀinꢀexistingꢀmarketsꢀandꢀretainꢀourꢀexistingꢀcustomers;
developꢀnewꢀgamesꢀorꢀlicenseꢀthird-partyꢀcontentꢀinꢀourꢀGamesꢀbusinessꢀandꢀdevelopꢀnewꢀproductsꢀandꢀservicesꢀinꢀour
FinTechꢀbusiness;
effectivelyꢀmanageꢀaꢀlargerꢀandꢀmoreꢀdiversifiedꢀworkforceꢀandꢀbusiness;
reactꢀtoꢀchanges,ꢀincludingꢀtechnologicalꢀandꢀregulatoryꢀchanges,ꢀinꢀtheꢀmarketsꢀweꢀtargetꢀorꢀoperateꢀin;
respondꢀtoꢀcompetitiveꢀdevelopmentsꢀandꢀchallenges;
continueꢀtoꢀcomplyꢀwithꢀtheꢀEMVꢀglobalꢀstandardꢀforꢀcardsꢀequippedꢀwithꢀsecurityꢀchipꢀtechnology;ꢀand
attractꢀandꢀretainꢀexperiencedꢀandꢀtalentedꢀpersonnel.
Weꢀmayꢀnotꢀbeꢀableꢀtoꢀdoꢀanyꢀofꢀtheseꢀsuccessfully,ꢀandꢀourꢀfailureꢀtoꢀdoꢀsoꢀcouldꢀhaveꢀaꢀmaterialꢀadverseꢀeffectꢀonꢀourꢀbusiness,
financialꢀcondition,ꢀoperations,ꢀorꢀcashꢀflows,ꢀwhichꢀcould,ꢀamongꢀotherꢀthings,ꢀaffectꢀourꢀabilityꢀtoꢀmakeꢀpaymentsꢀunderꢀour
NewꢀCreditꢀFacilitiesꢀ(definedꢀherein)ꢀorꢀtheꢀ2017ꢀUnsecuredꢀNotesꢀ(asꢀdefinedꢀherein).
Our substantial leverage could adversely affect our ability to raise additional capital to fund our operations, limit our ability
to react to changes in our industry or the economy, expose us to interest rate risk to the extent of our variable rate debt, and
prevent us from meeting our obligations with respect to our indebtedness.
AsꢀofꢀDecemberꢀ31,ꢀ2018,ꢀourꢀtotalꢀindebtednessꢀwasꢀapproximatelyꢀ$1.2ꢀbillion,ꢀwhichꢀincludedꢀtheꢀNewꢀCreditꢀFacilitiesꢀand
theꢀ2017ꢀUnsecuredꢀNotes,ꢀeachꢀofꢀwhichꢀcontainꢀrestrictiveꢀcovenants.ꢀOurꢀhighꢀdegreeꢀofꢀleverageꢀcouldꢀhaveꢀsignificantꢀadverse
effectsꢀonꢀourꢀbusiness,ꢀincluding:
•
requiringꢀaꢀsubstantialꢀportionꢀofꢀcashꢀflowꢀfromꢀoperationsꢀtoꢀbeꢀdedicatedꢀtoꢀtheꢀpaymentꢀofꢀprincipalꢀandꢀinterestꢀon
ourꢀindebtedness,ꢀtherefore,ꢀreducingꢀourꢀabilityꢀtoꢀuseꢀourꢀcashꢀflowꢀtoꢀfundꢀourꢀoperations,ꢀcapitalꢀexpenditures,ꢀand
futureꢀbusinessꢀopportunities;
• makingꢀitꢀmoreꢀdifficultꢀforꢀusꢀtoꢀsatisfyꢀourꢀobligationsꢀwithꢀrespectꢀtoꢀourꢀindebtednessꢀandꢀanyꢀfailureꢀtoꢀcomplyꢀwith
theꢀobligationsꢀofꢀanyꢀofꢀourꢀdebtꢀinstruments,ꢀincludingꢀrestrictiveꢀcovenantsꢀandꢀborrowingꢀconditions,ꢀcouldꢀresultꢀin
anꢀeventꢀofꢀdefaultꢀunderꢀtheꢀNewꢀCreditꢀFacilitiesꢀandꢀtheꢀindenturesꢀgoverningꢀtheꢀ2017ꢀUnsecuredꢀNotes;
•
•
•
•
increasingꢀourꢀvulnerabilityꢀtoꢀadverseꢀeconomic,ꢀindustry,ꢀorꢀcompetitiveꢀdevelopments;
restrictingꢀusꢀfromꢀmakingꢀstrategicꢀacquisitionsꢀorꢀcausingꢀusꢀtoꢀmakeꢀnon-strategicꢀdivestitures;
limitingꢀourꢀabilityꢀtoꢀobtainꢀadditionalꢀfinancingꢀforꢀworkingꢀcapital,ꢀcapitalꢀexpenditures,ꢀproductꢀdevelopment,ꢀdebt
serviceꢀrequirements,ꢀacquisitions,ꢀandꢀgeneralꢀcorporateꢀorꢀotherꢀpurposes;ꢀand
limitingꢀourꢀflexibilityꢀinꢀplanningꢀfor,ꢀorꢀreactingꢀto,ꢀchangesꢀinꢀourꢀbusinessꢀorꢀmarketꢀconditionsꢀandꢀplacingꢀusꢀatꢀa
competitiveꢀdisadvantageꢀcomparedꢀtoꢀourꢀcompetitorsꢀwhoꢀareꢀlessꢀhighlyꢀleveragedꢀorꢀmayꢀhaveꢀmoreꢀresourcesꢀthan
usꢀandꢀwhoꢀthereforeꢀmayꢀbeꢀableꢀtoꢀtakeꢀadvantageꢀofꢀopportunitiesꢀthatꢀourꢀleverageꢀpreventsꢀusꢀfromꢀexploiting,
includingꢀpursuitꢀandꢀexecutionꢀofꢀpotentialꢀfutureꢀacquisitions.
We may not be able to generate sufficient cash to service all of our indebtedness, including the New Credit Facilities and the
2017 Unsecured Notes, and fund our working capital and capital expenditures, and we may be forced to take other actions to
satisfy our obligations under our indebtedness, which may not be successful.
Ourꢀabilityꢀtoꢀmakeꢀscheduledꢀpaymentsꢀonꢀourꢀindebtedness,ꢀincludingꢀtheꢀNewꢀCreditꢀFacilitiesꢀandꢀtheꢀ2017ꢀUnsecuredꢀNotes,
willꢀdependꢀuponꢀourꢀfutureꢀoperatingꢀperformanceꢀandꢀonꢀourꢀabilityꢀtoꢀgenerateꢀcashꢀflowꢀinꢀtheꢀfuture,ꢀwhichꢀisꢀsubjectꢀto
generalꢀeconomic,ꢀfinancial,ꢀbusiness,ꢀcompetitive,ꢀlegislative,ꢀregulatory,ꢀandꢀotherꢀfactorsꢀthatꢀareꢀbeyondꢀourꢀcontrol.ꢀWeꢀcannot
assureꢀyouꢀthatꢀourꢀbusinessꢀwillꢀgenerateꢀsufficientꢀcashꢀflowꢀfromꢀoperations,ꢀorꢀthatꢀfutureꢀborrowings,ꢀincludingꢀthoseꢀunder
theꢀNewꢀCreditꢀFacilities,ꢀwillꢀbeꢀavailableꢀtoꢀusꢀinꢀanꢀamountꢀsufficientꢀtoꢀpayꢀourꢀindebtednessꢀorꢀtoꢀfundꢀotherꢀliquidityꢀneeds.
Ifꢀourꢀcashꢀflowsꢀandꢀcapitalꢀresourcesꢀareꢀinsufficientꢀtoꢀfundꢀourꢀdebtꢀserviceꢀobligations,ꢀweꢀcouldꢀfaceꢀsubstantialꢀliquidity
problemsꢀandꢀcouldꢀbeꢀforcedꢀtoꢀreduceꢀorꢀdelayꢀinvestmentꢀandꢀcapitalꢀexpendituresꢀorꢀtoꢀdisposeꢀofꢀmaterialꢀassetsꢀorꢀoperations,
seekꢀadditionalꢀequityꢀcapital,ꢀorꢀrestructureꢀorꢀrefinanceꢀourꢀindebtedness.ꢀWeꢀmayꢀnotꢀbeꢀableꢀtoꢀaffectꢀanyꢀsuchꢀalternative
measures,ꢀifꢀnecessary,ꢀonꢀcommerciallyꢀreasonableꢀtermsꢀorꢀatꢀallꢀand,ꢀevenꢀifꢀsuccessful,ꢀsuchꢀalternativeꢀactionsꢀmayꢀnotꢀallow
usꢀtoꢀmeetꢀourꢀscheduledꢀdebtꢀserviceꢀobligations.ꢀTheꢀNewꢀCreditꢀFacilitiesꢀandꢀtheꢀindentureꢀgoverningꢀtheꢀ2017ꢀUnsecured
Notesꢀrestrictꢀourꢀabilityꢀtoꢀdisposeꢀofꢀassetsꢀandꢀuseꢀtheꢀproceedsꢀfromꢀanyꢀsuchꢀdisposition.
16
Ifꢀweꢀcannotꢀmakeꢀscheduledꢀpaymentsꢀonꢀourꢀdebt,ꢀweꢀwillꢀbeꢀinꢀdefault.ꢀAsꢀaꢀresult,ꢀtheꢀholdersꢀofꢀtheꢀ2017ꢀUnsecuredꢀNotes
couldꢀdeclareꢀallꢀoutstandingꢀprincipalꢀandꢀinterestꢀtoꢀbeꢀdueꢀandꢀpayable;ꢀtheꢀlendersꢀunderꢀtheꢀNewꢀCreditꢀFacilitiesꢀcouldꢀdeclare
allꢀoutstandingꢀamountsꢀunderꢀsuchꢀfacilitiesꢀdueꢀandꢀpayableꢀandꢀterminateꢀtheirꢀcommitmentsꢀtoꢀloanꢀmoney;ꢀand,ꢀinꢀeachꢀcase,
couldꢀ forecloseꢀ againstꢀ theꢀ assetsꢀ securingꢀ theꢀ borrowingsꢀ underꢀ theꢀ Newꢀ Creditꢀ Facilities.ꢀ Suchꢀ actionsꢀ couldꢀ forceꢀ usꢀ into
bankruptcyꢀorꢀliquidation.
Ifꢀourꢀindebtednessꢀisꢀaccelerated,ꢀweꢀmayꢀneedꢀtoꢀrefinanceꢀallꢀorꢀaꢀportionꢀofꢀourꢀindebtednessꢀbeforeꢀmaturity.ꢀWeꢀmayꢀnotꢀbe
ableꢀtoꢀrefinanceꢀanyꢀofꢀourꢀindebtednessꢀonꢀcommerciallyꢀreasonableꢀtermsꢀorꢀatꢀall.ꢀThereꢀcanꢀbeꢀnoꢀassuranceꢀthatꢀweꢀwillꢀbe
ableꢀtoꢀobtainꢀsufficientꢀfundsꢀtoꢀenableꢀusꢀtoꢀrepayꢀorꢀrefinanceꢀourꢀdebtꢀobligationsꢀonꢀcommerciallyꢀreasonableꢀterms,ꢀorꢀatꢀall.
The agreements and instruments governing our debt impose restrictions that may limit our operating and financial flexibility.
TheꢀNewꢀCreditꢀFacilitiesꢀandꢀtheꢀindentureꢀgoverningꢀtheꢀ2017ꢀUnsecuredꢀNotesꢀcontainꢀaꢀnumberꢀofꢀsignificantꢀrestrictionsꢀand
covenantsꢀthatꢀlimitꢀourꢀabilityꢀto:
•
•
•
incurꢀadditionalꢀindebtedness;
sellꢀassetsꢀorꢀconsolidateꢀorꢀmergeꢀwithꢀorꢀintoꢀotherꢀcompanies;
payꢀdividendsꢀorꢀrepurchaseꢀorꢀredeemꢀcapitalꢀstock;
• makeꢀcertainꢀinvestments;
•
•
•
•
issueꢀcapitalꢀstockꢀofꢀourꢀsubsidiaries;
incurꢀliens;
prepay,ꢀredeem,ꢀorꢀrepurchaseꢀsubordinatedꢀdebt;ꢀand
enterꢀintoꢀcertainꢀtypesꢀofꢀtransactionsꢀwithꢀourꢀaffiliates.
Theseꢀcovenantsꢀcouldꢀhaveꢀtheꢀeffectꢀofꢀlimitingꢀourꢀflexibilityꢀinꢀplanningꢀforꢀorꢀreactingꢀtoꢀchangesꢀinꢀourꢀbusinessꢀandꢀthe
marketsꢀinꢀwhichꢀweꢀcompete.ꢀInꢀaddition,ꢀtheꢀNewꢀCreditꢀFacilitiesꢀrequireꢀusꢀtoꢀcomplyꢀwithꢀaꢀfinancialꢀmaintenanceꢀcovenant
underꢀcertainꢀcircumstances.ꢀOperatingꢀresultsꢀbelowꢀcurrentꢀlevelsꢀorꢀotherꢀadverseꢀfactors,ꢀincludingꢀaꢀsignificantꢀincreaseꢀin
interestꢀrates,ꢀcouldꢀresultꢀinꢀourꢀbeingꢀunableꢀtoꢀcomplyꢀwithꢀtheꢀfinancialꢀcovenantsꢀcontainedꢀinꢀtheꢀNewꢀCreditꢀFacilities,ꢀif
applicable.ꢀIfꢀweꢀviolateꢀthisꢀcovenantꢀandꢀareꢀunableꢀtoꢀobtainꢀaꢀwaiverꢀfromꢀourꢀlenders,ꢀourꢀdebtꢀunderꢀtheꢀNewꢀCreditꢀFacilities
wouldꢀbeꢀinꢀdefaultꢀandꢀcouldꢀbeꢀacceleratedꢀbyꢀourꢀlenders.ꢀBasedꢀonꢀcross-defaultꢀprovisionsꢀinꢀtheꢀagreementsꢀandꢀinstruments
governingꢀourꢀindebtedness,ꢀaꢀdefaultꢀunderꢀoneꢀagreementꢀorꢀinstrumentꢀcouldꢀresultꢀinꢀaꢀdefaultꢀunder,ꢀandꢀtheꢀaccelerationꢀof,
ourꢀotherꢀindebtedness.ꢀInꢀaddition,ꢀtheꢀlendersꢀunderꢀtheꢀNewꢀCreditꢀFacilitiesꢀcouldꢀproceedꢀagainstꢀtheꢀcollateralꢀsecuringꢀthat
indebtedness.
Ifꢀourꢀindebtednessꢀisꢀaccelerated,ꢀweꢀmayꢀnotꢀbeꢀableꢀtoꢀrepayꢀourꢀdebtꢀorꢀborrowꢀsufficientꢀfundsꢀtoꢀrefinanceꢀit.ꢀEvenꢀifꢀweꢀare
ableꢀtoꢀobtainꢀnewꢀfinancing,ꢀitꢀmayꢀnotꢀbeꢀonꢀcommerciallyꢀreasonableꢀterms,ꢀonꢀtermsꢀthatꢀareꢀacceptableꢀtoꢀus,ꢀorꢀatꢀall.ꢀIfꢀour
debtꢀisꢀinꢀdefaultꢀforꢀanyꢀreason,ꢀourꢀbusiness,ꢀfinancialꢀcondition,ꢀandꢀresultsꢀofꢀoperationsꢀcouldꢀbeꢀmateriallyꢀandꢀadversely
affected.ꢀInꢀaddition,ꢀcomplyingꢀwithꢀtheseꢀcovenantsꢀmayꢀmakeꢀitꢀmoreꢀdifficultꢀforꢀusꢀtoꢀsuccessfullyꢀexecuteꢀourꢀbusiness
strategyꢀandꢀcompeteꢀagainstꢀcompaniesꢀthatꢀareꢀnotꢀsubjectꢀtoꢀsuchꢀrestrictions.
Our net operating losses and other tax credit carry-forwards are subject to limitations that could potentially reduce these tax
assets.
AsꢀofꢀDecemberꢀ31,ꢀ2018,ꢀweꢀhadꢀtaxꢀeffectedꢀfederalꢀandꢀstateꢀnetꢀoperatingꢀlossꢀ(“NOL”)ꢀcarry-forwardsꢀofꢀapproximatelyꢀ$83.0
millionꢀandꢀ$14.1ꢀmillion,ꢀrespectively,ꢀfederalꢀresearchꢀandꢀdevelopmentꢀcreditꢀcarry-forwardsꢀofꢀapproximatelyꢀ$8.5ꢀmillion,
andꢀforeignꢀtaxꢀcreditꢀcarry-forwardsꢀofꢀapproximatelyꢀ$0.5ꢀmillion.ꢀTheꢀfederalꢀnetꢀoperatingꢀlossesꢀcanꢀbeꢀcarriedꢀforwardꢀand
appliedꢀtoꢀoffsetꢀtaxableꢀincomeꢀforꢀ20ꢀyearsꢀandꢀwillꢀexpireꢀstartingꢀinꢀ2022ꢀ(forꢀlossesꢀincurredꢀbeforeꢀ2018).ꢀAnꢀestimatedꢀfederal
lossꢀincurredꢀinꢀ2018ꢀofꢀapproximatelyꢀ$8.2ꢀmillion,ꢀtaxꢀeffected,ꢀcanꢀbeꢀcarriedꢀforwardꢀindefinitelyꢀtoꢀoffsetꢀtaxableꢀincome.
Theꢀstateꢀnetꢀoperatingꢀlossꢀcarry-forwardsꢀwillꢀexpireꢀbetweenꢀ2019ꢀandꢀ2039.ꢀTheꢀfederalꢀresearchꢀandꢀdevelopmentꢀcreditsꢀare
limitedꢀtoꢀaꢀ20ꢀyearꢀcarry-forwardꢀperiodꢀandꢀwillꢀbeginꢀtoꢀexpireꢀinꢀvaryingꢀamountsꢀinꢀ2029,ꢀifꢀnotꢀutilized.ꢀTheꢀforeignꢀtax
credits,ꢀwhichꢀhaveꢀaꢀfullꢀvaluationꢀallowance,ꢀcanꢀbeꢀcarriedꢀforwardꢀ10ꢀyearsꢀandꢀwillꢀexpireꢀinꢀ2020,ꢀifꢀnotꢀutilized.
Basedꢀonꢀtheꢀweightꢀofꢀavailableꢀevidence,ꢀincludingꢀbothꢀpositiveꢀandꢀnegativeꢀindicators,ꢀifꢀitꢀisꢀmoreꢀlikelyꢀthanꢀnotꢀthatꢀa
portion,ꢀorꢀall,ꢀofꢀtheꢀdeferredꢀtaxꢀassetsꢀwillꢀnotꢀbeꢀrealized,ꢀweꢀmustꢀconsiderꢀrecordingꢀaꢀvaluationꢀallowance.ꢀGreaterꢀweight
isꢀgivenꢀtoꢀevidenceꢀthatꢀisꢀobjectivelyꢀverifiable,ꢀmostꢀnotablyꢀhistoricalꢀresults.ꢀWeꢀareꢀinꢀaꢀcumulativeꢀlossꢀpositionꢀandꢀweꢀhave
decreasedꢀourꢀvaluationꢀallowanceꢀforꢀdeferredꢀtaxꢀassetsꢀrelatedꢀtoꢀtheseꢀNOLꢀandꢀotherꢀtaxꢀcreditꢀcarry-forwards,ꢀexcludingꢀthe
17
2018ꢀfederalꢀNOL,ꢀbyꢀ$10.1ꢀmillionꢀduringꢀ2018.ꢀOurꢀabilityꢀtoꢀutilizeꢀtheꢀremainingꢀNOLꢀandꢀotherꢀtaxꢀcreditꢀcarry-forwardsꢀto
reduceꢀtaxableꢀincomeꢀinꢀfutureꢀyearsꢀmayꢀbeꢀfurtherꢀlimited,ꢀincludingꢀtheꢀpossibilityꢀthatꢀprojectedꢀfutureꢀtaxableꢀincomeꢀis
insufficientꢀtoꢀrealizeꢀtheꢀbenefitꢀofꢀtheseꢀNOLꢀcarry-forwardsꢀpriorꢀtoꢀtheirꢀexpiration.ꢀToꢀtheꢀextentꢀourꢀresultsꢀofꢀoperationsꢀdo
notꢀimprove,ꢀweꢀmayꢀnotꢀhaveꢀtheꢀabilityꢀtoꢀovercomeꢀtheꢀmoreꢀlikelyꢀthanꢀnotꢀaccountingꢀstandardꢀthatꢀwouldꢀallowꢀusꢀtoꢀreverse
theꢀvaluationꢀallowanceꢀandꢀmayꢀbeꢀsubjectꢀtoꢀrecordꢀanꢀadditionalꢀvaluationꢀallowanceꢀinꢀtheꢀfuture.
OurꢀabilityꢀtoꢀuseꢀtheseꢀtaxꢀassetsꢀcouldꢀbeꢀadverselyꢀaffectedꢀbyꢀtheꢀlimitationsꢀofꢀSectionsꢀ382,ꢀ383,ꢀandꢀ384ꢀofꢀtheꢀInternal
RevenueꢀCode.ꢀInꢀaddition,ꢀaꢀportionꢀofꢀourꢀNOL’sꢀincludeꢀamortizationꢀofꢀgoodwillꢀforꢀtaxꢀpurposesꢀassociatedꢀwithꢀaꢀrestructuring
thatꢀoccurredꢀinꢀ2004,ꢀwhichꢀcouldꢀbeꢀsubjectꢀtoꢀauditꢀbyꢀtheꢀIRSꢀandꢀthusꢀmayꢀhaveꢀanꢀadverseꢀeffectꢀonꢀourꢀNOLꢀcarry-forwards.
The Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”) could adversely affect our business and financial condition.
Dueꢀtoꢀtheꢀ2017ꢀTaxꢀAct,ꢀnetꢀoperatingꢀlossesꢀarisingꢀinꢀtaxableꢀyearsꢀbeginningꢀafterꢀDecemberꢀ31,ꢀ2017ꢀareꢀlimitedꢀinꢀuseꢀto
offsetꢀ80%ꢀofꢀtaxableꢀincomeꢀwithoutꢀtheꢀabilityꢀtoꢀcarrybackꢀsuchꢀnetꢀoperatingꢀlosses,ꢀhowever,ꢀwithꢀanꢀindefiniteꢀcarry-forward
ofꢀsuchꢀnetꢀoperatingꢀlossesꢀ(insteadꢀofꢀtheꢀformerꢀ2-yearꢀcarrybackꢀandꢀ20-yearꢀcarry-forwardꢀforꢀnetꢀoperatingꢀlossesꢀarisingꢀin
taxableꢀyearsꢀbeginningꢀbeforeꢀDecemberꢀ31,ꢀ2017).ꢀTheꢀamountꢀofꢀtheꢀnetꢀU.S.ꢀfederalꢀinterestꢀexpenseꢀdeductionꢀisꢀgenerally
limitedꢀ toꢀ (a)ꢀ 30%ꢀ ofꢀ adjustedꢀ taxableꢀ income,ꢀ calculatedꢀ withoutꢀ regardꢀ toꢀ depreciation,ꢀ amortization,ꢀ depletionꢀ orꢀ interest,
effectiveꢀforꢀtaxꢀyearsꢀbeginningꢀafterꢀDecemberꢀ31,ꢀ2017ꢀandꢀbeforeꢀJanuaryꢀ1,ꢀ2022ꢀandꢀ(b)ꢀ30%ꢀofꢀadjustedꢀtaxableꢀincome,
calculatedꢀwithoutꢀregardꢀtoꢀinterestꢀ(reducedꢀbyꢀdepreciation,ꢀamortizationꢀandꢀdepletion),ꢀeffectiveꢀforꢀtaxꢀyearsꢀbeginningꢀafter
Decemberꢀ31,ꢀ2021.ꢀDisallowedꢀamountsꢀmayꢀbeꢀcarriedꢀforwardꢀindefinitely,ꢀsubjectꢀtoꢀownershipꢀchangeꢀlimitations. U.S.
corporationsꢀareꢀalsoꢀsubjectꢀtoꢀcurrentꢀtaxꢀonꢀglobalꢀintangibleꢀlow-taxedꢀincomeꢀ(“GILTI”)ꢀearnedꢀbyꢀcertainꢀforeignꢀsubsidiaries
andꢀaꢀbaseꢀerosionꢀanti-avoidanceꢀtax.ꢀTheꢀ2017ꢀTaxꢀActꢀchangesꢀareꢀcomplexꢀandꢀsubjectꢀtoꢀadditionalꢀguidanceꢀtoꢀbeꢀissuedꢀby
theꢀU.S.ꢀTreasuryꢀandꢀtheꢀInternalꢀRevenueꢀService.ꢀInꢀaddition,ꢀtheꢀindividualꢀstates’ꢀreactionsꢀtoꢀtheꢀfederalꢀtaxꢀchangesꢀare
evolving.ꢀAsꢀaꢀresult,ꢀtheꢀoverallꢀlong-termꢀimpactꢀofꢀtheꢀ2017ꢀTaxꢀActꢀisꢀuncertain.ꢀItꢀisꢀpossibleꢀthatꢀtheꢀapplicationꢀofꢀanyꢀnew
rulesꢀmayꢀhaveꢀaꢀmaterialꢀandꢀadverseꢀimpactꢀonꢀourꢀoperatingꢀresults,ꢀcashꢀflows,ꢀandꢀfinancialꢀcondition.
We may experience network or system failures, or service interruptions, including cybersecurity attacks, or other technology
risks. Our inability to protect our systems and data against such risks could harm our business and reputation.
Ourꢀabilityꢀtoꢀprovideꢀuninterruptedꢀandꢀhighꢀlevelsꢀofꢀservicesꢀdependsꢀuponꢀtheꢀperformanceꢀofꢀourꢀinternalꢀnetwork,ꢀsystems
andꢀrelatedꢀinfrastructure,ꢀandꢀthoseꢀofꢀourꢀthird-partyꢀvendors.ꢀAnyꢀsignificantꢀinterruptionsꢀin,ꢀorꢀdegradationꢀof,ꢀtheꢀqualityꢀof
theꢀservices,ꢀincludingꢀinfrastructureꢀstorageꢀandꢀsupport,ꢀthatꢀtheseꢀthirdꢀpartiesꢀprovideꢀtoꢀusꢀcouldꢀseverelyꢀharmꢀourꢀbusiness
andꢀreputationꢀandꢀleadꢀtoꢀtheꢀlossꢀofꢀcustomersꢀandꢀrevenue.ꢀOurꢀinternalꢀnetwork,ꢀsystems,ꢀandꢀrelatedꢀinfrastructure,ꢀinꢀaddition
toꢀtheꢀnetworks,ꢀsystems,ꢀandꢀrelatedꢀinfrastructureꢀofꢀourꢀthird-partyꢀtechnologyꢀvendors,ꢀmayꢀbeꢀvulnerableꢀtoꢀcomputerꢀviruses
andꢀotherꢀmalwareꢀthatꢀinfiltrateꢀsuchꢀsystemsꢀandꢀnetworks,ꢀasꢀwellꢀasꢀphysicalꢀorꢀelectronicꢀsecurityꢀbreaches,ꢀnaturalꢀdisasters,
andꢀsimilarꢀdisruptions.ꢀTheyꢀhaveꢀbeenꢀandꢀmayꢀcontinueꢀtoꢀbeꢀtheꢀtargetꢀofꢀattemptsꢀtoꢀidentifyꢀandꢀexploitꢀnetworkꢀandꢀsystem
vulnerabilities,ꢀpenetrateꢀorꢀbypassꢀsecurityꢀmeasuresꢀinꢀorderꢀtoꢀinterruptꢀorꢀdegradeꢀtheꢀqualityꢀofꢀtheꢀservicesꢀweꢀreceive,ꢀor
provideꢀorꢀotherwiseꢀgainꢀunauthorizedꢀaccessꢀtoꢀourꢀnetworksꢀandꢀsystemsꢀorꢀthoseꢀofꢀourꢀthird-partyꢀvendors.ꢀTheseꢀvulnerabilities
orꢀotherꢀattemptsꢀatꢀaccessꢀmayꢀresultꢀfrom,ꢀorꢀbeꢀcausedꢀby,ꢀhumanꢀerrorꢀorꢀtechnologyꢀfailures,ꢀhowever,ꢀtheyꢀmayꢀalsoꢀbeꢀthe
productꢀofꢀmaliciousꢀactionsꢀbyꢀthirdꢀpartiesꢀintendingꢀtoꢀharmꢀourꢀbusiness.ꢀTheꢀmethodsꢀthatꢀmayꢀbeꢀusedꢀbyꢀtheseꢀthirdꢀparties
toꢀcauseꢀserviceꢀinterruptionsꢀorꢀfailuresꢀorꢀtoꢀobtainꢀunauthorizedꢀaccessꢀtoꢀinformationꢀchangeꢀfrequently,ꢀareꢀdifficultꢀtoꢀdetect,
evolveꢀrapidly,ꢀandꢀareꢀincreasinglyꢀsophisticatedꢀandꢀhardꢀtoꢀdefendꢀagainst.ꢀAlthoughꢀweꢀhaveꢀnotꢀincurredꢀmaterialꢀlossesꢀor
liabilitiesꢀasꢀaꢀresultꢀofꢀsecurityꢀbreachesꢀorꢀattemptedꢀsecurityꢀbreaches,ꢀweꢀcannotꢀbeꢀcertainꢀthatꢀourꢀdefensiveꢀmeasures,ꢀand
thoseꢀemployedꢀbyꢀourꢀthird-partyꢀvendors,ꢀwillꢀbeꢀsufficientꢀtoꢀdefendꢀagainstꢀallꢀsuchꢀcurrentꢀandꢀfutureꢀmethods.ꢀ
Ourꢀcarefulꢀvettingꢀofꢀthirdꢀpartiesꢀtoꢀprovideꢀtechnologyꢀservicesꢀandꢀtheꢀcontractualꢀrequirementsꢀrelatedꢀtoꢀtheꢀsecurityꢀthatꢀwe
imposeꢀonꢀourꢀthird-partyꢀvendorsꢀwhoꢀhaveꢀaccessꢀtoꢀthisꢀdataꢀmayꢀnotꢀbeꢀsufficientꢀtoꢀprotectꢀusꢀfromꢀnetworkꢀorꢀsystemꢀfailures
orꢀserviceꢀinterruptions.
Anyꢀsecurityꢀbreach,ꢀwhetherꢀexperiencedꢀbyꢀusꢀorꢀaꢀthird-partyꢀvendor,ꢀmayꢀbeꢀmaterialꢀandꢀleadꢀtoꢀharmꢀtoꢀourꢀfinancialꢀcondition,
businessꢀ reputation,ꢀ andꢀ prospectsꢀ ofꢀ futureꢀ businessꢀ dueꢀ to,ꢀ amongꢀ otherꢀ factors:ꢀ lossꢀ ofꢀ customerꢀ confidenceꢀ arisingꢀ from
interruptionsꢀ orꢀ outagesꢀ ofꢀ ourꢀ services,ꢀ delays,ꢀ failureꢀ toꢀ meetꢀ contractualꢀ obligations,ꢀ andꢀ lossꢀ ofꢀ dataꢀ orꢀ publicꢀ releaseꢀ of
confidentialꢀdata;ꢀincreaseꢀregulatoryꢀscrutinyꢀonꢀus;ꢀcompromiseꢀourꢀtradeꢀsecretꢀandꢀintellectualꢀproperty;ꢀexposeꢀusꢀtoꢀcostly
uninsuredꢀliabilitiesꢀsuchꢀasꢀmaterialꢀfines,ꢀpenalties,ꢀliquidatedꢀdamages,ꢀandꢀoverallꢀmarginꢀcompressionꢀdueꢀtoꢀrenegotiation
ofꢀcontractsꢀonꢀlessꢀfavorableꢀtermsꢀorꢀlossꢀofꢀbusiness;ꢀandꢀliabilityꢀforꢀclaimsꢀrelatingꢀtoꢀmisuseꢀofꢀpersonalꢀinformationꢀin
violationꢀofꢀcontractualꢀobligationsꢀorꢀdataꢀprivacyꢀlaws.ꢀTheꢀoccurrenceꢀofꢀanyꢀsuchꢀfailureꢀmayꢀalsoꢀsubjectꢀusꢀtoꢀcostlyꢀlawsuits,
claimsꢀforꢀcontractualꢀindemnities,ꢀandꢀnegativelyꢀimpactꢀtheꢀstatusꢀofꢀourꢀgamingꢀregulatoryꢀlicensesꢀupꢀtoꢀandꢀincludingꢀrevocation,
asꢀwellꢀasꢀdivertꢀvaluableꢀmanagement,ꢀengineering,ꢀinformationꢀtechnology,ꢀandꢀmarketingꢀresourcesꢀtowardꢀaddressingꢀthese
issues,ꢀdelayingꢀourꢀabilityꢀtoꢀachieveꢀourꢀstrategicꢀinitiatives.ꢀInꢀtheꢀeventꢀourꢀEGMsꢀorꢀcashꢀaccessꢀproducts,ꢀsystems,ꢀorꢀnetworks
areꢀcompromised,ꢀgamingꢀestablishmentsꢀmayꢀrequireꢀusꢀtoꢀremediateꢀanyꢀabnormality,ꢀdowntime,ꢀlossꢀofꢀuse,ꢀorꢀsuspicious
18
activityꢀorꢀrequireꢀusꢀtoꢀindemnifyꢀcasinoꢀoperatorsꢀforꢀlostꢀbusinessꢀand,ꢀpotentially,ꢀtheirꢀpatrons.ꢀInꢀaddition,ꢀweꢀgather,ꢀas
permittedꢀbyꢀlaw,ꢀnon-public,ꢀpersonally-identifiableꢀfinancialꢀinformationꢀfromꢀpatronsꢀwhoꢀuseꢀourꢀcashꢀaccessꢀservices,ꢀsuch
asꢀnames,ꢀaddresses,ꢀtelephoneꢀnumbers,ꢀbankꢀandꢀcreditꢀcardꢀaccountꢀnumbers,ꢀandꢀtransactionꢀinformation,ꢀtheꢀcompromiseꢀof
suchꢀdata,ꢀwhichꢀmayꢀsubjectꢀusꢀtoꢀfinesꢀandꢀotherꢀrelatedꢀcostsꢀofꢀremediation.
Theꢀinsuranceꢀweꢀmaintainꢀagainstꢀcybersecurityꢀandꢀrelatedꢀrisksꢀmayꢀnotꢀcoverꢀallꢀlossesꢀthatꢀweꢀcouldꢀsuffer.
The gaming industry is intensely competitive, and if we are unable to compete effectively, our business could be negatively
impacted.
Theꢀmarketꢀforꢀgamingꢀdevices,ꢀcashꢀaccessꢀproducts,ꢀandꢀrelatedꢀservicesꢀisꢀhighlyꢀcompetitive,ꢀandꢀweꢀexpectꢀcompetitionꢀto
increaseꢀandꢀintensifyꢀinꢀtheꢀfuture.ꢀInꢀbothꢀourꢀGamesꢀandꢀFinTechꢀbusinesses,ꢀsomeꢀofꢀourꢀcompetitorsꢀandꢀpotentialꢀcompetitors
haveꢀsignificantꢀadvantagesꢀoverꢀus,ꢀincludingꢀgreaterꢀnameꢀrecognition;ꢀlongerꢀoperatingꢀhistories;ꢀpre-existingꢀrelationshipsꢀwith
currentꢀorꢀpotentialꢀcustomersꢀwithꢀrespectꢀtoꢀotherꢀfinancialꢀservices;ꢀgreaterꢀfinancial,ꢀresearch,ꢀdesign,ꢀdevelopment,ꢀmarketing,
technological,ꢀandꢀotherꢀresources;ꢀandꢀmoreꢀreadyꢀaccessꢀtoꢀcapitalꢀresources,ꢀwhichꢀallowꢀthemꢀtoꢀrespondꢀmoreꢀquicklyꢀtoꢀnew
orꢀchangingꢀopportunities,ꢀbeꢀinꢀaꢀbetterꢀpositionꢀtoꢀcompeteꢀand,ꢀinꢀrespectꢀofꢀourꢀcashꢀaccessꢀbusiness,ꢀtoꢀpayꢀhigherꢀcommissions
orꢀotherꢀincentivesꢀtoꢀgamingꢀestablishmentsꢀinꢀorderꢀtoꢀgainꢀnewꢀcustomers.ꢀInꢀourꢀFinTechꢀbusiness,ꢀweꢀcompeteꢀwithꢀother
establishedꢀprovidersꢀofꢀcashꢀaccessꢀproductsꢀandꢀservices,ꢀincludingꢀthird-partyꢀtransactionꢀprocessors,ꢀfinancialꢀinstitutions,ꢀand
otherꢀregionalꢀandꢀlocalꢀbanksꢀthatꢀoperateꢀATMsꢀonꢀtheꢀpremisesꢀofꢀgamingꢀestablishments.ꢀToꢀtheꢀextentꢀthatꢀweꢀloseꢀcustomers
toꢀtheseꢀcompetitors,ꢀorꢀcompetitiveꢀpressuresꢀforceꢀusꢀtoꢀofferꢀincentivesꢀorꢀlessꢀfavorableꢀpricingꢀtermsꢀtoꢀusꢀtoꢀestablishꢀor
maintainꢀrelationshipsꢀwithꢀgamingꢀestablishments,ꢀourꢀbusiness,ꢀfinancialꢀcondition,ꢀoperations,ꢀorꢀcashꢀflowsꢀcouldꢀbeꢀmaterially
andꢀadverselyꢀaffected.
Consolidation among our customers or competitors could have a material adverse effect on our revenues and profitability.
Weꢀoftenꢀexecuteꢀcontractsꢀwithꢀcustomersꢀpursuantꢀtoꢀwhichꢀweꢀprovideꢀproductsꢀandꢀservicesꢀatꢀmultipleꢀgamingꢀestablishments.
Accordingly,ꢀtheꢀexpirationꢀorꢀterminationꢀofꢀaꢀsingleꢀkeyꢀcontractꢀcanꢀmeanꢀtheꢀlossꢀofꢀmultipleꢀgamingꢀfacilitiesꢀatꢀwhichꢀmany
ofꢀourꢀproductsꢀandꢀservicesꢀareꢀused.ꢀConsolidationꢀamongꢀoperatorsꢀofꢀgamingꢀestablishmentsꢀmayꢀalsoꢀresultꢀinꢀtheꢀlossꢀof
customers,ꢀifꢀoneꢀofꢀourꢀcustomersꢀisꢀacquiredꢀbyꢀaꢀbusinessꢀthatꢀutilizesꢀoneꢀofꢀourꢀcompetitors,ꢀorꢀsignificantꢀmarginꢀcompression,
ifꢀratesꢀvaryꢀbetweenꢀacquiringꢀandꢀacquiredꢀcustomers.ꢀConsolidationꢀamongꢀourꢀcompetitorsꢀinꢀeitherꢀtheꢀGamesꢀorꢀFinTech
sectorsꢀwillꢀonlyꢀincreaseꢀadvantagesꢀtheseꢀcompetitorsꢀmayꢀhaveꢀoverꢀusꢀasꢀweꢀcompeteꢀforꢀtheseꢀcustomers,ꢀincludingꢀeven
greaterꢀfinancial,ꢀresearch,ꢀdesign,ꢀdevelopment,ꢀmarketing,ꢀtechnological,ꢀandꢀotherꢀresources,ꢀtheꢀabilityꢀtoꢀofferꢀcustomersꢀmore
favorableꢀratesꢀandꢀpricesꢀdueꢀtoꢀlowerꢀoperatingꢀcostsꢀresultingꢀfromꢀefficienciesꢀofꢀscaleꢀandꢀvaryingꢀmarginsꢀofꢀaꢀlargerꢀproduct
portfolio,ꢀamongꢀotherꢀfactors.
Our business depends on our ability to introduce new, commercially viable games, products, and services in a timely manner.
Ourꢀsuccessꢀisꢀdependentꢀonꢀourꢀabilityꢀtoꢀdevelopꢀandꢀsellꢀnewꢀgames,ꢀproducts,ꢀandꢀservicesꢀthatꢀareꢀattractiveꢀnotꢀonlyꢀtoꢀour
customers,ꢀbutꢀalsoꢀtoꢀtheirꢀcustomers,ꢀtheꢀgamingꢀpatrons.ꢀIfꢀourꢀgames,ꢀproducts,ꢀandꢀservicesꢀdoꢀnotꢀappealꢀtoꢀgamingꢀoperators
andꢀpatrons,ꢀorꢀdoꢀnotꢀmeetꢀorꢀsustainꢀrevenueꢀandꢀprofitabilityꢀofꢀcontractualꢀobligationsꢀandꢀexpectations,ꢀweꢀmayꢀloseꢀbusiness
toꢀourꢀcompetitors.ꢀAdditionally,ꢀweꢀmayꢀbeꢀunableꢀtoꢀenhanceꢀexistingꢀgames,ꢀproducts,ꢀandꢀservicesꢀinꢀaꢀtimelyꢀmannerꢀin
responseꢀtoꢀchangingꢀregulatory,ꢀlegal,ꢀorꢀmarketꢀconditions,ꢀcustomerꢀrequirements,ꢀorꢀnewꢀgames,ꢀproducts,ꢀandꢀservicesꢀmay
notꢀachieveꢀmarketꢀacceptanceꢀinꢀnewꢀorꢀexistingꢀmarkets.ꢀDelayꢀinꢀregulatoryꢀapprovalsꢀofꢀnewꢀgamingꢀdevicesꢀandꢀequipment
mayꢀadverselyꢀimpactꢀnewꢀproductꢀdeployment.ꢀIfꢀweꢀareꢀunableꢀtoꢀkeepꢀpaceꢀwithꢀrapidꢀinnovationsꢀinꢀnewꢀtechnologiesꢀor
productꢀdesignꢀandꢀdeploymentꢀorꢀifꢀweꢀareꢀunableꢀtoꢀquicklyꢀadaptꢀourꢀdevelopment,ꢀmanufacturing,ꢀorꢀsalesꢀprocessesꢀtoꢀcompete,
ourꢀbusiness,ꢀfinancialꢀcondition,ꢀoperations,ꢀorꢀcashꢀflowsꢀcouldꢀsufferꢀaꢀmaterialꢀadverseꢀeffect.
Our business is dependent upon consumer demand for gaming and overall economic trends specific to the gaming industry.
Economic downturns or a decline in the popularity of gaming could reduce the number of patrons that use our products and
services or the amounts of cash that they access using our services.
Weꢀprovideꢀourꢀgaming-relatedꢀandꢀcashꢀaccessꢀproductsꢀandꢀservicesꢀalmostꢀexclusivelyꢀtoꢀgamingꢀestablishments.ꢀAsꢀaꢀresult,
ourꢀbusinessꢀdependsꢀonꢀconsumerꢀdemandꢀforꢀgaming.ꢀGamingꢀisꢀaꢀdiscretionaryꢀleisureꢀactivity,ꢀparticipationꢀinꢀwhichꢀhasꢀin
theꢀpastꢀandꢀmayꢀinꢀtheꢀfutureꢀdeclineꢀduringꢀperiodsꢀofꢀ(i)ꢀeconomicꢀgrowth,ꢀdueꢀtoꢀchangesꢀinꢀconsumers’ꢀspendingꢀhabits;ꢀ(ii)
economicꢀ downturns,ꢀ dueꢀ toꢀ decreasesꢀ inꢀ ourꢀ customers’ꢀ disposableꢀ incomeꢀ orꢀ generalꢀ tourismꢀ activities;ꢀ andꢀ (iii)ꢀ declining
consumerꢀconfidence,ꢀdueꢀtoꢀgeneralꢀeconomicꢀconditions,ꢀdomestic-ꢀandꢀgeo-politicalꢀconcerns,ꢀorꢀotherꢀfactors.ꢀGamingꢀcompetes
withꢀotherꢀleisureꢀactivitiesꢀasꢀaꢀformꢀofꢀconsumerꢀentertainmentꢀandꢀmayꢀloseꢀpopularityꢀasꢀnewꢀleisureꢀactivitiesꢀariseꢀorꢀasꢀother
leisureꢀactivitiesꢀbecomeꢀmoreꢀpopular.ꢀInꢀaddition,ꢀgamingꢀinꢀtraditionalꢀgamingꢀestablishmentsꢀ(toꢀwhichꢀweꢀsellꢀourꢀproducts
andꢀservices)ꢀcompetesꢀwithꢀInternet-basedꢀgaming.ꢀTheꢀpopularityꢀandꢀacceptanceꢀofꢀgamingꢀisꢀalsoꢀinfluencedꢀbyꢀtheꢀprevailing
socialꢀmoresꢀandꢀchangesꢀinꢀsocialꢀmores,ꢀincludingꢀchangesꢀdrivenꢀbyꢀsocialꢀresponsibilityꢀorganizationsꢀthatꢀareꢀdedicatedꢀto
addressingꢀproblemꢀgaming,ꢀwhichꢀcouldꢀresultꢀinꢀreducedꢀacceptanceꢀofꢀgamingꢀasꢀaꢀleisureꢀactivityꢀorꢀlitigationꢀorꢀlobbying
19
effortsꢀfocusedꢀonꢀlimitingꢀgamingꢀactivities.ꢀToꢀtheꢀextentꢀthatꢀtheꢀpopularityꢀorꢀavailabilityꢀofꢀgamingꢀinꢀtraditionalꢀgaming
establishmentsꢀdeclinesꢀasꢀaꢀresultꢀofꢀanyꢀofꢀtheseꢀfactors,ꢀtheꢀdemandꢀforꢀourꢀcashꢀaccessꢀandꢀgaming-relatedꢀproductsꢀandꢀservices,
orꢀtheꢀwillingnessꢀofꢀourꢀcustomersꢀtoꢀspendꢀnewꢀcapitalꢀonꢀacquiringꢀgamingꢀequipmentꢀorꢀutilizeꢀrevenueꢀshareꢀagreements,ꢀmay
declineꢀandꢀourꢀbusinessꢀmayꢀbeꢀharmed.
We may not successfully enter new markets and potential new markets may not develop quickly, or at all.
Ifꢀandꢀasꢀnewꢀandꢀdevelopingꢀdomesticꢀmarketsꢀdevelop,ꢀcompetitionꢀamongꢀprovidersꢀofꢀgaming-relatedꢀandꢀcashꢀaccessꢀproducts
andꢀservicesꢀwillꢀintensify.ꢀWeꢀwillꢀfaceꢀaꢀnumberꢀofꢀhurdlesꢀinꢀourꢀattemptsꢀtoꢀenterꢀtheseꢀmarkets,ꢀincludingꢀtheꢀneedꢀtoꢀexpand
ourꢀ salesꢀ andꢀ marketingꢀ presence,ꢀ competeꢀ againstꢀ pre-existingꢀ relationshipsꢀ thatꢀ ourꢀ targetꢀ customersꢀ mayꢀ haveꢀ withꢀ our
competitors,ꢀtheꢀuncertaintyꢀofꢀcomplianceꢀwithꢀnewꢀorꢀdevelopingꢀregulatoryꢀregimesꢀ(includingꢀregulatoryꢀregimesꢀrelatingꢀto
Internetꢀgaming)ꢀwithꢀwhichꢀweꢀareꢀnotꢀcurrentlyꢀfamiliar,ꢀandꢀoversightꢀbyꢀregulatorsꢀthatꢀareꢀnotꢀfamiliarꢀwithꢀusꢀorꢀourꢀbusinesses.
Eachꢀofꢀtheseꢀrisksꢀcouldꢀmateriallyꢀimpairꢀourꢀabilityꢀtoꢀsuccessfullyꢀexpandꢀourꢀoperationsꢀintoꢀtheseꢀnewꢀandꢀdevelopingꢀdomestic
markets.
Inꢀaddition,ꢀasꢀweꢀattemptꢀtoꢀsellꢀourꢀgaming-relatedꢀandꢀcashꢀaccessꢀproductsꢀandꢀservicesꢀintoꢀinternationalꢀmarketsꢀinꢀwhich
weꢀhaveꢀnotꢀpreviouslyꢀoperated,ꢀweꢀmayꢀbecomeꢀexposedꢀtoꢀpolitical,ꢀeconomic,ꢀtax,ꢀlegal,ꢀandꢀregulatoryꢀrisksꢀnotꢀfacedꢀby
businessesꢀthatꢀoperateꢀonlyꢀinꢀtheꢀUnitedꢀStates.ꢀTheꢀlegalꢀandꢀregulatoryꢀregimesꢀofꢀforeignꢀmarketsꢀandꢀtheirꢀramificationsꢀon
ourꢀbusinessꢀmayꢀbeꢀlessꢀcertain.ꢀOurꢀinternationalꢀoperationsꢀmayꢀbeꢀsubjectꢀtoꢀaꢀvarietyꢀofꢀrisks,ꢀincludingꢀdifferentꢀregulatory
requirementsꢀandꢀinterpretations,ꢀtradeꢀbarriers,ꢀdifficultiesꢀinꢀstaffingꢀandꢀmanagingꢀforeignꢀoperations,ꢀhigherꢀratesꢀofꢀfraud,
complianceꢀ withꢀ anti-corruptionꢀ andꢀ exportꢀ controlꢀ laws,ꢀ fluctuationsꢀ inꢀ currencyꢀ exchangeꢀ rates,ꢀ difficultyꢀ inꢀ enforcingꢀ or
interpretingꢀcontractsꢀorꢀlegislation,ꢀpoliticalꢀandꢀeconomicꢀinstability,ꢀandꢀpotentiallyꢀadverseꢀtaxꢀconsequences.ꢀDifficultiesꢀin
obtainingꢀapprovals,ꢀlicenses,ꢀorꢀwaiversꢀfromꢀtheꢀmonetaryꢀandꢀGamingꢀAuthoritiesꢀofꢀotherꢀjurisdictions,ꢀinꢀadditionꢀtoꢀother
potentialꢀregulatoryꢀandꢀquasi-regulatoryꢀissuesꢀthatꢀweꢀhaveꢀnotꢀyetꢀascertained,ꢀmayꢀariseꢀinꢀinternationalꢀjurisdictionsꢀintoꢀwhich
weꢀattemptꢀtoꢀenter.ꢀInꢀtheseꢀnewꢀmarkets,ꢀourꢀoperationsꢀwillꢀrelyꢀonꢀanꢀinfrastructureꢀof,ꢀamongꢀotherꢀthings,ꢀfinancialꢀservices
andꢀtelecommunicationsꢀfacilitiesꢀthatꢀmayꢀnotꢀbeꢀsufficientꢀtoꢀsupportꢀourꢀbusinessꢀneeds.ꢀInꢀtheseꢀnewꢀmarkets,ꢀweꢀmayꢀadditionally
provideꢀservicesꢀbasedꢀuponꢀinterpretationsꢀofꢀapplicableꢀlaw,ꢀwhichꢀinterpretationꢀmayꢀbeꢀsubjectꢀtoꢀregulatoryꢀorꢀjudicialꢀreview.
Theseꢀrisks,ꢀamongꢀothers,ꢀcouldꢀmateriallyꢀandꢀadverselyꢀaffectꢀourꢀbusiness,ꢀfinancialꢀcondition,ꢀandꢀoperations.ꢀInꢀconnection
withꢀourꢀexpansionꢀintoꢀnewꢀinternationalꢀmarkets,ꢀweꢀmayꢀforgeꢀstrategicꢀrelationshipsꢀwithꢀbusinessꢀpartnersꢀtoꢀassistꢀus.ꢀThe
successꢀofꢀourꢀexpansionꢀintoꢀtheseꢀmarketsꢀthereforeꢀmayꢀdependꢀinꢀpartꢀuponꢀtheꢀsuccessꢀofꢀtheꢀbusinessꢀpartnersꢀwithꢀwhom
weꢀforgeꢀtheseꢀstrategicꢀrelationships.ꢀIfꢀweꢀdoꢀnotꢀsuccessfullyꢀformꢀstrategicꢀrelationshipsꢀwithꢀtheꢀrightꢀbusinessꢀpartnersꢀorꢀif
weꢀareꢀnotꢀableꢀtoꢀovercomeꢀculturalꢀorꢀbusinessꢀpracticeꢀdifferences,ꢀourꢀabilityꢀtoꢀpenetrateꢀtheseꢀnewꢀinternationalꢀmarketsꢀcould
suffer.
Weꢀareꢀsubjectꢀtoꢀtheꢀriskꢀthatꢀtheꢀdomesticꢀorꢀinternationalꢀmarketsꢀweꢀattemptꢀtoꢀenterꢀorꢀexpandꢀintoꢀmayꢀnotꢀdevelopꢀasꢀquickly
asꢀanticipated,ꢀorꢀatꢀall.ꢀTheꢀdevelopmentꢀofꢀnewꢀgamingꢀmarketsꢀisꢀsubjectꢀtoꢀpolitical,ꢀsocial,ꢀregulatory,ꢀandꢀeconomicꢀforces
beyondꢀourꢀcontrol.ꢀTheꢀexpansionꢀofꢀgamingꢀactivitiesꢀinꢀnewꢀmarketsꢀcanꢀbeꢀveryꢀcontroversialꢀandꢀmayꢀdependꢀheavilyꢀonꢀthe
supportꢀandꢀsponsorshipꢀofꢀlocalꢀgovernment,ꢀandꢀmayꢀbeꢀbasedꢀuponꢀinterpretationsꢀofꢀnewlyꢀenactedꢀlaws,ꢀtheꢀinterpretationꢀof
whichꢀmayꢀbeꢀsubjectꢀtoꢀregulatoryꢀorꢀjudicialꢀreview.ꢀChangesꢀinꢀgovernmentꢀleadership,ꢀfailureꢀtoꢀobtainꢀrequisiteꢀvoterꢀsupport
inꢀreferendums,ꢀfailureꢀofꢀlegislatorsꢀtoꢀenactꢀenablingꢀlegislation,ꢀandꢀlimitationsꢀonꢀtheꢀvolumeꢀofꢀgamingꢀactivityꢀthatꢀisꢀpermitted
inꢀparticularꢀmarketsꢀmayꢀinhibitꢀtheꢀdevelopmentꢀofꢀnewꢀmarkets.ꢀFurther,ꢀourꢀestimatesꢀofꢀtheꢀpotentialꢀfutureꢀopportunitiesꢀin
newꢀmarketsꢀareꢀbasedꢀonꢀaꢀvarietyꢀofꢀassumptionsꢀthatꢀmayꢀproveꢀtoꢀbeꢀinaccurate.ꢀToꢀtheꢀextentꢀthatꢀweꢀoverestimateꢀtheꢀpotential
ofꢀaꢀnewꢀmarket,ꢀincorrectlyꢀgaugeꢀtheꢀtimingꢀofꢀtheꢀdevelopmentꢀofꢀaꢀnewꢀmarket,ꢀorꢀfailꢀtoꢀanticipateꢀtheꢀdifferencesꢀbetweenꢀa
newꢀmarketꢀandꢀourꢀexistingꢀmarkets,ꢀweꢀmayꢀfailꢀinꢀourꢀstrategyꢀofꢀgrowingꢀourꢀbusinessꢀbyꢀexpandingꢀintoꢀnewꢀmarkets.ꢀMoreover,
ifꢀweꢀareꢀunableꢀtoꢀmeetꢀtheꢀneedsꢀofꢀourꢀexistingꢀcustomersꢀasꢀtheyꢀenterꢀmarketsꢀthatꢀweꢀdoꢀnotꢀcurrentlyꢀserve,ꢀourꢀrelationships
withꢀtheseꢀcustomersꢀcouldꢀbeꢀharmed.
We may not realize satisfactory returns on money loaned or otherwise funded to new and existing customers to develop or
expand gaming facilities.
Inꢀourꢀgamingꢀbusiness,ꢀweꢀenterꢀintoꢀplacementꢀfeeꢀagreementsꢀtypicallyꢀtoꢀsecureꢀaꢀlong-termꢀrevenueꢀshareꢀpercentageꢀandꢀa
fixedꢀnumberꢀofꢀplayerꢀterminalꢀplacementsꢀinꢀtheꢀgamingꢀfacility.ꢀTheseꢀplacementꢀfeeꢀarrangementsꢀmayꢀprovideꢀforꢀtheꢀremoval
ofꢀ ourꢀ playerꢀ terminalꢀ placementsꢀ inꢀ theꢀ eventꢀ ofꢀ poorꢀ gameꢀ performanceꢀ withꢀ noꢀ furtherꢀ obligationꢀ ofꢀ theꢀ gaming
customer.ꢀAdditionally,ꢀ weꢀ haveꢀ historicallyꢀ enteredꢀ intoꢀ developmentꢀ feeꢀ arrangementsꢀ andꢀ mayꢀ continueꢀ toꢀ doꢀ soꢀ inꢀ the
future.ꢀUnderꢀtheꢀdevelopmentꢀfeeꢀarrangements,ꢀweꢀprovideꢀfinancingꢀforꢀconstruction,ꢀexpansion,ꢀorꢀremodelingꢀofꢀgaming
facilitiesꢀinꢀexchangeꢀforꢀaꢀlong-termꢀrevenueꢀshareꢀpercentageꢀandꢀaꢀfixedꢀnumberꢀofꢀplayerꢀterminalꢀplacementsꢀinꢀtheꢀgaming
facilityꢀuntilꢀtheꢀdevelopmentꢀfeeꢀisꢀrepaidꢀtoꢀus.ꢀTheꢀsuccessꢀofꢀtheseꢀventuresꢀisꢀdependentꢀuponꢀtheꢀtimelyꢀcompletionꢀofꢀthe
gamingꢀfacility,ꢀtheꢀplacementꢀandꢀperformanceꢀofꢀourꢀplayerꢀterminals,ꢀandꢀaꢀfavorableꢀregulatoryꢀenvironment.ꢀOurꢀdevelopment
andꢀ placementꢀ effortsꢀ andꢀ financingꢀ activitiesꢀ mayꢀ resultꢀ inꢀ operatingꢀ difficulties,ꢀ financialꢀ andꢀ regulatoryꢀ risks,ꢀ orꢀ required
expendituresꢀthatꢀcouldꢀmateriallyꢀandꢀadverselyꢀaffectꢀourꢀliquidity.ꢀInꢀconnectionꢀwithꢀoneꢀorꢀmoreꢀofꢀtheseꢀtransactions,ꢀandꢀto
20
obtainꢀtheꢀnecessaryꢀdevelopmentꢀandꢀplacementꢀfeeꢀfunds,ꢀweꢀmayꢀneedꢀtoꢀextendꢀsecuredꢀandꢀunsecuredꢀcreditꢀtoꢀpotentialꢀor
existingꢀcustomersꢀthatꢀmayꢀnotꢀbeꢀrepaid,ꢀincurꢀdebtꢀonꢀtermsꢀunfavorableꢀtoꢀus,ꢀincurꢀdifficultiesꢀinꢀperfectingꢀsecurityꢀinterests
inꢀcollateralꢀonꢀIndianꢀlands,ꢀorꢀthatꢀweꢀareꢀunableꢀtoꢀrepay,ꢀorꢀincurꢀotherꢀcontingentꢀliabilities.ꢀTheꢀfailureꢀtoꢀmaintainꢀcontrols
andꢀprocessesꢀrelatedꢀtoꢀourꢀcollectionꢀeffortsꢀorꢀtheꢀdeteriorationꢀofꢀregulatoryꢀorꢀfinancialꢀconditionꢀofꢀourꢀcustomersꢀcould
negativelyꢀimpactꢀourꢀbusiness.
If we are unable to develop and protect our intellectual property adequately or obtain intellectual property rights and agreements,
we may lose valuable competitive advantages, be forced to incur costly litigation to protect our rights, or be restricted in our
ability to provide various products in our markets.
Ourꢀ successꢀ depends,ꢀ inꢀ part,ꢀ onꢀ developingꢀ andꢀ protectingꢀ ourꢀ intellectualꢀ property.ꢀ Weꢀ relyꢀ onꢀ aꢀ combinationꢀ ofꢀ patents,
trademarks,ꢀ copyrights,ꢀ tradeꢀ secrets,ꢀ andꢀ contractualꢀ restrictionsꢀ toꢀ protectꢀ ourꢀ intellectualꢀ property.ꢀ Weꢀ alsoꢀ relyꢀ onꢀ other
confidentialityꢀandꢀcontractualꢀagreementsꢀandꢀarrangementsꢀwithꢀourꢀemployees,ꢀaffiliates,ꢀbusinessꢀpartners,ꢀandꢀcustomersꢀto
establishꢀandꢀprotectꢀourꢀintellectualꢀpropertyꢀandꢀsimilarꢀproprietaryꢀrights.ꢀWeꢀcannotꢀassureꢀyouꢀthatꢀweꢀwillꢀbeꢀsuccessfulꢀin
protectingꢀtheseꢀrightsꢀand,ꢀdespiteꢀourꢀefforts,ꢀourꢀtradeꢀsecretsꢀandꢀproprietaryꢀknow-howꢀcouldꢀbecomeꢀknownꢀto,ꢀorꢀindependently
developedꢀby,ꢀcompetitors.ꢀAnyꢀlitigationꢀrelatingꢀtoꢀtheꢀdefenseꢀofꢀourꢀintellectualꢀproperty,ꢀwhetherꢀsuccessfulꢀorꢀunsuccessful,
couldꢀresultꢀinꢀsubstantialꢀcostsꢀtoꢀusꢀandꢀpotentiallyꢀcauseꢀaꢀdiversionꢀofꢀourꢀresources.
Inꢀaddition,ꢀweꢀmayꢀfaceꢀclaimsꢀofꢀinfringementꢀthatꢀcouldꢀinterfereꢀwithꢀourꢀabilityꢀtoꢀuseꢀtechnologyꢀorꢀotherꢀintellectualꢀproperty
rightsꢀthatꢀareꢀmaterialꢀtoꢀourꢀbusinessꢀoperations.ꢀInꢀtheꢀeventꢀaꢀclaimꢀofꢀinfringementꢀagainstꢀusꢀisꢀsuccessful,ꢀweꢀmayꢀbeꢀrequired
toꢀpayꢀroyaltiesꢀtoꢀuseꢀtechnologyꢀorꢀotherꢀintellectualꢀpropertyꢀrightsꢀthatꢀweꢀhadꢀbeenꢀusing,ꢀorꢀweꢀmayꢀbeꢀrequiredꢀtoꢀenterꢀinto
aꢀlicenseꢀagreementꢀandꢀpayꢀlicenseꢀfees,ꢀorꢀweꢀmayꢀbeꢀrequiredꢀtoꢀstopꢀusingꢀtheꢀtechnologyꢀorꢀotherꢀintellectualꢀpropertyꢀrights
thatꢀweꢀhadꢀbeenꢀusing.ꢀWeꢀmayꢀbeꢀunableꢀtoꢀobtainꢀnecessaryꢀlicensesꢀfromꢀthirdꢀpartiesꢀatꢀaꢀreasonableꢀcostꢀorꢀwithinꢀaꢀreasonable
amountꢀofꢀtime.ꢀAnyꢀlitigationꢀofꢀthisꢀtype,ꢀwhetherꢀsuccessfulꢀorꢀunsuccessful,ꢀcouldꢀresultꢀinꢀsubstantialꢀcostsꢀtoꢀusꢀandꢀpotentially
causeꢀaꢀdiversionꢀofꢀourꢀresources.
We rely on technology provided by third-party vendors, the loss of which could materially and adversely affect our business,
increase our costs, and delay deployment or suspend development of our financial services products, gaming systems, and
player terminals.
Weꢀhaveꢀenteredꢀintoꢀlicenseꢀagreementsꢀwithꢀthirdꢀpartiesꢀforꢀtheꢀexclusiveꢀuseꢀofꢀtheirꢀtechnologyꢀandꢀintellectualꢀpropertyꢀrights
inꢀtheꢀgamingꢀindustry,ꢀsuchꢀasꢀourꢀlicenseꢀtoꢀuseꢀportionsꢀofꢀtheꢀsoftwareꢀinfrastructureꢀuponꢀwhichꢀourꢀcashꢀaccessꢀsystems
operate,ꢀandꢀweꢀalsoꢀrelyꢀonꢀthird-partyꢀmanufacturersꢀtoꢀmanufactureꢀourꢀgamingꢀdevices,ꢀfullyꢀintegratedꢀkiosks,ꢀandꢀother
integratedꢀkioskꢀsolutions.ꢀWeꢀrelyꢀonꢀtheseꢀotherꢀpartiesꢀtoꢀmaintainꢀandꢀprotectꢀthisꢀtechnologyꢀandꢀtheꢀrelatedꢀintellectualꢀproperty
rights.ꢀIfꢀourꢀlicensorsꢀfailꢀtoꢀprotectꢀtheirꢀintellectualꢀpropertyꢀrightsꢀinꢀmaterialꢀthatꢀweꢀlicenseꢀandꢀweꢀareꢀunableꢀtoꢀprotectꢀsuch
intellectualꢀpropertyꢀrights,ꢀtheꢀvalueꢀofꢀourꢀlicensesꢀmayꢀdiminishꢀsignificantlyꢀandꢀourꢀbusinessꢀcouldꢀbeꢀsignificantlyꢀharmed.
Inꢀaddition,ꢀifꢀtheseꢀagreementsꢀexpireꢀandꢀweꢀareꢀunableꢀtoꢀrenewꢀthem,ꢀorꢀifꢀtheꢀmanufacturersꢀofꢀthisꢀsoftwareꢀorꢀhardware,ꢀor
functionalꢀequivalentsꢀofꢀthisꢀsoftwareꢀorꢀhardware,ꢀwereꢀeitherꢀnoꢀlongerꢀavailableꢀtoꢀusꢀorꢀnoꢀlongerꢀofferedꢀtoꢀusꢀonꢀcommercially
reasonableꢀterms,ꢀweꢀmayꢀloseꢀaꢀvaluableꢀcompetitiveꢀadvantageꢀandꢀourꢀbusinessꢀcouldꢀbeꢀharmed.
Actsꢀ ofꢀ God,ꢀ adverseꢀ weatherꢀ andꢀ shippingꢀ difficulties,ꢀ particularlyꢀ withꢀ respectꢀ toꢀ internationalꢀ third-partyꢀ suppliersꢀ ofꢀ our
components,ꢀcouldꢀcauseꢀsignificantꢀproductionꢀdelays.ꢀIfꢀweꢀareꢀunableꢀtoꢀobtainꢀtheseꢀcomponentsꢀfromꢀourꢀestablishedꢀthird-
partyꢀvendors,ꢀweꢀcouldꢀbeꢀrequiredꢀtoꢀeitherꢀredesignꢀourꢀproductꢀtoꢀfunctionꢀwithꢀalternateꢀthird-partyꢀproductsꢀorꢀtoꢀdevelopꢀor
manufactureꢀtheseꢀcomponentsꢀourselves,ꢀwhichꢀwouldꢀresultꢀinꢀincreasedꢀcostsꢀandꢀcouldꢀresultꢀinꢀdelaysꢀinꢀtheꢀdeploymentꢀof
ourꢀgamingꢀsystemsꢀandꢀplayerꢀterminals.ꢀFurthermore,ꢀweꢀmightꢀbeꢀforcedꢀtoꢀlimitꢀtheꢀfeaturesꢀavailableꢀinꢀourꢀcurrentꢀorꢀfuture
offerings.
Weꢀrelyꢀonꢀintellectualꢀpropertyꢀlicensesꢀfromꢀoneꢀorꢀmoreꢀthird-partyꢀcompetitors,ꢀtheꢀlossꢀofꢀwhichꢀcouldꢀmateriallyꢀandꢀadversely
affectꢀourꢀbusinessꢀandꢀtheꢀsaleꢀorꢀplacementꢀofꢀourꢀproducts.ꢀVariousꢀthird-partyꢀgamingꢀmanufacturersꢀwithꢀwhichꢀweꢀcompete
areꢀ muchꢀ largerꢀ thanꢀ usꢀ andꢀ haveꢀ substantiallyꢀ largerꢀ intellectualꢀ propertyꢀ assets.ꢀTheꢀ gamingꢀ manufacturerꢀ industryꢀ isꢀ very
competitiveꢀandꢀlitigious,ꢀandꢀaꢀlawsuitꢀbroughtꢀbyꢀoneꢀofꢀourꢀlargerꢀcompetitors,ꢀwhetherꢀorꢀnotꢀwell-founded,ꢀmayꢀhaveꢀaꢀmaterial
adverseꢀeffectꢀonꢀourꢀbusiness,ꢀfinancialꢀcondition,ꢀoperations,ꢀorꢀcashꢀflowsꢀandꢀourꢀabilityꢀtoꢀsellꢀorꢀplaceꢀourꢀproducts.
Our inability to identify business opportunities and future acquisitions, or successfully execute any of our identified business
opportunities or future acquisitions could limit our future growth.
Fromꢀtimeꢀtoꢀtime,ꢀweꢀpursueꢀstrategicꢀacquisitionsꢀinꢀsupportꢀofꢀourꢀstrategicꢀgoals.ꢀInꢀconnectionꢀwithꢀanyꢀsuchꢀacquisitions,ꢀwe
couldꢀfaceꢀsignificantꢀchallengesꢀinꢀtimelyꢀsecuringꢀrequiredꢀapprovalsꢀofꢀGamingꢀAuthorities,ꢀorꢀmanagingꢀandꢀintegratingꢀour
expandedꢀorꢀcombinedꢀoperations,ꢀincludingꢀacquiredꢀassets,ꢀoperations,ꢀandꢀpersonnel.ꢀThereꢀcanꢀbeꢀnoꢀassuranceꢀthatꢀacquisition
opportunitiesꢀwillꢀbeꢀavailableꢀonꢀacceptableꢀtermsꢀorꢀatꢀallꢀorꢀthatꢀweꢀwillꢀbeꢀableꢀtoꢀobtainꢀnecessaryꢀfinancingꢀorꢀregulatory
approvalsꢀtoꢀcompleteꢀpotentialꢀacquisitions.
21
We may not achieve the intended benefits of our acquisitions, if any, nor may we be able to integrate those businesses successfully,
and any such acquisitions may disrupt our current plans and operations.
Ourꢀabilityꢀtoꢀsucceedꢀinꢀimplementingꢀourꢀstrategyꢀwillꢀdependꢀtoꢀsomeꢀdegreeꢀuponꢀtheꢀabilityꢀofꢀourꢀmanagementꢀtoꢀsuccessfully
integrateꢀcommerciallyꢀviableꢀacquisitions.ꢀAcquisitionꢀtransactionsꢀmayꢀdisruptꢀourꢀongoingꢀbusinessꢀandꢀdistractꢀmanagement
fromꢀotherꢀresponsibilities.ꢀTheꢀexpectedꢀcostꢀsynergiesꢀassociatedꢀwithꢀsuchꢀacquisitionsꢀmayꢀnotꢀbeꢀfullyꢀrealizedꢀinꢀtheꢀanticipated
amountsꢀorꢀwithinꢀtheꢀcontemplatedꢀtimeframesꢀorꢀcostꢀexpectations,ꢀwhichꢀcouldꢀresultꢀinꢀincreasedꢀcostsꢀandꢀhaveꢀanꢀadverse
effectꢀonꢀourꢀprospects,ꢀresultsꢀofꢀoperations,ꢀcashꢀflows,ꢀandꢀfinancialꢀcondition.ꢀOurꢀbusinessesꢀmayꢀbeꢀnegativelyꢀimpactedꢀif
weꢀareꢀunableꢀtoꢀeffectivelyꢀmanageꢀourꢀexpandedꢀoperations.ꢀTheꢀintegrationꢀofꢀtheseꢀacquisitionsꢀwillꢀrequireꢀsignificantꢀtime
andꢀfocusꢀfromꢀmanagementꢀandꢀmayꢀdivertꢀattentionꢀfromꢀtheꢀday‑to‑dayꢀoperationsꢀofꢀtheꢀcombinedꢀbusinessꢀorꢀdelayꢀthe
achievementꢀofꢀourꢀstrategicꢀobjectives.ꢀWeꢀexpectꢀtoꢀincurꢀincrementalꢀcostsꢀandꢀcapitalꢀexpendituresꢀrelatedꢀtoꢀourꢀcontemplated
integrationꢀactivities.
Theꢀrisksꢀweꢀcommonlyꢀencounterꢀinꢀacquisitionsꢀinclude:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
if,ꢀinꢀadditionꢀtoꢀourꢀcurrentꢀindebtedness,ꢀweꢀincurꢀsignificantꢀdebtꢀtoꢀfinanceꢀaꢀfutureꢀacquisitionꢀandꢀourꢀcombined
businessꢀdoesꢀnotꢀperformꢀasꢀexpected,ꢀweꢀmayꢀhaveꢀdifficultyꢀcomplyingꢀwithꢀdebtꢀcovenants;
weꢀmayꢀbeꢀunableꢀtoꢀmakeꢀaꢀfutureꢀacquisitionꢀwhichꢀisꢀinꢀourꢀbestꢀinterestꢀdueꢀtoꢀourꢀcurrentꢀlevelꢀofꢀindebtedness;
ifꢀweꢀuseꢀourꢀstockꢀtoꢀmakeꢀaꢀfutureꢀacquisition,ꢀitꢀwillꢀdiluteꢀexistingꢀstockholders;
weꢀmayꢀhaveꢀdifficultyꢀassimilatingꢀtheꢀoperationsꢀandꢀpersonnelꢀofꢀanyꢀacquiredꢀcompany;
theꢀchallengeꢀandꢀadditionalꢀinvestmentꢀinvolvedꢀwithꢀintegratingꢀnewꢀproductsꢀandꢀtechnologiesꢀintoꢀourꢀsalesꢀand
marketingꢀprocess;
weꢀ mayꢀ haveꢀ difficultyꢀ effectivelyꢀ integratingꢀ anyꢀ acquiredꢀ technologiesꢀ orꢀ productsꢀ withꢀ ourꢀ currentꢀ productsꢀ and
technologies,ꢀparticularlyꢀwhereꢀsuchꢀproductsꢀresideꢀonꢀdifferentꢀtechnologyꢀplatformsꢀorꢀoverlapꢀwithꢀourꢀproducts;
ourꢀongoingꢀbusinessꢀmayꢀbeꢀdisruptedꢀbyꢀtransitionꢀandꢀintegrationꢀissues;
theꢀcostsꢀandꢀcomplexityꢀofꢀintegratingꢀtheꢀinternalꢀinformationꢀtechnologyꢀinfrastructureꢀofꢀeachꢀacquiredꢀbusinessꢀwith
oursꢀmayꢀbeꢀgreaterꢀthanꢀexpectedꢀandꢀmayꢀrequireꢀadditionalꢀcapitalꢀinvestments;
weꢀmayꢀnotꢀbeꢀableꢀtoꢀretainꢀkeyꢀtechnicalꢀandꢀmanagerialꢀpersonnelꢀfromꢀanꢀacquiredꢀbusiness;
weꢀmayꢀbeꢀunableꢀtoꢀachieveꢀtheꢀfinancialꢀandꢀstrategicꢀgoalsꢀforꢀanyꢀacquiredꢀandꢀcombinedꢀbusinesses;
weꢀmayꢀhaveꢀdifficultyꢀinꢀmaintainingꢀcontrols,ꢀprocedures,ꢀandꢀpoliciesꢀduringꢀtheꢀtransitionꢀandꢀintegrationꢀperiod
followingꢀaꢀfutureꢀacquisition;
ourꢀrelationshipsꢀwithꢀpartnerꢀcompaniesꢀorꢀthird-partyꢀprovidersꢀofꢀtechnologyꢀorꢀproductsꢀcouldꢀbeꢀadverselyꢀaffected;
ourꢀrelationshipsꢀwithꢀemployeesꢀandꢀcustomersꢀcouldꢀbeꢀimpaired;
ourꢀdueꢀdiligenceꢀprocessꢀmayꢀfailꢀtoꢀidentifyꢀsignificantꢀissuesꢀwithꢀproductꢀquality,ꢀproductꢀarchitecture,ꢀlegal,ꢀorꢀtax
contingencies,ꢀcustomerꢀobligations,ꢀandꢀproductꢀdevelopment,ꢀamongꢀotherꢀthings;
asꢀsuccessorꢀweꢀmayꢀbeꢀsubjectꢀtoꢀcertainꢀliabilitiesꢀofꢀourꢀacquisitionꢀtargets;
weꢀmayꢀfaceꢀnewꢀintellectualꢀpropertyꢀchallenges;ꢀand
weꢀmayꢀbeꢀrequiredꢀtoꢀsustainꢀsignificantꢀexitꢀorꢀimpairmentꢀchargesꢀifꢀproductsꢀacquiredꢀinꢀbusinessꢀcombinationsꢀare
unsuccessful.
Ourꢀfailureꢀtoꢀeffectivelyꢀintegrateꢀanyꢀfutureꢀacquisitionꢀwouldꢀadverselyꢀaffectꢀtheꢀbenefitꢀofꢀsuchꢀtransaction,ꢀincludingꢀpotential
synergiesꢀorꢀsalesꢀgrowthꢀopportunities,ꢀinꢀtheꢀtimeꢀframeꢀanticipated.ꢀ
We operate our business in regions subject to natural disasters. Any interruption to our business resulting from a natural
disaster will adversely affect our revenues and results of operations.
Inꢀtheꢀeventꢀofꢀaꢀnaturalꢀdisaster,ꢀtheꢀoperationsꢀofꢀgamingꢀestablishmentsꢀcouldꢀbeꢀnegativelyꢀimpactedꢀorꢀconsumerꢀdemandꢀfor
gamingꢀcouldꢀdecline,ꢀorꢀboth,ꢀandꢀasꢀaꢀresult,ꢀourꢀbusinessꢀcouldꢀbeꢀinterrupted,ꢀwhichꢀcouldꢀmateriallyꢀandꢀadverselyꢀaffectꢀour
22
revenuesꢀandꢀresultsꢀofꢀoperations.ꢀAdverseꢀweatherꢀconditions,ꢀparticularlyꢀflooding,ꢀhurricanes,ꢀtornadoes,ꢀheavyꢀsnowfall,ꢀand
otherꢀextremeꢀweatherꢀconditionsꢀoftenꢀdeterꢀourꢀcustomer’sꢀendꢀusersꢀfromꢀtravelingꢀorꢀmakeꢀitꢀdifficultꢀforꢀthemꢀtoꢀfrequentꢀthe
sitesꢀwhereꢀourꢀgamesꢀandꢀFinTechꢀequipmentꢀareꢀinstalled.ꢀIfꢀanyꢀofꢀthoseꢀsitesꢀexperiencedꢀprolongedꢀadverseꢀweatherꢀconditions,
orꢀifꢀtheꢀsitesꢀinꢀtheꢀStateꢀofꢀOklahoma,ꢀwhereꢀaꢀsignificantꢀnumberꢀofꢀourꢀgamesꢀandꢀFinTechꢀequipmentꢀareꢀinstalled,ꢀsimultaneously
experiencedꢀ adverseꢀ weatherꢀ conditions,ꢀ ourꢀ resultsꢀ ofꢀ business,ꢀ financialꢀ condition,ꢀ andꢀ operationsꢀ couldꢀ beꢀ materiallyꢀ and
adverselyꢀaffected.ꢀDuringꢀ2018,ꢀtheꢀimpactꢀofꢀweather-relatedꢀnaturalꢀdisastersꢀresultedꢀinꢀbusinessꢀdisruptionꢀatꢀcertainꢀofꢀour
customers’ꢀfacilities.
We derive a significant portion of our revenue from Native American tribal customers, and our ability to effectively operate in
Native American gaming markets is vulnerable to legal and regulatory uncertainties, including the ability to enforce contractual
rights on Native American land.
Weꢀderiveꢀaꢀsignificantꢀpercentageꢀofꢀourꢀrevenueꢀfromꢀtheꢀprovisionꢀofꢀcashꢀaccessꢀandꢀgaming-relatedꢀproductsꢀandꢀservicesꢀto
gamingꢀfacilitiesꢀoperatedꢀonꢀNativeꢀAmericanꢀlands.
NativeꢀAmericanꢀtribesꢀthatꢀareꢀfederallyꢀrecognizedꢀareꢀconsideredꢀ“domesticꢀdependentꢀnations”ꢀwithꢀcertainꢀsovereignꢀrights
and,ꢀinꢀtheꢀabsenceꢀofꢀaꢀspecificꢀgrantꢀofꢀauthorityꢀbyꢀCongressꢀtoꢀaꢀstateꢀorꢀaꢀspecificꢀcompactꢀorꢀagreementꢀbetweenꢀaꢀtribalꢀentity
andꢀaꢀstateꢀthatꢀwouldꢀallowꢀtheꢀstateꢀtoꢀregulateꢀactivitiesꢀtakingꢀplaceꢀonꢀNativeꢀAmericanꢀlands,ꢀsuchꢀtribesꢀcanꢀenactꢀtheirꢀown
lawsꢀandꢀregulateꢀgamingꢀoperationsꢀandꢀcontracts.ꢀInꢀthisꢀcapacity,ꢀNativeꢀAmericanꢀtribesꢀgenerallyꢀenjoyꢀaꢀdegreeꢀofꢀsovereign
immunity,ꢀwhich,ꢀamongꢀotherꢀthings,ꢀrecognizesꢀaꢀtribe’sꢀinherentꢀauthorityꢀofꢀself-determinationꢀandꢀself-governance,ꢀimmunizes
theꢀtribeꢀfromꢀcertainꢀlawsuitsꢀoutsideꢀofꢀtribalꢀjurisdiction,ꢀandꢀgenerallyꢀauthorizesꢀaꢀtribe’sꢀpowersꢀofꢀtaxationꢀandꢀspending
overꢀitsꢀfederally-recognizedꢀnation.ꢀAccordingly,ꢀbeforeꢀweꢀcanꢀseekꢀtoꢀenforceꢀcontractꢀrightsꢀwithꢀaꢀNativeꢀAmericanꢀtribe,ꢀor
anꢀagencyꢀorꢀinstrumentalityꢀofꢀaꢀNativeꢀAmericanꢀtribe,ꢀweꢀmustꢀobtainꢀfromꢀtheꢀNativeꢀAmericanꢀtribeꢀaꢀgeneralꢀorꢀlimited
waiverꢀofꢀitsꢀsovereignꢀimmunityꢀwithꢀrespectꢀtoꢀtheꢀmatterꢀinꢀdispute,ꢀwhichꢀweꢀareꢀnotꢀalwaysꢀableꢀtoꢀdo.ꢀWithoutꢀaꢀgeneralꢀor
limitedꢀwaiverꢀofꢀsovereignꢀimmunity,ꢀorꢀifꢀsuchꢀwaiverꢀisꢀheldꢀtoꢀbeꢀineffective,ꢀweꢀcouldꢀbeꢀprecludedꢀfromꢀjudiciallyꢀenforcing
anyꢀrightsꢀorꢀremediesꢀagainstꢀaꢀNativeꢀAmericanꢀtribe,ꢀincludingꢀtheꢀrightꢀtoꢀenterꢀNativeꢀAmericanꢀlandsꢀtoꢀretrieveꢀourꢀproperty
inꢀtheꢀeventꢀofꢀaꢀbreachꢀofꢀcontractꢀbyꢀtheꢀtribalꢀpartyꢀtoꢀthatꢀcontract.ꢀGoverningꢀlawꢀandꢀvenueꢀprovisionsꢀinꢀourꢀcontractsꢀwith
NativeꢀAmericanꢀtribalꢀcustomersꢀvaryꢀwidelyꢀandꢀmayꢀnotꢀbeꢀenforceable.
Further,ꢀcertainꢀNativeꢀAmericanꢀtribesꢀrequireꢀusꢀtoꢀcontractꢀorꢀsubcontractꢀtoꢀprovideꢀallꢀorꢀsomeꢀportionꢀofꢀourꢀservicesꢀwith
entitiesꢀthatꢀareꢀowned,ꢀcontrolled,ꢀorꢀmanagedꢀbyꢀtribalꢀmembersꢀorꢀrelatedꢀparties.ꢀOurꢀabilityꢀtoꢀprovideꢀourꢀservicesꢀisꢀdependent
uponꢀourꢀrelationshipꢀwithꢀtheseꢀthirdꢀpartiesꢀandꢀtheirꢀabilityꢀtoꢀprovideꢀservicesꢀinꢀaccordanceꢀwithꢀtheꢀtermsꢀofꢀourꢀcontractual
arrangementꢀwithꢀtheseꢀthirdꢀpartiesꢀand,ꢀinꢀsomeꢀinstances,ꢀtheꢀthirdꢀparties’ꢀrelationshipꢀorꢀcontractualꢀarrangementꢀwithꢀthe
applicableꢀtribalꢀgamingꢀcasinoꢀorꢀtribe.
Governmentꢀenforcement,ꢀregulatoryꢀaction,ꢀjudicialꢀdecisions,ꢀandꢀproposedꢀlegislativeꢀactionꢀhaveꢀinꢀtheꢀpast,ꢀandꢀwillꢀlikely
continueꢀtoꢀaffectꢀourꢀbusiness,ꢀfinancialꢀcondition,ꢀoperations,ꢀcashꢀflows,ꢀandꢀprospectsꢀinꢀNativeꢀAmericanꢀtribalꢀlands.ꢀThe
legalꢀandꢀregulatoryꢀuncertaintiesꢀsurroundingꢀourꢀNativeꢀAmericanꢀtribalꢀagreementsꢀcouldꢀresultꢀinꢀaꢀsignificantꢀandꢀimmediate
materialꢀadverseꢀeffectꢀonꢀourꢀbusiness,ꢀfinancialꢀcondition,ꢀoperations,ꢀorꢀcashꢀflows.ꢀForꢀexample,ꢀcertainꢀofꢀourꢀagreements
withꢀNativeꢀAmericanꢀtribesꢀareꢀsubjectꢀtoꢀreviewꢀbyꢀregulatoryꢀauthorities.ꢀAdditionally,ꢀsuchꢀuncertaintiesꢀcouldꢀincreaseꢀour
costꢀofꢀdoingꢀbusinessꢀandꢀcouldꢀtakeꢀmanagement’sꢀattentionꢀawayꢀfromꢀoperations.ꢀRegulatoryꢀactionꢀagainstꢀourꢀcustomersꢀor
equipmentꢀinꢀtheseꢀorꢀotherꢀmarketsꢀcouldꢀresultꢀinꢀmachineꢀseizuresꢀandꢀsignificantꢀrevenueꢀdisruptions,ꢀamongꢀotherꢀadverse
consequences.ꢀMoreover,ꢀNativeꢀAmericanꢀtribalꢀpoliciesꢀandꢀprocedures,ꢀasꢀwellꢀasꢀtribalꢀselectionꢀofꢀgamingꢀvendors,ꢀareꢀsubject
toꢀtheꢀpoliticalꢀandꢀgovernanceꢀenvironmentꢀwithinꢀeachꢀNativeꢀAmericanꢀtribe.ꢀChangesꢀinꢀtribalꢀleadershipꢀorꢀtribalꢀpolitical
pressureꢀcanꢀaffectꢀourꢀbusinessꢀrelationshipsꢀwithinꢀNativeꢀAmericanꢀmarkets.
Most of our leased gaming device contracts with our customers are short-term, and if we are unable to maintain our current
customers on terms that are favorable to us, our business, financial condition, operations, or cash flows may suffer a material
adverse effect.
Mostꢀofꢀourꢀleasedꢀgamingꢀdeviceꢀcontractsꢀwithꢀourꢀcustomersꢀareꢀgenerallyꢀshort-term,ꢀexceptꢀforꢀcustomersꢀwithꢀwhomꢀwe
haveꢀenteredꢀintoꢀdevelopmentꢀandꢀplacementꢀfeeꢀagreements.ꢀWeꢀdoꢀnotꢀrelyꢀuponꢀtheꢀstatedꢀtermꢀofꢀourꢀgamingꢀdeviceꢀcontracts
toꢀretainꢀtheꢀbusinessꢀofꢀourꢀcustomers.ꢀWeꢀrelyꢀinsteadꢀuponꢀprovidingꢀcompetitiveꢀplayerꢀterminals,ꢀgames,ꢀandꢀsystemsꢀtoꢀgive
ourꢀcustomersꢀtheꢀincentiveꢀtoꢀcontinueꢀdoingꢀbusinessꢀwithꢀus.ꢀAtꢀanyꢀpointꢀinꢀtime,ꢀaꢀsignificantꢀportionꢀofꢀourꢀgamingꢀdevice
businessꢀisꢀsubjectꢀtoꢀnonrenewal,ꢀwhichꢀmayꢀmateriallyꢀandꢀadverselyꢀaffectꢀourꢀearnings,ꢀfinancialꢀcondition,ꢀandꢀcashꢀflows.
Toꢀrenewꢀorꢀextendꢀanyꢀofꢀourꢀcustomerꢀcontracts,ꢀgenerally,ꢀweꢀmayꢀbeꢀrequiredꢀtoꢀacceptꢀfinancialꢀandꢀotherꢀtermsꢀthatꢀareꢀless
favorableꢀtoꢀusꢀthanꢀtheꢀtermsꢀofꢀtheꢀexpiredꢀcontracts.ꢀInꢀaddition,ꢀweꢀmayꢀnotꢀsucceedꢀinꢀrenewingꢀcustomerꢀcontractsꢀwhenꢀthey
expire.ꢀIfꢀweꢀareꢀrequiredꢀtoꢀagreeꢀtoꢀotherꢀlessꢀfavorableꢀtermsꢀtoꢀretainꢀourꢀcustomersꢀorꢀweꢀareꢀnotꢀableꢀtoꢀrenewꢀourꢀrelationships
withꢀourꢀcustomersꢀuponꢀtheꢀexpirationꢀofꢀourꢀcontracts,ꢀourꢀbusiness,ꢀfinancialꢀcondition,ꢀoperations,ꢀorꢀcashꢀflowsꢀcouldꢀsuffer
aꢀmaterialꢀadverseꢀeffect.
23
Tribal gaming customers who have historically operated large quantities of Class II gaming units may negotiate into
arrangements with state governments or renegotiate existing gaming compacts that could impact the amount of Class II gaming
devices currently supplied by the Company. If we are unable to maintain our existing placement of units, then our business,
financial condition, operations, or cash flows may suffer an adverse effect.
AsꢀofꢀDecemberꢀ31,ꢀ2018,ꢀweꢀoperatedꢀ9,370ꢀClassꢀIIꢀgamingꢀunitsꢀunderꢀleaseꢀorꢀdailyꢀfixedꢀfeeꢀarrangementsꢀtoꢀourꢀcustomers.
CustomersꢀwhoꢀenterꢀintoꢀcompactsꢀwithꢀstateꢀgovernmentsꢀmayꢀdesireꢀtoꢀchangeꢀfromꢀClassꢀIIꢀgamingꢀunitsꢀtoꢀClassꢀIIIꢀgaming
units,ꢀasꢀClassꢀIIIꢀunitsꢀgenerallyꢀperformꢀbetterꢀthanꢀClassꢀIIꢀunits.ꢀThisꢀmayꢀresultꢀinꢀtheꢀlossꢀofꢀplacementsꢀunderꢀleaseꢀorꢀdaily
fixedꢀfeeꢀarrangementsꢀasꢀcustomersꢀpurchaseꢀorꢀleaseꢀClassꢀIIIꢀunitsꢀfromꢀotherꢀequipmentꢀsuppliersꢀtoꢀreplaceꢀourꢀexistingꢀClass
IIꢀunits.ꢀIfꢀweꢀareꢀunableꢀtoꢀreplaceꢀtheseꢀlostꢀunitsꢀwithꢀourꢀproprietaryꢀClassꢀIIIꢀunits,ꢀthenꢀourꢀbusiness,ꢀfinancialꢀcondition,
operations,ꢀorꢀcashꢀflowsꢀmayꢀsufferꢀanꢀadverseꢀeffect.
If we are unable to renew our contract with the New York State Gaming Commission, our revenues, financial condition,
operations, or cash flows may suffer an adverse effect.
OurꢀcontractꢀtoꢀprovideꢀanꢀaccountingꢀandꢀcentralꢀdeterminantꢀsystemꢀforꢀtheꢀVLTsꢀinꢀtheꢀStateꢀofꢀNewꢀYorkꢀhasꢀprovidedꢀGames
segmentꢀrevenuesꢀofꢀapproximatelyꢀ$18.5ꢀmillionꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2018ꢀandꢀ$18.1ꢀmillionꢀforꢀtheꢀyearsꢀended
Decemberꢀ31,ꢀ2017ꢀandꢀ2016.ꢀInꢀJanuaryꢀ2018,ꢀanꢀamendmentꢀtoꢀtheꢀagreementꢀbetweenꢀEveriꢀGamesꢀandꢀtheꢀNewꢀYorkꢀState
GamingꢀCommissionꢀwasꢀapprovedꢀandꢀbecameꢀeffective.ꢀUnderꢀthisꢀamendment,ꢀEveriꢀGamesꢀwillꢀcontinueꢀtoꢀprovideꢀand
maintainꢀtheꢀcentralꢀdeterminantꢀsystemꢀforꢀtheꢀNewꢀYorkꢀLotteryꢀthroughꢀDecemberꢀofꢀ2019.ꢀUponꢀitsꢀexpiration,ꢀifꢀweꢀare
unsuccessfulꢀinꢀrenewingꢀtheꢀcontract,ꢀourꢀbusiness,ꢀfinancialꢀcondition,ꢀoperations,ꢀorꢀcashꢀflowsꢀmayꢀsufferꢀanꢀadverseꢀeffect.
An unexpectedly high level of chargebacks, as the result of fraud or otherwise, including in connection with new technology
standards being implemented in the United States regarding chip-based cards, could materially and adversely affect our cash
access business.
Inꢀ1994,ꢀEuropay,ꢀMasterCard,ꢀandꢀVisaꢀjointlyꢀdevelopedꢀEMV,ꢀdesignedꢀtoꢀdeterꢀfraudulentꢀcardꢀtransactionsꢀrelatedꢀtoꢀidentity
theft,ꢀcounterfeitꢀcards,ꢀandꢀtheꢀmisuseꢀofꢀlostꢀorꢀstolenꢀcardsꢀviaꢀenhancedꢀcardꢀauthentication,ꢀtransactionꢀauthorization,ꢀand
cardholderꢀverificationꢀusingꢀchip-basedꢀsmart-cards.ꢀEMVꢀhasꢀbeenꢀadoptedꢀinꢀmanyꢀregionsꢀofꢀtheꢀworldꢀasꢀtheꢀglobalꢀstandard
forꢀfraudꢀdeterrenceꢀinꢀchipꢀbasedꢀsmart-cardꢀpayments.ꢀToꢀencourageꢀadoptionꢀinꢀtheꢀU.S.,ꢀeffectiveꢀOctoberꢀ1,ꢀ2015,ꢀtheꢀU.S.
paymentꢀcardꢀindustryꢀimplementedꢀnewꢀrulesꢀwhichꢀshiftedꢀtheꢀliabilityꢀforꢀfraudulentꢀtransactionsꢀontoꢀmerchantsꢀifꢀtheyꢀelect
toꢀprocessꢀtransactionsꢀusingꢀtheꢀmagneticꢀstripeꢀwhenꢀpresentedꢀwithꢀaꢀEMVꢀchip-basedꢀsmart-card.ꢀThisꢀshiftedꢀtheꢀresponsibility
forꢀchargebacksꢀdueꢀtoꢀfraudulentꢀtransactionsꢀonꢀsuchꢀcardsꢀfromꢀtheꢀcardꢀissuerꢀontoꢀtheꢀmerchant.ꢀIfꢀweꢀareꢀunableꢀtoꢀmaintain
compliantꢀstatusꢀwithꢀtheꢀEMVꢀregulations,ꢀourꢀcashꢀaccessꢀbusinessꢀmayꢀbeꢀadverselyꢀaffected.
Whenꢀpatronsꢀuseꢀourꢀcashꢀaccessꢀservices,ꢀweꢀeitherꢀdispenseꢀcashꢀorꢀproduceꢀaꢀnegotiableꢀinstrumentꢀthatꢀcanꢀbeꢀexchangedꢀfor
cash.ꢀIfꢀaꢀcompletedꢀcashꢀaccessꢀtransactionꢀisꢀsubsequentlyꢀdisputed,ꢀandꢀifꢀweꢀareꢀunsuccessfulꢀinꢀestablishingꢀtheꢀvalidityꢀof
theꢀtransaction,ꢀweꢀmayꢀnotꢀbeꢀableꢀtoꢀcollectꢀpaymentꢀforꢀsuchꢀtransactionꢀandꢀsuchꢀtransactionꢀbecomesꢀaꢀchargeback.ꢀInꢀthe
eventꢀthatꢀweꢀincurꢀchargebacksꢀinꢀexcessꢀofꢀspecifiedꢀlevels,ꢀweꢀcouldꢀloseꢀourꢀsponsorshipꢀintoꢀtheꢀcardꢀassociationsꢀorꢀbe
censuredꢀbyꢀtheꢀcardꢀassociationsꢀbyꢀwayꢀofꢀfinesꢀorꢀotherwise.ꢀOurꢀfailureꢀtoꢀadequatelyꢀmanageꢀourꢀchargebacksꢀcouldꢀhaveꢀa
materialꢀadverseꢀeffectꢀonꢀourꢀbusiness,ꢀfinancialꢀcondition,ꢀoperations,ꢀorꢀcashꢀflows.
Changes in consumer willingness to pay a convenience fee to access their funds could reduce the demand for our cash access
products and services.
Ourꢀcashꢀaccessꢀbusinessꢀdependsꢀuponꢀtheꢀwillingnessꢀofꢀpatronsꢀtoꢀpayꢀaꢀconvenienceꢀfeeꢀtoꢀaccessꢀtheirꢀownꢀfundsꢀonꢀthe
premisesꢀofꢀaꢀgamingꢀestablishment.ꢀInꢀmostꢀretailꢀenvironments,ꢀconsumersꢀtypicallyꢀdoꢀnotꢀpayꢀanꢀadditionalꢀfeeꢀforꢀusingꢀnon-
cashꢀpaymentꢀmethodsꢀsuchꢀasꢀcreditꢀcards,ꢀPOSꢀdebitꢀcards,ꢀorꢀchecks.ꢀGamingꢀpatronsꢀcouldꢀbringꢀmoreꢀcashꢀwithꢀthemꢀto
gamingꢀestablishmentsꢀorꢀaccessꢀcashꢀoutsideꢀofꢀgamingꢀestablishmentsꢀwithoutꢀpayingꢀaꢀfeeꢀforꢀtheꢀconvenienceꢀofꢀnotꢀhaving
toꢀleaveꢀtheꢀgamingꢀestablishment.ꢀToꢀtheꢀextentꢀthatꢀgamingꢀpatronsꢀbecomeꢀunwillingꢀtoꢀpayꢀtheseꢀconvenienceꢀfeesꢀorꢀlower
costꢀcashꢀaccessꢀalternativesꢀbecomeꢀavailable,ꢀtheꢀdemandꢀforꢀcashꢀaccessꢀservicesꢀwithinꢀgamingꢀestablishmentsꢀwillꢀdecline
andꢀourꢀbusinessꢀcouldꢀsuffer.
Our 3-in-1 Rollover patent expired in early 2018 and our business, financial condition, operations, or cash flows may suffer
an adverse effect from our competitors’ use of this technology.
Weꢀnoꢀlongerꢀhaveꢀtheꢀabilityꢀtoꢀextendꢀourꢀexistingꢀ3-in-1ꢀRolloverꢀpatent,ꢀwhichꢀallowsꢀaꢀpatronꢀthatꢀhasꢀreachedꢀhisꢀorꢀherꢀdaily
ATMꢀlimitꢀtoꢀobtainꢀfundsꢀviaꢀaꢀPOSꢀdebitꢀcardꢀcashꢀaccessꢀtransactionꢀorꢀaꢀcreditꢀcardꢀcashꢀaccessꢀtransactionꢀinstead.ꢀAsꢀaꢀresult
ofꢀtheꢀpatentꢀexpiration,ꢀourꢀcompetitorsꢀwillꢀhaveꢀtheꢀabilityꢀtoꢀemulateꢀthisꢀtechnology;ꢀandꢀourꢀbusiness,ꢀfinancialꢀcondition,
operations,ꢀorꢀcashꢀflowsꢀmayꢀsufferꢀanꢀadverseꢀeffect.
24
Risks Related to Regulation of Our Industry
Unauthorized disclosure of cardholder and patron data or similar violations of applicable data privacy laws, whether through
a security breach of our computer systems, our third-party processor’s computer systems or otherwise, or through our
unauthorized use or transmission of such data could subject us to costly fines, penalties, and legal claims.
WeꢀcollectꢀandꢀstoreꢀpersonallyꢀidentifiableꢀinformationꢀaboutꢀcardholdersꢀandꢀpatronsꢀthatꢀperformꢀcertainꢀcashꢀaccessꢀandꢀCentral
Creditꢀtransactions,ꢀincludingꢀnames,ꢀaddresses,ꢀsocialꢀsecurityꢀnumbers,ꢀdriver’sꢀlicenseꢀnumbers,ꢀandꢀaccountꢀnumbers,ꢀandꢀwe
maintainꢀaꢀdatabaseꢀofꢀcardholderꢀandꢀpatronꢀdata,ꢀincludingꢀaccountꢀnumbers,ꢀinꢀorderꢀtoꢀprocessꢀourꢀcashꢀaccessꢀandꢀCentral
Creditꢀtransactions.ꢀWeꢀalsoꢀrelyꢀonꢀourꢀthird-partyꢀprocessorꢀandꢀcertainꢀotherꢀtechnologyꢀpartnersꢀtoꢀprocessꢀandꢀstoreꢀcardholder
andꢀpatronꢀdataꢀrelatingꢀtoꢀourꢀcashꢀaccessꢀandꢀCentralꢀCreditꢀtransactions.ꢀAsꢀaꢀresult,ꢀwe,ꢀasꢀwellꢀasꢀourꢀthird-partyꢀprocessor,
certainꢀofꢀourꢀotherꢀtechnologyꢀproviders,ꢀandꢀsomeꢀofꢀourꢀgamingꢀestablishmentꢀcustomers,ꢀareꢀrequiredꢀtoꢀcomplyꢀwithꢀvarious
foreign,ꢀfederal,ꢀandꢀstateꢀprivacyꢀstatutesꢀandꢀregulations,ꢀandꢀtheꢀPCIꢀDataꢀSecurityꢀStandard.ꢀComplianceꢀwithꢀtheseꢀregulations
andꢀrequirements,ꢀwhichꢀareꢀsubjectꢀtoꢀchangeꢀatꢀanyꢀtime,ꢀisꢀoftenꢀdifficultꢀandꢀcostly,ꢀandꢀourꢀfailure,ꢀorꢀtheꢀfailureꢀofꢀtheseꢀother
thirdꢀparties,ꢀtoꢀcomplyꢀmayꢀresultꢀinꢀsignificantꢀfinesꢀorꢀcivilꢀpenalties,ꢀregulatoryꢀenforcementꢀaction,ꢀliabilityꢀtoꢀourꢀsponsor
bank,ꢀandꢀterminationꢀofꢀourꢀagreementsꢀwithꢀourꢀgamingꢀestablishmentꢀcustomers,ꢀeachꢀofꢀwhichꢀcouldꢀhaveꢀaꢀmaterialꢀadverse
effectꢀonꢀourꢀbusiness,ꢀfinancialꢀcondition,ꢀoperations,ꢀorꢀcashꢀflows.ꢀIfꢀourꢀcomputerꢀsystemsꢀorꢀthoseꢀofꢀourꢀthird-partyꢀprocessor
orꢀotherꢀtechnologyꢀprovidersꢀsufferꢀaꢀsecurityꢀbreach,ꢀweꢀmayꢀbeꢀsubjectꢀtoꢀliability,ꢀincludingꢀclaimsꢀforꢀunauthorizedꢀtransactions
withꢀmisappropriatedꢀbankꢀcardꢀinformation,ꢀimpersonation,ꢀorꢀsimilarꢀfraudꢀclaims,ꢀasꢀwellꢀasꢀforꢀanyꢀfailureꢀtoꢀcomplyꢀwithꢀlaws
governingꢀrequiredꢀnotificationsꢀofꢀsuchꢀaꢀbreach,ꢀandꢀtheseꢀclaimsꢀcouldꢀresultꢀinꢀprotractedꢀandꢀcostlyꢀlitigation,ꢀpenalties,ꢀor
sanctionsꢀfromꢀtheꢀcardꢀassociationsꢀandꢀEFTꢀpaymentꢀnetworks,ꢀandꢀdamageꢀtoꢀourꢀreputation,ꢀwhichꢀcouldꢀreduceꢀandꢀlimitꢀour
abilityꢀtoꢀprovideꢀcashꢀaccessꢀandꢀrelatedꢀservicesꢀtoꢀourꢀgamingꢀestablishmentꢀcustomers.
Theꢀpersonallyꢀidentifiableꢀinformationꢀweꢀcollectꢀalsoꢀincludesꢀourꢀpatrons’ꢀtransactionꢀbehavioralꢀdataꢀandꢀcreditꢀhistoryꢀdata,
whichꢀweꢀmayꢀuseꢀtoꢀprovideꢀmarketingꢀandꢀdataꢀintelligenceꢀservicesꢀtoꢀgamingꢀestablishments.ꢀThisꢀinformationꢀisꢀincreasingly
subjectꢀtoꢀfederal,ꢀstate,ꢀandꢀcardꢀassociationꢀlawsꢀandꢀregulations,ꢀasꢀwellꢀasꢀlawsꢀandꢀregulationsꢀinꢀnumerousꢀjurisdictionsꢀaround
theꢀworld.ꢀGovernmentalꢀregulationsꢀareꢀtypicallyꢀintendedꢀtoꢀprotectꢀtheꢀprivacyꢀandꢀsecurityꢀofꢀsuchꢀdataꢀandꢀinformationꢀas
wellꢀasꢀtoꢀregulateꢀtheꢀcollection,ꢀstorage,ꢀtransmission,ꢀtransfer,ꢀuse,ꢀandꢀdistributionꢀofꢀsuchꢀdataꢀandꢀinformation.ꢀWeꢀcouldꢀbe
materiallyꢀandꢀadverselyꢀaffectedꢀifꢀdomesticꢀorꢀinternationalꢀlawsꢀorꢀregulationsꢀareꢀexpandedꢀtoꢀrequireꢀchangesꢀinꢀourꢀbusiness
practicesꢀorꢀifꢀgoverningꢀjurisdictionsꢀinterpretꢀorꢀimplementꢀtheirꢀlawsꢀorꢀregulationsꢀinꢀwaysꢀthatꢀnegativelyꢀaffectꢀourꢀbusiness
orꢀevenꢀprohibitꢀusꢀfromꢀofferingꢀcertainꢀmarketingꢀandꢀdataꢀintelligenceꢀorꢀotherꢀservices.ꢀSimilarly,ꢀifꢀweꢀareꢀrequiredꢀtoꢀallocate
significantꢀresourcesꢀtoꢀmodifyꢀourꢀinternalꢀoperatingꢀsystemsꢀandꢀproceduresꢀtoꢀenableꢀenhancedꢀprotectionꢀofꢀpatronꢀdataꢀthat
weꢀtransmit,ꢀstoreꢀandꢀuse,ꢀourꢀbusinessꢀresultsꢀcouldꢀbeꢀadverselyꢀaffected.ꢀInꢀaddition,ꢀweꢀmayꢀfaceꢀrequirementsꢀthatꢀpose
complianceꢀchallengesꢀinꢀnewꢀinternationalꢀmarketsꢀthatꢀweꢀseekꢀtoꢀenterꢀasꢀvariousꢀforeignꢀjurisdictionsꢀhaveꢀdifferentꢀlawsꢀand
regulationsꢀconcerningꢀtheꢀstorage,ꢀtransmissionꢀandꢀuseꢀofꢀgamingꢀpatronꢀdata.ꢀSuchꢀvariationꢀcouldꢀsubjectꢀusꢀtoꢀcosts,ꢀliabilities,
orꢀnegativeꢀpublicityꢀthatꢀcouldꢀimpairꢀourꢀabilityꢀtoꢀexpandꢀourꢀoperationsꢀintoꢀsomeꢀcountries;ꢀtherefore,ꢀitꢀcouldꢀlimitꢀourꢀfuture
growth.
We are subject to extensive governmental gaming regulation, which may harm our business.
Ourꢀabilityꢀtoꢀconductꢀbothꢀourꢀgamingꢀandꢀcashꢀaccessꢀbusinesses,ꢀexpandꢀoperations,ꢀdevelopꢀandꢀdistributeꢀnewꢀgames,ꢀproducts
andꢀsystems,ꢀandꢀexpandꢀintoꢀnewꢀgamingꢀmarketsꢀisꢀalsoꢀsubjectꢀtoꢀsignificantꢀfederal,ꢀstate,ꢀlocal,ꢀNativeꢀAmericanꢀandꢀforeign
regulationsꢀwhichꢀvaryꢀfromꢀjurisdictionꢀtoꢀjurisdiction.ꢀInꢀtheꢀUnitedꢀStatesꢀandꢀmanyꢀotherꢀcountries,ꢀgamingꢀmustꢀbeꢀexpressly
authorizedꢀbyꢀlaw.ꢀOnceꢀauthorized,ꢀsuchꢀactivitiesꢀareꢀsubjectꢀtoꢀextensiveꢀandꢀevolvingꢀgovernmentalꢀregulation.ꢀTheꢀgaming
laws,ꢀregulationsꢀandꢀordinancesꢀgenerallyꢀconcernꢀtheꢀantecedents,ꢀacumen,ꢀfinancialꢀstabilityꢀandꢀcharacterꢀofꢀourꢀowners,ꢀofficers
andꢀdirectors,ꢀasꢀwellꢀasꢀthoseꢀpersonsꢀfinanciallyꢀinterestedꢀorꢀinvolvedꢀinꢀourꢀcompanies;ꢀdictateꢀtheꢀtechnicalꢀstandardsꢀand
regulationsꢀofꢀourꢀelectronicꢀplayerꢀterminals,ꢀgamingꢀsystemsꢀandꢀcertainꢀotherꢀproducts;ꢀsetꢀforthꢀtheꢀprocessꢀandꢀmannerꢀby
whichꢀ theꢀ GamingꢀAuthoritiesꢀ issueꢀ suchꢀ licenses,ꢀ findingsꢀ ofꢀ suitabilityꢀ andꢀ productꢀ approvals.ꢀ Inꢀ addition,ꢀ theꢀ suspension,
revocation,ꢀnonrenewalꢀorꢀlimitationꢀofꢀanyꢀofꢀourꢀlicensesꢀorꢀproductꢀapprovals,ꢀorꢀtheꢀinabilityꢀtoꢀobtainꢀorꢀmaintainꢀrequisite
licenseꢀorꢀproductꢀapprovalsꢀcouldꢀhaveꢀaꢀmaterialꢀadverseꢀeffectꢀonꢀourꢀbusinessꢀoperations,ꢀfinancialꢀcondition,ꢀandꢀresultsꢀof
operationsꢀandꢀourꢀabilityꢀtoꢀmaintainꢀkeyꢀemployees.ꢀTheꢀGamingꢀAuthoritiesꢀmayꢀdeny,ꢀlimit,ꢀcondition,ꢀsuspendꢀorꢀrevokeꢀa
gamingꢀlicenseꢀorꢀrelatedꢀapprovalꢀforꢀviolationsꢀofꢀapplicableꢀgamingꢀlawsꢀandꢀregulationsꢀandꢀmayꢀimposeꢀsubstantialꢀfinesꢀand
takeꢀotherꢀactions,ꢀanyꢀoneꢀofꢀwhichꢀcouldꢀhaveꢀaꢀsignificantꢀadverseꢀeffectꢀonꢀourꢀbusiness,ꢀfinancialꢀconditionꢀandꢀresultsꢀof
operations.
Further,ꢀchangesꢀinꢀexistingꢀgamingꢀlawsꢀorꢀregulationsꢀorꢀnewꢀinterpretationsꢀofꢀexistingꢀgamingꢀlawsꢀmayꢀhinderꢀorꢀpreventꢀus
fromꢀcontinuingꢀtoꢀoperateꢀinꢀthoseꢀjurisdictionsꢀwhereꢀweꢀcurrentlyꢀdoꢀbusiness,ꢀwhichꢀcouldꢀharmꢀourꢀoperatingꢀresults.ꢀIn
particular,ꢀtheꢀenactmentꢀofꢀunfavorableꢀlegislationꢀorꢀgovernmentꢀeffortsꢀaffectingꢀorꢀdirectedꢀatꢀmanufacturersꢀorꢀgamingꢀoperators,
suchꢀasꢀreferendumsꢀtoꢀincreaseꢀgamingꢀtaxesꢀorꢀrequirementsꢀtoꢀuseꢀlocalꢀdistributors,ꢀorꢀuncertaintyꢀasꢀtoꢀtheꢀmeansꢀandꢀmanner
25
inꢀwhichꢀexistingꢀgamingꢀlawsꢀmayꢀbeꢀinterpretedꢀandꢀapplied,ꢀeitherꢀsinglyꢀorꢀtogether,ꢀcouldꢀhaveꢀaꢀnegativeꢀimpactꢀonꢀour
operations.ꢀ
InꢀMayꢀ2018,ꢀtheꢀUnitedꢀStatesꢀSupremeꢀCourtꢀstruckꢀdownꢀtheꢀProfessionalꢀandꢀAmateurꢀSportsꢀProtectionꢀActꢀ(“PASPA”)ꢀas
unconstitutional,ꢀwhichꢀledꢀmanyꢀstatesꢀtoꢀquicklyꢀproposeꢀand,ꢀinꢀsomeꢀinstances,ꢀpassꢀlegislationꢀauthorizingꢀsportsꢀbetting.
Consequently,ꢀgamingꢀregulators,ꢀmanyꢀofꢀourꢀoperatorꢀcustomers,ꢀandꢀmanyꢀofꢀourꢀcompetitorsꢀdedicatedꢀresourcesꢀtoꢀservice
thisꢀnewꢀmarket,ꢀasꢀdidꢀwe.ꢀHowever,ꢀinꢀJanuaryꢀ2019,ꢀtheꢀOfficeꢀofꢀLegalꢀCounselꢀofꢀtheꢀDepartmentꢀofꢀJusticeꢀ(“OLC”)ꢀpublished
anꢀopinionꢀreversingꢀitsꢀpriorꢀ2011ꢀopinionꢀinterpretingꢀtheꢀFederalꢀWireꢀAct.ꢀTheꢀ2019ꢀopinionꢀnowꢀindicatesꢀthatꢀtheꢀWireꢀAct
isꢀ applicableꢀ toꢀ anyꢀ wireꢀ communicationꢀ acrossꢀ stateꢀ linesꢀ andꢀ specificallyꢀ indicatingꢀ thatꢀ theꢀ Unlawfulꢀ Internetꢀ Gambling
EnforcementꢀActꢀ(“UIGEA”)ꢀdoesꢀnotꢀmodifyꢀtheꢀWireꢀAct,ꢀviolationsꢀofꢀwhichꢀmayꢀbeꢀsubjectꢀtoꢀcriminalꢀprosecution.ꢀThe
specificꢀ commentꢀ regardingꢀ UIGEAꢀ implicatesꢀ UIGEA’sꢀ carveꢀ outꢀ forꢀ “unlawfulꢀ Internetꢀ gambling”ꢀ andꢀ “intermediate
routing”ꢀ(i.e.,ꢀtheꢀancillaryꢀcrossingꢀofꢀstateꢀlinesꢀofꢀtransmissionsꢀbetweenꢀintra-stateꢀcommunicationsꢀpoints).ꢀInꢀrelianceꢀonꢀthe
2011ꢀWireꢀActꢀopinion,ꢀseveralꢀstatesꢀlegalizedꢀonlineꢀgaming,ꢀandꢀtheꢀproposedꢀlegislationꢀinꢀmanyꢀjurisdictionsꢀinꢀresponseꢀto
theꢀMayꢀ2018ꢀPASPAꢀdecisionꢀincludedꢀonlineꢀsportsꢀbetting.ꢀTheꢀimpactꢀofꢀtheꢀ2019ꢀWireꢀActꢀopinionꢀisꢀcurrentlyꢀunclear,ꢀand
mayꢀimplicateꢀlottery,ꢀland-based,ꢀandꢀonlineꢀgamingꢀasꢀwellꢀasꢀbanksꢀandꢀpaymentꢀprocessorsꢀthatꢀservicesꢀtheseꢀmarketꢀsegments.
TheꢀDeputyꢀAttorneyꢀGeneralꢀofꢀtheꢀUnitedꢀStatesꢀdelayedꢀimplementationꢀofꢀtheꢀ2019ꢀopinionꢀthroughꢀJuneꢀ14,ꢀ2019,ꢀandꢀseveral
states’ꢀattorneyꢀgeneralꢀhave,ꢀorꢀareꢀcontemplating,ꢀactionꢀinꢀresponseꢀtoꢀtheꢀ2019ꢀopinion,ꢀincludingꢀlitigation.ꢀInterpretationsꢀand
resultantꢀenforcementꢀofꢀtheꢀWireꢀActꢀasꢀmayꢀrelateꢀtoꢀintermediateꢀroutingꢀtransactionsꢀcouldꢀnegativelyꢀimpactꢀourꢀWAPꢀgames
businessꢀasꢀwellꢀasꢀourꢀFinTechꢀcashꢀaccessꢀbusinessꢀandꢀourꢀinteractiveꢀrealꢀmoneyꢀgamingꢀbusiness.ꢀ
Moreover,ꢀinꢀadditionꢀtoꢀtheꢀriskꢀofꢀenforcementꢀaction,ꢀweꢀareꢀalsoꢀatꢀriskꢀofꢀlossꢀofꢀbusinessꢀreputationꢀinꢀtheꢀeventꢀofꢀanyꢀpotential
legalꢀorꢀregulatoryꢀinvestigation,ꢀwhetherꢀorꢀnotꢀweꢀareꢀultimatelyꢀaccusedꢀofꢀorꢀfoundꢀtoꢀhaveꢀcommittedꢀanyꢀviolation.ꢀForꢀa
summaryꢀofꢀgamingꢀregulationsꢀthatꢀcouldꢀaffectꢀourꢀbusiness,ꢀseeꢀ“Itemꢀ1.ꢀBusinessꢀ—ꢀRegulation.”
Many of the financial services that we provide are subject to extensive rules and regulations, which may harm our business.
OurꢀCentralꢀCreditꢀgamingꢀpatronꢀcreditꢀbureauꢀandꢀcheckꢀverificationꢀandꢀwarrantyꢀservicesꢀareꢀsubjectꢀtoꢀtheꢀFCRA,ꢀtheꢀFACTA,
andꢀsimilarꢀstateꢀlaws.ꢀTheꢀcollectionꢀpracticesꢀthatꢀareꢀusedꢀbyꢀourꢀthird-partyꢀprovidersꢀandꢀusꢀmayꢀbeꢀsubjectꢀtoꢀtheꢀFDCPAꢀand
applicableꢀstateꢀlawsꢀrelatingꢀtoꢀdebtꢀcollection.ꢀAllꢀofꢀourꢀcashꢀaccessꢀservicesꢀandꢀpatronꢀmarketingꢀservicesꢀareꢀsubjectꢀtoꢀthe
privacyꢀprovisionsꢀofꢀstateꢀandꢀfederalꢀlaw,ꢀincludingꢀtheꢀGramm-Leach-BlileyꢀAct.ꢀOurꢀPOSꢀdebitꢀcardꢀcashꢀaccessꢀtransactions
andꢀATMꢀwithdrawalꢀservicesꢀareꢀsubjectꢀtoꢀtheꢀElectronicꢀFundꢀTransferꢀAct.ꢀOurꢀATMꢀservicesꢀareꢀsubjectꢀtoꢀtheꢀapplicableꢀstate
bankingꢀregulationsꢀinꢀeachꢀjurisdictionꢀinꢀwhichꢀweꢀoperateꢀATMs.ꢀOurꢀATMꢀservicesꢀmayꢀalsoꢀbeꢀsubjectꢀtoꢀstateꢀandꢀlocal
regulationsꢀrelatingꢀtoꢀtheꢀimpositionꢀofꢀdailyꢀlimitsꢀonꢀtheꢀamountsꢀthatꢀmayꢀbeꢀwithdrawnꢀfromꢀATMs,ꢀtheꢀlocationꢀofꢀATMs,
ourꢀabilityꢀtoꢀsurchargeꢀcardholdersꢀwhoꢀuseꢀourꢀATMs,ꢀandꢀtheꢀformꢀandꢀtypeꢀofꢀnoticesꢀthatꢀmustꢀbeꢀdisclosedꢀregardingꢀthe
provisionꢀofꢀourꢀATMꢀservices.ꢀTheꢀcashꢀaccessꢀservicesꢀweꢀprovideꢀareꢀsubjectꢀtoꢀrecordꢀkeepingꢀandꢀreportingꢀobligationsꢀunder
theꢀBankꢀSecrecyꢀActꢀandꢀtheꢀUSAꢀPATRIOTꢀActꢀofꢀ2001.ꢀWeꢀareꢀrequiredꢀtoꢀfileꢀSARsꢀwithꢀrespectꢀtoꢀtransactionsꢀcompleted
atꢀallꢀgamingꢀestablishmentsꢀwhereꢀweꢀprovideꢀourꢀcashꢀaccessꢀservicesꢀthroughꢀaꢀgamingꢀestablishment’sꢀcashierꢀorꢀfinancial
servicesꢀcenter.ꢀIfꢀweꢀareꢀfoundꢀtoꢀbeꢀnoncompliantꢀinꢀanyꢀwayꢀwithꢀtheseꢀlaws,ꢀweꢀcouldꢀbeꢀsubjectꢀtoꢀsubstantialꢀcivilꢀandꢀcriminal
penalties.ꢀInꢀjurisdictionsꢀinꢀwhichꢀweꢀserveꢀasꢀaꢀcheckꢀcasher,ꢀweꢀareꢀsubjectꢀtoꢀtheꢀapplicableꢀstateꢀlicensingꢀrequirementsꢀand
regulationsꢀgoverningꢀcheckꢀcashingꢀactivities.ꢀWeꢀareꢀalsoꢀsubjectꢀtoꢀvariousꢀstateꢀlicensingꢀrequirementsꢀandꢀregulationsꢀgoverning
moneyꢀtransmitters.
Weꢀareꢀsubjectꢀtoꢀformalꢀorꢀinformalꢀaudits,ꢀinquiries,ꢀorꢀreviewsꢀfromꢀtimeꢀtoꢀtimeꢀbyꢀtheꢀregulatoryꢀauthoritiesꢀthatꢀenforceꢀthese
financialꢀservicesꢀrulesꢀandꢀregulations.ꢀInꢀtheꢀeventꢀthatꢀanyꢀregulatoryꢀauthorityꢀdeterminesꢀthatꢀtheꢀmannerꢀinꢀwhichꢀweꢀprovide
cashꢀaccess,ꢀpatronꢀmarketing,ꢀorꢀgamingꢀpatronꢀcreditꢀbureauꢀservicesꢀisꢀnotꢀinꢀcomplianceꢀwithꢀexistingꢀrulesꢀandꢀregulations,
orꢀtheꢀregulatoryꢀauthoritiesꢀadoptꢀnewꢀrulesꢀorꢀregulationsꢀthatꢀprohibitꢀorꢀrestrictꢀtheꢀmannerꢀinꢀwhichꢀweꢀprovideꢀcashꢀaccess,
patronꢀmarketing,ꢀorꢀgamingꢀpatronꢀcreditꢀbureauꢀservices,ꢀthenꢀtheseꢀregulatoryꢀauthoritiesꢀmayꢀforceꢀusꢀtoꢀmodifyꢀtheꢀmanner
inꢀwhichꢀweꢀoperateꢀorꢀforceꢀusꢀtoꢀstopꢀprocessingꢀcertainꢀtypesꢀofꢀcashꢀaccessꢀtransactionsꢀorꢀprovidingꢀpatronꢀmarketingꢀor
gamingꢀpatronꢀcreditꢀbureauꢀservicesꢀaltogether.ꢀWeꢀmayꢀalsoꢀbeꢀrequiredꢀtoꢀpayꢀsubstantialꢀpenaltiesꢀandꢀfinesꢀifꢀweꢀfailꢀtoꢀcomply
withꢀapplicableꢀrulesꢀandꢀregulations.ꢀForꢀexample,ꢀifꢀweꢀfailꢀtoꢀfileꢀCTRsꢀorꢀSARsꢀonꢀaꢀtimelyꢀbasisꢀorꢀifꢀweꢀareꢀfoundꢀtoꢀbe
noncompliantꢀinꢀanyꢀwayꢀwithꢀeitherꢀtheꢀBankꢀSecrecyꢀActꢀorꢀtheꢀUSAꢀPATRIOTꢀActꢀofꢀ2001,ꢀweꢀcouldꢀbeꢀsubjectꢀtoꢀsubstantial
civilꢀandꢀcriminalꢀpenalties.ꢀInꢀaddition,ꢀourꢀfailureꢀtoꢀcomplyꢀwithꢀapplicableꢀrulesꢀandꢀregulationsꢀcouldꢀsubjectꢀusꢀtoꢀprivate
litigation.
We are subject to extensive rules and regulations of card associations, including VISA, MasterCard, and EFT networks that
are always subject to change, which may harm our business.
Ourꢀcashꢀaccessꢀbusinessꢀisꢀsubjectꢀtoꢀtheꢀextensiveꢀrulesꢀandꢀregulationsꢀofꢀtheꢀleadingꢀcardꢀassociations,ꢀVISAꢀandꢀMasterCard.
Theꢀrulesꢀandꢀregulationsꢀdoꢀnotꢀexpresslyꢀaddressꢀsomeꢀofꢀtheꢀcontextsꢀandꢀsettingsꢀinꢀwhichꢀweꢀprocessꢀcashꢀaccessꢀtransactions
orꢀdoꢀsoꢀinꢀaꢀmannerꢀsubjectꢀtoꢀvaryingꢀinterpretations.ꢀAsꢀanꢀexample,ꢀweꢀandꢀcertainꢀofꢀourꢀprovidersꢀmustꢀcomplyꢀwithꢀtheꢀPCI
26
DataꢀSecurityꢀStandard.ꢀTheꢀfailureꢀbyꢀanyꢀofꢀsuchꢀprovidersꢀtoꢀcomplyꢀwithꢀsuchꢀstandardsꢀcouldꢀresultꢀinꢀourꢀbeingꢀfinedꢀor
beingꢀprohibitedꢀfromꢀprocessingꢀtransactionsꢀthroughꢀVISA,ꢀMasterCard,ꢀandꢀotherꢀcardꢀandꢀpaymentꢀnetworks.ꢀWeꢀalsoꢀprocess
transactionsꢀinvolvingꢀtheꢀuseꢀofꢀtheꢀproprietaryꢀcreditꢀcardsꢀsuchꢀasꢀthoseꢀofferedꢀbyꢀDiscoverꢀCardꢀandꢀAmericanꢀExpress,ꢀas
wellꢀasꢀotherꢀregionalꢀcardsꢀissuedꢀinꢀcertainꢀinternationalꢀmarkets.ꢀTheꢀrulesꢀandꢀregulationsꢀofꢀtheꢀproprietaryꢀcreditꢀcardꢀnetworks
thatꢀserviceꢀtheseꢀcardsꢀpresentꢀrisksꢀtoꢀusꢀthatꢀareꢀsimilarꢀtoꢀthoseꢀposedꢀbyꢀtheꢀrulesꢀandꢀregulationsꢀofꢀVISA,ꢀMasterCard,ꢀand
otherꢀpaymentꢀnetworks.
Theꢀcardꢀassociations’ꢀandꢀpaymentꢀnetworks’ꢀrulesꢀandꢀregulationsꢀareꢀalwaysꢀsubjectꢀtoꢀchange,ꢀandꢀtheꢀcardꢀassociationsꢀor
paymentꢀnetworksꢀmayꢀmodifyꢀtheirꢀrulesꢀandꢀregulationsꢀfromꢀtimeꢀtoꢀtime.ꢀOurꢀinabilityꢀtoꢀanticipateꢀchangesꢀinꢀrulesꢀand
regulations,ꢀorꢀtheꢀinterpretationꢀorꢀapplicationꢀthereof,ꢀmayꢀresultꢀinꢀsubstantialꢀdisruptionꢀtoꢀourꢀbusiness.ꢀInꢀtheꢀeventꢀthatꢀthe
cardꢀassociations,ꢀpaymentꢀnetworksꢀorꢀourꢀsponsoringꢀbanksꢀdetermineꢀthatꢀtheꢀmannerꢀinꢀwhichꢀweꢀprocessꢀcertainꢀtypesꢀofꢀcard
transactionsꢀisꢀnotꢀinꢀcomplianceꢀwithꢀexistingꢀrulesꢀandꢀregulations,ꢀorꢀifꢀtheꢀcardꢀassociationsꢀorꢀpaymentꢀnetworksꢀadoptꢀnew
rulesꢀorꢀregulationsꢀthatꢀprohibitꢀorꢀrestrictꢀtheꢀmannerꢀinꢀwhichꢀweꢀprocessꢀcertainꢀtypesꢀofꢀcardꢀtransactions,ꢀweꢀmayꢀbeꢀforced
toꢀpayꢀaꢀfine,ꢀmodifyꢀtheꢀmannerꢀinꢀwhichꢀweꢀoperateꢀourꢀbusiness,ꢀorꢀstopꢀprocessingꢀcertainꢀtypesꢀofꢀcashꢀaccessꢀtransactions
altogether,ꢀanyꢀofꢀwhichꢀcouldꢀhaveꢀaꢀmaterialꢀadverseꢀeffectꢀonꢀourꢀbusiness,ꢀfinancialꢀcondition,ꢀoperations,ꢀorꢀcashꢀflows.
Card associations and EFT networks may change interchange reimbursement rates or network operating fees or assess new
fees associated with the processing and settlement of our cash access transactions or otherwise change their operating rules
and regulations without our consent and such changes may affect our revenues, cost of revenues (exclusive of depreciation
and amortization), net income, and our business generally.
WeꢀreceiveꢀincomeꢀfromꢀissuersꢀofꢀATM,ꢀcredit,ꢀandꢀdebitꢀcardsꢀforꢀcertainꢀtransactionsꢀperformedꢀonꢀourꢀATMsꢀrelatedꢀtoꢀcash
dispensingꢀorꢀcertainꢀotherꢀnon-financialꢀtransactionsꢀsuchꢀasꢀbalanceꢀinquiries.ꢀTheꢀEFTꢀnetworksꢀmayꢀalsoꢀchargeꢀcertainꢀfees
relatedꢀtoꢀtheꢀperformanceꢀofꢀtheseꢀtransactions.ꢀWeꢀreferꢀtoꢀtheꢀnetꢀofꢀthisꢀincomeꢀandꢀfeesꢀasꢀreverseꢀinterchange.ꢀTheꢀamount
ofꢀthisꢀreverseꢀinterchangeꢀincomeꢀisꢀdeterminedꢀbyꢀtheꢀcardꢀassociationsꢀandꢀEFTꢀnetworks,ꢀandꢀthisꢀincomeꢀisꢀsubjectꢀtoꢀdecrease
atꢀtheirꢀdiscretion.
WeꢀpayꢀinterchangeꢀandꢀotherꢀnetworkꢀfeesꢀforꢀservicesꢀtoꢀtheꢀcreditꢀcardꢀassociationsꢀandꢀEFTꢀnetworksꢀthatꢀtheyꢀprovideꢀin
settlingꢀtransactionsꢀroutedꢀthroughꢀtheirꢀnetworks.ꢀCollectivelyꢀweꢀcallꢀtheseꢀchargesꢀinterchangeꢀfees.ꢀSubjectꢀtoꢀtheꢀlimitations
imposedꢀbyꢀfederalꢀregulationsꢀsuchꢀasꢀtheꢀDurbinꢀAmendmentꢀorꢀotherꢀregulationsꢀthatꢀmayꢀbeꢀenacted,ꢀtheꢀamountsꢀofꢀthese
interchangeꢀfeesꢀareꢀdeterminedꢀbasedꢀuponꢀtheꢀsoleꢀdiscretionꢀofꢀtheꢀcardꢀassociationsꢀandꢀEFTꢀnetworksꢀandꢀareꢀsubjectꢀto
increaseꢀatꢀanyꢀtime.ꢀCompetitiveꢀpressuresꢀmightꢀpreventꢀusꢀfromꢀpassingꢀallꢀorꢀsomeꢀofꢀtheseꢀfeesꢀthroughꢀtoꢀourꢀcustomersꢀin
theꢀfuture.ꢀToꢀtheꢀextentꢀthatꢀweꢀareꢀunableꢀtoꢀpassꢀthroughꢀtoꢀourꢀcustomersꢀallꢀorꢀanyꢀportionꢀofꢀanyꢀincreaseꢀinꢀinterchangeꢀor
otherꢀnetworkꢀprocessingꢀfees,ꢀourꢀcostꢀofꢀrevenuesꢀ(exclusiveꢀofꢀdepreciationꢀandꢀamortization)ꢀwouldꢀincreaseꢀandꢀourꢀnetꢀincome
wouldꢀdecrease,ꢀassumingꢀnoꢀchangeꢀinꢀtransactionꢀvolumes.ꢀAnyꢀsuchꢀdecreaseꢀinꢀnetꢀincomeꢀcouldꢀhaveꢀaꢀmaterialꢀadverseꢀeffect
onꢀourꢀbusiness,ꢀfinancialꢀcondition,ꢀoperations,ꢀorꢀcashꢀflows.ꢀInꢀaddition,ꢀproposedꢀchangesꢀtoꢀtheꢀDodd-FrankꢀAct,ꢀsuchꢀasꢀthe
repealꢀofꢀtheꢀDurbinꢀAmendment,ꢀifꢀadopted,ꢀorꢀotherꢀregulationꢀthatꢀcouldꢀbeꢀimplementedꢀtoꢀlimitꢀtheꢀamountꢀofꢀsurchargeꢀor
serviceꢀfeesꢀchargedꢀforꢀourꢀcashꢀaccessꢀtransactionsꢀcouldꢀhaveꢀaꢀnegativeꢀimpactꢀonꢀrevenueꢀandꢀgrossꢀmarginsꢀ(exclusiveꢀof
depreciationꢀandꢀamortization)ꢀasꢀaꢀresultꢀofꢀreducedꢀserviceꢀfeeꢀrevenueꢀandꢀpotentialꢀincreasesꢀinꢀinterchangeꢀratesꢀmerchants
payꢀforꢀdebitꢀcardꢀtransactions.
TheꢀcardꢀassociationsꢀandꢀEFTꢀnetworksꢀmayꢀalsoꢀelectꢀtoꢀimposeꢀnewꢀmembershipꢀorꢀotherꢀfees,ꢀorꢀimplementꢀnewꢀrulesꢀand
regulationsꢀwithꢀrespectꢀtoꢀprocessingꢀtransactionsꢀthroughꢀtheirꢀnetworks,ꢀandꢀanyꢀsuchꢀnewꢀfees,ꢀrules,ꢀorꢀregulationsꢀcouldꢀhave
aꢀmaterialꢀadverseꢀeffectꢀonꢀourꢀbusiness,ꢀfinancialꢀcondition,ꢀoperations,ꢀorꢀcashꢀflows.
The provision of our credit card access, POS debit, and ATM services are dependent upon our continued sponsorship into the
VISA and MasterCard card associations, and the suspension or termination of our sponsorship would result in a material
adverse effect on our business, financial condition, operations, or cash flows.
Weꢀprocessꢀvirtuallyꢀallꢀofꢀourꢀcreditꢀcardꢀcashꢀaccess,ꢀPOSꢀdebit,ꢀandꢀATMꢀserviceꢀtransactionsꢀthroughꢀtheꢀVISAꢀandꢀMasterCard
cardꢀassociations,ꢀbothꢀdomesticallyꢀandꢀinternationally,ꢀandꢀvirtuallyꢀallꢀofꢀtheꢀrevenueꢀthatꢀweꢀderiveꢀfromꢀourꢀcreditꢀcardꢀcash
access,ꢀPOSꢀdebit,ꢀandꢀATMꢀservicesꢀisꢀdependentꢀuponꢀourꢀcontinuedꢀsponsorshipꢀintoꢀtheꢀVISAꢀandꢀMasterCardꢀassociations.
WeꢀcannotꢀprovideꢀtheseꢀservicesꢀwithoutꢀsponsorshipꢀintoꢀtheꢀVISAꢀandꢀMasterCardꢀassociationsꢀbyꢀaꢀmemberꢀfinancialꢀinstitution.
OurꢀfailureꢀtoꢀmaintainꢀourꢀcurrentꢀsponsorshipꢀarrangementsꢀorꢀsecureꢀalternativeꢀsponsorshipꢀarrangementsꢀintoꢀtheꢀVISAꢀand
MasterCardꢀassociationsꢀcouldꢀhaveꢀaꢀmaterialꢀadverseꢀeffectꢀonꢀourꢀbusiness,ꢀfinancialꢀcondition,ꢀoperations,ꢀorꢀcashꢀflows.
Our ATM service business is subject to extensive rules and regulations, which may harm our business.
OurꢀATMꢀservicesꢀareꢀsubjectꢀtoꢀtheꢀapplicableꢀfederal,ꢀstate,ꢀandꢀlocalꢀbankingꢀregulationsꢀinꢀeachꢀjurisdictionꢀinꢀwhichꢀweꢀoperate
ATMs,ꢀwhichꢀregulationsꢀrelateꢀtoꢀtheꢀimpositionꢀofꢀdailyꢀlimitsꢀonꢀtheꢀamountsꢀthatꢀmayꢀbeꢀwithdrawnꢀfromꢀATMs,ꢀtheꢀlocation
ofꢀATMs,ꢀourꢀabilityꢀtoꢀsurchargeꢀcardholdersꢀwhoꢀuseꢀourꢀATMs,ꢀandꢀtheꢀformꢀandꢀtypeꢀofꢀnoticesꢀthatꢀmustꢀbeꢀdisclosedꢀwith
27
respectꢀtoꢀ theꢀfeesꢀweꢀchargeꢀtoꢀ patronsꢀinꢀ connectionꢀwithꢀ ourꢀATMꢀservices.ꢀATMsꢀareꢀalsoꢀsubjectꢀtoꢀ requirementsꢀofꢀthe
AmericansꢀwithꢀDisabilitiesꢀAct,ꢀwhichꢀinꢀgeneralꢀrequireꢀthatꢀATMsꢀbeꢀaccessibleꢀtoꢀindividualsꢀwithꢀdisabilities,ꢀsuchꢀasꢀvisually-
impairedꢀpersons.ꢀTheseꢀlawsꢀandꢀregulationsꢀmayꢀimposeꢀsignificantꢀburdensꢀonꢀourꢀabilityꢀtoꢀoperateꢀATMsꢀprofitablyꢀinꢀsome
locations,ꢀorꢀatꢀall,ꢀandꢀourꢀbusiness,ꢀfinancialꢀcondition,ꢀoperations,ꢀorꢀcashꢀflowsꢀcouldꢀbeꢀmateriallyꢀadverselyꢀaffected.ꢀMoreover,
becauseꢀtheseꢀregulationsꢀareꢀsubjectꢀtoꢀchange,ꢀweꢀmayꢀbeꢀforcedꢀtoꢀmodifyꢀourꢀATMꢀoperationsꢀinꢀaꢀmannerꢀinconsistentꢀwith
theꢀassumptionsꢀuponꢀwhichꢀweꢀreliedꢀwhenꢀenteringꢀintoꢀcontractsꢀtoꢀprovideꢀATMꢀservicesꢀatꢀgamingꢀestablishments.ꢀIfꢀfederal,
state,ꢀlocal,ꢀorꢀforeignꢀauthoritiesꢀadoptꢀnewꢀlawsꢀorꢀregulations,ꢀorꢀraiseꢀenforcementꢀlevelsꢀonꢀexistingꢀlawsꢀandꢀregulationsꢀthat
makeꢀitꢀmoreꢀdifficultꢀforꢀusꢀtoꢀoperateꢀourꢀATMꢀbusiness,ꢀthenꢀourꢀrevenuesꢀandꢀearningsꢀmayꢀbeꢀnegativelyꢀaffected.ꢀIfꢀlegislation
orꢀregulationsꢀareꢀenactedꢀinꢀtheꢀfutureꢀthatꢀadverselyꢀimpactꢀourꢀATMꢀbusiness,ꢀweꢀmayꢀbeꢀforcedꢀtoꢀmodifyꢀourꢀoperationsꢀinꢀa
mannerꢀ inconsistentꢀ withꢀ theꢀ assumptionsꢀ uponꢀ whichꢀ weꢀ reliedꢀ whenꢀ enteringꢀ intoꢀ contractsꢀ toꢀ provideꢀ ATMsꢀatꢀ gaming
establishmentsꢀandꢀourꢀbusiness,ꢀfinancialꢀcondition,ꢀoperations,ꢀorꢀcashꢀflowsꢀcouldꢀsufferꢀaꢀmaterialꢀadverseꢀeffect.
Consumer privacy laws may change, requiring us to change our business practices or expend significant amounts on compliance
with such laws.
Ourꢀpatronꢀmarketingꢀandꢀdatabaseꢀservicesꢀdependꢀonꢀourꢀabilityꢀtoꢀcollectꢀandꢀuseꢀnon-publicꢀpersonalꢀinformationꢀrelatingꢀto
patronsꢀwhoꢀuseꢀourꢀproductsꢀandꢀservicesꢀandꢀtheꢀtransactionsꢀtheyꢀconsummateꢀusingꢀourꢀservices.ꢀWeꢀareꢀrequiredꢀbyꢀfederal
andꢀstateꢀprivacyꢀlawsꢀandꢀrulesꢀtoꢀsafeguardꢀandꢀprotectꢀtheꢀprivacyꢀofꢀsuchꢀinformation,ꢀtoꢀmakeꢀdisclosuresꢀtoꢀpatronsꢀregarding
ourꢀprivacyꢀandꢀinformationꢀsharingꢀpoliciesꢀand,ꢀinꢀsomeꢀcases,ꢀtoꢀprovideꢀpatronsꢀanꢀopportunityꢀtoꢀ“optꢀout”ꢀofꢀtheꢀuseꢀofꢀtheir
informationꢀforꢀcertainꢀpurposes.ꢀTheꢀfailureꢀorꢀcircumventionꢀofꢀtheꢀmeansꢀbyꢀwhichꢀweꢀsafeguardꢀandꢀprotectꢀtheꢀprivacyꢀof
informationꢀweꢀgatherꢀmayꢀresultꢀinꢀtheꢀdisseminationꢀofꢀnon-publicꢀpersonalꢀinformation,ꢀwhichꢀmayꢀharmꢀourꢀreputationꢀand
mayꢀexposeꢀusꢀtoꢀliabilityꢀtoꢀtheꢀaffectedꢀindividualsꢀandꢀregulatoryꢀenforcementꢀproceedingsꢀorꢀfines.ꢀRegulatorsꢀreviewingꢀour
policiesꢀandꢀpracticesꢀmayꢀrequireꢀusꢀtoꢀmodifyꢀourꢀpracticesꢀinꢀaꢀmaterialꢀorꢀimmaterialꢀmannerꢀorꢀimposeꢀfinesꢀorꢀotherꢀpenalties
ifꢀtheyꢀbelieveꢀthatꢀourꢀpoliciesꢀandꢀpracticesꢀdoꢀnotꢀmeetꢀtheꢀnecessaryꢀstandard.ꢀToꢀtheꢀextentꢀthatꢀourꢀpatronꢀmarketingꢀand
databaseꢀservicesꢀhaveꢀfailed,ꢀareꢀnowꢀfailing,ꢀorꢀinꢀtheꢀfutureꢀfailꢀtoꢀcomplyꢀwithꢀapplicableꢀlaw,ꢀourꢀprivacyꢀpoliciesꢀorꢀtheꢀnotices
thatꢀweꢀprovideꢀtoꢀpatrons,ꢀweꢀmayꢀbecomeꢀsubjectꢀtoꢀactionsꢀbyꢀaꢀregulatoryꢀauthorityꢀorꢀpatronsꢀwhichꢀcauseꢀusꢀtoꢀpayꢀmonetary
penaltiesꢀorꢀrequireꢀusꢀtoꢀmodifyꢀtheꢀmannerꢀinꢀwhichꢀweꢀprovideꢀpatronꢀmarketingꢀandꢀdatabaseꢀservices.ꢀToꢀtheꢀextentꢀthatꢀpatrons
exerciseꢀtheirꢀrightꢀtoꢀ“optꢀout,”ꢀourꢀabilityꢀtoꢀleverageꢀexistingꢀandꢀfutureꢀdatabasesꢀofꢀinformationꢀwouldꢀbeꢀcurtailed.ꢀConsumer
andꢀdataꢀprivacyꢀlawsꢀareꢀevolving,ꢀandꢀdueꢀtoꢀrecentꢀhighꢀprofileꢀtheftsꢀandꢀlossesꢀofꢀsensitiveꢀconsumerꢀinformationꢀfromꢀprotected
databases,ꢀsuchꢀlawsꢀmayꢀbeꢀbroadenedꢀinꢀtheirꢀscopeꢀandꢀapplication,ꢀimposeꢀadditionalꢀrequirementsꢀandꢀrestrictionsꢀonꢀgathering,
encryptingꢀandꢀusingꢀpatronꢀinformationꢀorꢀnarrowꢀtheꢀtypesꢀofꢀinformationꢀthatꢀmayꢀbeꢀcollectedꢀorꢀusedꢀforꢀmarketingꢀorꢀother
purposesꢀorꢀrequireꢀpatronsꢀtoꢀ“opt-in”ꢀtoꢀtheꢀuseꢀofꢀtheirꢀinformationꢀforꢀspecificꢀpurposes,ꢀorꢀimposeꢀadditionalꢀfinesꢀorꢀpotentially
costlyꢀcomplianceꢀrequirementsꢀwhichꢀwillꢀhamperꢀtheꢀvalueꢀofꢀourꢀpatronꢀmarketingꢀandꢀdatabaseꢀservices.
Risks Related to Our Stock
Our common stock has been publicly traded since September 2005, and we expect that the price of our common stock will
fluctuate substantially.
ThereꢀhasꢀbeenꢀaꢀpublicꢀmarketꢀforꢀourꢀcommonꢀstockꢀsinceꢀSeptemberꢀ2005.ꢀTheꢀmarketꢀpriceꢀofꢀourꢀcommonꢀstockꢀmayꢀfluctuate
significantlyꢀinꢀresponseꢀtoꢀaꢀnumberꢀofꢀfactors,ꢀsomeꢀofꢀwhichꢀareꢀbeyondꢀourꢀcontrol,ꢀincludingꢀthoseꢀdescribedꢀaboveꢀunder
“—RisksꢀRelatedꢀtoꢀOurꢀBusiness,”ꢀ“—RisksꢀRelatedꢀtoꢀRegulationꢀofꢀOurꢀIndustry”,ꢀandꢀtheꢀfollowing:
•
•
•
•
•
•
•
•
ourꢀfailureꢀtoꢀmaintainꢀourꢀcurrentꢀcustomers,ꢀincludingꢀbecauseꢀofꢀconsolidationꢀinꢀtheꢀgamingꢀindustry;
increasesꢀinꢀcommissionsꢀpaidꢀtoꢀgamingꢀestablishmentsꢀasꢀaꢀresultꢀofꢀcompetition;
increasesꢀinꢀinterchangeꢀrates,ꢀprocessingꢀfees,ꢀorꢀotherꢀfeesꢀpaidꢀbyꢀus;
decreasesꢀinꢀreverseꢀinterchangeꢀratesꢀpaidꢀtoꢀus;
actualꢀorꢀanticipatedꢀfluctuationsꢀinꢀourꢀorꢀourꢀcompetitors’ꢀrevenue,ꢀoperatingꢀresults,ꢀorꢀgrowthꢀrate;
ourꢀinabilityꢀtoꢀadequatelyꢀprotectꢀorꢀenforceꢀourꢀintellectualꢀpropertyꢀrights;
anyꢀadverseꢀresultsꢀinꢀlitigationꢀinitiatedꢀbyꢀusꢀorꢀbyꢀothersꢀagainstꢀus;
ourꢀinabilityꢀtoꢀmakeꢀpaymentsꢀonꢀourꢀoutstandingꢀindebtednessꢀasꢀtheyꢀbecomeꢀdueꢀorꢀourꢀinabilityꢀtoꢀundertakeꢀactions
thatꢀmightꢀotherwiseꢀbenefitꢀusꢀbasedꢀonꢀtheꢀfinancialꢀandꢀotherꢀrestrictiveꢀcovenantsꢀcontainedꢀinꢀtheꢀNewꢀCreditꢀFacilities
andꢀtheꢀindentureꢀgoverningꢀtheꢀ2017ꢀUnsecuredꢀNotes;
28
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
theꢀloss,ꢀorꢀfailure,ꢀofꢀaꢀsignificantꢀsupplierꢀorꢀstrategicꢀpartnerꢀtoꢀprovideꢀtheꢀgoodsꢀorꢀservicesꢀthatꢀweꢀrequireꢀfrom
them;
ourꢀinabilityꢀtoꢀintroduceꢀsuccessful,ꢀnewꢀproductsꢀandꢀservicesꢀinꢀaꢀtimelyꢀmannerꢀorꢀtheꢀintroductionꢀofꢀnewꢀproducts
orꢀservicesꢀbyꢀourꢀcompetitorsꢀthatꢀreduceꢀtheꢀdemandꢀforꢀourꢀproductsꢀandꢀservices;
ourꢀfailureꢀtoꢀsuccessfullyꢀenterꢀnewꢀmarketsꢀorꢀtheꢀfailureꢀofꢀnewꢀmarketsꢀtoꢀdevelopꢀinꢀtheꢀtimeꢀandꢀmannerꢀthatꢀwe
anticipate;
announcementsꢀbyꢀourꢀcompetitorsꢀofꢀsignificantꢀnewꢀcontractsꢀorꢀcontractꢀrenewalsꢀorꢀofꢀnewꢀproductsꢀorꢀservices;
changesꢀinꢀgeneralꢀeconomicꢀconditions,ꢀfinancialꢀmarkets,ꢀtheꢀgamingꢀindustry,ꢀorꢀtheꢀpaymentsꢀprocessingꢀindustry;
theꢀtradingꢀvolumeꢀofꢀourꢀcommonꢀstock;
salesꢀofꢀcommonꢀstockꢀorꢀotherꢀactionsꢀbyꢀourꢀcurrentꢀofficers,ꢀdirectors,ꢀandꢀstockholders;
acquisitions,ꢀstrategicꢀalliances,ꢀorꢀjointꢀventuresꢀinvolvingꢀusꢀorꢀourꢀcompetitors;
futureꢀsalesꢀofꢀourꢀcommonꢀstockꢀorꢀotherꢀsecurities;
theꢀfailureꢀofꢀsecuritiesꢀanalystsꢀtoꢀcoverꢀourꢀcommonꢀstockꢀorꢀchangesꢀinꢀfinancialꢀestimatesꢀorꢀrecommendationsꢀby
analysts;
ourꢀfailureꢀtoꢀmeetꢀtheꢀrevenue,ꢀnetꢀincome,ꢀorꢀearningsꢀperꢀshareꢀestimatesꢀofꢀsecuritiesꢀanalystsꢀorꢀinvestors;
departuresꢀofꢀkeyꢀpersonnelꢀorꢀourꢀinabilityꢀtoꢀattractꢀorꢀretainꢀkeyꢀpersonnel;
ourꢀabilityꢀtoꢀprevent,ꢀmitigate,ꢀorꢀtimelyꢀrecoverꢀfromꢀcybersecurityꢀbreaches,ꢀattacks,ꢀandꢀcompromisesꢀwithꢀrespect
toꢀourꢀinfrastructure,ꢀsystems,ꢀandꢀinformationꢀtechnologyꢀenvironment;
terroristꢀacts,ꢀtheft,ꢀvandalism,ꢀfires,ꢀfloods,ꢀorꢀotherꢀnaturalꢀdisasters;ꢀand
rumorsꢀorꢀspeculationꢀasꢀtoꢀanyꢀofꢀtheꢀaboveꢀwhichꢀweꢀmayꢀbeꢀunableꢀtoꢀconfirmꢀorꢀdenyꢀdueꢀtoꢀdisclosureꢀrestrictions
imposedꢀonꢀusꢀbyꢀlawꢀorꢀwhichꢀweꢀotherwiseꢀdeemꢀimprudentꢀtoꢀcommentꢀupon.
Some provisions of our amended and restated certificate of incorporation and amended and restated bylaws may delay or
prevent transactions that many stockholders may favor.
Someꢀprovisionsꢀofꢀourꢀamendedꢀandꢀrestatedꢀcertificateꢀofꢀincorporationꢀandꢀamendedꢀandꢀrestatedꢀbylawsꢀmayꢀhaveꢀtheꢀeffect
ofꢀdelaying,ꢀdiscouraging,ꢀorꢀpreventingꢀaꢀmergerꢀorꢀacquisitionꢀthatꢀourꢀstockholdersꢀmayꢀconsiderꢀfavorableꢀorꢀaꢀchangeꢀinꢀour
managementꢀorꢀourꢀBoardꢀofꢀDirectors.ꢀTheseꢀprovisions:
•
•
•
•
•
•
divideꢀourꢀBoardꢀofꢀDirectorsꢀintoꢀthreeꢀseparateꢀclassesꢀservingꢀstaggeredꢀthree-yearꢀterms,ꢀwhichꢀwillꢀhaveꢀtheꢀeffect
ofꢀrequiringꢀatꢀleastꢀtwoꢀannualꢀstockholderꢀmeetingsꢀinsteadꢀofꢀone,ꢀtoꢀreplaceꢀaꢀmajorityꢀofꢀourꢀdirectors,ꢀwhichꢀcould
haveꢀtheꢀeffectꢀofꢀdelayingꢀorꢀpreventingꢀaꢀchangeꢀinꢀourꢀcontrolꢀorꢀmanagement;
provideꢀthatꢀspecialꢀmeetingsꢀofꢀstockholdersꢀcanꢀonlyꢀbeꢀcalledꢀbyꢀourꢀBoardꢀofꢀDirectors,ꢀChairmanꢀofꢀtheꢀBoard,ꢀor
ChiefꢀExecutiveꢀOfficer.ꢀInꢀaddition,ꢀtheꢀbusinessꢀpermittedꢀtoꢀbeꢀconductedꢀatꢀanyꢀspecialꢀmeetingꢀofꢀstockholdersꢀis
limitedꢀtoꢀtheꢀbusinessꢀspecifiedꢀinꢀtheꢀnoticeꢀofꢀsuchꢀmeetingꢀtoꢀtheꢀstockholders;
provideꢀforꢀanꢀadvanceꢀnoticeꢀprocedureꢀwithꢀregardꢀtoꢀbusinessꢀtoꢀbeꢀbroughtꢀbeforeꢀaꢀmeetingꢀofꢀstockholdersꢀwhich
mayꢀdelayꢀorꢀprecludeꢀstockholdersꢀfromꢀbringingꢀmattersꢀbeforeꢀaꢀmeetingꢀofꢀstockholdersꢀorꢀfromꢀmakingꢀnominations
forꢀdirectorsꢀatꢀaꢀmeetingꢀofꢀstockholders,ꢀwhichꢀcouldꢀdelayꢀorꢀdeterꢀtakeoverꢀattemptsꢀorꢀchangesꢀinꢀmanagement;
eliminateꢀtheꢀrightꢀofꢀstockholdersꢀtoꢀactꢀbyꢀwrittenꢀconsentꢀsoꢀthatꢀallꢀstockholderꢀactionsꢀmustꢀbeꢀeffectedꢀatꢀaꢀduly
calledꢀmeeting;
provideꢀ thatꢀ directorsꢀ mayꢀ onlyꢀ beꢀ removedꢀ forꢀ causeꢀ withꢀ theꢀ approvalꢀ ofꢀ stockholdersꢀ holdingꢀ aꢀ majorityꢀ ofꢀ our
outstandingꢀvotingꢀstock;
provideꢀthatꢀvacanciesꢀonꢀourꢀBoardꢀofꢀDirectorsꢀmayꢀbeꢀfilledꢀbyꢀaꢀmajority,ꢀalthoughꢀlessꢀthanꢀaꢀquorum,ꢀofꢀdirectors
inꢀofficeꢀandꢀthatꢀourꢀBoardꢀofꢀDirectorsꢀmayꢀfixꢀtheꢀnumberꢀofꢀdirectorsꢀbyꢀresolution;
29
•
•
allowꢀourꢀBoardꢀofꢀDirectorsꢀtoꢀissueꢀsharesꢀofꢀpreferredꢀstockꢀwithꢀrightsꢀseniorꢀtoꢀthoseꢀofꢀtheꢀcommonꢀstockꢀandꢀthat
otherwiseꢀcouldꢀadverselyꢀaffectꢀtheꢀrightsꢀandꢀpowers,ꢀincludingꢀvotingꢀrightsꢀandꢀtheꢀrightꢀtoꢀapproveꢀorꢀnotꢀtoꢀapprove
anꢀacquisitionꢀorꢀotherꢀchangeꢀinꢀcontrol,ꢀofꢀtheꢀholdersꢀofꢀcommonꢀstock,ꢀwithoutꢀanyꢀfurtherꢀvoteꢀorꢀactionꢀbyꢀthe
stockholders;ꢀand
doꢀnotꢀprovideꢀforꢀcumulativeꢀvotingꢀforꢀourꢀdirectors,ꢀwhichꢀmayꢀmakeꢀitꢀmoreꢀdifficultꢀforꢀstockholdersꢀowningꢀless
thanꢀaꢀmajorityꢀofꢀourꢀstockꢀtoꢀelectꢀanyꢀdirectorsꢀtoꢀourꢀBoardꢀofꢀDirectors.ꢀInꢀaddition,ꢀweꢀareꢀalsoꢀsubjectꢀtoꢀSectionꢀ203
ofꢀtheꢀDelawareꢀGeneralꢀCorporationꢀLaw,ꢀwhichꢀprovides,ꢀsubjectꢀtoꢀenumeratedꢀexceptions,ꢀthatꢀifꢀaꢀpersonꢀacquires
15%ꢀorꢀmoreꢀofꢀourꢀvotingꢀstock,ꢀtheꢀpersonꢀisꢀanꢀ“interestedꢀstockholder”ꢀandꢀmayꢀnotꢀengageꢀinꢀ“businessꢀcombinations”
withꢀusꢀforꢀaꢀperiodꢀofꢀthreeꢀyearsꢀfromꢀtheꢀtimeꢀtheꢀpersonꢀacquiredꢀ15%ꢀorꢀmoreꢀofꢀourꢀvotingꢀstock.
Theseꢀprovisionsꢀmayꢀhaveꢀtheꢀeffectꢀofꢀentrenchingꢀourꢀmanagementꢀteamꢀandꢀmayꢀdepriveꢀourꢀstockholdersꢀofꢀtheꢀopportunity
toꢀsellꢀsharesꢀtoꢀpotentialꢀacquirersꢀatꢀaꢀpremiumꢀoverꢀprevailingꢀprices.ꢀThisꢀpotentialꢀinabilityꢀtoꢀobtainꢀaꢀpremiumꢀcouldꢀreduce
theꢀpriceꢀofꢀourꢀcommonꢀstock.ꢀ
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
WeꢀoccupyꢀrealꢀestateꢀpropertiesꢀmostlyꢀinꢀtheꢀUnitedꢀStatesꢀand,ꢀtoꢀaꢀlesserꢀdegree,ꢀinternationallyꢀthatꢀareꢀunderꢀleaseꢀagreements.
Weꢀbelieveꢀthatꢀtheseꢀfacilitiesꢀareꢀadequateꢀforꢀourꢀbusinessꢀneedsꢀasꢀpresentlyꢀconducted.ꢀ
Weꢀprimarilyꢀoccupyꢀtheꢀfollowingꢀleasedꢀrealꢀestateꢀproperties:
Location
Austin,ꢀTexas
LasꢀVegas,ꢀNevada
Reno,ꢀNevada
Chicago,ꢀIllinois
Sq. Ft
204,256
106,873
17,138
17,124
Purpose
Segment
GamesꢀHeadquartersꢀandꢀOperations
Games
CorporateꢀHeadquarters;ꢀFinTech
HeadquartersꢀandꢀOperations
GameꢀDesignꢀStudio
GameꢀDesignꢀStudio
FinTech;ꢀGames
Games
Games
Inꢀaddition,ꢀweꢀleaseꢀseveralꢀotherꢀlessꢀsignificantꢀrealꢀestateꢀpropertiesꢀthatꢀareꢀusedꢀtoꢀsupportꢀourꢀproductsꢀandꢀservices.ꢀ
Item 3. Legal Proceedings.
Weꢀareꢀinvolvedꢀinꢀvariousꢀinvestigations,ꢀclaims,ꢀandꢀlawsuitsꢀinꢀtheꢀordinaryꢀcourseꢀofꢀourꢀbusiness.ꢀAlthoughꢀtheꢀoutcomeꢀof
ourꢀlegalꢀproceedingsꢀcannotꢀbeꢀpredictedꢀwithꢀcertaintyꢀandꢀnoꢀassurancesꢀcanꢀbeꢀprovided,ꢀbasedꢀuponꢀcurrentꢀinformation,ꢀwe
doꢀnotꢀbelieveꢀtheꢀliabilities,ꢀifꢀany,ꢀwhichꢀmayꢀultimatelyꢀresultꢀfromꢀtheꢀoutcomeꢀofꢀsuchꢀmatters,ꢀindividuallyꢀorꢀinꢀtheꢀaggregate,
willꢀhaveꢀaꢀmaterialꢀadverseꢀimpactꢀonꢀourꢀfinancialꢀposition,ꢀliquidity,ꢀorꢀresultsꢀofꢀoperations.
Item 4. Mine Safety Disclosures.
Notꢀapplicable.
30
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
OurꢀcommonꢀstockꢀisꢀlistedꢀforꢀtradingꢀonꢀtheꢀNewꢀYorkꢀStockꢀExchangeꢀunderꢀtheꢀsymbolꢀ“EVRI.”ꢀOnꢀMarchꢀ1,ꢀ2019,ꢀthere
wereꢀeightꢀholdersꢀofꢀrecordꢀofꢀourꢀcommonꢀstock.ꢀBecauseꢀmanyꢀofꢀourꢀsharesꢀofꢀcommonꢀstockꢀareꢀheldꢀbyꢀbrokersꢀandꢀother
institutionsꢀonꢀbehalfꢀofꢀstockholders,ꢀweꢀareꢀunableꢀtoꢀestimateꢀtheꢀtotalꢀnumberꢀofꢀbeneficialꢀstockholdersꢀrepresentedꢀbyꢀthese
recordꢀholders.
Common Stock Repurchases
WeꢀdidꢀnotꢀhaveꢀaꢀshareꢀrepurchaseꢀprogramꢀinꢀeffectꢀforꢀtheꢀyearsꢀendedꢀDecemberꢀ31,ꢀ2018,ꢀ2017,ꢀandꢀ2016.
Issuer Purchases and Withholding of Equity Securities
Weꢀrepurchasedꢀorꢀwithheldꢀfromꢀrestrictedꢀstockꢀawardsꢀ17,552,ꢀ15,457,ꢀandꢀ18,717ꢀsharesꢀofꢀourꢀcommonꢀstockꢀatꢀanꢀaggregate
purchaseꢀpriceꢀofꢀ$0.1ꢀmillionꢀforꢀtheꢀyearsꢀendedꢀDecemberꢀ31,ꢀ2018,ꢀ2017,ꢀandꢀ2016,ꢀrespectively,ꢀtoꢀsatisfyꢀtheꢀminimum
applicableꢀtaxꢀwithholdingꢀobligationsꢀincidentꢀtoꢀtheꢀvestingꢀofꢀsuchꢀrestrictedꢀstockꢀawards.ꢀTheꢀfollowingꢀtableꢀincludesꢀthe
monthlyꢀrepurchasesꢀorꢀwithholdingsꢀofꢀourꢀcommonꢀstockꢀduringꢀtheꢀfourthꢀquarterꢀendedꢀDecemberꢀ31,ꢀ2018:ꢀ
Tax Withholdings
10/1/18ꢀ-ꢀ10/31/18
11/1/18ꢀ-ꢀ11/30/18
12/1/18ꢀ-ꢀ12/31/18
Total
Total Number of
Shares Purchased (1)
(in thousands)
Average Price per
Share (2)
6.4
0.6
3.1
10.1
$
$
$
$
7.04
7.41
5.26
6.52
(1) Representsꢀtheꢀsharesꢀofꢀcommonꢀstockꢀthatꢀwereꢀwithheldꢀfromꢀrestrictedꢀstockꢀawardsꢀtoꢀsatisfyꢀtheꢀminimumꢀapplicable
taxꢀwithholdingꢀobligationsꢀincidentꢀtoꢀtheꢀvestingꢀofꢀsuchꢀrestrictedꢀstockꢀawards.ꢀThereꢀareꢀnoꢀlimitationsꢀonꢀtheꢀnumberꢀof
sharesꢀofꢀcommonꢀstockꢀthatꢀmayꢀbeꢀwithheldꢀfromꢀrestrictedꢀstockꢀawardsꢀtoꢀsatisfyꢀtheꢀminimumꢀtaxꢀwithholdingꢀobligations
incidentꢀtoꢀtheꢀvestingꢀofꢀrestrictedꢀstockꢀawards.
(2) Representsꢀtheꢀaverageꢀpriceꢀperꢀshareꢀofꢀcommonꢀstockꢀwithheldꢀfromꢀrestrictedꢀstockꢀawardsꢀonꢀtheꢀdateꢀofꢀwithholding.
Stock Performance Graph
Theꢀlineꢀgraphꢀbelowꢀcomparesꢀtheꢀcumulativeꢀtotalꢀstockholderꢀreturnꢀonꢀourꢀcommonꢀstockꢀwithꢀtheꢀcumulativeꢀtotalꢀreturnꢀof
theꢀ Standardꢀ &ꢀ Poor’sꢀ (“S&P”)ꢀ 500ꢀ Indexꢀ andꢀ theꢀ S&Pꢀ Informationꢀ Technologyꢀ Indexꢀ duringꢀ theꢀ five-yearꢀ periodꢀ ended
Decemberꢀ31,ꢀ2018.
Theꢀgraphꢀassumesꢀthatꢀ$100ꢀwasꢀinvestedꢀonꢀDecemberꢀ31,ꢀ2013ꢀinꢀourꢀcommonꢀstock,ꢀinꢀtheꢀS&Pꢀ500ꢀIndexꢀandꢀtheꢀS&P
InformationꢀTechnologyꢀIndex,ꢀandꢀthatꢀallꢀdividendsꢀwereꢀreinvested.ꢀResearchꢀDataꢀGroup,ꢀInc.ꢀfurnishedꢀthisꢀdataꢀandꢀthe
cumulativeꢀtotalꢀstockholderꢀreturnsꢀforꢀourꢀcommonꢀstock,ꢀtheꢀS&Pꢀ500ꢀIndexꢀandꢀtheꢀS&PꢀInformationꢀTechnologyꢀIndexꢀare
basedꢀonꢀtheꢀcalendarꢀmonthꢀendꢀclosingꢀprices.ꢀTheꢀcomparisonsꢀinꢀtheꢀgraphꢀareꢀrequiredꢀbyꢀtheꢀSECꢀandꢀareꢀnotꢀintendedꢀto
forecastꢀorꢀbeꢀindicativeꢀofꢀpossibleꢀfutureꢀperformanceꢀofꢀourꢀcommonꢀstock.
31
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Everi Holdings Inc, the S&P 500 Index,
and the S&P Information Technology Index
$250
$200
$150
$100
$50
$0
12/13
12/14
12/15
12/16
12/17
12/18
Everi Holdings Inc
S&P 500
S&P Information Technology
*$100 invested on 12/31/13 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Copyright© 2018 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
The performance graph and the related chart and text are being furnished solely to accompany this Annual Report on Form 10-
K pursuant to Item 201(e) of Regulation S-K, and are not being filed for purposes of Section 18 of the Exchange Act and are not
to be incorporated by reference in any filing by us under the Securities Act or the Exchange Act, whether made before or after the
date hereof and irrespective of any general incorporation language in any such filing.
Item 6. Selected Financial Data.
Theꢀfollowingꢀselectedꢀhistoricalꢀfinancialꢀdataꢀhasꢀbeenꢀderivedꢀfrom,ꢀandꢀshouldꢀbeꢀreadꢀinꢀconjunctionꢀwith,ꢀourꢀFinancial
StatementsꢀandꢀResultsꢀofꢀOperationsꢀincludedꢀelsewhereꢀinꢀthisꢀAnnualꢀReportꢀonꢀFormꢀ10-K.ꢀOurꢀselectedꢀconsolidatedꢀfinancial
dataꢀmayꢀnotꢀbeꢀindicativeꢀofꢀourꢀfutureꢀfinancialꢀconditionꢀorꢀresultsꢀofꢀoperationsꢀ(inꢀthousands,ꢀexceptꢀperꢀshareꢀamounts).ꢀ
2018(1)
Year Ended December 31,
2016(3)
2017(2)
2015(4)(5)
2014(6)
Income Statement Data
Revenues
Operatingꢀincomeꢀ(loss)
Netꢀincomeꢀ(loss)
Basicꢀearningsꢀ(loss)ꢀperꢀshare
Dilutedꢀearningsꢀ(loss)ꢀperꢀshare
Weightedꢀaverageꢀcommonꢀsharesꢀoutstanding
Basic
Diluted
$ 469,515
85,813
12,356
0.18
0.17
$ 974,948
81,819
(51,903)
(0.78)
(0.78)
$ 859,456
(118,555)
(249,479)
(3.78)
(3.78)
$ 826,999
(9,730)
(104,972)
(1.59)
(1.59)
$ 593,053
33,782
12,140
0.18
0.18
69,464
73,796
66,816
66,816
66,050
66,050
65,854
65,854
65,780
66,863
32
2018(1)
AtꢀandꢀForꢀtheꢀYearꢀEndedꢀDecemberꢀ31,
2016(3)
2015(4)(5)(6)
2017(2)
2014(7)
Balanceꢀsheetꢀdata
Cash and cash equivalents
Working capital
Total assets
Total borrowings
Stockholders’ (deficit) equity
Cashꢀflowꢀdata
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing
activities
$ 297,532
17,304
1,548,261
1,163,216
(108,895)
$ 128,586
(12,040)
1,537,074
1,167,843
(140,633)
$ 119,051
(1,875)
1,408,163
1,121,880
(107,793)
$ 102,030
2,452
1,550,385
1,139,899
$
89,095
12,550
1,707,285
1,188,787
137,420
231,473
$ 294,286
(123,350)
11
$
95,828
(109,979)
22,394
$ 131,711
(88,054)
(24,922)
$ 124,587
(85,549)
(24,551)
24,531
$
(1,085,847)
1,037,423
(1) On January 1, 2018, we adopted ASC 606 using the modified retrospective method, which resulted in the recording of an
immaterial cumulative adjustment in the amount of approximately $4.4 million to accumulated deficit as of the adoption date.
Our prior period results were not recast to reflect the new revenue recognition standard under the modified retrospective
method.
(2) During 2017, we refinanced our senior secured term loan, senior secured notes and senior unsecured notes, which resulted in
approximately $51.8 million of loss on extinguishment of debt.
(3) During 2016, the Games reporting unit had a goodwill impairment of $146.3 million.
(4) 2015 amounts include a full year of financial results for Everi Games.
(5) During 2015, the Games reporting unit had a goodwill impairment of $75.0 million.
(6) 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 Accounting Standards Update (“ASU”) No. 2015-03 in 2016. This reclassification decreased the December 31, 2015 balance
of both total assets and total borrowings.
(7) 2014 amounts affected by the Merger for which total merger consideration of $1.1 billion on December 19, 2014 was paid
and results of operations were recorded from the date of acquisition through December 31, 2014.
Itemꢀ7.ꢀꢀManagement’sꢀDiscussionꢀandꢀAnalysisꢀofꢀFinancialꢀConditionꢀandꢀResultsꢀofꢀOperations.
The following discussion and analysis of financial condition and results of operations should be read in conjunction with “Item
1. Business,” “Item 6. Selected Financial Data,” and our Financial Statements included elsewhere in this Annual Report on Form
10-K and the information included in our other filings with the SEC.
This discussion includes forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the
Exchange Act and the Private Securities Litigation Reform Act of 1995 and should be read in conjunction with the disclosure and
information contained and referenced in “Cautionary Note Regarding Forward-Looking Statements” and “Item 1A. Risk Factors”
included elsewhere in this Annual Report on Form 10-K.
Overviewꢀ
Everi is a leading supplier of technology solutions for the casino gaming industry. We provide casino operators with a diverse
portfolio of products including innovative gaming machines that power the casino floor, and casino operational and management
systems that include comprehensive end-to-end payments solutions, critical intelligence offerings, and gaming operations efficiency
technologies. Everi’s mission is to be a transformative force for casino operations by facilitating memorable player experiences,
delivering reliable protection and security, and striving for customer satisfaction and operational excellence. We are divided into
two primary business segments: “Everi Games” or “Games” and “Everi FinTech” or “FinTech”.
33
Items Impacting Comparability of Results of Operations
OurꢀFinancialꢀStatementsꢀincludedꢀinꢀthisꢀreportꢀthatꢀpresentꢀourꢀfinancialꢀconditionꢀandꢀresultsꢀofꢀoperationsꢀreflectꢀtheꢀfollowing
transactionsꢀandꢀevents:
•
•
•
•
OnꢀJanuaryꢀ1,ꢀ2018,ꢀweꢀadoptedꢀASCꢀ606ꢀusingꢀtheꢀmodifiedꢀretrospectiveꢀmethod,ꢀwhichꢀrequiresꢀusꢀtoꢀevaluateꢀwhether
anyꢀcumulativeꢀadjustmentꢀisꢀrequiredꢀtoꢀbeꢀrecordedꢀtoꢀretainedꢀearningsꢀ(orꢀaccumulatedꢀdeficit)ꢀasꢀaꢀresultꢀofꢀapplying
theꢀprovisionsꢀsetꢀforthꢀunderꢀASCꢀ606ꢀforꢀanyꢀexistingꢀarrangementsꢀnotꢀyetꢀcompletedꢀasꢀofꢀtheꢀadoptionꢀdateꢀofꢀJanuary
1,ꢀ2018.ꢀAsꢀaꢀresult,ꢀweꢀrecordedꢀanꢀimmaterialꢀcumulativeꢀadjustmentꢀinꢀtheꢀamountꢀofꢀapproximatelyꢀ$4.4ꢀmillionꢀto
accumulatedꢀdeficitꢀasꢀofꢀtheꢀadoptionꢀdate.ꢀRevenuesꢀandꢀcostsꢀrelatedꢀtoꢀcertainꢀcontractsꢀareꢀrecognizedꢀatꢀaꢀpointꢀin
timeꢀunderꢀASCꢀ606ꢀasꢀtheꢀperformanceꢀobligationsꢀrelatedꢀtoꢀcertainꢀtypesꢀofꢀsalesꢀareꢀsatisfied;ꢀwhereas,ꢀpreviously
theseꢀrevenuesꢀandꢀcostsꢀwereꢀrecognizedꢀoverꢀaꢀperiodꢀofꢀtimeꢀunderꢀASCꢀ605.ꢀ
Further,ꢀ weꢀ previouslyꢀ reportedꢀ costsꢀ andꢀ expensesꢀ relatedꢀ toꢀ ourꢀ cashꢀ accessꢀ servicesꢀ -ꢀ whichꢀ includeꢀ commission
expensesꢀpayableꢀtoꢀcasinoꢀoperators,ꢀinterchangeꢀfeesꢀpayableꢀtoꢀtheꢀnetworkꢀassociations,ꢀandꢀprocessingꢀandꢀrelated
costsꢀpayableꢀtoꢀotherꢀthirdꢀpartyꢀpartnersꢀ-ꢀasꢀaꢀcostꢀofꢀrevenues.ꢀUnderꢀASCꢀ606,ꢀsuchꢀcostsꢀareꢀreflectedꢀasꢀreductions
toꢀcashꢀaccessꢀservicesꢀrevenuesꢀonꢀaꢀnetꢀbasisꢀofꢀpresentation,ꢀsinceꢀweꢀdoꢀnotꢀcontrolꢀtheꢀcashꢀadvanceꢀandꢀATMꢀservices
providedꢀtoꢀaꢀcustomerꢀand,ꢀtherefore,ꢀareꢀactingꢀasꢀanꢀagentꢀwhoseꢀperformanceꢀobligationꢀisꢀtoꢀarrangeꢀforꢀtheꢀprovision
ofꢀ theseꢀ services.ꢀ Inꢀ addition,ꢀ weꢀ previouslyꢀ reportedꢀ certainꢀ costsꢀ incurredꢀ inꢀ connectionꢀ withꢀ ourꢀ WAPꢀ platform,
consistingꢀprimarilyꢀofꢀtheꢀjackpotꢀexpenses,ꢀasꢀcostꢀofꢀrevenues.ꢀUnderꢀASCꢀ606,ꢀsuchꢀcostsꢀareꢀreflectedꢀasꢀreductions
toꢀgamingꢀoperationsꢀrevenuesꢀonꢀaꢀnetꢀbasisꢀofꢀpresentation.ꢀOurꢀpriorꢀperiodꢀresultsꢀwereꢀnotꢀrecastꢀtoꢀreflectꢀtheꢀnew
revenueꢀrecognitionꢀstandardꢀunderꢀtheꢀmodifiedꢀretrospectiveꢀmethod.ꢀ
Duringꢀtheꢀfourthꢀquarterꢀofꢀ2017,ꢀweꢀrecordedꢀaꢀ$37.2ꢀmillionꢀlossꢀonꢀextinguishmentꢀofꢀdebtꢀconsistingꢀofꢀaꢀ$26.3
millionꢀmake-wholeꢀpremiumꢀrelatedꢀtoꢀtheꢀsatisfactionꢀandꢀredemptionꢀofꢀtheꢀ2014ꢀUnsecuredꢀNotesꢀ(definedꢀherein)
andꢀapproximatelyꢀ$10.9ꢀmillionꢀforꢀtheꢀwrite-offꢀofꢀrelatedꢀunamortizedꢀdebtꢀissuanceꢀcostsꢀandꢀfees.ꢀAnꢀadditional
$14.6ꢀmillionꢀlossꢀonꢀextinguishmentꢀofꢀdebtꢀwasꢀincurredꢀinꢀtheꢀsecondꢀquarterꢀofꢀ2017ꢀforꢀtheꢀunamortizedꢀdeferred
financingꢀfeesꢀandꢀdiscountsꢀrelatedꢀtoꢀtheꢀextinguishedꢀtermꢀloanꢀunderꢀtheꢀPriorꢀCreditꢀFacilityꢀandꢀtheꢀredeemed
RefinancedꢀSecuredꢀNotesꢀ(bothꢀdefinedꢀherein).ꢀRepricingꢀofꢀtheꢀNewꢀTermꢀLoanꢀFacilityꢀ(definedꢀherein)ꢀduringꢀthe
secondꢀquarterꢀofꢀ2018ꢀdidꢀnotꢀresultꢀinꢀaꢀmaterialꢀlossꢀonꢀextinguishmentꢀofꢀdebt.
InꢀOctoberꢀofꢀeachꢀyear,ꢀweꢀconductꢀourꢀannualꢀimpairmentꢀtestꢀforꢀourꢀreportingꢀunits.ꢀBasedꢀonꢀtheꢀresultsꢀofꢀourꢀtesting,
thereꢀwasꢀnoꢀgoodwillꢀimpairmentꢀforꢀ2018ꢀandꢀ2017.ꢀWeꢀrecordedꢀgoodwillꢀimpairmentꢀofꢀapproximatelyꢀ$146.3ꢀmillion
relatedꢀtoꢀourꢀGamesꢀsegmentꢀinꢀ2016.
Theꢀincomeꢀtaxꢀbenefitꢀwasꢀ$9.7ꢀmillionꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2018,ꢀasꢀcomparedꢀtoꢀanꢀincomeꢀtaxꢀbenefit
ofꢀ$20.2ꢀmillionꢀinꢀtheꢀpriorꢀyearꢀperiod.ꢀTheꢀincomeꢀtaxꢀbenefitꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2018ꢀreflectedꢀan
effectiveꢀincomeꢀtaxꢀrateꢀofꢀnegativeꢀ367.0%,ꢀwhichꢀwasꢀlessꢀthanꢀtheꢀstatutoryꢀfederalꢀrateꢀofꢀ21.0%ꢀprimarilyꢀdueꢀtoꢀa
decreaseꢀinꢀtheꢀvaluationꢀallowanceꢀforꢀdeferredꢀtaxꢀassetsꢀandꢀanꢀincreaseꢀinꢀaꢀfederalꢀresearchꢀcredit.ꢀTheꢀincomeꢀtax
benefitꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2017ꢀreflectedꢀanꢀeffectiveꢀincomeꢀtaxꢀrateꢀofꢀ28.0%,ꢀwhichꢀwasꢀlessꢀthanꢀthe
statutoryꢀfederalꢀrateꢀofꢀ35.0%,ꢀprimarilyꢀdueꢀtoꢀaꢀdecreaseꢀinꢀtheꢀcarryingꢀvalueꢀofꢀourꢀdeferredꢀtaxꢀliabilitiesꢀasꢀaꢀresult
ofꢀtheꢀenactmentꢀofꢀtheꢀ2017ꢀTaxꢀAct,ꢀoffsetꢀbyꢀanꢀincreaseꢀinꢀourꢀvaluationꢀallowanceꢀforꢀdeferredꢀtaxꢀassets.
Asꢀaꢀresultꢀofꢀtheꢀaboveꢀtransactionsꢀandꢀevents,ꢀtheꢀresultsꢀofꢀoperationsꢀandꢀearningsꢀperꢀshareꢀinꢀtheꢀperiodsꢀcoveredꢀbyꢀour
FinancialꢀStatementsꢀmayꢀnotꢀbeꢀdirectlyꢀcomparable.
Trends and Developments Impacting our Business
Ourꢀstrategicꢀplanningꢀandꢀforecastingꢀprocessesꢀincludeꢀtheꢀconsiderationꢀofꢀeconomicꢀandꢀindustryꢀwideꢀtrendsꢀthatꢀmayꢀimpact
ourꢀGamesꢀandꢀFinTechꢀbusinesses.ꢀBelowꢀweꢀhaveꢀidentifiedꢀaꢀnumberꢀofꢀtrendsꢀthatꢀcouldꢀhaveꢀaꢀmaterialꢀimpactꢀonꢀourꢀbusiness:
•
•
•
Casinoꢀgamingꢀisꢀdependentꢀuponꢀdiscretionaryꢀconsumerꢀspending,ꢀwhichꢀisꢀtypicallyꢀtheꢀfirstꢀtypeꢀofꢀspendingꢀthatꢀis
restrainedꢀ byꢀ consumersꢀ whenꢀ theyꢀ areꢀ uncertainꢀ aboutꢀ theirꢀ jobsꢀ andꢀ income.ꢀ Globalꢀ economicꢀ uncertaintyꢀ inꢀ the
marketplaceꢀmayꢀhaveꢀanꢀimpactꢀonꢀcasinoꢀgamingꢀandꢀultimatelyꢀtheꢀdemandꢀforꢀnewꢀgamingꢀequipment,ꢀwhichꢀimpacts
bothꢀofꢀourꢀsegments.
TheꢀtotalꢀNorthꢀAmericanꢀinstalledꢀslotꢀbaseꢀwasꢀslightlyꢀhigherꢀinꢀ2018ꢀwhenꢀcomparedꢀtoꢀ2017ꢀandꢀ2016.ꢀWeꢀexpect
flatꢀtoꢀmoderateꢀgrowthꢀinꢀtheꢀforwardꢀreplacementꢀcycleꢀforꢀEGMs,ꢀwhichꢀhasꢀaꢀdirectꢀimpactꢀonꢀtheꢀoperationsꢀofꢀour
Gamesꢀsegment.
Theꢀvolumeꢀofꢀsalesꢀandꢀinstallationsꢀtoꢀnewꢀcasinoꢀopeningsꢀandꢀnewꢀmarketꢀexpansionsꢀalongꢀwithꢀreplacementsꢀto
theꢀexistingꢀgamingꢀoperatorsꢀinꢀNorthꢀAmericaꢀisꢀexpectedꢀtoꢀcontinueꢀtoꢀtrendꢀslightlyꢀupwardꢀinꢀ2019.ꢀThisꢀcould
34
positivelyꢀimpactꢀtheꢀoverallꢀdemandꢀforꢀslotꢀmachinesꢀinꢀNorthꢀAmericaꢀduringꢀ2019,ꢀwhichꢀinꢀturnꢀmayꢀcontributeꢀto
improvedꢀoperationsꢀofꢀourꢀGamesꢀsegment.
• Weꢀfaceꢀcontinuedꢀcompetitionꢀfromꢀsmallerꢀcompetitorsꢀinꢀtheꢀgamingꢀcashꢀaccessꢀmarketꢀandꢀfaceꢀadditionalꢀcompetition
fromꢀlargerꢀgamingꢀequipmentꢀmanufacturersꢀandꢀsystemsꢀproviders.ꢀThisꢀincreasedꢀcompetitionꢀhasꢀresultedꢀinꢀpricing
pressureꢀforꢀbothꢀourꢀGamesꢀandꢀFinTechꢀbusinesses.
•
•
Governmentalꢀoversightꢀrelatedꢀtoꢀtheꢀcostꢀofꢀtransactionꢀprocessingꢀandꢀrelatedꢀfeesꢀtoꢀtheꢀconsumerꢀhasꢀincreasedꢀin
recentꢀyears.ꢀWeꢀexpectꢀtheꢀfinancialꢀservicesꢀandꢀpaymentsꢀindustryꢀtoꢀrespondꢀtoꢀtheseꢀlegislativeꢀactsꢀbyꢀchanging
otherꢀfeesꢀandꢀcosts,ꢀwhichꢀmayꢀnegativelyꢀimpactꢀourꢀFinTechꢀbusinessꢀinꢀtheꢀfuture.
Casinoꢀ operatorsꢀ continueꢀ toꢀ tryꢀ toꢀ broadenꢀ theirꢀ appealꢀ byꢀ focusingꢀ onꢀ investmentsꢀ inꢀ theꢀ additionꢀ ofꢀ non-gaming
amenitiesꢀtoꢀtheirꢀfacilities,ꢀwhichꢀcouldꢀimpactꢀcasinoꢀoperator’sꢀcapitalꢀallocationꢀforꢀgamesꢀandꢀpaymentꢀsolution
productsꢀandꢀimpactꢀbothꢀofꢀourꢀoperatingꢀsegments.
Impact of ASC Topic 842 on the Comparability of Our Results of Operations in Future Periods
Asꢀdiscussedꢀinꢀ“Noteꢀ2ꢀ—ꢀBasisꢀofꢀPresentationꢀandꢀSummaryꢀofꢀSignificantꢀAccountingꢀPoliciesꢀ–ꢀRecentꢀAccountingꢀGuidance
–ꢀRecentꢀAccountingꢀGuidanceꢀNotꢀYetꢀAdopted,”ꢀinꢀItem 8: Financial Statements and Supplementary Data,ꢀonꢀJanuaryꢀ1,ꢀ2019,
theꢀCompanyꢀimplementedꢀtheꢀnewꢀleaseꢀaccountingꢀstandardꢀpromulgatedꢀbyꢀtheꢀFASB.ꢀTheꢀCompanyꢀadoptedꢀASCꢀ842ꢀusing
theꢀadoptionꢀdateꢀmethod.ꢀWhileꢀweꢀareꢀfinalizingꢀtheꢀadoptionꢀprocedures,ꢀweꢀexpectꢀthatꢀtheꢀstandardꢀwillꢀhaveꢀaꢀmaterialꢀimpact
onꢀourꢀBalanceꢀSheets,ꢀhowever,ꢀweꢀdoꢀnotꢀexpectꢀthatꢀtheꢀstandardꢀwillꢀhaveꢀaꢀmaterialꢀimpactꢀonꢀourꢀStatementsꢀofꢀIncome
(Loss).ꢀTheꢀmostꢀsignificantꢀimpactꢀwillꢀbeꢀtheꢀrecognitionꢀofꢀright-of-useꢀ(“ROU”)ꢀassetsꢀandꢀleaseꢀliabilitiesꢀofꢀoperatingꢀleases,
whichꢀareꢀexpectedꢀtoꢀbeꢀwithinꢀaꢀrangeꢀofꢀapproximatelyꢀ1%ꢀtoꢀ2%ꢀofꢀtotalꢀassets.ꢀWeꢀelectedꢀtheꢀpracticalꢀexpedientsꢀofferedꢀin
theꢀguidance,ꢀincludingꢀtheꢀtransitionꢀpackage.
Operating Segments
Weꢀreportꢀourꢀfinancialꢀperformanceꢀbasedꢀonꢀtwoꢀoperatingꢀsegments:ꢀ(a)ꢀGames;ꢀandꢀ(b)ꢀFinTech.ꢀForꢀadditionalꢀinformation
onꢀourꢀsegmentsꢀseeꢀ“Itemꢀ1.ꢀBusiness”ꢀandꢀ“Noteꢀ18ꢀ—ꢀSegmentꢀInformation”ꢀincludedꢀelsewhereꢀinꢀthisꢀAnnualꢀReportꢀonꢀForm
10-K.
Results of Operations
Year ended December 31, 2018 compared to the year ended December 31, 2017
TheꢀfollowingꢀtableꢀpresentsꢀourꢀResultsꢀofꢀOperationsꢀasꢀreportedꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2018ꢀcomparedꢀtoꢀtheꢀyear
endedꢀDecemberꢀ31,ꢀ2017ꢀasꢀreportedꢀandꢀasꢀadjustedꢀforꢀtheꢀretrospectiveꢀimpactꢀofꢀASCꢀ606ꢀtoꢀreflectꢀtheꢀpriorꢀperiodꢀresults
onꢀaꢀnetꢀbasisꢀofꢀpresentationꢀ(amountsꢀinꢀthousands)*:
ꢀ
35
December 31, 2018
December 31, 2017
Year Ended
2018 As Reported vs
2017 As Adjusted
$
%
$
%
$
$
%
$
%
As Reported
As Reported
Adjustments
As Adjusted
Revenues
Games revenues
Gamingꢀoperations
$ 168,146
36% $ 148,654
15% $
(565) $ 148,089
36% $
20,057
Gamingꢀequipmentꢀandꢀsystems
Gamingꢀother
87,038
3,794
18%
1%
70,118
4,005
7%
1%
—
—
70,118
4,005
Games total revenues
258,978
55% 222,777
23%
(565)
222,212
17%
1%
54%
16,920
(211)
36,766
FinTech revenues
Cashꢀaccessꢀservices
Equipment
Informationꢀservicesꢀandꢀother
156,806
34% 707,222
73%
(563,637)
143,585
35%
13,221
20,977
32,754
4%
7%
13,258
31,691
1%
3%
—
—
13,258
31,691
3%
8%
7,719
1,063
FinTech total revenues
210,537
45% 752,171
77%
(563,637)
188,534
46%
22,003
14 %
24 %
(5)%
17 %
9 %
58 %
3 %
12 %
Total revenues
469,515
100% 974,948
100%
(564,202)
410,746
100%
58,769
14 %
(565)
—
—
(565)
15,176
35,707
3,247
54,130
4%
8%
1%
2,427
11,414
38
13%
13,879
(563,637)
—
—
9,243
7,717
3,253
(563,637)
20,213
2%
2%
1%
5%
29%
5%
11%
17%
80%
20%
474
4,884
857
6,215
23,363
1,635
13,943
(4,260)
54,775
3,994
16 %
32 %
1 %
26 %
5 %
63 %
26 %
31 %
20 %
9 %
29 %
(6)%
17 %
5 %
Costs and expenses
Games cost of revenues(1)
Gamingꢀoperations
Gamingꢀequipmentꢀandꢀsystems
Gamingꢀother
Games total cost of revenues
FinTech cost of revenues(1)
Cashꢀaccessꢀservices
Equipment
Informationꢀservicesꢀandꢀother
FinTech total cost of revenues
17,603
47,121
3,285
68,009
9,717
12,601
4,110
26,428
4%
9%
1%
14%
15,741
35,707
3,247
54,695
2% 572,880
3%
1%
7,717
3,253
6% 583,850
2%
3%
1%
6%
59%
1%
—%
60%
Operatingꢀexpenses
142,298
30% 118,935
12%
— 118,935
Researchꢀandꢀdevelopment
Depreciation
Amortization
Total costs and expenses
Operating income
20,497
61,225
65,245
383,702
85,813
4%
14%
14%
18,862
47,282
69,505
82% 893,129
18%
81,819
2%
5%
7%
92%
8%
—
—
—
18,862
47,282
69,505
(564,202)
328,927
—
81,819
ꢀ*ꢀRoundingꢀmayꢀcauseꢀvariances.
(1)ꢀExclusiveꢀofꢀdepreciationꢀandꢀamortization.
36
December 31, 2018
December 31, 2017
Year Ended
2018 As Reported vs
2017 As Adjusted
$
%
$
%
$
$
%
$
%
As Reported
As Reported
Adjustments
As Adjusted
83,001
18 % 102,136
11 %
— 102,136
24 %
(19,135)
(19)%
Other expenses
Interestꢀexpense,ꢀnetꢀofꢀinterest
income
Lossꢀonꢀextinguishmentꢀofꢀdebt
166
— %
51,750
Total other expenses
83,167
18 % 153,886
5 %
16 %
—
51,750
— 153,886
13 %
37 %
(51,584)
(100)%
(70,719)
(46)%
Income (loss) before income
tax
2,646
1 %
(72,067)
(7)%
—
(72,067)
(18)%
74,713
(104)%
Incomeꢀtaxꢀ(benefit)ꢀprovision
(9,710)
(2)%
(20,164)
Net income (loss)
$ 12,356
3 % $ (51,903)
(2)%
(5)%
—
(20,164)
(5)%
10,454
— $ (51,903)
(13)% $
64,259
(52)%
124 %
*ꢀRoundingꢀmayꢀcauseꢀvariances.
(1)ꢀExclusiveꢀofꢀdepreciationꢀandꢀamortization.
Total Revenues
Totalꢀrevenuesꢀincreasedꢀbyꢀ$58.8ꢀmillion,ꢀorꢀ14%,ꢀtoꢀ$469.5ꢀmillionꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2018,ꢀasꢀcomparedꢀtoꢀthe
priorꢀyearꢀperiodꢀasꢀadjustedꢀforꢀtheꢀnetꢀversusꢀgrossꢀretrospectiveꢀimpactꢀofꢀASCꢀ606.ꢀThisꢀwasꢀprimarilyꢀdueꢀtoꢀhigherꢀGames
andꢀFinTechꢀrevenues.
Gamesꢀrevenuesꢀincreasedꢀbyꢀ$36.8ꢀmillion,ꢀorꢀ17%,ꢀtoꢀ$259.0ꢀmillionꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2018,ꢀasꢀcomparedꢀto
theꢀpriorꢀyearꢀperiodꢀasꢀadjustedꢀforꢀtheꢀnetꢀversusꢀgrossꢀretrospectiveꢀimpactꢀofꢀASCꢀ606.ꢀThisꢀwasꢀprimarilyꢀdueꢀtoꢀanꢀincrease
inꢀbothꢀunitꢀsalesꢀandꢀaverageꢀsellingꢀpricesꢀandꢀanꢀincreaseꢀinꢀtheꢀaverageꢀdailyꢀwinꢀperꢀunitꢀonꢀaꢀhigherꢀinstalledꢀbaseꢀofꢀleased
machines.
FinTechꢀrevenuesꢀincreasedꢀbyꢀ$22.0ꢀmillion,ꢀorꢀ12%,ꢀtoꢀ$210.5ꢀmillionꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2018,ꢀasꢀcomparedꢀto
theꢀpriorꢀyearꢀperiodꢀasꢀadjustedꢀforꢀtheꢀnetꢀversusꢀgrossꢀretrospectiveꢀimpactꢀofꢀASCꢀ606.ꢀThisꢀwasꢀprimarilyꢀdueꢀtoꢀhigher
transactionꢀvolumesꢀfromꢀcashꢀaccessꢀservicesꢀandꢀincreasedꢀequipmentꢀsales.
Costs and Expenses
Gamesꢀcostꢀofꢀrevenuesꢀincreasedꢀbyꢀ$13.9ꢀmillion,ꢀorꢀ26%,ꢀtoꢀ$68.0ꢀmillionꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2018,ꢀasꢀcompared
toꢀtheꢀpriorꢀyearꢀperiodꢀasꢀadjustedꢀforꢀtheꢀnetꢀversusꢀgrossꢀretrospectiveꢀimpactꢀofꢀASCꢀ606.ꢀThisꢀwasꢀprimarilyꢀdueꢀtoꢀtheꢀcosts
associatedꢀwithꢀtheꢀadditionalꢀunitꢀsalesꢀandꢀanꢀincreaseꢀinꢀcostsꢀrelatedꢀtoꢀourꢀleasedꢀmachinesꢀasꢀaꢀresultꢀofꢀtheꢀincreaseꢀinꢀrevenue.
FinTechꢀcostꢀofꢀrevenuesꢀincreasedꢀbyꢀ$6.2ꢀmillion,ꢀorꢀ31%,ꢀtoꢀ$26.4ꢀmillionꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2018,ꢀasꢀcompared
toꢀtheꢀpriorꢀyearꢀperiodꢀasꢀadjustedꢀforꢀtheꢀnetꢀversusꢀgrossꢀretrospectiveꢀimpactꢀofꢀASCꢀ606.ꢀThisꢀwasꢀprimarilyꢀdueꢀtoꢀtheꢀcosts
associatedꢀwithꢀtheꢀadditionalꢀequipmentꢀsales.
Operatingꢀexpensesꢀincreasedꢀbyꢀ$23.4ꢀmillion,ꢀorꢀ20%,ꢀtoꢀ$142.3ꢀmillionꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2018,ꢀasꢀcompared
toꢀtheꢀsameꢀperiodꢀinꢀtheꢀpriorꢀyear.ꢀThisꢀwasꢀprimarilyꢀdueꢀtoꢀhigherꢀpayrollꢀandꢀrelatedꢀexpenses,ꢀconsultingꢀfees,ꢀadvertising,
promotionꢀandꢀtradeꢀshowꢀcostsꢀandꢀsoftwareꢀlicenseꢀfeesꢀforꢀbothꢀourꢀGamesꢀandꢀFinTechꢀsegments.ꢀOurꢀGamesꢀsegmentꢀalso
incurredꢀanꢀincreaseꢀinꢀcostsꢀrelatedꢀtoꢀinventoryꢀdisposalsꢀandꢀleasedꢀassetsꢀimpairmentꢀcharges.ꢀꢀ
Researchꢀandꢀdevelopmentꢀincreasedꢀbyꢀ$1.6ꢀmillion,ꢀorꢀ9%,ꢀtoꢀ$20.5ꢀmillionꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2018,ꢀasꢀcompared
toꢀtheꢀsameꢀperiodꢀinꢀtheꢀpriorꢀyear.ꢀThisꢀwasꢀprimarilyꢀdueꢀtoꢀhigherꢀpayrollꢀandꢀrelatedꢀexpensesꢀforꢀourꢀGamesꢀsegment.
Depreciationꢀincreasedꢀbyꢀ$13.9ꢀmillion,ꢀorꢀ29%,ꢀtoꢀ$61.2ꢀmillionꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2018,ꢀasꢀcomparedꢀtoꢀtheꢀprior
yearꢀperiod.ꢀThisꢀwasꢀprimarilyꢀdrivenꢀbyꢀtheꢀincreaseꢀinꢀtheꢀinstalledꢀbaseꢀofꢀleasedꢀgamingꢀmachinesꢀandꢀadjustmentsꢀtoꢀthe
remainingꢀusefulꢀlivesꢀofꢀcertainꢀofꢀtheꢀgamingꢀfixedꢀassetsꢀrelatedꢀtoꢀourꢀGamesꢀsegment.ꢀ
Amortizationꢀdecreasedꢀbyꢀ$4.3ꢀmillion,ꢀorꢀ6%,ꢀtoꢀ$65.2ꢀmillionꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2018,ꢀasꢀcomparedꢀtoꢀtheꢀprior
yearꢀperiod.ꢀThisꢀwasꢀprimarilyꢀdueꢀtoꢀassetsꢀbeingꢀfullyꢀamortizedꢀrelatedꢀtoꢀbothꢀourꢀGamesꢀandꢀFinTechꢀsegments.
37
Primarilyꢀasꢀaꢀresultꢀofꢀtheꢀfactorsꢀdescribedꢀabove,ꢀoperatingꢀincomeꢀincreasedꢀbyꢀ$4.0ꢀmillion,ꢀorꢀ5%,ꢀtoꢀ$85.8ꢀmillionꢀforꢀthe
yearꢀendedꢀDecemberꢀ31,ꢀ2018,ꢀasꢀcomparedꢀtoꢀtheꢀpriorꢀyearꢀasꢀadjustedꢀforꢀtheꢀnetꢀversusꢀgrossꢀretrospectiveꢀimpactꢀofꢀASC
606.ꢀTheꢀoperatingꢀincomeꢀmarginꢀdecreasedꢀfromꢀ20%ꢀtoꢀ18%ꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2018,ꢀasꢀadjustedꢀforꢀtheꢀnet
versusꢀgrossꢀretrospectiveꢀimpactꢀofꢀASCꢀ606.
Interestꢀexpense,ꢀnetꢀofꢀinterestꢀincome,ꢀdecreasedꢀbyꢀ$19.1ꢀmillion,ꢀorꢀ19%,ꢀtoꢀ$83.0ꢀmillionꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,
2018,ꢀasꢀcomparedꢀtoꢀtheꢀpriorꢀyearꢀperiod.ꢀThisꢀwasꢀprimarilyꢀdueꢀtoꢀlowerꢀinterestꢀexpenseꢀasꢀaꢀresultꢀofꢀourꢀdebtꢀrefinancing
transactionsꢀinꢀ2017ꢀandꢀanꢀadditionalꢀrepricingꢀofꢀourꢀNewꢀTermꢀLoanꢀFacilitiesꢀinꢀ2018,ꢀpartiallyꢀoffsetꢀbyꢀanꢀincreaseꢀinꢀour
cashꢀusageꢀfeesꢀinꢀconnectionꢀwithꢀourꢀcommercialꢀcashꢀarrangementsꢀandꢀtheꢀimpactꢀofꢀtheꢀLondonꢀInterbankꢀOfferedꢀRate
(“LIBOR”)ꢀincreasesꢀduringꢀtheꢀpastꢀyear.
Lossꢀonꢀextinguishmentꢀofꢀdebtꢀwasꢀ$0.2ꢀmillionꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2018ꢀinꢀconnectionꢀwithꢀtheꢀrepricingꢀtransaction
completedꢀinꢀMayꢀ2018ꢀasꢀcomparedꢀtoꢀ$51.8ꢀmillionꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2017,ꢀwhichꢀconsistedꢀofꢀ$26.3ꢀmillion
make-wholeꢀpremiumꢀrelatedꢀtoꢀtheꢀsatisfactionꢀandꢀredemptionꢀofꢀtheꢀ2014ꢀUnsecuredꢀNotes,ꢀapproximatelyꢀ$10.9ꢀmillionꢀfor
theꢀwrite-offꢀofꢀrelatedꢀunamortizedꢀdebtꢀissuanceꢀcostsꢀandꢀfeesꢀinꢀtheꢀfourthꢀquarterꢀofꢀ2017ꢀandꢀapproximatelyꢀ$14.6ꢀmillion
forꢀtheꢀunamortizedꢀdeferredꢀfinancingꢀfeesꢀandꢀdiscountsꢀrelatedꢀtoꢀourꢀextinguishedꢀtermꢀloanꢀunderꢀtheꢀPriorꢀCreditꢀFacilityꢀand
theꢀredeemedꢀRefinancedꢀSecuredꢀNotesꢀinꢀtheꢀsecondꢀquarterꢀofꢀ2017.ꢀ
Incomeꢀtaxꢀbenefitꢀwasꢀ$9.7ꢀmillionꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2018,ꢀasꢀcomparedꢀtoꢀanꢀincomeꢀtaxꢀbenefitꢀofꢀ$20.2ꢀmillion
inꢀtheꢀpriorꢀyearꢀperiod.ꢀTheꢀincomeꢀtaxꢀbenefitꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2018ꢀreflectedꢀanꢀeffectiveꢀincomeꢀtaxꢀrateꢀof
negativeꢀ367.0%,ꢀwhichꢀwasꢀlessꢀthanꢀtheꢀstatutoryꢀfederalꢀrateꢀofꢀ21.0%,ꢀprimarilyꢀdueꢀtoꢀaꢀdecreaseꢀinꢀourꢀvaluationꢀallowance
forꢀdeferredꢀtaxꢀassetsꢀandꢀaꢀresearchꢀcredit.ꢀTheꢀdecreaseꢀinꢀourꢀvaluationꢀallowanceꢀisꢀprimarilyꢀdueꢀtoꢀtheꢀnetꢀoperatingꢀloss
duringꢀtheꢀyearꢀandꢀtheꢀinterestꢀdeductionꢀlimitationꢀ(deferredꢀtaxꢀassets)ꢀwhichꢀcanꢀbeꢀoffsetꢀagainstꢀourꢀindefiniteꢀlivedꢀdeferred
taxꢀliabilities.ꢀTheꢀtaxꢀbenefitꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2017ꢀreflectedꢀanꢀeffectiveꢀincomeꢀtaxꢀrateꢀofꢀ28.0%,ꢀwhichꢀwas
lessꢀthanꢀtheꢀstatutoryꢀfederalꢀrateꢀofꢀ35.0%,ꢀprimarilyꢀdueꢀtoꢀaꢀdecreaseꢀinꢀtheꢀcarryingꢀvalueꢀofꢀourꢀdeferredꢀtaxꢀliabilitiesꢀasꢀa
resultꢀofꢀtheꢀenactmentꢀofꢀtheꢀ2017ꢀTaxꢀAct,ꢀoffsetꢀbyꢀanꢀincreaseꢀinꢀtheꢀvaluationꢀallowanceꢀforꢀdeferredꢀtaxꢀassets.
Primarilyꢀasꢀaꢀresultꢀofꢀtheꢀforegoing,ꢀourꢀnetꢀlossꢀdecreasedꢀbyꢀ$64.3ꢀmillion,ꢀorꢀ124%,ꢀtoꢀaꢀnetꢀincomeꢀofꢀ$12.4ꢀmillionꢀforꢀthe
yearꢀendedꢀDecemberꢀ31,ꢀ2018,ꢀasꢀcomparedꢀtoꢀtheꢀpriorꢀyearꢀperiod.
Year ended December 31, 2017 compared to year ended December 31, 2016:
Theꢀ followingꢀ tableꢀ presentsꢀ ourꢀ Resultsꢀ ofꢀ Operationsꢀ forꢀ theꢀ yearꢀ endedꢀ Decemberꢀ 31,ꢀ 2017ꢀ comparedꢀ toꢀ theꢀ yearꢀ ended
Decemberꢀ31,ꢀ2016ꢀasꢀreportedꢀandꢀasꢀadjustedꢀforꢀtheꢀretrospectiveꢀimpactꢀofꢀASCꢀ606ꢀtoꢀreflectꢀtheꢀpriorꢀperiodꢀresultsꢀonꢀaꢀnet
basisꢀofꢀpresentationꢀ(amountsꢀinꢀthousands)*:
38
December 31, 2017
December 31, 2016
Year Ended
2017 As Adjusted vs
2016 As Adjusted
$
%
$
$
%
$
%
$
$
%
$
%
As Reported
Adjustments
As Adjusted
As Reported
Adjustments
As Adjusted
Revenues
Games revenues
Gamingꢀoperations
$ 148,654
15% $
(565) $148,089
36% $ 152,514
Gamingꢀequipmentꢀand
systems
70,118
7%
Gamingꢀother
4,005
Games total revenues
222,777
1%
23%
—
—
70,118
17%
56,277
4,005
1%
4,462
(565)
222,212
54% 213,253
18 %
6 %
1 %
25 %
— $ 152,514
40 % $ (4,425)
56,277
15 %
13,841
(3)%
25 %
4,462
— 213,253
1 %
56 %
(457)
(10)%
8,959
4 %
—
—
FinTechꢀrevenues
Cashꢀaccessꢀservices
707,222
73% (563,637)
143,585
35% 601,874
70 % (476,380)
125,494
32 %
18,091
13,258
31,691
1%
3%
—
13,258
— 31,691
3%
8%
14,995
29,334
2 %
3 %
—
—
14,995
29,334
4 %
8 %
(1,737)
2,357
14 %
(12)%
8 %
752,171
77% (563,637)
188,534
46% 646,203
75 % (476,380)
169,823
44 %
18,711
11 %
Equipment
Informationꢀservices
andꢀother
FinTech total
revenues
Total revenues
974,948
100% (564,202)
410,746
100% 859,456
100 % (476,380)
383,076
100 %
27,670
7 %
Costs and expenses
Games cost of
revenues(1)
Gamingꢀoperations
Gamingꢀequipmentꢀand
systems
Gamingꢀother
Games total cost of
revenues
FinTech cost of
revenues(1)
Cashꢀaccessꢀservices
Equipment
Informationꢀservices
andꢀother
FinTech total cost of
revenues
15,741
35,707
2%
4%
(565)
15,176
— 35,707
3,247 —%
—
3,247
54,695
6%
(565)
54,130
4%
8%
1%
13%
15,265
31,602
3,441
50,308
2 %
4 %
— %
6 %
—
—
—
—
15,265
31,602
3,441
50,308
4 %
8 %
1 %
13 %
(89)
4,105
(194)
3,822
(1)%
13 %
(6)%
8 %
572,880
59% (563,637)
7,717
1%
3,253 —%
—
—
9,243
7,717
3,253
2% 485,061
57 % (476,380)
2%
1%
9,889
3,756
1 %
— %
—
—
8,681
9,889
3,756
2 %
3 %
1 %
562
6 %
(2,172)
(22)%
(503)
(13)%
583,850
60% (563,637)
20,213
5% 498,706
58 % (476,380)
22,326
6 %
(2,113)
(9)%
Operatingꢀexpenses
118,935
12%
— 118,935
28% 118,709
14 %
— 118,709
31 %
Researchꢀand
development
18,862
2%
— 18,862
5%
19,356
2 %
—
19,356
5 %
226
(494)
— %
(3)%
Goodwillꢀimpairment
— —%
—
— —% 146,299
17 %
— 146,299
38 % (146,299)
(100)%
Depreciation
Amortization
Total costs and
expenses
47,282
69,505
5%
7%
— 47,282
— 69,505
12%
17%
49,995
6 %
94,638
11 %
—
—
49,995
13 %
(2,713)
(5)%
94,638
25 % (25,133)
(27)%
893,129
92% (564,202)
328,927
80% 978,011
114 % (476,380)
501,631
131 % (172,704)
(34)%
Operating income
81,819
8%
— 81,819
20% (118,555)
(14)%
— (118,555)
(31)% 200,374
(169)%
ꢀ*ꢀRoundingꢀmayꢀcauseꢀvariances.
(1)ꢀExclusiveꢀofꢀdepreciationꢀandꢀamortization.
39
December 31, 2017
December 31, 2016
Year Ended
2017 As Adjusted vs
2016 As Adjusted
$
%
$
$
%
$
%
$
$
%
$
%
As Reported
Adjustments
As Adjusted
As Reported
Adjustments
As Adjusted
Other expenses
Interestꢀexpense,ꢀnetꢀof
interestꢀincome
Lossꢀon
extinguishmentꢀofꢀdebt
102,136
10 %
— 102,136
25 %
99,228
12 %
51,750
6 %
—
51,750
12 %
— — %
Total other expenses
153,886
16 %
— 153,886
37 %
99,228
12 %
—
—
—
99,228
26 %
2,908
3 %
— — %
51,750
— %
99,228
26 %
54,658
55 %
Income (loss) before
income tax
Income tax (benefit)
provision
(72,067)
(7)%
—
(72,067)
(18)% (217,783)
(25)%
— (217,783)
(57)% 145,716
(67)%
(20,164)
(2)%
—
(20,164)
(5)%
31,696
4 %
—
31,696
8 % (51,860)
(164)%
Net income (loss)
$(51,903)
(5)%
— $ (51,903)
(13)% $(249,479)
(29)%
— $(249,479)
(65)% $197,576
(79)%
*ꢀRoundingꢀmayꢀcauseꢀvariances.
(1)ꢀExclusiveꢀofꢀdepreciationꢀandꢀamortization.
Total Revenues
Totalꢀrevenuesꢀincreasedꢀbyꢀ$27.7ꢀmillion,ꢀorꢀ7%,ꢀtoꢀ$410.7ꢀmillionꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2017,ꢀasꢀcomparedꢀtoꢀthe
priorꢀyearꢀperiodꢀasꢀadjustedꢀforꢀtheꢀnetꢀversusꢀgrossꢀretrospectiveꢀimpactꢀofꢀASCꢀ606.ꢀThisꢀwasꢀdueꢀtoꢀincreasedꢀFinTechꢀand
Gamesꢀrevenues.
Gamesꢀrevenuesꢀincreasedꢀbyꢀ$9.0ꢀmillion,ꢀorꢀ4%,ꢀtoꢀ$222.2ꢀmillionꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2017,ꢀasꢀcomparedꢀtoꢀthe
priorꢀyearꢀperiodꢀasꢀadjustedꢀforꢀtheꢀnetꢀversusꢀgrossꢀretrospectiveꢀimpactꢀofꢀASCꢀ606.ꢀThisꢀwasꢀprimarilyꢀdueꢀtoꢀanꢀincreaseꢀin
unitsꢀsold,ꢀpartiallyꢀoffsetꢀbyꢀlowerꢀdailyꢀwinꢀperꢀunitꢀonꢀleasedꢀgames.
FinTechꢀrevenuesꢀincreasedꢀbyꢀ$18.7ꢀmillion,ꢀorꢀ11%,ꢀtoꢀ$188.5ꢀmillionꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2017,ꢀasꢀcomparedꢀto
theꢀpriorꢀyearꢀperiodꢀasꢀadjustedꢀforꢀtheꢀnetꢀversusꢀgrossꢀretrospectiveꢀimpactꢀofꢀASCꢀ606.ꢀThisꢀwasꢀprimarilyꢀdueꢀtoꢀhigherꢀdollar
andꢀtransactionꢀvolumeꢀandꢀfeesꢀearnedꢀfromꢀcashꢀaccessꢀservices,ꢀnewꢀcustomerꢀopenings,ꢀtheꢀexpansionꢀofꢀourꢀATMꢀservices
inꢀCanada,ꢀasꢀwellꢀasꢀoverallꢀgrowthꢀinꢀtheꢀsegment.
Costs and Expenses
Gamesꢀcostꢀofꢀrevenuesꢀincreasedꢀbyꢀ$3.8ꢀmillion,ꢀorꢀ8%,ꢀtoꢀ$54.1ꢀmillionꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2017,ꢀasꢀcompared
toꢀtheꢀpriorꢀyearꢀperiodꢀasꢀadjustedꢀforꢀtheꢀnetꢀversusꢀgrossꢀretrospectiveꢀimpactꢀofꢀASCꢀ606.ꢀThisꢀwasꢀprimarilyꢀdueꢀtoꢀhigher
variableꢀcostsꢀassociatedꢀwithꢀincreasedꢀunitꢀsales.
FinTechꢀcostꢀofꢀrevenuesꢀdecreasedꢀbyꢀ$2.1ꢀmillion,ꢀorꢀ9%,ꢀtoꢀ$20.2ꢀmillionꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2017,ꢀasꢀcompared
toꢀtheꢀpriorꢀyearꢀperiodꢀasꢀadjustedꢀforꢀtheꢀnetꢀversusꢀgrossꢀretrospectiveꢀimpactꢀofꢀASCꢀ606.ꢀThisꢀwasꢀprimarilyꢀdueꢀtoꢀhigher
costsꢀassociatedꢀwithꢀhigherꢀequipmentꢀsalesꢀinꢀ2016ꢀasꢀcomparedꢀtoꢀ2017.
Operatingꢀexpensesꢀremainedꢀrelativelyꢀconsistentꢀtoꢀtheꢀpriorꢀyear.ꢀThisꢀwasꢀprimarilyꢀdueꢀtoꢀanꢀincreaseꢀinꢀpayrollꢀandꢀbenefit-
relatedꢀexpensesꢀoffsetꢀbyꢀtheꢀdecreaseꢀinꢀexpensesꢀrelatedꢀtoꢀtheꢀ2016ꢀBeeꢀCaveꢀGames,ꢀInc.ꢀ(“BeeꢀCave”)ꢀloanꢀimpairmentꢀof
approximatelyꢀ$4.3ꢀmillionꢀthatꢀdidꢀnotꢀimpactꢀourꢀ2017ꢀresultsꢀforꢀourꢀGamesꢀsegment;ꢀandꢀanꢀincreaseꢀinꢀpayrollꢀandꢀbenefits-
relatedꢀexpensesꢀandꢀprofessionalꢀservicesꢀexpensesꢀoffsetꢀbyꢀtheꢀdecreaseꢀinꢀexpensesꢀrelatedꢀtoꢀtheꢀ2016ꢀseparationꢀcostsꢀforꢀour
formerꢀCEOꢀthatꢀdidꢀnotꢀimpactꢀourꢀ2017ꢀresultsꢀforꢀourꢀFinTechꢀsegment.ꢀ
ThereꢀwasꢀnoꢀgoodwillꢀimpairmentꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2017,ꢀasꢀcomparedꢀtoꢀ$146.3ꢀmillionꢀinꢀtheꢀpriorꢀyearꢀperiod
asꢀaꢀresultꢀofꢀourꢀOctoberꢀ1,ꢀ2016ꢀannualꢀgoodwillꢀassessmentꢀattributableꢀtoꢀourꢀGamesꢀreportingꢀunit.
Researchꢀandꢀdevelopmentꢀcostsꢀremainedꢀrelativelyꢀconsistentꢀwithꢀpriorꢀyear.ꢀ
Depreciationꢀdecreasedꢀbyꢀ$2.7ꢀmillion,ꢀorꢀ5%,ꢀtoꢀ$47.3ꢀmillionꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2017,ꢀasꢀcomparedꢀtoꢀtheꢀprior
yearꢀperiod.ꢀThisꢀwasꢀprimarilyꢀdueꢀtoꢀaꢀdecreaseꢀinꢀdepreciationꢀfromꢀcertainꢀassetsꢀbeingꢀfullyꢀdepreciatedꢀinꢀbothꢀourꢀGames
andꢀFinTechꢀsegments.
40
Amortizationꢀdecreasedꢀbyꢀ$25.1ꢀmillion,ꢀorꢀ27%,ꢀtoꢀ$69.5ꢀmillionꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2017,ꢀasꢀcomparedꢀtoꢀthe
priorꢀyearꢀperiod.ꢀThisꢀwasꢀprimarilyꢀdueꢀtoꢀcertainꢀacquiredꢀintangibleꢀassetsꢀbeingꢀfullyꢀamortizedꢀinꢀtheꢀfourthꢀquarterꢀofꢀ2016
forꢀbothꢀourꢀGamesꢀandꢀFinTechꢀsegments.
Primarilyꢀasꢀaꢀresultꢀofꢀtheꢀfactorsꢀdescribedꢀabove,ꢀoperatingꢀincomeꢀincreasedꢀbyꢀ$200.4ꢀmillion,ꢀorꢀ169%,ꢀtoꢀanꢀoperatingꢀincome
ofꢀ$81.8ꢀmillionꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2017,ꢀasꢀcomparedꢀtoꢀtheꢀpriorꢀyearꢀasꢀadjustedꢀforꢀtheꢀnetꢀversusꢀgrossꢀretrospective
impactꢀofꢀASCꢀ606.ꢀTheꢀoperatingꢀincomeꢀmarginꢀasꢀadjustedꢀforꢀtheꢀnetꢀversusꢀgrossꢀretrospectiveꢀimpactꢀofꢀASCꢀ606ꢀincreased
fromꢀnegativeꢀ31%ꢀtoꢀaꢀpositiveꢀ20%ꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2017.
Interestꢀexpense,ꢀnetꢀofꢀinterestꢀincome,ꢀincreasedꢀbyꢀ$2.9ꢀmillion,ꢀorꢀ3%,ꢀtoꢀ$102.1ꢀmillionꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,
2017,ꢀasꢀcomparedꢀtoꢀtheꢀpriorꢀyearꢀperiod.ꢀThisꢀwasꢀprimarilyꢀattributableꢀtoꢀhigherꢀinterestꢀrecognizedꢀasꢀaꢀresultꢀofꢀourꢀdebt
restructuringꢀactivitiesꢀinꢀtheꢀfourthꢀquarterꢀofꢀ2017ꢀasꢀwellꢀasꢀhigherꢀcashꢀusageꢀfees,ꢀpartiallyꢀoffsetꢀbyꢀlowerꢀinterestꢀexpense
asꢀaꢀresultꢀofꢀourꢀdebtꢀrefinancingꢀinꢀMayꢀ2017.ꢀ
LossꢀonꢀextinguishmentꢀofꢀdebtꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2017ꢀwasꢀ$51.8ꢀmillion,ꢀwhichꢀconsistedꢀofꢀaꢀ$26.3ꢀmillion
make-wholeꢀpremiumꢀrelatedꢀtoꢀtheꢀsatisfactionꢀandꢀredemptionꢀofꢀtheꢀ2014ꢀUnsecuredꢀNotes,ꢀapproximatelyꢀ$10.9ꢀmillionꢀfor
theꢀwrite-offꢀofꢀrelatedꢀunamortizedꢀdebtꢀissuanceꢀcostsꢀandꢀfeesꢀinꢀtheꢀfourthꢀquarterꢀofꢀ2017ꢀandꢀapproximatelyꢀ$14.6ꢀmillion
forꢀtheꢀunamortizedꢀdeferredꢀfinancingꢀfeesꢀandꢀdiscountsꢀrelatedꢀtoꢀourꢀextinguishedꢀtermꢀloanꢀunderꢀtheꢀPriorꢀCreditꢀFacilityꢀand
theꢀredeemedꢀRefinancedꢀSecuredꢀNotesꢀinꢀtheꢀsecondꢀquarterꢀofꢀ2017.ꢀThereꢀwasꢀnoꢀlossꢀonꢀextinguishmentꢀofꢀdebtꢀinꢀtheꢀprior
yearꢀperiod.
Incomeꢀtaxꢀbenefitꢀwasꢀ$20.2ꢀmillionꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2017,ꢀasꢀcomparedꢀtoꢀanꢀincomeꢀtaxꢀprovisionꢀofꢀ$31.7
millionꢀinꢀtheꢀpriorꢀyearꢀperiod.ꢀTheꢀincomeꢀtaxꢀbenefitꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2017ꢀreflectedꢀanꢀeffectiveꢀincomeꢀtax
rateꢀofꢀ28.0%,ꢀwhichꢀwasꢀlessꢀthanꢀtheꢀstatutoryꢀfederalꢀrateꢀofꢀ35.0%ꢀprimarilyꢀdueꢀtoꢀaꢀdecreaseꢀinꢀtheꢀcarryingꢀvalueꢀofꢀour
deferredꢀtaxꢀliabilitiesꢀasꢀaꢀresultꢀofꢀtheꢀenactmentꢀofꢀtheꢀ2017ꢀTaxꢀAct,ꢀoffsetꢀbyꢀanꢀincreaseꢀinꢀtheꢀvaluationꢀallowanceꢀforꢀdeferred
taxꢀassets.ꢀTheꢀincomeꢀtaxꢀprovisionꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2016ꢀreflectedꢀaꢀnegativeꢀeffectiveꢀincomeꢀtaxꢀrateꢀofꢀ14.6%,
whichꢀwasꢀlessꢀthanꢀtheꢀstatutoryꢀfederalꢀrateꢀofꢀ35.0%,ꢀprimarilyꢀdueꢀtoꢀanꢀincreaseꢀinꢀourꢀvaluationꢀallowanceꢀforꢀdeferredꢀtax
assetsꢀandꢀtheꢀimpairmentꢀofꢀgoodwillꢀforꢀwhichꢀnoꢀtaxꢀbenefitꢀwasꢀprovidedꢀforꢀbookꢀpurposes.
Primarilyꢀasꢀaꢀresultꢀofꢀtheꢀforegoing,ꢀnetꢀlossꢀdecreasedꢀbyꢀ$197.6ꢀmillion,ꢀorꢀ79%,ꢀtoꢀ$51.9ꢀmillionꢀforꢀtheꢀyearꢀendedꢀDecember
31,ꢀ2017,ꢀasꢀcomparedꢀtoꢀtheꢀpriorꢀyearꢀperiod.
Critical Accounting Policies
TheꢀpreparationꢀofꢀourꢀfinancialꢀstatementsꢀinꢀconformityꢀwithꢀU.S.ꢀgenerallyꢀacceptedꢀaccountingꢀprinciplesꢀ(“GAAP”)ꢀrequires
usꢀtoꢀmakeꢀestimatesꢀandꢀassumptionsꢀthatꢀaffectꢀourꢀreportedꢀamountsꢀofꢀassetsꢀandꢀliabilities,ꢀrevenuesꢀandꢀexpenses,ꢀandꢀrelated
disclosuresꢀofꢀcontingentꢀassetsꢀandꢀliabilitiesꢀinꢀourꢀFinancialꢀStatements.ꢀTheꢀSECꢀhasꢀdefinedꢀcriticalꢀaccountingꢀpoliciesꢀas
theꢀonesꢀthatꢀareꢀmostꢀimportantꢀtoꢀtheꢀportrayalꢀofꢀtheꢀfinancialꢀconditionꢀandꢀresultsꢀofꢀoperations,ꢀandꢀwhichꢀrequireꢀmanagement
toꢀmakeꢀitsꢀmostꢀdifficultꢀandꢀsubjectiveꢀjudgments,ꢀoftenꢀasꢀaꢀresultꢀofꢀtheꢀneedꢀtoꢀmakeꢀestimatesꢀaboutꢀmattersꢀthatꢀareꢀinherently
uncertain.ꢀBasedꢀonꢀthisꢀdefinition,ꢀweꢀhaveꢀidentifiedꢀourꢀcriticalꢀaccountingꢀpoliciesꢀasꢀthoseꢀaddressedꢀbelow.ꢀWeꢀalsoꢀhave
otherꢀ keyꢀ accountingꢀ policiesꢀ thatꢀ involveꢀ theꢀ useꢀ ofꢀ estimates,ꢀ judgments,ꢀ andꢀ assumptions.ꢀ Referꢀ toꢀ “Noteꢀ 2ꢀ —ꢀ Basisꢀ of
PresentationꢀandꢀSummaryꢀofꢀSignificantꢀAccountingꢀPolicies”ꢀwithinꢀourꢀFinancialꢀStatementsꢀincludedꢀelsewhereꢀinꢀthisꢀAnnual
ReportꢀonꢀFormꢀ10-Kꢀforꢀaꢀsummaryꢀofꢀtheseꢀpolicies.ꢀWeꢀbelieveꢀthatꢀourꢀestimatesꢀandꢀassumptionsꢀareꢀreasonable,ꢀbasedꢀupon
informationꢀpresentlyꢀavailable;ꢀhowever,ꢀactualꢀresultsꢀmayꢀdifferꢀfromꢀtheseꢀestimatesꢀunderꢀdifferentꢀassumptionsꢀorꢀconditions.
Goodwill. Weꢀ hadꢀ approximatelyꢀ $640.5ꢀ millionꢀ ofꢀ goodwillꢀ onꢀ ourꢀ Balanceꢀ Sheetsꢀ atꢀ Decemberꢀ31,ꢀ 2018ꢀ resultingꢀ from
acquisitionsꢀofꢀotherꢀbusinesses.ꢀWeꢀtestꢀforꢀimpairmentꢀannuallyꢀonꢀaꢀreportingꢀunitꢀbasis,ꢀatꢀtheꢀbeginningꢀofꢀourꢀfourthꢀfiscal
quarter,ꢀorꢀmoreꢀoftenꢀunderꢀcertainꢀcircumstances.ꢀOurꢀreportingꢀunitsꢀareꢀidentifiedꢀasꢀoperatingꢀsegmentsꢀorꢀoneꢀlevelꢀbelow
andꢀweꢀevaluateꢀourꢀreportingꢀunitsꢀatꢀleastꢀannually.ꢀ
Theꢀannualꢀevaluationꢀofꢀgoodwillꢀrequiresꢀtheꢀuseꢀofꢀdifferentꢀassumptions,ꢀestimates,ꢀorꢀjudgmentsꢀinꢀtheꢀgoodwillꢀimpairment
testingꢀprocess,ꢀsuchꢀas:ꢀtheꢀmethodology,ꢀtheꢀestimatedꢀfutureꢀcashꢀflowsꢀofꢀourꢀreportingꢀunits,ꢀtheꢀdiscountꢀrateꢀusedꢀtoꢀdiscount
suchꢀcashꢀflows,ꢀandꢀtheꢀmarketꢀmultiplesꢀofꢀcomparableꢀcompanies.ꢀManagementꢀperformsꢀitsꢀannualꢀforecastingꢀprocess,ꢀwhich,
amongꢀotherꢀfactors,ꢀincludesꢀreviewingꢀrecentꢀhistoricalꢀresults,ꢀcompany-specificꢀvariables,ꢀandꢀindustryꢀtrends.ꢀThisꢀprocessꢀis
generallyꢀcompletedꢀinꢀtheꢀfourthꢀquarterꢀandꢀconsideredꢀinꢀconjunctionꢀwithꢀtheꢀannualꢀgoodwillꢀimpairmentꢀevaluation.ꢀ
Changesꢀinꢀforecastedꢀoperationsꢀcanꢀmateriallyꢀaffectꢀtheseꢀestimates,ꢀwhichꢀcouldꢀmateriallyꢀaffectꢀourꢀresultsꢀofꢀoperations.
Ourꢀestimatesꢀofꢀfairꢀvalueꢀrequireꢀsignificantꢀjudgmentꢀandꢀareꢀbasedꢀonꢀassumptionsꢀweꢀdeterminedꢀtoꢀbeꢀreasonable;ꢀhowever,
theyꢀareꢀunpredictableꢀandꢀinherentlyꢀuncertain,ꢀincluding:ꢀestimatesꢀofꢀfutureꢀgrowthꢀrates,ꢀoperatingꢀmargins,ꢀandꢀassumptions
aboutꢀtheꢀoverallꢀeconomicꢀclimateꢀasꢀwellꢀasꢀtheꢀcompetitiveꢀenvironmentꢀforꢀourꢀreportingꢀunits.ꢀ
41
Thereꢀcanꢀbeꢀnoꢀassuranceꢀthatꢀourꢀestimatesꢀandꢀassumptionsꢀmadeꢀforꢀpurposesꢀofꢀourꢀgoodwillꢀtestingꢀasꢀofꢀtheꢀtimeꢀofꢀtesting
willꢀproveꢀtoꢀbeꢀaccurateꢀpredictionsꢀofꢀtheꢀfuture.ꢀIfꢀourꢀassumptionsꢀregardingꢀbusinessꢀplans,ꢀcompetitiveꢀenvironments,ꢀor
anticipatedꢀgrowthꢀratesꢀareꢀnotꢀcorrect,ꢀweꢀmayꢀbeꢀrequiredꢀtoꢀrecordꢀgoodwillꢀimpairmentꢀchargesꢀinꢀfutureꢀperiods,ꢀwhetherꢀin
connectionꢀwithꢀourꢀnextꢀannualꢀimpairmentꢀtesting,ꢀorꢀearlier,ꢀifꢀanꢀindicatorꢀofꢀanꢀimpairmentꢀisꢀpresentꢀpriorꢀtoꢀourꢀnextꢀannual
evaluation.
Property, Equipment, Leased Assets, and Other Intangible Assets. Weꢀ haveꢀ approximatelyꢀ $116.3ꢀ millionꢀ inꢀ netꢀ property,
equipment,ꢀandꢀleasedꢀassetsꢀandꢀapproximatelyꢀ$287.4ꢀmillionꢀinꢀnetꢀunamortizedꢀotherꢀintangibleꢀassetsꢀonꢀourꢀBalanceꢀSheets
atꢀDecemberꢀ31,ꢀ2018.ꢀSuchꢀassetsꢀareꢀstatedꢀatꢀcost,ꢀlessꢀaccumulatedꢀdepreciationꢀorꢀamortization,ꢀcomputedꢀprimarilyꢀusing
theꢀstraight-lineꢀmethodꢀoverꢀtheꢀestimatedꢀusefulꢀlivesꢀofꢀsuchꢀassets.ꢀWeꢀapplyꢀjudgmentꢀinꢀtheꢀdeterminationꢀofꢀtheꢀusefulꢀlives,
whichꢀareꢀgenerallyꢀbasedꢀonꢀtheꢀnatureꢀofꢀtheꢀassetsꢀandꢀtheꢀunderlyingꢀcontractualꢀobligationsꢀforꢀcertainꢀassets.
Property,ꢀequipment,ꢀleasedꢀassets,ꢀandꢀotherꢀintangibleꢀassetsꢀareꢀreviewedꢀforꢀimpairmentꢀwheneverꢀeventsꢀorꢀcircumstances
indicateꢀthatꢀtheꢀcarryingꢀamountꢀofꢀanꢀassetꢀmayꢀnotꢀbeꢀrecoverable.ꢀSuchꢀeventsꢀorꢀcircumstancesꢀinclude,ꢀbutꢀareꢀnotꢀlimited
to,ꢀaꢀsignificantꢀdecreaseꢀinꢀtheꢀfairꢀvalueꢀofꢀtheꢀunderlyingꢀbusinessꢀorꢀmarketꢀpriceꢀofꢀtheꢀasset,ꢀaꢀsignificantꢀadverseꢀchangeꢀin
legalꢀfactorsꢀorꢀbusinessꢀclimateꢀthatꢀcouldꢀaffectꢀtheꢀvalueꢀofꢀanꢀasset,ꢀorꢀaꢀcurrentꢀperiodꢀoperatingꢀorꢀcashꢀflowꢀlossꢀcombined
withꢀaꢀhistoryꢀofꢀoperatingꢀorꢀcashꢀflowꢀlosses.ꢀImpairmentꢀisꢀindicatedꢀwhenꢀundiscountedꢀfutureꢀcashꢀflowsꢀdoꢀnotꢀexceedꢀthe
carryingꢀvalueꢀofꢀtheꢀasset.ꢀAnyꢀimpairmentꢀtoꢀbeꢀrecognizedꢀisꢀmeasuredꢀbyꢀtheꢀamountꢀbyꢀwhichꢀtheꢀcarryingꢀamountꢀofꢀthe
assetsꢀexceedsꢀtheꢀfairꢀvalueꢀofꢀtheꢀassets.ꢀDeterminationꢀofꢀtheꢀamountꢀandꢀtimingꢀofꢀfutureꢀcashꢀflowsꢀrequiresꢀsignificantꢀestimates
andꢀassumptions.ꢀIfꢀactualꢀresultsꢀdifferꢀfromꢀsuchꢀestimatesꢀandꢀassumptions,ꢀthisꢀmayꢀhaveꢀaꢀmaterialꢀimpactꢀonꢀourꢀconclusions.
Income Taxes. WeꢀareꢀsubjectꢀtoꢀincomeꢀtaxesꢀinꢀtheꢀUnitedꢀStatesꢀasꢀwellꢀasꢀvariousꢀstatesꢀandꢀforeignꢀjurisdictionsꢀinꢀwhichꢀwe
operate.ꢀDueꢀtoꢀtheꢀ2017ꢀTaxꢀAct,ꢀthereꢀisꢀnoꢀU.S.ꢀfederalꢀtaxꢀonꢀcashꢀrepatriationꢀfromꢀforeignꢀsubsidiaries;ꢀhowever,ꢀweꢀcould
beꢀsubjectꢀtoꢀforeignꢀwithholdingꢀtaxꢀandꢀU.S.ꢀstateꢀincomeꢀtaxes.ꢀTheꢀ2017ꢀTaxꢀActꢀalsoꢀsubjectsꢀourꢀforeignꢀsubsidiaryꢀearnings
toꢀtheꢀGILTIꢀtaxꢀprovisions.ꢀSomeꢀitemsꢀofꢀincomeꢀandꢀexpenseꢀareꢀnotꢀreportedꢀinꢀtaxꢀreturnsꢀandꢀourꢀFinancialꢀStatementsꢀin
theꢀsameꢀyear.ꢀTheꢀtaxꢀeffectꢀofꢀsuchꢀtemporaryꢀdifferencesꢀisꢀreportedꢀasꢀdeferredꢀincomeꢀtaxes.ꢀ
Ourꢀincomeꢀtaxꢀreturnsꢀareꢀsubjectꢀtoꢀexaminationꢀbyꢀvariousꢀtaxꢀauthoritiesꢀandꢀwhileꢀweꢀbelieveꢀthatꢀtheꢀpositionsꢀtakenꢀinꢀour
taxꢀreturnsꢀareꢀinꢀaccordanceꢀwithꢀtheꢀapplicableꢀlaws,ꢀtheyꢀmayꢀbeꢀchallengedꢀbyꢀtheꢀtaxꢀauthorities,ꢀwhichꢀmayꢀoccurꢀseveral
yearsꢀafterꢀsuchꢀtaxꢀreturnsꢀhaveꢀbeenꢀfiled.ꢀWeꢀaccountꢀforꢀuncertaintyꢀinꢀincomeꢀtaxꢀpositionsꢀbyꢀevaluatingꢀwhetherꢀitꢀisꢀmore
likelyꢀthanꢀnotꢀthatꢀtheꢀpositionꢀwillꢀbeꢀsustainedꢀuponꢀexaminationꢀbyꢀtaxingꢀauthoritiesꢀbasedꢀonꢀtheꢀtechnicalꢀmeritsꢀofꢀtheꢀissue.
TheꢀamountꢀrecognizedꢀinꢀourꢀFinancialꢀStatementsꢀisꢀtheꢀlargestꢀbenefitꢀthatꢀweꢀbelieveꢀhasꢀgreaterꢀthanꢀaꢀ50%ꢀlikelihoodꢀof
beingꢀrealizedꢀuponꢀsettlement.ꢀActualꢀincomeꢀtaxesꢀpaidꢀmayꢀvaryꢀfromꢀestimatesꢀdependingꢀuponꢀchangesꢀinꢀincomeꢀtaxꢀlaws,
actualꢀresultsꢀofꢀoperations,ꢀandꢀtheꢀfinalꢀauditꢀofꢀtaxꢀreturnsꢀbyꢀtaxingꢀauthorities.ꢀ
Weꢀrecognizeꢀdeferredꢀtaxꢀassets,ꢀwhichꢀgenerallyꢀrepresentꢀtaxꢀbenefitsꢀrelatedꢀtoꢀtaxꢀdeductionsꢀorꢀcreditsꢀavailableꢀinꢀfutureꢀtax
returns,ꢀandꢀapplyꢀaꢀvaluationꢀallowanceꢀtoꢀreduceꢀourꢀdeferredꢀtaxꢀassetsꢀtoꢀtheꢀamountsꢀthatꢀareꢀmoreꢀlikelyꢀthanꢀnotꢀtoꢀbeꢀrealized.
Theꢀassessmentꢀofꢀtheꢀvaluationꢀallowanceꢀinvolvesꢀsignificantꢀestimatesꢀregardingꢀfutureꢀtaxableꢀincomeꢀandꢀwhenꢀitꢀisꢀrecognized,
theꢀ amountꢀ andꢀ timingꢀ ofꢀ taxableꢀ differences,ꢀ theꢀ reversalꢀ ofꢀ temporaryꢀ differencesꢀ andꢀ theꢀ implementationꢀ ofꢀ tax-planning
strategies.ꢀAꢀvaluationꢀallowanceꢀisꢀestablishedꢀbasedꢀonꢀtheꢀweightꢀofꢀavailableꢀevidence,ꢀincludingꢀbothꢀpositiveꢀandꢀnegative
indicators,ꢀifꢀitꢀisꢀmoreꢀlikelyꢀthanꢀnotꢀthatꢀaꢀportion,ꢀorꢀall,ꢀofꢀtheꢀdeferredꢀtaxꢀassetsꢀwillꢀnotꢀbeꢀrealized.ꢀInꢀaddition,ꢀweꢀrelyꢀon
deferredꢀtaxꢀliabilitiesꢀinꢀourꢀassessmentꢀofꢀtheꢀrealizabilityꢀofꢀdeferredꢀtaxꢀassetsꢀifꢀtheꢀtemporaryꢀdifferencesꢀareꢀanticipatedꢀto
reverseꢀinꢀtheꢀsameꢀperiodꢀandꢀjurisdictionꢀandꢀtheꢀdeferredꢀtaxꢀliabilitiesꢀareꢀofꢀtheꢀsameꢀcharacterꢀasꢀtheꢀtemporaryꢀdifferences
givingꢀriseꢀtoꢀtheꢀdeferredꢀtaxꢀassets.ꢀ
Revenue Recognition. Weꢀrecognizeꢀrevenueꢀuponꢀtransferringꢀcontrolꢀofꢀgoodsꢀorꢀservicesꢀtoꢀourꢀcustomersꢀinꢀanꢀamountꢀthat
reflectsꢀtheꢀconsiderationꢀweꢀexpectꢀtoꢀreceiveꢀinꢀexchangeꢀforꢀthoseꢀgoodsꢀorꢀservices.ꢀWeꢀenterꢀintoꢀcontractsꢀwithꢀcustomers
thatꢀincludeꢀvariousꢀperformanceꢀobligationsꢀconsistingꢀofꢀgoods,ꢀservices,ꢀorꢀcombinationsꢀofꢀgoodsꢀandꢀservices.ꢀTimingꢀofꢀthe
transferꢀofꢀcontrolꢀvariesꢀbasedꢀonꢀtheꢀnatureꢀofꢀtheꢀcontract.ꢀ
TheꢀguidanceꢀinꢀASCꢀ606ꢀrequiresꢀthatꢀweꢀdiscloseꢀsignificantꢀjudgmentsꢀandꢀestimatesꢀusedꢀinꢀdeterminationꢀofꢀourꢀrevenue
recognitionꢀ policyꢀ disclosedꢀ inꢀ “Noteꢀ 2ꢀ —ꢀ Basisꢀ ofꢀ Presentationꢀ andꢀ Summaryꢀ ofꢀ SignificantꢀAccountingꢀ Policiesꢀ –ꢀ Recent
AccountingꢀGuidanceꢀ–ꢀRecentꢀAccountingꢀGuidanceꢀNotꢀYetꢀAdopted,”ꢀincludingꢀthoseꢀrelatedꢀtoꢀdeterminationꢀofꢀperformance
obligations,ꢀ theꢀ timingꢀ ofꢀ satisfactionꢀ ofꢀ suchꢀ performanceꢀ obligations,ꢀ andꢀ theꢀ stand-aloneꢀ sellingꢀ priceꢀ ofꢀ eachꢀ identified
performanceꢀobligation.ꢀTheꢀcriticalꢀjudgmentsꢀthatꢀweꢀareꢀrequiredꢀtoꢀmakeꢀinꢀourꢀassessmentꢀofꢀcontractsꢀwithꢀcustomersꢀand
whichꢀmayꢀhaveꢀaꢀmaterialꢀimpactꢀonꢀtheꢀamountꢀorꢀtimingꢀofꢀrevenueꢀrecognizedꢀinclude:
42
•
•
Determinationꢀofꢀstand-aloneꢀsellingꢀpriceꢀ(“SSP”)ꢀ-ꢀWeꢀareꢀrequiredꢀtoꢀmakeꢀaꢀsignificantꢀjudgmentꢀasꢀtoꢀwhetherꢀthere
isꢀaꢀsufficientꢀquantityꢀofꢀitemsꢀsoldꢀorꢀrenewedꢀonꢀaꢀstand-aloneꢀbasisꢀandꢀthoseꢀpricesꢀdemonstrateꢀanꢀappropriateꢀlevel
ofꢀconcentrationꢀtoꢀconcludeꢀthatꢀaꢀSSPꢀexists.ꢀTheꢀSSPꢀofꢀourꢀgoodsꢀandꢀservicesꢀareꢀgenerallyꢀdeterminedꢀbasedꢀon
observableꢀ prices,ꢀ anꢀ adjustedꢀ marketꢀ assessmentꢀ approach,ꢀ orꢀ anꢀ expectedꢀ costꢀ plusꢀ marginꢀ approach.ꢀWeꢀ utilizeꢀ a
residualꢀapproachꢀonlyꢀwhenꢀtheꢀSSPꢀforꢀperformanceꢀobligationsꢀwithꢀobservableꢀpricesꢀhaveꢀbeenꢀestablishedꢀandꢀthe
remainingꢀperformanceꢀobligationꢀinꢀtheꢀcontractꢀwithꢀaꢀcustomerꢀdoesꢀnotꢀhaveꢀanꢀobservableꢀpriceꢀasꢀitꢀisꢀuncertainꢀor
highlyꢀvariableꢀand,ꢀtherefore,ꢀisꢀnotꢀdiscernible.
Contractꢀ combinationsꢀ withꢀ multipleꢀ promisedꢀ goodsꢀ orꢀ servicesꢀ -ꢀ Ourꢀ contractsꢀ mayꢀ includeꢀ variousꢀ performance
obligationsꢀforꢀpromisesꢀtoꢀtransferꢀmultipleꢀgoodsꢀandꢀservicesꢀtoꢀaꢀcustomer,ꢀespeciallyꢀsinceꢀourꢀGamesꢀandꢀFinTech
businessesꢀmayꢀenterꢀintoꢀmultipleꢀagreementsꢀwithꢀtheꢀsameꢀcustomerꢀthatꢀmeetꢀtheꢀcriteriaꢀtoꢀbeꢀcombinedꢀforꢀaccounting
purposesꢀunderꢀASCꢀ606.ꢀForꢀsuchꢀarrangements,ꢀweꢀuseꢀourꢀjudgmentꢀtoꢀanalyzeꢀtheꢀnatureꢀofꢀtheꢀpromisesꢀmadeꢀand
determineꢀwhetherꢀeachꢀisꢀdistinctꢀorꢀshouldꢀbeꢀcombinedꢀwithꢀotherꢀpromisesꢀinꢀtheꢀcontractꢀbasedꢀonꢀtheꢀlevelꢀof
integrationꢀandꢀinterdependencyꢀbetweenꢀtheꢀindividualꢀdeliverables.
Recent Accounting Guidance
Forꢀaꢀdescriptionꢀofꢀourꢀrecentlyꢀadoptedꢀaccountingꢀguidanceꢀandꢀrecentꢀaccountingꢀguidanceꢀnotꢀyetꢀadopted,ꢀseeꢀ“Noteꢀ2ꢀ—
BasisꢀofꢀPresentationꢀandꢀSummaryꢀofꢀSignificantꢀAccountingꢀPoliciesꢀ—ꢀRecentꢀAccountingꢀGuidance”ꢀwithinꢀourꢀFinancial
StatementsꢀincludedꢀelsewhereꢀinꢀthisꢀAnnualꢀReportꢀonꢀFormꢀ10-K.
Liquidity and Capital Resources
Overview
Theꢀfollowingꢀtableꢀpresentsꢀselectedꢀinformationꢀaboutꢀourꢀfinancialꢀpositionꢀ(inꢀthousands):ꢀ
Balance sheet data
Totalꢀassets
Totalꢀborrowings
Totalꢀstockholders’ꢀdeficit
Cash available
Cashꢀandꢀcashꢀequivalents
Settlementꢀreceivables
Settlementꢀliabilities
Net cash position(1)
Undrawnꢀrevolvingꢀcreditꢀfacility
Net cash available(1)
ꢀ
At December 31,
2018
2017
$
$
$
$
1,548,261
1,163,216
(108,895)
297,532
82,359
(334,198)
45,693
35,000
$
80,693
$
1,537,074
1,167,843
(140,633)
128,586
227,403
(317,744)
38,245
35,000
73,245
(1) Non‑GAAPꢀmeasure.ꢀInꢀorderꢀtoꢀenhanceꢀinvestorꢀunderstandingꢀofꢀourꢀcashꢀbalance,ꢀweꢀareꢀprovidingꢀinꢀthisꢀAnnualꢀReport
onꢀFormꢀ10-Kꢀnetꢀcashꢀpositionꢀandꢀnetꢀcashꢀavailable,ꢀwhichꢀareꢀnotꢀmeasuresꢀofꢀourꢀfinancialꢀperformanceꢀorꢀpositionꢀunder
GAAP.ꢀAccordingly,ꢀtheseꢀmeasuresꢀshouldꢀnotꢀbeꢀconsideredꢀinꢀisolationꢀorꢀasꢀaꢀsubstituteꢀfor,ꢀandꢀshouldꢀbeꢀreadꢀinꢀconjunction
with,ꢀourꢀcashꢀandꢀcashꢀequivalentsꢀpreparedꢀinꢀaccordanceꢀwithꢀGAAP.ꢀWeꢀdefineꢀ(i)ꢀnetꢀcashꢀpositionꢀasꢀcashꢀandꢀcash
equivalentsꢀplusꢀsettlementꢀreceivablesꢀlessꢀsettlementꢀliabilitiesꢀandꢀ(ii)ꢀnetꢀcashꢀavailableꢀasꢀnetꢀcashꢀpositionꢀplusꢀundrawn
amountsꢀavailableꢀunderꢀourꢀNewꢀRevolvingꢀCreditꢀFacilityꢀ(definedꢀherein).ꢀWeꢀpresentꢀnetꢀcashꢀpositionꢀbecauseꢀourꢀcash
position,ꢀasꢀmeasuredꢀbyꢀcashꢀandꢀcashꢀequivalents,ꢀdependsꢀuponꢀchangesꢀinꢀsettlementꢀreceivablesꢀandꢀtheꢀtimingꢀofꢀpayments
relatedꢀtoꢀsettlementꢀliabilities.ꢀAsꢀsuch,ꢀourꢀcashꢀandꢀcashꢀequivalentsꢀcanꢀchangeꢀsubstantiallyꢀbasedꢀuponꢀtheꢀtimingꢀofꢀour
receiptꢀofꢀpaymentsꢀforꢀsettlementꢀreceivablesꢀandꢀpaymentsꢀweꢀmakeꢀtoꢀcustomersꢀforꢀourꢀsettlementꢀliabilities.ꢀWeꢀpresent
netꢀcashꢀavailableꢀasꢀmanagementꢀmonitorsꢀthisꢀamountꢀinꢀconnectionꢀwithꢀitsꢀforecastingꢀofꢀcashꢀflowsꢀandꢀfutureꢀcash
requirements,ꢀbothꢀonꢀshortꢀtermꢀandꢀlongꢀtermꢀbasis.ꢀ
43
Cash Resources
Ourꢀcashꢀbalance,ꢀcashꢀflowsꢀandꢀlineꢀofꢀcreditꢀareꢀexpectedꢀtoꢀbeꢀsufficientꢀtoꢀmeetꢀourꢀrecurringꢀoperatingꢀcommitmentsꢀandꢀto
fundꢀourꢀplannedꢀcapitalꢀexpendituresꢀforꢀtheꢀforeseeableꢀfuture.ꢀCashꢀandꢀcashꢀequivalentsꢀatꢀDecemberꢀ31,ꢀ2018ꢀincludedꢀcash
inꢀnon‑U.S.ꢀjurisdictionsꢀofꢀapproximatelyꢀ$21.8ꢀmillion.ꢀGenerally,ꢀtheseꢀfundsꢀareꢀavailableꢀforꢀoperatingꢀandꢀinvestmentꢀpurposes
withinꢀtheꢀjurisdictionꢀinꢀwhichꢀtheyꢀreside,ꢀandꢀasꢀaꢀresultꢀofꢀtheꢀ2017ꢀTaxꢀAct,ꢀenactedꢀonꢀDecemberꢀ22,ꢀ2017,ꢀweꢀwillꢀnotꢀbe
subjectꢀtoꢀadditionalꢀtaxationꢀifꢀweꢀrepatriateꢀforeignꢀfundsꢀtoꢀtheꢀUnitedꢀStates,ꢀexceptꢀforꢀpotentialꢀwithholdingꢀtax.
Weꢀexpectꢀthatꢀcashꢀprovidedꢀbyꢀoperatingꢀactivitiesꢀwillꢀbeꢀsufficientꢀforꢀourꢀoperatingꢀandꢀdebtꢀservicingꢀneedsꢀduringꢀthe
foreseeableꢀfuture.ꢀIfꢀnot,ꢀweꢀhaveꢀsufficientꢀborrowingsꢀavailableꢀunderꢀourꢀNewꢀCreditꢀFacilitiesꢀtoꢀmeetꢀadditionalꢀfunding
requirements.ꢀWeꢀmonitorꢀtheꢀfinancialꢀstrengthꢀofꢀourꢀlendersꢀonꢀanꢀongoingꢀbasisꢀusingꢀpublicly-availableꢀinformation.ꢀBased
uponꢀthatꢀinformation,ꢀweꢀbelieveꢀthereꢀisꢀnotꢀaꢀlikelihoodꢀthatꢀanyꢀofꢀourꢀlendersꢀmightꢀnotꢀbeꢀableꢀtoꢀhonorꢀtheirꢀcommitments
underꢀtheꢀCreditꢀAgreement.ꢀ
Weꢀprovideꢀcashꢀsettlementꢀservicesꢀtoꢀgamingꢀestablishmentsꢀrelatedꢀtoꢀourꢀcashꢀaccessꢀservices,ꢀwhichꢀinvolveꢀtheꢀmovement
ofꢀfundsꢀbetweenꢀvariousꢀpartiesꢀinvolvedꢀinꢀtheseꢀtypesꢀofꢀtransactions.ꢀWeꢀreceiveꢀreimbursementꢀfromꢀtheꢀpatron’sꢀcreditꢀor
debitꢀcardꢀissuingꢀfinancialꢀinstitutionꢀforꢀtheꢀamountꢀowedꢀtoꢀtheꢀgamingꢀestablishmentꢀplusꢀtheꢀfeeꢀchargedꢀtoꢀtheꢀpatron.ꢀThese
activitiesꢀresultꢀinꢀamountsꢀdueꢀtoꢀusꢀatꢀtheꢀendꢀofꢀeachꢀbusinessꢀdayꢀthatꢀweꢀgenerallyꢀrecoverꢀoverꢀtheꢀnextꢀfewꢀbusinessꢀdays,
whichꢀareꢀclassifiedꢀasꢀsettlementꢀreceivablesꢀonꢀourꢀBalanceꢀSheets.ꢀꢀAsꢀofꢀDecemberꢀ31,ꢀ2018,ꢀweꢀhadꢀ$82.4ꢀmillionꢀinꢀsettlement
receivables.ꢀInꢀaddition,ꢀcashꢀsettlementꢀservicesꢀresultꢀinꢀamountsꢀdueꢀtoꢀgamingꢀestablishmentsꢀforꢀtheꢀcashꢀdisbursedꢀtoꢀpatrons
throughꢀtheꢀissuanceꢀofꢀaꢀnegotiableꢀinstrumentꢀorꢀthroughꢀelectronicꢀsettlementꢀforꢀtheꢀfaceꢀamountꢀprovidedꢀtoꢀpatronsꢀthatꢀwe
generallyꢀ remitꢀ overꢀ theꢀ nextꢀ fewꢀ businessꢀ days,ꢀ whichꢀ areꢀ classifiedꢀ asꢀ settlementꢀ liabilitiesꢀ onꢀ ourꢀ Balanceꢀ Sheets.ꢀAsꢀ of
Decemberꢀ31,ꢀ2018,ꢀweꢀhadꢀ$334.2ꢀmillionꢀinꢀsettlementꢀliabilities.ꢀAsꢀtheꢀtimingꢀofꢀcashꢀreceivedꢀfromꢀcashꢀsettlementꢀservices
mayꢀdiffer,ꢀtheꢀtotalꢀamountꢀofꢀcashꢀheldꢀbyꢀusꢀwillꢀfluctuateꢀthroughoutꢀtheꢀyear.
Ourꢀ cashꢀ andꢀ cashꢀ equivalentsꢀ wereꢀ $297.5ꢀ millionꢀ andꢀ $128.6ꢀ millionꢀ asꢀ ofꢀ Decemberꢀ31,ꢀ 2018ꢀ andꢀ Decemberꢀ31,ꢀ 2017,
respectively.ꢀOurꢀnetꢀcashꢀpositionꢀafterꢀconsideringꢀtheꢀimpactꢀofꢀsettlementꢀreceivablesꢀandꢀsettlementꢀliabilitiesꢀwasꢀ$45.7
millionꢀandꢀ$38.2ꢀmillionꢀasꢀofꢀDecemberꢀ31,ꢀ2018ꢀandꢀDecemberꢀ31,ꢀ2017,ꢀrespectively.ꢀOurꢀnetꢀcashꢀavailableꢀafterꢀconsidering
theꢀnetꢀcashꢀpositionꢀandꢀundrawnꢀamountsꢀavailableꢀunderꢀourꢀNewꢀRevolvingꢀCreditꢀFacilityꢀwasꢀapproximatelyꢀ$80.7ꢀmillion
andꢀ$73.2ꢀmillionꢀasꢀofꢀDecemberꢀ31,ꢀ2018ꢀandꢀDecemberꢀ31,ꢀ2017,ꢀrespectively.
Cash Flows
TheꢀfollowingꢀtableꢀsummarizesꢀourꢀcashꢀflowsꢀforꢀtheꢀyearsꢀendedꢀDecemberꢀ31,ꢀ2018,ꢀ2017ꢀandꢀ2016ꢀ(inꢀthousands):ꢀ
Year Ended December 31,
Increase/(Decrease)
2018
2017
2016
2018 vs 2017
2017 vs 2016
Cash flow activities
Netꢀcashꢀprovidedꢀbyꢀoperatingꢀactivities
Netꢀcashꢀusedꢀinꢀinvestingꢀactivities
Netꢀcashꢀprovidedꢀbyꢀ(usedꢀin)ꢀfinancingꢀactivities
Effectꢀofꢀexchangeꢀratesꢀonꢀcash
$
$
294,286
(123,350)
11
(1,370)
$
96,259
(109,780)
22,394
1,292
$
131,899
(88,148)
(24,922)
(1,714)
$
198,027
(13,570)
(22,383)
(2,662)
(35,640)
(21,632)
47,316
3,006
Cash and cash equivalents
Netꢀincreaseꢀforꢀtheꢀperiod
Balance,ꢀbeginningꢀofꢀtheꢀperiod
Balance, end of the period
169,577
129,604
10,165
119,439
17,115
102,324
159,412
10,165
(6,950)
17,115
$
299,181
$
129,604
$
119,439
$
169,577
$
10,165
Cashꢀflowsꢀprovidedꢀbyꢀoperatingꢀactivitiesꢀwereꢀ$294.3ꢀmillion,ꢀ$96.3ꢀmillion,ꢀandꢀ$131.9ꢀmillionꢀforꢀtheꢀyearsꢀendedꢀDecember
31,ꢀ2018,ꢀ2017,ꢀandꢀ2016,ꢀrespectively.ꢀCashꢀflowsꢀprovidedꢀbyꢀoperatingꢀactivitiesꢀincreasedꢀbyꢀ$198.0ꢀmillionꢀforꢀtheꢀyearꢀended
Decemberꢀ31,ꢀ2018,ꢀasꢀcomparedꢀtoꢀtheꢀpriorꢀyearꢀperiod,ꢀprimarilyꢀattributableꢀtoꢀtheꢀchangesꢀinꢀworkingꢀcapitalꢀassociatedꢀwith
cashꢀsettlementꢀservicesꢀfromꢀourꢀFinTechꢀsegment,ꢀandꢀtheꢀreductionꢀinꢀcashꢀpaidꢀforꢀinterest.ꢀCashꢀflowsꢀprovidedꢀbyꢀoperating
activitiesꢀdecreasedꢀbyꢀ$35.6ꢀmillionꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2017,ꢀasꢀcomparedꢀtoꢀtheꢀpriorꢀyearꢀperiod.ꢀThisꢀwas
primarilyꢀattributableꢀtoꢀtheꢀchangesꢀinꢀworkingꢀcapitalꢀassociatedꢀwithꢀsettlementꢀreceivablesꢀandꢀsettlementꢀliabilitiesꢀfromꢀour
FinTechꢀsegment.
Cashꢀflowsꢀusedꢀinꢀinvestingꢀactivitiesꢀwereꢀ$123.4ꢀmillion,ꢀ$109.8ꢀmillion,ꢀandꢀ$88.1ꢀmillionꢀforꢀtheꢀyearsꢀendedꢀDecemberꢀ31,
2018,ꢀ2017,ꢀandꢀ2016,ꢀrespectively.ꢀCashꢀflowsꢀusedꢀinꢀinvestingꢀactivitiesꢀincreasedꢀbyꢀ$13.6ꢀmillionꢀforꢀtheꢀyearꢀendedꢀDecember
44
31,ꢀ2018,ꢀasꢀcomparedꢀtoꢀtheꢀpriorꢀyearꢀperiod,ꢀprimarilyꢀattributableꢀtoꢀanꢀincreaseꢀinꢀcapitalꢀexpenditures,ꢀandꢀhigherꢀplacement
feeꢀarrangementsꢀinꢀourꢀGamesꢀsegment.ꢀCashꢀflowsꢀusedꢀinꢀinvestingꢀactivitiesꢀincreasedꢀbyꢀ$21.6ꢀmillionꢀforꢀtheꢀyearꢀended
Decemberꢀ31,ꢀ2017,ꢀasꢀcomparedꢀtoꢀtheꢀpriorꢀyearꢀperiod.ꢀThisꢀwasꢀprimarilyꢀattributableꢀtoꢀanꢀincreaseꢀinꢀcapitalꢀexpenditures,
higherꢀplacementꢀfeeꢀarrangementsꢀinꢀourꢀGamesꢀsegment,ꢀandꢀdecreasedꢀsalesꢀofꢀfixedꢀassets.
Cashꢀflowsꢀprovidedꢀbyꢀfinancingꢀactivitiesꢀwereꢀ$11,000ꢀandꢀ$22.4ꢀmillionꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2018ꢀandꢀ2017,
respectively,ꢀcomparedꢀtoꢀ$24.9ꢀmillionꢀofꢀcashꢀflowsꢀusedꢀinꢀfinancingꢀactivitiesꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2016.ꢀCash
flowsꢀprovidedꢀbyꢀfinancingꢀactivitiesꢀdecreasedꢀbyꢀ$22.4ꢀmillionꢀinꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2018,ꢀasꢀcomparedꢀtoꢀtheꢀprior
yearꢀperiod,ꢀprimarilyꢀattributableꢀtoꢀlessꢀdebtꢀrestructuringꢀactivitiesꢀcompletedꢀinꢀ2018.ꢀCashꢀflowsꢀprovidedꢀbyꢀfinancingꢀactivities
increasedꢀbyꢀ$47.3ꢀmillionꢀinꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2017,ꢀasꢀcomparedꢀtoꢀtheꢀpriorꢀperiod.ꢀThisꢀwasꢀprimarilyꢀattributable
toꢀourꢀdebtꢀrestructuringꢀactivitiesꢀcompletedꢀinꢀ2017ꢀandꢀanꢀincreaseꢀinꢀproceedsꢀfromꢀtheꢀexerciseꢀofꢀstockꢀoptions.ꢀ
Weꢀhaveꢀnotꢀdeclaredꢀorꢀpaidꢀanyꢀcashꢀdividendsꢀonꢀourꢀcapitalꢀstockꢀasꢀweꢀintendꢀtoꢀretainꢀourꢀearningsꢀandꢀutilizeꢀthemꢀforꢀthe
repaymentꢀofꢀoutstandingꢀdebtꢀandꢀtoꢀfinanceꢀtheꢀgrowthꢀandꢀdevelopmentꢀofꢀourꢀbusiness.ꢀAnyꢀfutureꢀchangeꢀinꢀourꢀdividend
policyꢀwillꢀbeꢀmadeꢀatꢀtheꢀdiscretionꢀofꢀourꢀBoardꢀofꢀDirectors,ꢀandꢀwillꢀdependꢀonꢀourꢀcontractualꢀrestrictions,ꢀresultsꢀofꢀoperations,
earnings,ꢀ capitalꢀ requirements,ꢀ andꢀ otherꢀ factorsꢀ consideredꢀ relevantꢀ byꢀ ourꢀ Boardꢀ ofꢀ Directors.ꢀ Inꢀ addition,ꢀ theꢀ Newꢀ Credit
Facilitiesꢀandꢀtheꢀindentureꢀgoverningꢀtheꢀ2017ꢀUnsecuredꢀNotesꢀlimitꢀourꢀabilityꢀtoꢀdeclareꢀandꢀpayꢀcashꢀdividends.
Long‑Term Debt
Forꢀadditionalꢀinformationꢀregardingꢀourꢀcreditꢀagreementꢀandꢀotherꢀdebtꢀasꢀwellꢀasꢀinterestꢀrateꢀriskꢀseeꢀ“ContractualꢀObligations”
inꢀ thisꢀ Itemꢀ 7ꢀ below,ꢀ Partꢀ II,ꢀ Itemꢀ 7Aꢀ “Quantitativeꢀ andꢀ Qualitativeꢀ DisclosuresꢀAboutꢀ Marketꢀ Risk,”ꢀ andꢀ Itemꢀ 8.ꢀ Financial
StatementsꢀandꢀSupplementaryꢀDataꢀ“Noteꢀ12ꢀ—ꢀLong-TermꢀDebt.”
Contractual Obligations
Theꢀfollowingꢀsummarizesꢀourꢀcontractualꢀcashꢀobligationsꢀ(inꢀthousands):ꢀ
Total
2019
2020
At December 31,
2021
2022
2023
Thereafter
Contractual obligations
Debtꢀobligations(1)
Estimatedꢀinterestꢀobligations(2)
Operatingꢀleaseꢀobligations(3)
Purchaseꢀobligations(4)
Total contractual obligations
$ 1,182,700
435,709
19,721
66,463
$ 1,704,593
$
8,200
73,566
5,570
$
8,200
73,186
5,680
$
8,200
72,769
4,598
$
8,200
72,189
2,799
$
8,200
71,730
1,074
56,233
$ 143,569
7,887
$ 94,953
1,835
$ 87,402
508
$ 83,696
—
$ 81,004
$ 1,141,700
72,269
—
—
$ 1,213,969
ꢀ
(1) Weꢀareꢀrequiredꢀtoꢀmakeꢀprincipalꢀpaymentsꢀofꢀ0.25%ꢀperꢀquarterꢀofꢀtheꢀinitialꢀaggregateꢀprincipal,ꢀwithꢀtheꢀfinalꢀprincipal
repaymentꢀinstallmentꢀonꢀtheꢀmaturityꢀdateꢀandꢀmayꢀalsoꢀbeꢀrequiredꢀtoꢀmakeꢀanꢀexcessꢀcashꢀflowꢀpaymentꢀthatꢀisꢀbasedꢀon
fullꢀyearꢀendꢀearningsꢀandꢀourꢀconsolidatedꢀsecuredꢀleverageꢀratioꢀinꢀeffectꢀatꢀthatꢀtime.ꢀTheꢀaboveꢀtableꢀdoesꢀnotꢀreflectꢀany
futureꢀpaymentsꢀrelatedꢀtoꢀexcessꢀcashꢀflowꢀpayments.
(2) EstimatedꢀinterestꢀpaymentsꢀwereꢀcomputedꢀusingꢀtheꢀinterestꢀrateꢀinꢀeffectꢀatꢀDecemberꢀ31,ꢀ2018ꢀmultipliedꢀbyꢀtheꢀprincipal
balanceꢀoutstandingꢀafterꢀscheduledꢀprincipalꢀamortizationꢀpayments.ꢀForꢀourꢀdebtꢀobligations,ꢀtheꢀweightedꢀaverageꢀrate
assumedꢀwasꢀapproximatelyꢀ6.16%ꢀuntilꢀ2024,ꢀwhenꢀtheꢀweightedꢀaverageꢀrateꢀwouldꢀincreaseꢀtoꢀapproximatelyꢀ7.50%ꢀuntil
theꢀremainingꢀdebtꢀisꢀfullyꢀsatisfiedꢀinꢀ2025.
(3) Ourꢀoperatingꢀleaseꢀobligationsꢀprimarilyꢀconsistꢀofꢀrealꢀestateꢀarrangementsꢀweꢀenterꢀintoꢀwithꢀthirdꢀparties.ꢀSeeꢀNoteꢀ13ꢀfor
additionalꢀinformationꢀregardingꢀourꢀoperatingꢀleases.ꢀ
(4) OurꢀpurchaseꢀobligationsꢀprimarilyꢀconsistꢀofꢀopenꢀpurchaseꢀordersꢀandꢀplacementꢀfeeꢀagreementsꢀrelatedꢀtoꢀourꢀGames
businessꢀasꢀwellꢀasꢀminimumꢀtransactionꢀprocessingꢀservicesꢀfromꢀvariousꢀthird‑partyꢀprocessorsꢀusedꢀbyꢀourꢀFinTechꢀbusiness.
Other Liquidity Needs and Resources
Weꢀneedꢀcashꢀtoꢀsupportꢀourꢀforeignꢀoperations.ꢀAsꢀaꢀresultꢀofꢀtheꢀ2017ꢀTaxꢀAct,ꢀenactedꢀDecemberꢀ22,ꢀ2017,ꢀweꢀwillꢀnotꢀbeꢀsubject
toꢀadditionalꢀtaxationꢀifꢀweꢀrepatriateꢀforeignꢀfundsꢀtoꢀtheꢀUnitedꢀStates,ꢀexceptꢀforꢀpotentialꢀwithholdingꢀtax.ꢀDependingꢀonꢀthe
jurisdictionꢀandꢀtheꢀtreatyꢀbetweenꢀdifferentꢀforeignꢀjurisdictionsꢀourꢀwithholdingꢀtaxꢀratesꢀcanꢀvaryꢀsignificantly.ꢀIfꢀweꢀexpand
45
ourꢀbusinessꢀintoꢀnewꢀforeignꢀjurisdictions,ꢀweꢀwillꢀrelyꢀonꢀtreaty‑favoredꢀcross‑borderꢀtransfersꢀofꢀfunds,ꢀtheꢀcashꢀgeneratedꢀby
ourꢀoperationsꢀinꢀthoseꢀforeignꢀjurisdictions,ꢀorꢀalternateꢀsourcesꢀofꢀworkingꢀcapital.
Off‑Balance Sheet Arrangements
WeꢀhaveꢀcommercialꢀarrangementsꢀwithꢀthirdꢀpartyꢀvendorsꢀtoꢀprovideꢀcashꢀforꢀcertainꢀofꢀourꢀATMs.ꢀForꢀtheꢀuseꢀofꢀtheseꢀfunds,
weꢀpayꢀaꢀcashꢀusageꢀfeeꢀonꢀeitherꢀtheꢀaverageꢀdailyꢀbalanceꢀofꢀfundsꢀutilizedꢀmultipliedꢀbyꢀaꢀcontractuallyꢀdefinedꢀcashꢀusageꢀrate
orꢀtheꢀamountsꢀsuppliedꢀmultipliedꢀbyꢀaꢀcontractuallyꢀdefinedꢀcashꢀusageꢀrate.ꢀTheseꢀcashꢀusageꢀfees,ꢀreflectedꢀasꢀinterestꢀexpense
withinꢀtheꢀStatementsꢀofꢀIncomeꢀ(Loss),ꢀwereꢀ$7.0ꢀmillion,ꢀ$4.9ꢀmillion,ꢀandꢀ$3.1ꢀmillionꢀforꢀtheꢀyearsꢀendedꢀDecemberꢀ31,ꢀ2018,
2017,ꢀandꢀ2016,ꢀrespectively.ꢀWeꢀareꢀexposedꢀtoꢀinterestꢀrateꢀriskꢀtoꢀtheꢀextentꢀthatꢀtheꢀapplicableꢀfederalꢀfundsꢀrateꢀincreases.
Underꢀtheseꢀagreements,ꢀtheꢀcurrencyꢀsuppliedꢀbyꢀthirdꢀpartyꢀvendorsꢀremainꢀtheirꢀsoleꢀpropertyꢀuntilꢀtheꢀfundsꢀareꢀdispensed.ꢀAs
theseꢀfundsꢀareꢀnotꢀourꢀassets,ꢀsuppliedꢀcashꢀisꢀnotꢀreflectedꢀonꢀourꢀBalanceꢀSheets.ꢀTheꢀoutstandingꢀbalancesꢀofꢀATMꢀcashꢀutilized
byꢀusꢀfromꢀtheꢀthirdꢀpartyꢀvendorsꢀwereꢀ$224.7ꢀmillionꢀandꢀ$289.8ꢀmillionꢀasꢀofꢀDecemberꢀ31,ꢀ2018ꢀandꢀ2017,ꢀrespectively.
Theꢀprimaryꢀcommercialꢀarrangement,ꢀtheꢀContractꢀCashꢀSolutionsꢀAgreement,ꢀasꢀamended,ꢀwithꢀWellsꢀFargoꢀBank,ꢀN.A.ꢀ(“Wells
Fargo”)ꢀprovidesꢀusꢀwithꢀcashꢀinꢀtheꢀmaximumꢀamountꢀofꢀ$300.0ꢀmillionꢀwithꢀtheꢀabilityꢀtoꢀincreaseꢀtheꢀamountꢀbyꢀ$75ꢀmillion
overꢀaꢀ5-dayꢀperiodꢀforꢀspecialꢀoccasions,ꢀsuchꢀasꢀtheꢀperiodꢀaroundꢀNewꢀYear’sꢀDay.ꢀTheꢀagreementꢀcurrentlyꢀexpiresꢀonꢀJune
30,ꢀ2021ꢀandꢀwillꢀautoꢀrenewꢀforꢀadditionalꢀone-yearꢀperiodsꢀunlessꢀeitherꢀpartyꢀprovidesꢀaꢀ90-dayꢀwrittenꢀnoticeꢀofꢀitsꢀintentꢀnot
toꢀrenew.ꢀ
WeꢀareꢀresponsibleꢀforꢀanyꢀlossesꢀofꢀcashꢀinꢀtheꢀATMsꢀunderꢀthisꢀagreementꢀandꢀweꢀself-insureꢀforꢀthisꢀrisk.ꢀWeꢀincurredꢀnoꢀmaterial
lossesꢀrelatedꢀtoꢀthisꢀself-insuranceꢀforꢀtheꢀyearsꢀendedꢀDecemberꢀ31,ꢀ2018ꢀandꢀ2017.
Effects of Inflation
Ourꢀmonetaryꢀassetsꢀthatꢀprimarilyꢀconsistꢀofꢀcash,ꢀreceivables,ꢀinventoryꢀasꢀwellꢀasꢀourꢀnon-monetaryꢀassetsꢀthatꢀareꢀmostly
comprisedꢀofꢀgoodwillꢀandꢀotherꢀintangibleꢀassets,ꢀareꢀnotꢀsignificantlyꢀaffectedꢀbyꢀinflation.ꢀWeꢀbelieveꢀthatꢀreplacementꢀcosts
ofꢀequipment,ꢀfurniture,ꢀandꢀleaseholdꢀimprovementsꢀwillꢀnotꢀmateriallyꢀaffectꢀourꢀoperations.ꢀHowever,ꢀtheꢀrateꢀofꢀinflationꢀaffects
ourꢀ operatingꢀ expenses,ꢀ suchꢀ asꢀ thoseꢀ forꢀ salariesꢀ andꢀ benefits,ꢀ armoredꢀ carrierꢀ expenses,ꢀ telecommunicationsꢀ expenses,ꢀ and
equipmentꢀrepairꢀandꢀmaintenanceꢀservices,ꢀwhichꢀmayꢀnotꢀbeꢀreadilyꢀrecoverableꢀinꢀtheꢀfinancialꢀtermsꢀunderꢀwhichꢀweꢀprovide
ourꢀGamesꢀandꢀFinTechꢀproductsꢀandꢀservicesꢀtoꢀgamingꢀestablishments.ꢀ
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Inꢀtheꢀnormalꢀcourseꢀofꢀbusiness,ꢀweꢀareꢀexposedꢀtoꢀforeignꢀcurrencyꢀexchangeꢀrisk.ꢀWeꢀoperateꢀandꢀconductꢀbusinessꢀinꢀforeign
countriesꢀand,ꢀasꢀaꢀresult,ꢀareꢀexposedꢀtoꢀmovementsꢀinꢀforeignꢀcurrencyꢀexchangeꢀrates.ꢀOurꢀexposureꢀtoꢀforeignꢀcurrencyꢀexchange
riskꢀrelatedꢀtoꢀourꢀforeignꢀoperationsꢀisꢀnotꢀmaterialꢀtoꢀourꢀresultsꢀofꢀoperations,ꢀcashꢀflows,ꢀorꢀfinancialꢀcondition.ꢀAtꢀpresent,ꢀwe
doꢀnotꢀhedgeꢀthisꢀrisk;ꢀhowever,ꢀweꢀcontinueꢀtoꢀevaluateꢀsuchꢀforeignꢀcurrencyꢀtranslationꢀexposure.
Inꢀtheꢀnormalꢀcourseꢀofꢀbusiness,ꢀweꢀhaveꢀcommercialꢀarrangementsꢀwithꢀthirdꢀpartyꢀvendorsꢀtoꢀprovideꢀcashꢀforꢀcertainꢀofꢀour
ATMs.ꢀUnderꢀtheꢀtermsꢀofꢀtheseꢀagreements,ꢀweꢀpayꢀaꢀmonthlyꢀcashꢀusageꢀfeeꢀbasedꢀuponꢀtheꢀtargetꢀfederalꢀfundsꢀrate.ꢀWeꢀare,
therefore,ꢀexposedꢀtoꢀinterestꢀrateꢀriskꢀtoꢀtheꢀextentꢀthatꢀtheꢀapplicableꢀfederalꢀfundsꢀrateꢀincreases.ꢀTheꢀoutstandingꢀbalanceꢀof
ATMꢀcashꢀutilizedꢀbyꢀusꢀfromꢀthirdꢀpartyꢀvendorsꢀwasꢀ$224.7ꢀmillionꢀasꢀofꢀDecemberꢀ31,ꢀ2018;ꢀtherefore,ꢀeachꢀ1%ꢀincreaseꢀin
theꢀapplicableꢀfederalꢀfundsꢀrateꢀwouldꢀhaveꢀapproximatelyꢀaꢀ$2.2ꢀmillionꢀimpactꢀonꢀincomeꢀbeforeꢀtaxꢀoverꢀaꢀ12‑monthꢀperiod.ꢀ
TheꢀNewꢀCreditꢀFacilitiesꢀbearꢀinterestꢀatꢀratesꢀthatꢀcanꢀvaryꢀoverꢀtime.ꢀWeꢀhaveꢀtheꢀoptionꢀofꢀhavingꢀinterestꢀonꢀtheꢀoutstanding
amountsꢀunderꢀtheꢀNewꢀCreditꢀFacilitiesꢀpaidꢀusingꢀonꢀaꢀbaseꢀrateꢀorꢀLIBOR.ꢀWeꢀhaveꢀhistoricallyꢀelectedꢀtoꢀpayꢀinterestꢀbased
onꢀLIBOR,ꢀandꢀweꢀexpectꢀtoꢀcontinueꢀtoꢀdoꢀsoꢀforꢀvariousꢀmaturities.ꢀTheꢀweightedꢀaverageꢀinterestꢀrateꢀtheꢀNewꢀCreditꢀFacilities
wasꢀapproximatelyꢀ5.17%ꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2018.ꢀBasedꢀuponꢀtheꢀoutstandingꢀbalanceꢀonꢀtheꢀNewꢀCreditꢀFacilities
ofꢀ$807.7ꢀmillionꢀasꢀofꢀDecemberꢀ31,ꢀ2018,ꢀeachꢀ1%ꢀincreaseꢀinꢀtheꢀapplicableꢀEurodollarꢀRateꢀwouldꢀhaveꢀanꢀ$8.1ꢀmillionꢀimpact
onꢀinterestꢀexpenseꢀoverꢀaꢀ12‑monthꢀperiod.ꢀTheꢀinterestꢀrateꢀforꢀtheꢀUnsecuredꢀNotesꢀisꢀfixed;ꢀtherefore,ꢀanꢀincreaseꢀinꢀLIBOR
ratesꢀdoesꢀnotꢀimpactꢀtheꢀrelatedꢀinterestꢀexpense.ꢀAtꢀpresent,ꢀweꢀdoꢀnotꢀhedgeꢀtheꢀriskꢀrelatedꢀtoꢀtheꢀchangesꢀinꢀtheꢀinterestꢀrate;
however,ꢀweꢀcontinueꢀtoꢀevaluateꢀsuchꢀinterestꢀrateꢀexposure.ꢀ
46
Item 8. Financial Statements and Supplementary Data.
ꢀ
Index to Consolidated Financial Statements
ReportꢀofꢀBDOꢀUSA,ꢀLLP,ꢀIndependentꢀRegisteredꢀPublicꢀAccountingꢀFirm
ConsolidatedꢀStatementsꢀofꢀIncomeꢀ(Loss)ꢀandꢀComprehensiveꢀIncomeꢀ(Loss)ꢀforꢀtheꢀthreeꢀyearsꢀendedꢀDecemberꢀ31,
2018
ConsolidatedꢀBalanceꢀSheetsꢀasꢀofꢀDecemberꢀ31,ꢀ2018ꢀandꢀ2017
ConsolidatedꢀStatementsꢀofꢀCashꢀFlowsꢀforꢀtheꢀthreeꢀyearsꢀendedꢀDecemberꢀ31,ꢀ2018
ConsolidatedꢀStatementsꢀofꢀStockholders’ꢀ(Deficit)ꢀEquityꢀforꢀtheꢀthreeꢀyearsꢀendedꢀDecemberꢀ31,ꢀ2018
NotesꢀtoꢀConsolidatedꢀFinancialꢀStatements
48
49
51
52
54
55
47
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ShareholdersꢀandꢀBoardꢀofꢀDirectors
EveriꢀHoldingsꢀInc.ꢀandꢀsubsidiaries
LasꢀVegas,ꢀNV
Opinion on the Consolidated Financial Statements
WeꢀhaveꢀauditedꢀtheꢀaccompanyingꢀconsolidatedꢀbalanceꢀsheetsꢀofꢀEveriꢀHoldingsꢀInc.ꢀ(theꢀ“Company”)ꢀandꢀsubsidiariesꢀasꢀof
Decemberꢀ31,ꢀ2018ꢀandꢀ2017,ꢀtheꢀrelatedꢀconsolidatedꢀstatementsꢀofꢀincomeꢀ(loss)ꢀandꢀcomprehensiveꢀincomeꢀ(loss),ꢀstockholders’
deficit,ꢀandꢀcashꢀflowsꢀforꢀeachꢀofꢀtheꢀthreeꢀyearsꢀinꢀtheꢀperiodꢀendedꢀDecemberꢀ31,ꢀ2018,ꢀandꢀtheꢀrelatedꢀnotesꢀ(collectively
referredꢀtoꢀasꢀtheꢀ“consolidatedꢀfinancialꢀstatements”).ꢀInꢀourꢀopinion,ꢀtheꢀconsolidatedꢀfinancialꢀstatementsꢀpresentꢀfairly,ꢀinꢀall
materialꢀrespects,ꢀtheꢀfinancialꢀpositionꢀofꢀtheꢀCompanyꢀandꢀsubsidiariesꢀatꢀDecemberꢀ31,ꢀ2018ꢀandꢀ2017,ꢀandꢀtheꢀresultsꢀofꢀtheir
operationsꢀandꢀtheirꢀcashꢀflowsꢀforꢀeachꢀofꢀtheꢀthreeꢀyearsꢀinꢀtheꢀperiodꢀendedꢀDecemberꢀ31,ꢀ2018,ꢀinꢀconformityꢀwithꢀaccounting
principlesꢀgenerallyꢀacceptedꢀinꢀtheꢀUnitedꢀStatesꢀofꢀAmerica.
Weꢀalsoꢀhaveꢀaudited,ꢀinꢀaccordanceꢀwithꢀtheꢀstandardsꢀofꢀtheꢀPublicꢀCompanyꢀAccountingꢀOversightꢀBoardꢀ(UnitedꢀStates)
(“PCAOB”),ꢀtheꢀCompany’sꢀinternalꢀcontrolꢀoverꢀfinancialꢀreportingꢀasꢀofꢀDecemberꢀ31,ꢀ2018,ꢀbasedꢀonꢀcriteriaꢀestablishedꢀin
Internal Control - Integrated Framework (2013)ꢀ issuedꢀ byꢀ theꢀ Committeeꢀ ofꢀ Sponsoringꢀ Organizationsꢀ ofꢀ theꢀ Treadway
Commissionꢀ(“COSO”)ꢀandꢀourꢀreportꢀdatedꢀMarchꢀ12,ꢀ2019ꢀexpressedꢀanꢀunqualifiedꢀopinionꢀthereon.
Adoption of ASU No. 2014-09
AsꢀdiscussedꢀinꢀNoteꢀ3ꢀtoꢀtheꢀconsolidatedꢀfinancialꢀstatements,ꢀtheꢀCompanyꢀhasꢀchangedꢀitsꢀmethodꢀofꢀaccountingꢀforꢀrevenue
fromꢀcontractsꢀwithꢀcustomersꢀinꢀ2018ꢀdueꢀtoꢀtheꢀadoptionꢀofꢀAccountingꢀStandardsꢀUpdateꢀ(ASU)ꢀNo.ꢀ2014-09,ꢀ“Revenueꢀfrom
ContractsꢀwithꢀCustomersꢀ(Topicꢀ606),”ꢀandꢀtheꢀrelatedꢀamendments.
Basis for Opinion
TheseꢀconsolidatedꢀfinancialꢀstatementsꢀareꢀtheꢀresponsibilityꢀofꢀtheꢀCompany’sꢀmanagement.ꢀOurꢀresponsibilityꢀisꢀtoꢀexpressꢀan
opinionꢀonꢀtheꢀCompany’sꢀconsolidatedꢀfinancialꢀstatementsꢀbasedꢀonꢀourꢀaudits.ꢀWeꢀareꢀaꢀpublicꢀaccountingꢀfirmꢀregisteredꢀwith
theꢀPCAOBꢀandꢀareꢀrequiredꢀtoꢀbeꢀindependentꢀwithꢀrespectꢀtoꢀtheꢀCompanyꢀinꢀaccordanceꢀwithꢀtheꢀU.S.ꢀfederalꢀsecuritiesꢀlaws
andꢀtheꢀapplicableꢀrulesꢀandꢀregulationsꢀofꢀtheꢀSecuritiesꢀandꢀExchangeꢀCommissionꢀandꢀtheꢀPCAOB.
WeꢀconductedꢀourꢀauditsꢀinꢀaccordanceꢀwithꢀtheꢀstandardsꢀofꢀtheꢀPCAOB.ꢀThoseꢀstandardsꢀrequireꢀthatꢀweꢀplanꢀandꢀperformꢀthe
auditꢀtoꢀobtainꢀreasonableꢀassuranceꢀaboutꢀwhetherꢀtheꢀconsolidatedꢀfinancialꢀstatementsꢀareꢀfreeꢀofꢀmaterialꢀmisstatement,ꢀwhether
dueꢀtoꢀerrorꢀorꢀfraud.
Ourꢀauditsꢀincludedꢀperformingꢀproceduresꢀtoꢀassessꢀtheꢀrisksꢀofꢀmaterialꢀmisstatementꢀofꢀtheꢀconsolidatedꢀfinancialꢀstatements,
whetherꢀdueꢀtoꢀerrorꢀorꢀfraud,ꢀandꢀperformingꢀproceduresꢀthatꢀrespondꢀtoꢀthoseꢀrisks.ꢀSuchꢀproceduresꢀincludedꢀexamining,ꢀonꢀa
testꢀ basis,ꢀ evidenceꢀ regardingꢀ theꢀ amountsꢀ andꢀ disclosuresꢀ inꢀ theꢀ consolidatedꢀ financialꢀ statements.ꢀ Ourꢀ auditsꢀ alsoꢀ included
evaluatingꢀ theꢀ accountingꢀ principlesꢀ usedꢀ andꢀ significantꢀ estimatesꢀ madeꢀ byꢀ management,ꢀ asꢀ wellꢀ asꢀ evaluatingꢀ theꢀ overall
presentationꢀofꢀtheꢀconsolidatedꢀfinancialꢀstatements.ꢀWeꢀbelieveꢀthatꢀourꢀauditsꢀprovideꢀaꢀreasonableꢀbasisꢀforꢀourꢀopinion.
/s/ꢀBDOꢀUSA,ꢀLLPꢀ
WeꢀhaveꢀservedꢀasꢀtheꢀCompany’sꢀauditorꢀsinceꢀ2015.
LasꢀVegas,ꢀNevada
Marchꢀ12,ꢀ2019ꢀ
48
EVERI HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share amounts)
Revenues
Games revenues
ꢀꢀꢀꢀꢀꢀꢀGamingꢀoperations
ꢀꢀꢀꢀꢀꢀꢀGamingꢀequipmentꢀandꢀsystems
ꢀꢀꢀꢀꢀꢀꢀGamingꢀother
Games total revenues
FinTech revenues
ꢀꢀꢀꢀꢀꢀꢀCashꢀaccessꢀservices
ꢀꢀꢀꢀꢀꢀꢀEquipment
ꢀꢀꢀꢀꢀꢀꢀInformationꢀservicesꢀandꢀother
FinTech total revenues
2018
Year Ended December 31,
2017
2016
$
168,146
$
148,654
$
87,038
3,794
258,978
156,806
20,977
32,754
210,537
70,118
4,005
222,777
707,222
13,258
31,691
752,171
152,514
56,277
4,462
213,253
601,874
14,995
29,334
646,203
Total revenues
469,515
974,948
859,456
Costs and expenses
Games cost of revenues(1)
ꢀꢀꢀꢀꢀꢀꢀꢀGamingꢀoperations
ꢀꢀꢀꢀꢀꢀꢀꢀGamingꢀequipmentꢀandꢀsystems
ꢀꢀꢀꢀꢀꢀꢀꢀGamingꢀother
Games total cost of revenues
FinTech cost of revenues(1)
ꢀꢀꢀꢀꢀꢀꢀꢀꢀCashꢀaccessꢀservices
ꢀꢀꢀꢀꢀꢀꢀꢀꢀEquipment
ꢀꢀꢀꢀꢀꢀꢀꢀꢀInformationꢀservicesꢀandꢀother
FinTech total cost of revenues
ꢀꢀꢀꢀOperatingꢀexpenses
ꢀꢀꢀꢀResearchꢀandꢀdevelopment
ꢀꢀꢀꢀGoodwillꢀimpairment
ꢀꢀꢀꢀDepreciation
ꢀꢀꢀꢀAmortization
Total costs and expenses
17,603
47,121
3,285
68,009
9,717
12,601
4,110
26,428
142,298
20,497
—
61,225
65,245
383,702
15,741
35,707
3,247
54,695
572,880
7,717
3,253
583,850
118,935
18,862
—
47,282
69,505
893,129
15,265
31,602
3,441
50,308
485,061
9,889
3,756
498,706
118,709
19,356
146,299
49,995
94,638
978,011
Operating income (expense)
85,813
81,819
(118,555)
ꢀ
ꢀ
49
Other expenses
ꢀꢀꢀꢀInterestꢀexpense,ꢀnetꢀofꢀinterestꢀincome
ꢀꢀꢀꢀLossꢀonꢀextinguishmentꢀofꢀdebt
Total other expenses
2018
Year Ended December 31,
2017
2016
83,001
166
83,167
102,136
51,750
153,886
99,228
—
99,228
Income (loss) before income tax
2,646
(72,067)
(217,783)
ꢀꢀꢀꢀIncomeꢀtaxꢀ(benefit)ꢀprovision
Net income (loss)
ꢀꢀꢀꢀForeignꢀcurrencyꢀtranslation
Comprehensive income (loss)
Earnings (loss) per share
Basic
Diluted
Weighted average common shares outstanding
Basic
Diluted
(1)ꢀExclusiveꢀofꢀdepreciationꢀandꢀamortization.
$
$
$
(9,710)
12,356
(1,745)
10,611
0.18
0.17
69,464
73,796
$
$
$
(20,164)
(51,903)
1,856
(50,047) $
(0.78) $
(0.78) $
66,816
66,816
31,696
(249,479)
(2,427)
(251,906)
(3.78)
(3.78)
66,050
66,050
Theꢀ2018ꢀresultsꢀincludeꢀtheꢀimpactꢀofꢀadoptingꢀtheꢀFinancialꢀAccountingꢀStandardsꢀBoardꢀ(theꢀ“FASB”)ꢀAccountingꢀStandards
CodificationꢀTopicꢀ606ꢀRevenues from Contracts with Customersꢀ(“ASCꢀ606”).ꢀReferꢀtoꢀ“Noteꢀ2ꢀ—ꢀBasisꢀofꢀPresentationꢀand
SummaryꢀofꢀSignificantꢀAccountingꢀPolicies”ꢀandꢀ“Noteꢀ3ꢀ—ꢀAdoptionꢀofꢀASCꢀ606,ꢀRevenueꢀfromꢀContractsꢀwithꢀCustomers”
toꢀourꢀconsolidatedꢀfinancialꢀstatementsꢀincludedꢀinꢀPartꢀII,ꢀItemꢀ8ꢀofꢀthisꢀFormꢀ10-Kꢀforꢀmoreꢀinformation.
Seeꢀnotesꢀtoꢀconsolidatedꢀfinancialꢀstatements.
50
ꢀ
EVERI HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value amounts)
ASSETS
Current assets
Cashꢀandꢀcashꢀequivalents
Settlementꢀreceivables
ꢀꢀꢀꢀꢀTradeꢀandꢀotherꢀreceivables,ꢀnetꢀofꢀallowancesꢀforꢀdoubtfulꢀaccountsꢀofꢀ$6,425ꢀandꢀꢀꢀꢀꢀꢀ
ꢀꢀꢀꢀꢀ$4,706ꢀatꢀDecemberꢀ31,ꢀ2018ꢀandꢀDecemberꢀ31,ꢀ2017,ꢀrespectively
Inventory
Prepaidꢀexpensesꢀandꢀotherꢀassets
Total current assets
Non-current assets
Property,ꢀequipmentꢀandꢀleasedꢀassets,ꢀnet
Goodwill
Otherꢀintangibleꢀassets,ꢀnet
Otherꢀreceivables
Otherꢀassets
Total non-current assets
Total assets
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities
Settlementꢀliabilities
Accountsꢀpayableꢀandꢀaccruedꢀexpenses
Currentꢀportionꢀofꢀlong-termꢀdebt
Total current liabilities
Non-current liabilities
Deferredꢀtaxꢀliability
Long-termꢀdebt,ꢀlessꢀcurrentꢀportion
Otherꢀaccruedꢀexpensesꢀandꢀliabilities
Total non-current liabilities
Total liabilities
Commitments and contingencies (Note 13)
Stockholders’ deficit
Commonꢀstock,ꢀ$0.001ꢀparꢀvalue,ꢀ500,000ꢀsharesꢀauthorizedꢀandꢀ95,100ꢀandꢀ93,120
sharesꢀissuedꢀatꢀDecemberꢀ31,ꢀ2018ꢀandꢀDecemberꢀ31,ꢀ2017,ꢀrespectively
Convertibleꢀpreferredꢀstock,ꢀ$0.001ꢀparꢀvalue,ꢀ50,000ꢀsharesꢀauthorizedꢀandꢀnoꢀshares
outstandingꢀatꢀDecemberꢀ31,ꢀ2018ꢀandꢀDecemberꢀ31,ꢀ2017,ꢀrespectively
Additionalꢀpaid-inꢀcapital
Accumulatedꢀdeficit
Accumulatedꢀotherꢀcomprehensiveꢀloss
Treasuryꢀstock,ꢀatꢀcost,ꢀ24,900ꢀandꢀ24,883ꢀsharesꢀatꢀDecemberꢀ31,ꢀ2018ꢀandꢀDecemberꢀ31,
2017,ꢀrespectively
Total stockholders’ deficit
Total liabilities and stockholders’ deficit
Seeꢀnotesꢀtoꢀconsolidatedꢀfinancialꢀstatements.
51
At December 31,
2018
2017
$
$
297,532
82,359
64,387
24,403
20,259
488,940
116,288
640,537
287,397
8,847
6,252
1,059,321
128,586
227,403
47,782
23,967
20,670
448,408
113,519
640,589
324,311
2,638
7,609
1,088,666
$
1,548,261
$
1,537,074
$
$
334,198
129,238
8,200
471,636
317,744
134,504
8,200
460,448
27,867
1,155,016
2,637
1,185,520
1,657,156
38,207
1,159,643
19,409
1,217,259
1,677,707
95
—
298,929
(229,457)
(1,998)
(176,464)
93
—
282,070
(246,202)
(253)
(176,341)
(108,895)
(140,633)
$
1,548,261
$
1,537,074
ꢀ
EVERI HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities
Netꢀincomeꢀ(loss)
Adjustmentsꢀtoꢀreconcileꢀnetꢀincomeꢀ(loss)ꢀtoꢀcashꢀprovidedꢀbyꢀoperating
activities:
Year Ended December 31,
2017
2016
2018
$
12,356
$
(51,903) $
(249,479)
Depreciation
Amortization
Amortizationꢀofꢀfinancingꢀcostsꢀandꢀdiscounts
Lossꢀonꢀsaleꢀorꢀdisposalꢀofꢀassets
Accretionꢀofꢀcontractꢀrights
Provisionꢀforꢀbadꢀdebts
Deferredꢀincomeꢀtaxes
Write-downꢀofꢀassets
Reserveꢀforꢀobsolescence
Goodwillꢀimpairment
Lossꢀonꢀextinguishmentꢀofꢀdebt
Stock-basedꢀcompensation
Changesꢀinꢀoperatingꢀassetsꢀandꢀliabilities:
Settlementꢀreceivables
Tradeꢀandꢀotherꢀreceivables
Inventory
Prepaidꢀandꢀotherꢀassets
Settlementꢀliabilities
Accountsꢀpayableꢀandꢀaccruedꢀexpenses
Net cash provided by operating activities
Cash flows from investing activities
Capitalꢀexpenditures
Acquisitions,ꢀnetꢀofꢀcashꢀacquired
Proceedsꢀfromꢀsaleꢀofꢀfixedꢀassets
Placementꢀfeeꢀagreements
Net cash used in investing activities
Cash flows from financing activities
Proceedsꢀfromꢀnewꢀcreditꢀfacility
Proceedsꢀfromꢀunsecuredꢀnotes
Repaymentsꢀofꢀpriorꢀcreditꢀfacility
Repaymentsꢀofꢀsecuredꢀnotes
Repaymentsꢀofꢀunsecuredꢀnotes
Repaymentsꢀofꢀnewꢀcreditꢀfacility
Debtꢀissuanceꢀcostsꢀandꢀdiscounts
Proceedsꢀfromꢀexerciseꢀofꢀstockꢀoptions
Purchaseꢀofꢀtreasuryꢀstock
Net cash provided by (used in) financing activities
Effectꢀofꢀexchangeꢀratesꢀonꢀcash
Cash, cash equivalents and restricted cash
Netꢀincreaseꢀforꢀtheꢀperiod
Balance,ꢀbeginningꢀofꢀtheꢀperiod
Balance, end of the period
61,225
65,245
4,877
869
8,421
11,459
(10,343)
2,575
1,919
—
166
7,251
143,705
(29,320)
(3,848)
1,672
17,159
(1,102)
294,286
(103,031)
—
237
(20,556)
(123,350)
—
—
—
—
—
(8,200)
(1,276)
9,610
(123)
11
(1,370)
47,282
69,505
8,706
2,513
7,819
9,737
(20,015)
—
397
—
51,750
6,411
(98,390)
(884)
(5,753)
(1,105)
78,465
(8,276)
96,259
(96,490)
—
10
(13,300)
(109,780)
820,000
375,000
(465,600)
(335,000)
(350,000)
(4,100)
(28,702)
10,906
(110)
22,394
1,292
169,577
129,604
299,181
$
10,165
119,439
129,604
$
$
49,995
94,638
6,695
2,563
8,692
9,908
29,940
4,289
3,581
146,299
—
6,735
(83,998)
(8,207)
5,600
4,668
99,245
735
131,899
(80,741)
(694)
4,599
(11,312)
(88,148)
—
—
(24,400)
—
—
—
(480)
—
(42)
(24,922)
(1,714)
17,115
102,324
119,439
ꢀSeeꢀnotesꢀtoꢀconsolidatedꢀfinancialꢀstatements.
52
Supplemental cash disclosures
Cashꢀpaidꢀforꢀinterest
Cashꢀpaidꢀforꢀincomeꢀtax
Cashꢀrefundedꢀforꢀincomeꢀtax
Supplemental non-cash disclosures
Accruedꢀandꢀunpaidꢀcapitalꢀexpenditures
Accruedꢀandꢀunpaidꢀplacementꢀfeesꢀaddedꢀduringꢀtheꢀyear
Accruedꢀandꢀunpaidꢀcontingentꢀliabilityꢀforꢀacquisitions
Transferꢀofꢀleasedꢀgamingꢀequipmentꢀtoꢀinventory
Year Ended December 31,
2017
2016
2018
$
$
$
$
81,609
406
4
3,657
—
(550)
10,028
$
$
89,008
1,009
829
1,386
39,074
—
7,820
93,420
1,703
171
2,104
—
(3,169)
9,042
53
EVERI HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands)
ꢀ
ꢀ
Common Stock—
Series A
Additional
Retained
Earnings
Accumulated
Other
Number of
Shares
Amount
Paid-in
Capital
(Accumulated
Deficit)
Comprehensive
Income (Loss)
Treasury
Stock
Total
Equity
(Deficit)
Balance, January 1, 2016
90,877
$
Netꢀloss
Foreignꢀcurrencyꢀtranslation
Stock-basedꢀcompensationꢀexpense
Restrictedꢀshareꢀvestingꢀwithholdings
Restrictedꢀshares
—
—
—
—
75
Balance, December 31, 2016
90,952
$
Netꢀloss
Foreignꢀcurrencyꢀtranslation
Stock-basedꢀcompensationꢀexpense
Exerciseꢀofꢀoptions
Restrictedꢀshareꢀvestingꢀwithholdings
Restrictedꢀshares
—
—
—
2,037
—
131
Balance, December 31, 2017
93,120
$
Netꢀincome
Cumulativeꢀadjustmentꢀrelatedꢀto
adoptionꢀofꢀASCꢀ606
Foreignꢀcurrencyꢀtranslation
Stock-basedꢀcompensationꢀexpense
Exerciseꢀofꢀoptions
Restrictedꢀshareꢀvestingꢀwithholdings
—
—
—
—
1,980
—
Balance, December 31, 2018
95,100
$
91
—
—
—
—
—
91
—
—
—
2
—
—
93
—
—
—
—
2
—
95
$
258,020
$
55,180
$
318
$ (176,189) $
137,420
—
—
6,735
—
—
(249,479)
—
—
—
—
—
(2,427)
—
—
—
—
—
—
(42)
—
(249,479)
(2,427)
6,735
(42)
—
$
264,755
$
(194,299)
$
(2,109) $ (176,231) $ (107,793)
—
—
6,411
10,904
—
—
(51,903)
—
—
—
—
—
—
1,856
—
—
—
—
—
—
—
—
(110)
—
(51,903)
1,856
6,411
10,906
(110)
—
$
282,070
$
(246,202)
$
(253) $ (176,341) $ (140,633)
—
—
—
7,251
9,608
—
12,356
4,389
—
—
—
—
—
—
(1,745)
—
—
—
—
—
—
—
—
(123)
12,356
4,389
(1,745)
7,251
9,610
(123)
$
298,929
$
(229,457)
$
(1,998) $ (176,464) $ (108,895)
Seeꢀnotesꢀtoꢀconsolidatedꢀfinancialꢀstatements.
54
EVERI HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In this filing, we refer to: (i) our audited consolidated financial statements and notes thereto as our “Financial Statements;” (ii)
our audited Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) as our “Statements of Income (Loss);”
and (iii) our audited Consolidated Balance Sheets as our “Balance Sheets.”
1. BUSINESS
EveriꢀHoldingsꢀInc.ꢀ(“EveriꢀHoldings,”ꢀ“Holdings,”ꢀorꢀ“Everi”)ꢀisꢀaꢀholdingꢀcompany,ꢀtheꢀassetsꢀofꢀwhichꢀareꢀtheꢀissuedꢀand
outstandingꢀsharesꢀofꢀcapitalꢀstockꢀofꢀeachꢀofꢀEveriꢀGamesꢀHoldingꢀInc.ꢀ(“EveriꢀGamesꢀHolding”),ꢀwhichꢀownsꢀallꢀofꢀtheꢀissued
andꢀ outstandingꢀ sharesꢀ ofꢀ capitalꢀ stockꢀ ofꢀ Everiꢀ Gamesꢀ Inc.ꢀ (“Everiꢀ Games”ꢀ orꢀ “Games”),ꢀ andꢀ Everiꢀ Paymentsꢀ Inc.ꢀ (“Everi
Payments”).ꢀUnlessꢀotherwiseꢀindicated,ꢀtheꢀtermsꢀtheꢀ“Company,”ꢀ“we,”ꢀ“us,”ꢀandꢀ“our”ꢀreferꢀtoꢀEveriꢀHoldingsꢀtogetherꢀwith
itsꢀconsolidatedꢀsubsidiaries.
Everiꢀisꢀaꢀleadingꢀsupplierꢀofꢀtechnologyꢀsolutionsꢀforꢀtheꢀcasinoꢀgamingꢀindustry.ꢀWeꢀprovideꢀcasinoꢀoperatorsꢀwithꢀaꢀdiverse
portfolioꢀofꢀproductsꢀincludingꢀinnovativeꢀgamingꢀmachinesꢀthatꢀpowerꢀtheꢀcasinoꢀfloor,ꢀandꢀcasinoꢀoperationalꢀandꢀmanagement
systemsꢀthatꢀincludeꢀcomprehensiveꢀend-to-endꢀpaymentsꢀsolutions,ꢀcriticalꢀintelligenceꢀofferings,ꢀandꢀgamingꢀoperationsꢀefficiency
technologies.
EveriꢀHoldingsꢀreportsꢀitsꢀresultsꢀofꢀoperationsꢀbasedꢀonꢀtwoꢀoperatingꢀsegments:ꢀGamesꢀandꢀFinTech.ꢀEffectiveꢀAprilꢀ1,ꢀ2018,
weꢀchangedꢀtheꢀnameꢀofꢀtheꢀoperatingꢀsegmentꢀpreviouslyꢀreferredꢀtoꢀasꢀ“Payments”ꢀtoꢀ“FinancialꢀTechnologyꢀSolutions”ꢀ(“Everi
FinTech”ꢀ orꢀ “FinTech”).ꢀWeꢀ believeꢀ thisꢀ referenceꢀ moreꢀ accuratelyꢀ reflectsꢀ theꢀ focusꢀ ofꢀ theꢀ businessꢀ segmentꢀ onꢀ delivering
innovativeꢀandꢀintegratedꢀsolutionsꢀtoꢀenhanceꢀtheꢀefficiencyꢀofꢀtheꢀcasinoꢀoperator,ꢀsupportꢀtheꢀcomprehensiveꢀregulatoryꢀand
taxꢀrequirementsꢀofꢀtheirꢀgamingꢀcustomers,ꢀandꢀimproveꢀplayers’ꢀgamingꢀexperienceꢀbyꢀprovidingꢀeasyꢀaccessꢀtoꢀtheirꢀfundsꢀand
paymentꢀofꢀwinnings.
EveriꢀGamesꢀprovidesꢀgamingꢀoperatorsꢀproductsꢀandꢀservices,ꢀincluding:ꢀ(a)ꢀgamingꢀmachinesꢀprimarilyꢀcomprisedꢀofꢀClassꢀII
andꢀClassꢀIIIꢀslotꢀmachinesꢀplacedꢀunderꢀparticipationꢀorꢀfixedꢀfeeꢀleaseꢀarrangementsꢀorꢀsoldꢀtoꢀcasinoꢀcustomers,ꢀincluding
TournEvent®ꢀthatꢀallowsꢀoperatorsꢀtoꢀswitchꢀfromꢀin-revenueꢀgamingꢀtoꢀout-of-revenueꢀtournaments;ꢀ(b)ꢀsystemꢀsoftware,ꢀlicenses,
ancillaryꢀequipment,ꢀandꢀmaintenance;ꢀandꢀ(c)ꢀbusiness-to-consumerꢀandꢀbusiness-to-businessꢀinteractiveꢀactivities.ꢀInꢀaddition,
EveriꢀGamesꢀdevelopsꢀandꢀmanagesꢀtheꢀcentralꢀdeterminantꢀsystemꢀforꢀtheꢀvideoꢀlotteryꢀterminalsꢀ(“VLTs”)ꢀinstalledꢀinꢀtheꢀState
ofꢀNewꢀYorkꢀandꢀitꢀalsoꢀprovidesꢀsimilarꢀtechnologyꢀinꢀcertainꢀtribalꢀjurisdictions.
EveriꢀFinTechꢀprovidesꢀgamingꢀoperatorsꢀcashꢀaccessꢀandꢀrelatedꢀproductsꢀandꢀservices,ꢀincluding:ꢀ(a)ꢀaccessꢀtoꢀcashꢀatꢀgaming
facilitiesꢀviaꢀAutomatedꢀTellerꢀMachineꢀ(“ATM”)ꢀcashꢀwithdrawals,ꢀcreditꢀcardꢀcashꢀaccessꢀtransactions,ꢀpointꢀofꢀsaleꢀ(“POS”)
debitꢀcardꢀcashꢀaccessꢀtransactions,ꢀandꢀcheckꢀverificationꢀandꢀwarrantyꢀservices;ꢀ(b)ꢀequipmentꢀthatꢀprovidesꢀcashꢀaccessꢀand
efficiency-relatedꢀservices;ꢀ(c)ꢀproductsꢀandꢀservicesꢀthatꢀimproveꢀcreditꢀdecisionꢀmaking,ꢀautomateꢀcashierꢀoperations,ꢀandꢀenhance
patronꢀmarketingꢀactivitiesꢀforꢀgamingꢀestablishments;ꢀ(d)ꢀcompliance,ꢀaudit,ꢀandꢀdataꢀsolutions;ꢀandꢀ(e)ꢀonlineꢀpaymentꢀprocessing
solutionsꢀforꢀgamingꢀoperatorsꢀinꢀstatesꢀthatꢀofferꢀintrastate,ꢀInternet-basedꢀgaming,ꢀandꢀlotteryꢀactivities.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
Allꢀintercompanyꢀtransactionsꢀandꢀbalancesꢀhaveꢀbeenꢀeliminatedꢀinꢀconsolidation.
Business Combinations
WeꢀapplyꢀtheꢀprovisionsꢀofꢀtheꢀFinancialꢀAccountingꢀStandardsꢀBoardꢀ(theꢀ“FASB”)ꢀAccountingꢀStandardsꢀCodificationꢀ(“ASC”)
805,ꢀ“BusinessꢀCombinations,”ꢀinꢀtheꢀaccountingꢀforꢀacquisitions.ꢀItꢀrequiresꢀusꢀtoꢀrecognizeꢀseparatelyꢀfromꢀgoodwillꢀtheꢀassets
acquiredꢀandꢀtheꢀliabilitiesꢀassumed,ꢀatꢀtheirꢀacquisitionꢀdateꢀfairꢀvalues.ꢀGoodwillꢀasꢀofꢀtheꢀacquisitionꢀdateꢀisꢀmeasuredꢀasꢀthe
excessꢀofꢀconsiderationꢀtransferredꢀoverꢀtheꢀnetꢀofꢀtheꢀacquisitionꢀdateꢀfairꢀvaluesꢀofꢀtheꢀassetsꢀacquiredꢀandꢀtheꢀliabilitiesꢀassumed.
Significantꢀestimatesꢀandꢀassumptionsꢀareꢀrequiredꢀtoꢀvalueꢀassetsꢀacquiredꢀandꢀliabilitiesꢀassumedꢀatꢀtheꢀacquisitionꢀdateꢀasꢀwell
asꢀ contingentꢀ consideration,ꢀ whereꢀ applicable.ꢀ Theseꢀ estimatesꢀ areꢀ preliminaryꢀ andꢀ typicallyꢀ includeꢀ theꢀ calculationꢀ ofꢀ an
appropriateꢀdiscountꢀrateꢀandꢀprojectionꢀofꢀtheꢀcashꢀflowsꢀassociatedꢀwithꢀeachꢀacquiredꢀassetꢀoverꢀitsꢀestimatedꢀusefulꢀlife.ꢀAsꢀa
result,ꢀduringꢀtheꢀmeasurementꢀperiod,ꢀwhichꢀmayꢀbeꢀupꢀtoꢀoneꢀyearꢀfromꢀtheꢀacquisitionꢀdate,ꢀtheꢀCompanyꢀmayꢀrecordꢀadjustments
toꢀtheꢀassetsꢀacquiredꢀandꢀliabilitiesꢀassumedꢀwithꢀtheꢀcorrespondingꢀoffsetꢀtoꢀgoodwill.ꢀInꢀaddition,ꢀdeferredꢀtaxꢀassets,ꢀdeferred
taxꢀliabilities,ꢀuncertainꢀtaxꢀpositions,ꢀandꢀtaxꢀrelatedꢀvaluationꢀallowancesꢀassumedꢀinꢀconnectionꢀwithꢀaꢀbusinessꢀcombination
areꢀinitiallyꢀestimatedꢀasꢀofꢀtheꢀacquisitionꢀdate.ꢀWeꢀreevaluateꢀtheseꢀitemsꢀquarterlyꢀbasedꢀuponꢀfactsꢀandꢀcircumstancesꢀthat
existedꢀasꢀofꢀtheꢀacquisitionꢀdateꢀandꢀanyꢀadjustmentsꢀtoꢀitsꢀpreliminaryꢀestimatesꢀareꢀrecordedꢀtoꢀgoodwill,ꢀinꢀtheꢀperiodꢀof
55
identification,ꢀifꢀidentifiedꢀwithinꢀtheꢀmeasurementꢀperiod.ꢀUponꢀtheꢀconclusionꢀofꢀtheꢀmeasurementꢀperiodꢀorꢀfinalꢀdetermination
ofꢀtheꢀvaluesꢀofꢀassetsꢀacquiredꢀorꢀliabilitiesꢀassumed,ꢀwhicheverꢀcomesꢀfirst,ꢀanyꢀsubsequentꢀadjustmentsꢀareꢀrecordedꢀtoꢀthe
StatementsꢀofꢀIncomeꢀ(Loss).
Cash and Cash Equivalents
Cashꢀandꢀcashꢀequivalentsꢀincludeꢀcashꢀandꢀbalancesꢀonꢀdepositꢀinꢀbanksꢀandꢀfinancialꢀinstitutions.ꢀWeꢀconsiderꢀhighlyꢀliquid
investmentsꢀwithꢀmaturitiesꢀofꢀthreeꢀmonthsꢀorꢀlessꢀatꢀtheꢀtimeꢀofꢀpurchaseꢀtoꢀbeꢀcashꢀandꢀcashꢀequivalents.ꢀSuchꢀbalancesꢀgenerally
exceedꢀtheꢀfederalꢀinsuranceꢀlimits,ꢀhowever,ꢀweꢀperiodicallyꢀevaluateꢀtheꢀcreditworthinessꢀofꢀtheseꢀinstitutionsꢀtoꢀminimizeꢀrisk.
ATM Funding Agreements
WeꢀobtainꢀallꢀofꢀtheꢀcashꢀrequiredꢀtoꢀoperateꢀourꢀATMsꢀthroughꢀvariousꢀATMꢀFundingꢀAgreements.ꢀSomeꢀgamingꢀestablishments
provideꢀtheꢀcashꢀutilizedꢀwithinꢀtheꢀATMꢀ(“Site‑Funded”).ꢀTheꢀSite‑Fundedꢀreceivablesꢀgeneratedꢀforꢀtheꢀamountꢀofꢀcashꢀdispensed
fromꢀtransactionsꢀperformedꢀatꢀourꢀATMsꢀareꢀownedꢀbyꢀusꢀandꢀweꢀareꢀliableꢀtoꢀtheꢀgamingꢀestablishmentꢀforꢀtheꢀfaceꢀamountꢀof
theꢀcashꢀdispensed.ꢀInꢀourꢀBalanceꢀSheets,ꢀtheꢀamountꢀofꢀtheꢀreceivableꢀforꢀtransactionsꢀprocessedꢀonꢀtheseꢀATMꢀtransactionsꢀis
includedꢀ withinꢀ settlementꢀ receivablesꢀ andꢀ theꢀ amountꢀ dueꢀ toꢀ theꢀ gamingꢀ establishmentꢀ forꢀ theꢀ faceꢀ amountꢀ ofꢀ dispensing
transactionsꢀisꢀincludedꢀwithinꢀsettlementꢀliabilities.
Forꢀtheꢀnon‑Site‑Fundedꢀlocations,ꢀweꢀenterꢀintoꢀcommercialꢀarrangementsꢀwithꢀthirdꢀpartyꢀvendorsꢀtoꢀprovideꢀusꢀtheꢀcurrency
neededꢀforꢀnormalꢀoperatingꢀrequirementsꢀforꢀourꢀATMs.ꢀForꢀtheꢀuseꢀofꢀtheseꢀfunds,ꢀweꢀpayꢀaꢀcashꢀusageꢀfeeꢀbasedꢀuponꢀtheꢀtarget
federalꢀfundsꢀrate.ꢀUnderꢀtheseꢀagreements,ꢀtheꢀcurrencyꢀsuppliedꢀbyꢀtheꢀthirdꢀpartyꢀvendorsꢀremainsꢀtheꢀsoleꢀpropertyꢀofꢀthese
suppliersꢀuntilꢀcashꢀisꢀdispensed,ꢀatꢀwhichꢀtimeꢀtheꢀthirdꢀpartyꢀvendorsꢀobtainꢀanꢀinterestꢀinꢀtheꢀcorrespondingꢀsettlementꢀreceivable.
Asꢀtheꢀcashꢀisꢀanꢀassetꢀofꢀtheseꢀsuppliers,ꢀitꢀisꢀthereforeꢀnotꢀreflectedꢀonꢀourꢀBalanceꢀSheets.ꢀTheꢀusageꢀfeeꢀforꢀtheꢀcashꢀsupplied
inꢀtheseꢀATMsꢀisꢀincludedꢀasꢀinterestꢀexpenseꢀinꢀtheꢀStatementsꢀofꢀIncomeꢀ(Loss).ꢀOurꢀrationaleꢀtoꢀrecordꢀcashꢀusageꢀfeesꢀasꢀinterest
expenseꢀisꢀprimarilyꢀdueꢀtoꢀtheꢀsimilarꢀoperationalꢀcharacteristicsꢀtoꢀaꢀrevolvingꢀlineꢀofꢀcredit,ꢀtheꢀfactꢀthatꢀtheꢀfeesꢀareꢀcalculated
onꢀaꢀfinancialꢀindex,ꢀandꢀtheꢀfeesꢀareꢀpaidꢀforꢀaccessꢀtoꢀaꢀcapitalꢀresource.
Allowance for Doubtful Accounts
Weꢀmaintainꢀanꢀallowanceꢀforꢀdoubtfulꢀaccountsꢀrelatedꢀtoꢀourꢀtradeꢀandꢀotherꢀreceivablesꢀandꢀnotesꢀreceivableꢀthatꢀhaveꢀbeen
deemedꢀtoꢀhaveꢀaꢀhighꢀriskꢀofꢀuncollectibilityꢀorꢀforꢀwhichꢀuncertaintyꢀexistsꢀasꢀtoꢀwhetherꢀtheꢀaccountꢀbalanceꢀhasꢀbecome
uncollectible.ꢀManagementꢀreviewsꢀitsꢀaccountsꢀandꢀnotesꢀreceivableꢀonꢀaꢀquarterlyꢀbasisꢀtoꢀdetermineꢀifꢀanyꢀreceivablesꢀwill
potentiallyꢀbeꢀuncollectible.ꢀManagementꢀanalyzesꢀhistoricalꢀcollectionꢀtrendsꢀandꢀchangesꢀinꢀourꢀcustomerꢀpaymentꢀpatterns,
concentration,ꢀandꢀcreditworthinessꢀwhenꢀevaluatingꢀtheꢀadequacyꢀofꢀourꢀallowanceꢀforꢀdoubtfulꢀaccounts.ꢀBasedꢀonꢀtheꢀinformation
available,ꢀ managementꢀ believesꢀ theꢀ allowanceꢀ forꢀ doubtfulꢀ accountsꢀ isꢀ adequate;ꢀ however,ꢀ actualꢀ write-offsꢀ mayꢀ exceedꢀ the
recordedꢀallowance.
Settlement Receivables and Settlement Liabilities
Weꢀprovideꢀcashꢀsettlementꢀservicesꢀtoꢀgamingꢀestablishmentsꢀrelatedꢀtoꢀourꢀcashꢀaccessꢀservices,ꢀwhichꢀinvolveꢀtheꢀmovement
ofꢀfundsꢀbetweenꢀvariousꢀpartiesꢀinvolvedꢀinꢀtheseꢀtypesꢀofꢀtransactions.ꢀWeꢀreceiveꢀreimbursementꢀfromꢀtheꢀpatron’sꢀcreditꢀor
debitꢀcardꢀissuingꢀfinancialꢀinstitutionꢀforꢀtheꢀamountꢀowedꢀtoꢀtheꢀgamingꢀestablishmentꢀplusꢀtheꢀfeeꢀchargedꢀtoꢀtheꢀpatron.ꢀThese
activitiesꢀresultꢀinꢀamountsꢀdueꢀtoꢀusꢀatꢀtheꢀendꢀofꢀeachꢀbusinessꢀdayꢀthatꢀweꢀgenerallyꢀrecoverꢀoverꢀtheꢀnextꢀfewꢀbusinessꢀdays,
whichꢀareꢀclassifiedꢀasꢀsettlementꢀreceivablesꢀonꢀourꢀBalanceꢀSheets.ꢀInꢀaddition,ꢀcashꢀsettlementꢀservicesꢀresultꢀinꢀamountsꢀdue
toꢀgamingꢀestablishmentsꢀforꢀtheꢀcashꢀdisbursedꢀtoꢀpatronsꢀthroughꢀtheꢀissuanceꢀofꢀaꢀnegotiableꢀinstrumentꢀorꢀthroughꢀelectronic
settlementꢀforꢀtheꢀfaceꢀamountꢀprovidedꢀtoꢀpatronsꢀthatꢀweꢀgenerallyꢀremitꢀoverꢀtheꢀnextꢀfewꢀbusinessꢀdays,ꢀwhichꢀareꢀclassified
asꢀsettlementꢀliabilitiesꢀonꢀourꢀBalanceꢀSheets.
Warranty Receivables
Ifꢀaꢀgamingꢀestablishmentꢀchoosesꢀtoꢀhaveꢀaꢀcheckꢀwarranted,ꢀitꢀsendsꢀaꢀrequestꢀtoꢀourꢀthird-partyꢀcheckꢀwarrantyꢀserviceꢀprovider,
askingꢀwhetherꢀitꢀwouldꢀbeꢀwillingꢀtoꢀacceptꢀtheꢀriskꢀofꢀcashingꢀtheꢀcheck.ꢀIfꢀtheꢀcheckꢀwarrantyꢀproviderꢀacceptsꢀtheꢀriskꢀand
warrantsꢀtheꢀcheck,ꢀtheꢀgamingꢀestablishmentꢀnegotiatesꢀtheꢀpatron’sꢀcheckꢀbyꢀprovidingꢀcashꢀforꢀtheꢀfaceꢀamountꢀofꢀtheꢀcheck.
Ifꢀtheꢀcheckꢀisꢀdishonoredꢀbyꢀtheꢀpatron’sꢀbankꢀuponꢀpresentment,ꢀtheꢀgamingꢀestablishmentꢀinvokesꢀtheꢀwarranty,ꢀandꢀtheꢀcheck
warrantyꢀserviceꢀproviderꢀpurchasesꢀtheꢀcheckꢀfromꢀtheꢀgamingꢀestablishmentꢀforꢀtheꢀfullꢀcheckꢀamountꢀandꢀthenꢀpursuesꢀcollection
activitiesꢀonꢀitsꢀown.ꢀInꢀourꢀCentralꢀCreditꢀCheckꢀWarrantyꢀproductꢀunderꢀourꢀagreementꢀwithꢀtheꢀthird-partyꢀserviceꢀprovider,ꢀwe
receiveꢀallꢀofꢀtheꢀcheckꢀwarrantyꢀrevenue.ꢀWeꢀareꢀexposedꢀtoꢀriskꢀforꢀtheꢀlossesꢀassociatedꢀwithꢀanyꢀwarrantedꢀitemsꢀthatꢀcannot
beꢀcollectedꢀfromꢀpatronsꢀissuingꢀtheꢀitems.ꢀWarrantyꢀreceivablesꢀareꢀdefinedꢀasꢀanyꢀamountsꢀpaidꢀbyꢀtheꢀthird-partyꢀcheckꢀwarranty
serviceꢀproviderꢀtoꢀgamingꢀestablishmentsꢀtoꢀpurchaseꢀdishonoredꢀchecks.ꢀAdditionally,ꢀweꢀpayꢀaꢀfeeꢀtoꢀtheꢀthird-partyꢀcheck
warrantyꢀserviceꢀproviderꢀforꢀitsꢀservices.
56
Theꢀwarrantyꢀreceivablesꢀamountꢀisꢀrecordedꢀinꢀtradeꢀandꢀotherꢀreceivables,ꢀnetꢀonꢀourꢀBalanceꢀSheets.ꢀOnꢀaꢀmonthlyꢀbasis,ꢀthe
Companyꢀevaluatesꢀtheꢀcollectabilityꢀofꢀtheꢀoutstandingꢀbalancesꢀandꢀestablishesꢀaꢀreserveꢀforꢀtheꢀfaceꢀamountꢀofꢀtheꢀexpected
lossesꢀonꢀtheseꢀreceivables.ꢀTheꢀwarrantyꢀexpenseꢀassociatedꢀwithꢀthisꢀreserveꢀisꢀincludedꢀwithinꢀcostꢀofꢀrevenuesꢀ(exclusiveꢀof
depreciationꢀandꢀamortization)ꢀonꢀourꢀStatementsꢀofꢀIncomeꢀ(Loss).
Inventory
Ourꢀinventoryꢀprimarilyꢀconsistsꢀofꢀcomponentꢀpartsꢀasꢀwellꢀasꢀfinishedꢀgoodsꢀandꢀwork-in-progress.ꢀTheꢀcostꢀofꢀinventoryꢀincludes
costꢀofꢀmaterials,ꢀlabor,ꢀoverheadꢀandꢀfreight.ꢀTheꢀinventoryꢀisꢀstatedꢀatꢀtheꢀlowerꢀofꢀcostꢀorꢀnetꢀrealizableꢀvalueꢀandꢀaccounted
forꢀusingꢀtheꢀfirstꢀin,ꢀfirstꢀoutꢀmethodꢀ(“FIFO”).
Restricted Cash
Ourꢀrestrictedꢀcashꢀprimarilyꢀconsistsꢀof:ꢀ(i)ꢀdepositsꢀheldꢀinꢀconnectionꢀwithꢀaꢀsponsorshipꢀagreement;ꢀ(ii)ꢀWAP-relatedꢀrestricted
funds;ꢀandꢀ(iii)ꢀInternet-relatedꢀcashꢀaccessꢀactivities.ꢀTheꢀcurrentꢀportionꢀofꢀrestrictedꢀcash,ꢀwhichꢀisꢀincludedꢀinꢀprepaidꢀexpenses
andꢀ otherꢀ assets,ꢀ wasꢀ approximatelyꢀ $1.5ꢀ million,ꢀ $0.9ꢀ million,ꢀ andꢀ $0.3ꢀ millionꢀ asꢀ ofꢀ Decemberꢀ31,ꢀ 2018,ꢀ 2017,ꢀ andꢀ 2016,
respectively.ꢀTheꢀnon-currentꢀportionꢀofꢀrestrictedꢀcash,ꢀwhichꢀisꢀincludedꢀinꢀotherꢀassets,ꢀwasꢀapproximatelyꢀ$0.1ꢀmillionꢀasꢀof
Decemberꢀ31,ꢀ2018,ꢀ2017,ꢀandꢀ2016.ꢀ
Property, Equipment and Leased Assets
Property,ꢀequipmentꢀandꢀleasedꢀassetsꢀareꢀstatedꢀatꢀcost,ꢀlessꢀaccumulatedꢀdepreciation,ꢀandꢀareꢀcomputedꢀusingꢀtheꢀstraight-line
methodꢀoverꢀtheꢀlesserꢀofꢀtheꢀestimatedꢀlifeꢀofꢀtheꢀrelatedꢀassets,ꢀgenerallyꢀtwoꢀtoꢀfiveꢀyears,ꢀorꢀtheꢀrelatedꢀleaseꢀterm.ꢀPlayer
terminalsꢀandꢀrelatedꢀcomponentsꢀandꢀequipmentꢀareꢀincludedꢀinꢀourꢀrentalꢀpool.ꢀTheꢀrentalꢀpoolꢀcanꢀbeꢀfurtherꢀdelineatedꢀas
“rentalꢀpoolꢀ–ꢀdeployed,”ꢀwhichꢀconsistsꢀofꢀassetsꢀdeployedꢀatꢀcustomerꢀsitesꢀunderꢀparticipationꢀarrangements,ꢀandꢀ“rentalꢀpool
–ꢀundeployed,”ꢀwhichꢀconsistsꢀofꢀassetsꢀheldꢀbyꢀusꢀthatꢀareꢀavailableꢀforꢀcustomerꢀuse.ꢀRentalꢀpoolꢀ–ꢀundeployedꢀconsistsꢀofꢀboth
newꢀunitsꢀawaitingꢀdeploymentꢀtoꢀaꢀcustomerꢀsiteꢀandꢀpreviouslyꢀdeployedꢀunitsꢀcurrentlyꢀbackꢀwithꢀusꢀtoꢀbeꢀrefurbishedꢀawaiting
re-deployment.ꢀRoutineꢀmaintenanceꢀofꢀproperty,ꢀequipmentꢀandꢀleasedꢀgamingꢀequipmentꢀisꢀexpensedꢀinꢀtheꢀperiodꢀincurred,
whileꢀmajorꢀcomponentꢀupgradesꢀareꢀcapitalizedꢀandꢀdepreciatedꢀoverꢀtheꢀestimatedꢀremainingꢀusefulꢀlifeꢀofꢀtheꢀcomponent.ꢀSales
andꢀretirementsꢀofꢀdepreciableꢀpropertyꢀareꢀrecordedꢀbyꢀremovingꢀtheꢀrelatedꢀcostꢀandꢀaccumulatedꢀdepreciationꢀfromꢀtheꢀaccounts.
GainsꢀorꢀlossesꢀonꢀsalesꢀandꢀretirementsꢀofꢀpropertyꢀareꢀreflectedꢀinꢀourꢀStatementsꢀofꢀIncomeꢀ(Loss).ꢀProperty,ꢀequipmentꢀand
leasedꢀassetsꢀareꢀreviewedꢀforꢀimpairmentꢀwheneverꢀeventsꢀorꢀcircumstancesꢀindicateꢀthatꢀtheirꢀcarryingꢀamountsꢀmayꢀnotꢀbe
recoverable.ꢀImpairmentꢀisꢀindicatedꢀwhenꢀfutureꢀcashꢀflows,ꢀonꢀanꢀundiscountedꢀbasis,ꢀdoꢀnotꢀexceedꢀtheꢀcarryingꢀvalueꢀofꢀthe
asset.
Placement Fee and Development Agreements
Weꢀenterꢀintoꢀplacementꢀfeeꢀand,ꢀtoꢀaꢀcertainꢀextent,ꢀdevelopmentꢀagreementsꢀtoꢀprovideꢀfinancingꢀforꢀtheꢀexpansionꢀofꢀexisting
facilities,ꢀorꢀforꢀnewꢀgamingꢀfacilities.ꢀFundsꢀprovidedꢀunderꢀplacementꢀfeeꢀagreementsꢀareꢀnotꢀreimbursed,ꢀwhileꢀfundsꢀprovided
underꢀdevelopmentꢀagreementsꢀareꢀreimbursedꢀtoꢀus,ꢀinꢀwhole,ꢀorꢀinꢀpart.ꢀInꢀreturn,ꢀtheꢀfacilityꢀdedicatesꢀaꢀpercentageꢀofꢀitsꢀfloor
spaceꢀtoꢀplacementꢀofꢀourꢀplayerꢀterminals,ꢀandꢀweꢀreceiveꢀaꢀfixedꢀpercentageꢀofꢀthoseꢀplayerꢀterminals’ꢀholdꢀamountsꢀperꢀday
overꢀtheꢀtermꢀofꢀtheꢀagreement,ꢀwhichꢀisꢀgenerallyꢀfromꢀ12ꢀtoꢀ83ꢀmonths.ꢀCertainꢀofꢀtheꢀagreementsꢀcontainꢀplayerꢀterminal
performanceꢀstandardsꢀthatꢀcouldꢀallowꢀtheꢀfacilityꢀtoꢀreduceꢀaꢀportionꢀofꢀourꢀguaranteedꢀfloorꢀspace.ꢀInꢀaddition,ꢀcertainꢀdevelopment
agreementsꢀallowꢀtheꢀfacilitiesꢀtoꢀbuyꢀoutꢀfloorꢀspaceꢀafterꢀadvancesꢀthatꢀareꢀsubjectꢀtoꢀrepaymentꢀhaveꢀbeenꢀrepaid.ꢀTheꢀagreements
typicallyꢀprovideꢀforꢀaꢀportionꢀofꢀtheꢀamountsꢀretainedꢀbyꢀtheꢀgamingꢀfacilityꢀforꢀtheirꢀshareꢀofꢀtheꢀoperatingꢀprofitsꢀofꢀtheꢀfacility
toꢀbeꢀusedꢀtoꢀrepayꢀsomeꢀorꢀallꢀofꢀtheꢀadvancesꢀrecordedꢀasꢀnotesꢀreceivable.
Goodwill
Goodwillꢀrepresentsꢀtheꢀexcessꢀofꢀtheꢀpurchaseꢀpriceꢀoverꢀtheꢀidentifiableꢀtangibleꢀandꢀintangibleꢀassetsꢀacquiredꢀplusꢀliabilities
assumedꢀarisingꢀfromꢀbusinessꢀcombinations.ꢀWeꢀtestꢀforꢀimpairmentꢀannuallyꢀonꢀaꢀreportingꢀunitꢀbasis,ꢀatꢀtheꢀbeginningꢀofꢀour
fourthꢀfiscalꢀquarter,ꢀorꢀmoreꢀoftenꢀunderꢀcertainꢀcircumstances.ꢀTheꢀannualꢀimpairmentꢀtestꢀisꢀcompletedꢀusingꢀeither:ꢀaꢀqualitative
“Stepꢀ0”ꢀassessmentꢀbasedꢀonꢀreviewingꢀrelevantꢀeventsꢀandꢀcircumstances;ꢀorꢀaꢀquantitativeꢀ“Stepꢀ1”ꢀassessment,ꢀwhichꢀdetermines
theꢀfairꢀvalueꢀofꢀtheꢀreportingꢀunit,ꢀusingꢀbothꢀanꢀincomeꢀapproachꢀthatꢀdiscountsꢀfutureꢀcashꢀflowsꢀbasedꢀonꢀtheꢀestimatedꢀfuture
resultsꢀofꢀourꢀreportingꢀunitsꢀandꢀaꢀmarketꢀapproachꢀthatꢀcomparesꢀmarketꢀmultiplesꢀofꢀcomparableꢀcompaniesꢀtoꢀdetermineꢀwhether
orꢀnotꢀanyꢀimpairmentꢀexists.ꢀIfꢀtheꢀfairꢀvalueꢀofꢀaꢀreportingꢀunitꢀisꢀlessꢀthanꢀitsꢀcarryingꢀamount,ꢀweꢀwillꢀuseꢀtheꢀ“Stepꢀ1”ꢀassessment
toꢀdetermineꢀtheꢀimpairment,ꢀinꢀaccordanceꢀwithꢀASCꢀ350,ꢀIntangiblesꢀ-ꢀGoodwillꢀandꢀOther.
Ourꢀreportingꢀunitsꢀareꢀidentifiedꢀasꢀoperatingꢀsegmentsꢀorꢀoneꢀlevelꢀbelow.ꢀReportingꢀunitsꢀmust:ꢀ(a)ꢀengageꢀinꢀbusinessꢀactivities
fromꢀ whichꢀ theyꢀ earnꢀ revenuesꢀ andꢀ incurꢀ expenses;ꢀ (b)ꢀ haveꢀ operatingꢀ resultsꢀ thatꢀ areꢀ regularlyꢀ reviewedꢀ byꢀ ourꢀ segment
managementꢀtoꢀascertainꢀtheꢀresourcesꢀtoꢀbeꢀallocatedꢀtoꢀtheꢀsegmentꢀandꢀassessꢀitsꢀperformance;ꢀandꢀ(c)ꢀhaveꢀdiscreteꢀfinancial
57
informationꢀavailable.ꢀAsꢀofꢀDecemberꢀ31,ꢀ2018,ꢀourꢀreportingꢀunitsꢀincluded:ꢀGames,ꢀCashꢀAccessꢀServices,ꢀKioskꢀSalesꢀand
Service,ꢀCentralꢀCreditꢀServices,ꢀandꢀComplianceꢀSalesꢀandꢀServices.ꢀ
Other Intangible Assets
Otherꢀintangibleꢀassetsꢀareꢀstatedꢀatꢀcost,ꢀlessꢀaccumulatedꢀamortization,ꢀandꢀareꢀcomputedꢀprimarilyꢀusingꢀtheꢀstraight-lineꢀmethod.
Otherꢀintangibleꢀassetsꢀconsistꢀprimarilyꢀof:ꢀ(i)ꢀcustomerꢀcontractsꢀ(rightsꢀtoꢀprovideꢀGamesꢀandꢀFinTechꢀservicesꢀtoꢀgaming
establishmentꢀ customers),ꢀ developedꢀ technology,ꢀ tradeꢀ namesꢀ andꢀ trademarks,ꢀ andꢀ contractꢀ rightsꢀ acquiredꢀ throughꢀ business
combinations;ꢀandꢀ(ii)ꢀcapitalizedꢀsoftwareꢀdevelopmentꢀcosts.ꢀCustomerꢀcontractsꢀrequireꢀusꢀtoꢀmakeꢀrenewalꢀassumptions,ꢀwhich
impactꢀtheꢀestimatedꢀusefulꢀlivesꢀofꢀsuchꢀassets.ꢀCapitalizedꢀsoftwareꢀdevelopmentꢀcostsꢀrequireꢀusꢀtoꢀmakeꢀcertainꢀjudgmentsꢀas
toꢀtheꢀstagesꢀofꢀdevelopmentꢀandꢀcostsꢀeligibleꢀforꢀcapitalization.ꢀCapitalizedꢀsoftwareꢀcostsꢀplacedꢀinꢀserviceꢀareꢀamortizedꢀover
theirꢀusefulꢀlives,ꢀgenerallyꢀnotꢀtoꢀexceedꢀfiveꢀyears.ꢀWeꢀreviewꢀintangibleꢀassetsꢀwheneverꢀeventsꢀorꢀchangesꢀinꢀcircumstances
indicateꢀthatꢀtheꢀcarryingꢀamountꢀofꢀanꢀassetꢀmayꢀnotꢀbeꢀrecoverable.ꢀSuchꢀeventsꢀorꢀcircumstancesꢀinclude,ꢀbutꢀareꢀnotꢀlimited
to,ꢀaꢀsignificantꢀdecreaseꢀinꢀtheꢀfairꢀvalueꢀofꢀtheꢀunderlyingꢀbusinessꢀorꢀmarketꢀpriceꢀofꢀtheꢀasset,ꢀaꢀsignificantꢀadverseꢀchangeꢀin
legalꢀfactorsꢀorꢀbusinessꢀclimateꢀthatꢀcouldꢀaffectꢀtheꢀvalueꢀofꢀanꢀasset,ꢀorꢀaꢀcurrentꢀperiodꢀoperatingꢀorꢀcashꢀflowꢀlossꢀcombined
withꢀaꢀhistoryꢀofꢀoperatingꢀorꢀcashꢀflowꢀlosses.ꢀWeꢀgroupꢀintangibleꢀassetsꢀforꢀimpairmentꢀanalysisꢀatꢀtheꢀlowestꢀlevelꢀforꢀwhich
identifiableꢀcashꢀflowsꢀareꢀlargelyꢀindependentꢀofꢀtheꢀcashꢀflowsꢀofꢀotherꢀassetsꢀandꢀliabilities.ꢀRecoverabilityꢀofꢀdefiniteꢀlived
intangibleꢀassetsꢀisꢀmeasuredꢀbyꢀaꢀcomparisonꢀofꢀtheꢀcarryingꢀamountꢀofꢀtheꢀassetꢀtoꢀfutureꢀnetꢀcashꢀflowsꢀexpectedꢀtoꢀbeꢀgenerated
byꢀtheꢀasset,ꢀonꢀanꢀundiscountedꢀbasisꢀandꢀwithoutꢀinterestꢀorꢀtaxes.ꢀAnyꢀimpairmentꢀtoꢀbeꢀrecognizedꢀisꢀmeasuredꢀbyꢀtheꢀamount
byꢀwhichꢀtheꢀcarryingꢀamountꢀofꢀtheꢀassetsꢀexceedsꢀtheꢀfairꢀvalueꢀofꢀtheꢀassets.
Debt Issuance Costs
Debtꢀissuanceꢀcostsꢀincurredꢀinꢀconnectionꢀwithꢀlong-termꢀborrowingsꢀareꢀcapitalizedꢀandꢀamortizedꢀtoꢀinterestꢀexpenseꢀbased
uponꢀtheꢀrelatedꢀdebtꢀagreementsꢀusingꢀtheꢀstraight-lineꢀmethod,ꢀwhichꢀapproximatesꢀtheꢀeffectiveꢀinterestꢀmethod.ꢀDebtꢀissuance
costsꢀrelatedꢀtoꢀline-of-creditꢀarrangementsꢀareꢀincludedꢀinꢀotherꢀassets,ꢀnon-current,ꢀonꢀourꢀBalanceꢀSheets.ꢀAllꢀotherꢀdebtꢀissuance
costsꢀareꢀincludedꢀasꢀcontra-liabilitiesꢀinꢀlong-termꢀdebt.
Original Issue Discounts
Originalꢀissueꢀdiscountsꢀincurredꢀinꢀconnectionꢀwithꢀlong-termꢀborrowingsꢀareꢀcapitalizedꢀandꢀamortizedꢀtoꢀinterestꢀexpenseꢀbased
uponꢀtheꢀrelatedꢀdebtꢀagreementsꢀusingꢀtheꢀstraight-lineꢀmethod,ꢀwhichꢀapproximatesꢀtheꢀeffectiveꢀinterestꢀmethod.ꢀTheseꢀamounts
areꢀrecordedꢀasꢀcontra-liabilitiesꢀandꢀincludedꢀinꢀlong-termꢀdebtꢀonꢀourꢀBalanceꢀSheets.
Revenue Recognition
Overview
WeꢀevaluateꢀtheꢀrecognitionꢀofꢀrevenueꢀbasedꢀonꢀtheꢀcriteriaꢀsetꢀforthꢀinꢀASCꢀ606ꢀandꢀASCꢀ840,ꢀasꢀappropriate.ꢀWeꢀrecognize
revenueꢀuponꢀtransferringꢀcontrolꢀofꢀgoodsꢀorꢀservicesꢀtoꢀourꢀcustomersꢀinꢀanꢀamountꢀthatꢀreflectsꢀtheꢀconsiderationꢀweꢀexpectꢀto
receiveꢀinꢀexchangeꢀforꢀthoseꢀgoodsꢀorꢀservices.ꢀWeꢀenterꢀintoꢀcontractsꢀwithꢀcustomersꢀthatꢀincludeꢀvariousꢀperformanceꢀobligations
consistingꢀofꢀgoods,ꢀservices,ꢀorꢀcombinationsꢀofꢀgoodsꢀandꢀservices.ꢀTimingꢀofꢀtheꢀtransferꢀofꢀcontrolꢀvariesꢀbasedꢀonꢀtheꢀnature
ofꢀtheꢀcontract.ꢀWeꢀrecognizeꢀrevenueꢀnetꢀofꢀanyꢀsalesꢀandꢀotherꢀtaxesꢀcollectedꢀfromꢀcustomers,ꢀwhichꢀareꢀsubsequentlyꢀremitted
toꢀgovernmentalꢀauthoritiesꢀandꢀareꢀnotꢀincludedꢀinꢀrevenuesꢀorꢀoperatingꢀexpenses.ꢀWeꢀmeasureꢀrevenueꢀbasedꢀonꢀtheꢀconsideration
specifiedꢀinꢀaꢀcontractꢀwithꢀaꢀcustomerꢀandꢀadjusted,ꢀasꢀnecessary.
WeꢀevaluateꢀtheꢀcompositionꢀofꢀourꢀrevenuesꢀtoꢀensureꢀcomplianceꢀwithꢀSECꢀRegulationꢀS-XꢀSectionꢀ210.5-3,ꢀwhichꢀrequiresꢀus
toꢀseparatelyꢀpresentꢀcertainꢀcategoriesꢀofꢀrevenuesꢀthatꢀexceedꢀtheꢀquantitativeꢀthresholdꢀonꢀourꢀStatementsꢀofꢀIncomeꢀ(Loss).
Significant Judgments
WeꢀapplyꢀjudgmentsꢀorꢀestimatesꢀtoꢀdetermineꢀtheꢀperformanceꢀobligationsꢀandꢀtheꢀStand-AloneꢀSellingꢀPriceꢀ(“SSP”)ꢀofꢀeach
identifiedꢀperformanceꢀobligation.ꢀTheꢀestablishmentꢀofꢀSSPꢀrequiresꢀjudgmentꢀasꢀtoꢀwhetherꢀthereꢀisꢀaꢀsufficientꢀquantityꢀofꢀitems
soldꢀorꢀrenewedꢀonꢀaꢀstand-aloneꢀbasisꢀandꢀthoseꢀpricesꢀdemonstrateꢀanꢀappropriateꢀlevelꢀofꢀconcentrationꢀtoꢀconcludeꢀthatꢀaꢀSSP
exists.ꢀTheꢀSSPꢀofꢀourꢀgoodsꢀandꢀservicesꢀareꢀgenerallyꢀdeterminedꢀbasedꢀonꢀobservableꢀprices,ꢀanꢀadjustedꢀmarketꢀassessment
approachꢀorꢀanꢀexpectedꢀcostꢀplusꢀmarginꢀapproach.ꢀWeꢀutilizeꢀaꢀresidualꢀapproachꢀonlyꢀwhenꢀtheꢀSSPꢀforꢀperformanceꢀobligations
withꢀobservableꢀpricesꢀhaveꢀbeenꢀestablishedꢀandꢀtheꢀremainingꢀperformanceꢀobligationꢀinꢀtheꢀcontractꢀwithꢀaꢀcustomerꢀdoesꢀnot
haveꢀanꢀobservableꢀpriceꢀasꢀitꢀisꢀuncertainꢀorꢀhighlyꢀvariableꢀand,ꢀtherefore,ꢀisꢀnotꢀdiscernible.
58
Collectability
Toꢀassessꢀcollectability,ꢀweꢀdetermineꢀwhetherꢀitꢀisꢀprobableꢀthatꢀweꢀwillꢀcollectꢀsubstantiallyꢀallꢀofꢀtheꢀconsiderationꢀtoꢀwhichꢀwe
areꢀentitledꢀinꢀexchangeꢀforꢀtheꢀgoodsꢀandꢀservicesꢀtransferredꢀtoꢀtheꢀcustomerꢀinꢀaccordanceꢀwithꢀtheꢀtermsꢀandꢀconditionsꢀofꢀthe
contract.ꢀInꢀconnectionꢀwithꢀtheseꢀprocedures,ꢀweꢀevaluateꢀtheꢀcustomerꢀusingꢀinternalꢀandꢀexternalꢀinformationꢀavailable,ꢀincluding,
butꢀnotꢀlimitedꢀto,ꢀresearchꢀandꢀanalysisꢀofꢀtheꢀcreditꢀhistoryꢀwithꢀtheꢀcustomer.ꢀBasedꢀonꢀtheꢀnatureꢀofꢀourꢀtransactionsꢀandꢀhistorical
trends,ꢀweꢀdetermineꢀwhetherꢀourꢀcustomersꢀhaveꢀtheꢀabilityꢀandꢀintentionꢀtoꢀpayꢀtheꢀamountsꢀofꢀconsiderationꢀwhenꢀtheyꢀbecome
dueꢀtoꢀidentifyꢀpotentiallyꢀsignificantꢀcreditꢀriskꢀexposure.
Contract Combinations - Multiple Promised Goods and Services
Ourꢀcontractsꢀmayꢀincludeꢀvariousꢀperformanceꢀobligationsꢀforꢀpromisesꢀtoꢀtransferꢀmultipleꢀgoodsꢀandꢀservicesꢀtoꢀaꢀcustomer,
especiallyꢀsinceꢀourꢀGamesꢀandꢀFinTechꢀbusinessesꢀmayꢀenterꢀintoꢀmultipleꢀagreementsꢀwithꢀtheꢀsameꢀcustomerꢀthatꢀmeetꢀthe
criteriaꢀtoꢀbeꢀcombinedꢀforꢀaccountingꢀpurposesꢀunderꢀASCꢀ606.ꢀWhenꢀthisꢀoccurs,ꢀaꢀSSPꢀwillꢀbeꢀdeterminedꢀforꢀeachꢀperformance
obligationꢀinꢀtheꢀcombinedꢀarrangementꢀandꢀtheꢀconsiderationꢀallocatedꢀbetweenꢀtheꢀrespectiveꢀperformanceꢀobligations.ꢀWeꢀuse
ourꢀjudgmentꢀtoꢀanalyzeꢀtheꢀnatureꢀofꢀtheꢀpromisesꢀmadeꢀandꢀdetermineꢀwhetherꢀeachꢀisꢀdistinctꢀorꢀshouldꢀbeꢀcombinedꢀwithꢀother
promisesꢀinꢀtheꢀcontractꢀbasedꢀonꢀtheꢀlevelꢀofꢀintegrationꢀandꢀinterdependencyꢀbetweenꢀtheꢀindividualꢀdeliverables.
Disaggregation of Revenues
Weꢀdisaggregateꢀrevenuesꢀbasedꢀonꢀtheꢀnatureꢀandꢀtimingꢀofꢀtheꢀcashꢀflowsꢀgeneratedꢀbyꢀsuchꢀrevenuesꢀasꢀpresentedꢀinꢀ“Noteꢀ18
-ꢀSegmentꢀInformation.”
Outbound Freight Costs
Uponꢀtransferringꢀcontrolꢀofꢀaꢀgoodꢀtoꢀaꢀcustomer,ꢀtheꢀshippingꢀandꢀhandlingꢀcostsꢀinꢀconnectionꢀwithꢀsaleꢀtransactionsꢀareꢀaccounted
forꢀasꢀfulfillmentꢀcostsꢀandꢀincludedꢀinꢀcostꢀofꢀrevenues.
Costs to Acquire a Contract with a Customer
Weꢀtypicallyꢀincurꢀincrementalꢀcostsꢀtoꢀacquireꢀcustomerꢀcontractsꢀinꢀtheꢀformꢀofꢀsalesꢀcommissionꢀexpenses.ꢀWeꢀevaluateꢀthose
acquisitionꢀcostsꢀforꢀgroupsꢀofꢀcontractsꢀwithꢀsimilarꢀcharacteristics,ꢀbasedꢀonꢀtheꢀnatureꢀofꢀtheꢀtransactions.ꢀTheꢀincrementalꢀcosts
toꢀacquireꢀcustomerꢀcontractsꢀidentifiedꢀwouldꢀbeꢀamortizedꢀwithinꢀoneꢀyearꢀand,ꢀasꢀaꢀresult,ꢀweꢀelectedꢀtoꢀutilizeꢀtheꢀpractical
expedientꢀsetꢀforthꢀinꢀASCꢀ340-40,ꢀContractꢀCostsꢀ-ꢀIncremental Costs of Obtaining a Contractꢀtoꢀexpenseꢀtheseꢀamountsꢀas
incurred.
Contract Balances
Sinceꢀourꢀcontractsꢀmayꢀincludeꢀmultipleꢀperformanceꢀobligations,ꢀthereꢀisꢀoftenꢀaꢀtimingꢀdifferenceꢀbetweenꢀtheꢀcashꢀcollections
andꢀtheꢀsatisfactionꢀofꢀsuchꢀperformanceꢀobligationsꢀandꢀrevenueꢀrecognition.ꢀSuchꢀarrangementsꢀareꢀevaluatedꢀtoꢀdetermine
whetherꢀcontractꢀassetsꢀandꢀliabilitiesꢀexist.ꢀWeꢀgenerallyꢀrecordꢀcontractꢀassetsꢀwhenꢀtheꢀtimingꢀofꢀcashꢀcollectionsꢀdiffersꢀfrom
whenꢀrevenueꢀisꢀrecognizedꢀdueꢀtoꢀcontractsꢀcontainingꢀspecificꢀperformanceꢀobligationsꢀthatꢀareꢀrequiredꢀtoꢀbeꢀmetꢀpriorꢀtoꢀa
customerꢀbeingꢀbilled.ꢀWeꢀgenerallyꢀrecordꢀcontractꢀliabilitiesꢀwhenꢀcashꢀisꢀcollectedꢀinꢀadvanceꢀofꢀusꢀsatisfyingꢀperformance
obligations,ꢀincludingꢀthoseꢀthatꢀareꢀsatisfiedꢀoverꢀaꢀperiodꢀofꢀtime.ꢀ
59
Theꢀfollowingꢀtableꢀsummarizesꢀourꢀcontractꢀassetsꢀandꢀcontractꢀliabilitiesꢀarisingꢀfromꢀcontractsꢀwithꢀcustomers:
Contract assets(1)
ꢀꢀꢀꢀꢀBalanceꢀatꢀJanuaryꢀ1
ꢀꢀꢀꢀꢀBalanceꢀatꢀDecemberꢀ31
Increase (decrease)
Contract liabilities(2)
ꢀꢀꢀꢀꢀBalanceꢀatꢀJanuaryꢀ1
ꢀꢀꢀꢀꢀBalanceꢀatꢀDecemberꢀ31
Increase (decrease)
For the Year Ended
December 31, 2018
$
$
8,433
11,310
2,877
12,397
15,470
3,073
(1)ꢀCurrentꢀportionꢀofꢀcontractꢀassetsꢀisꢀincludedꢀwithinꢀTradeꢀandꢀotherꢀreceivables,ꢀnetꢀandꢀnon-currentꢀportionꢀisꢀincluded
withinꢀOtherꢀreceivablesꢀinꢀourꢀBalanceꢀSheets.ꢀ
(2)ꢀCurrentꢀportionꢀofꢀcontractꢀliabilitiesꢀisꢀincludedꢀwithinꢀAccountsꢀpayableꢀandꢀaccruedꢀexpensesꢀandꢀnon-currentꢀportionꢀis
includedꢀwithinꢀOtherꢀaccruedꢀexpensesꢀandꢀliabilitiesꢀinꢀourꢀBalanceꢀSheets.ꢀ
Weꢀrecognizedꢀapproximatelyꢀ$11.4ꢀmillionꢀinꢀrevenueꢀthatꢀwasꢀincludedꢀinꢀtheꢀbeginningꢀcontractꢀliabilityꢀbalanceꢀduring
2018.ꢀ
Games Revenues
Ourꢀ Gamesꢀ productsꢀ andꢀ servicesꢀ includeꢀ commercialꢀ products,ꢀ suchꢀ asꢀ NativeꢀAmericanꢀ Classꢀ IIꢀ productsꢀ andꢀ otherꢀ bingo
products,ꢀClassꢀIIIꢀproducts,ꢀvideoꢀlotteryꢀterminals,ꢀaccountingꢀandꢀcentralꢀdeterminantꢀsystems,ꢀandꢀotherꢀbackꢀofficeꢀsystems.
Weꢀ conductꢀ ourꢀ Gamesꢀ segmentꢀ businessꢀ basedꢀ onꢀ resultsꢀ generatedꢀ fromꢀ theꢀ followingꢀ majorꢀ revenueꢀ streams:ꢀ (i)ꢀ Gaming
Operations;ꢀ(ii)ꢀGamingꢀEquipmentꢀandꢀSystems;ꢀandꢀ(iii)ꢀGamingꢀOther.
Gaming Operations
Gamesꢀrevenuesꢀareꢀprimarilyꢀgeneratedꢀbyꢀourꢀgamingꢀoperationsꢀunderꢀplacement,ꢀparticipation,ꢀandꢀdevelopmentꢀarrangements,
inꢀwhichꢀweꢀprovideꢀourꢀcustomersꢀwithꢀplayerꢀterminals,ꢀincludingꢀTournEvent®ꢀthatꢀallowsꢀoperatorsꢀtoꢀswitchꢀfromꢀin-revenue
gamingꢀ toꢀ out-of-revenueꢀ tournaments,ꢀ playerꢀ terminal-contentꢀ licenses,ꢀ local-areaꢀ progressiveꢀ machines,ꢀ andꢀ back-office
equipment,ꢀcollectivelyꢀreferredꢀtoꢀhereinꢀasꢀleasedꢀgamingꢀequipment.ꢀWeꢀevaluateꢀtheꢀrecognitionꢀofꢀleaseꢀrevenuesꢀbasedꢀon
criteriaꢀsetꢀforthꢀinꢀASCꢀ840.ꢀGenerally,ꢀunderꢀtheseꢀarrangements,ꢀweꢀretainꢀownershipꢀofꢀtheꢀmachinesꢀinstalledꢀatꢀcustomer
facilities.ꢀWeꢀreceiveꢀrecurringꢀrevenueꢀbasedꢀonꢀaꢀpercentageꢀofꢀtheꢀnetꢀwinꢀperꢀdayꢀgeneratedꢀbyꢀtheꢀleasedꢀgamingꢀequipment
orꢀaꢀfixedꢀdailyꢀfee.ꢀRevenuesꢀfromꢀleaseꢀparticipationꢀorꢀdailyꢀfeeꢀarrangementsꢀareꢀconsideredꢀbothꢀrealizableꢀandꢀearnedꢀatꢀthe
endꢀofꢀeachꢀgamingꢀday.ꢀGamingꢀoperationsꢀrevenuesꢀgeneratedꢀbyꢀleasedꢀgamingꢀequipmentꢀdeployedꢀatꢀsitesꢀunderꢀdevelopment
orꢀplacementꢀfeeꢀagreementsꢀgiveꢀriseꢀtoꢀcontractꢀrights,ꢀwhichꢀareꢀamountsꢀrecordedꢀtoꢀintangibleꢀassetsꢀforꢀdedicatedꢀfloorꢀspace
resultingꢀfromꢀsuchꢀagreements.ꢀTheꢀgamingꢀoperationsꢀrevenuesꢀgeneratedꢀbyꢀtheseꢀarrangementsꢀareꢀreducedꢀbyꢀtheꢀaccretion
ofꢀcontractꢀrights,ꢀwhichꢀrepresentsꢀtheꢀrelatedꢀamortizationꢀofꢀtheꢀcontractꢀrightsꢀrecordedꢀinꢀconnectionꢀwithꢀthoseꢀagreements.
GamingꢀoperationsꢀleaseꢀrevenuesꢀaccountedꢀforꢀunderꢀASCꢀ840ꢀareꢀgenerallyꢀshort-termꢀinꢀnatureꢀwithꢀpaymentꢀtermsꢀranging
fromꢀ30ꢀtoꢀ90ꢀdays.ꢀWeꢀrecognizedꢀ$136.6ꢀmillion,ꢀ$126.1ꢀmillion,ꢀandꢀ$134.0ꢀmillionꢀinꢀleaseꢀrevenuesꢀforꢀtheꢀyearsꢀended
Decemberꢀ31,ꢀ2018,ꢀ2017,ꢀandꢀ2016,ꢀrespectively.ꢀ
GamingꢀoperationsꢀrevenuesꢀincludeꢀamountsꢀgeneratedꢀbyꢀWideꢀAreaꢀProgressiveꢀ(“WAP”)ꢀsystems,ꢀwhichꢀareꢀrecognizedꢀunder
ASCꢀ606.ꢀWAPꢀconsistsꢀofꢀlinkedꢀslotꢀmachinesꢀlocatedꢀinꢀmultipleꢀcasinoꢀpropertiesꢀthatꢀareꢀconnectedꢀtoꢀaꢀcentralꢀsystem.ꢀWAP-
basedꢀgamingꢀmachinesꢀhaveꢀaꢀprogressiveꢀjackpotꢀweꢀadministerꢀthatꢀincreasesꢀwithꢀeveryꢀwagerꢀuntilꢀaꢀplayerꢀwinsꢀtheꢀtopꢀaward
combination.ꢀ Casinoꢀ operatorsꢀ payꢀ usꢀ aꢀ percentageꢀ ofꢀ theꢀ coin-inꢀ (theꢀ totalꢀ amountꢀ wagered),ꢀ aꢀ percentageꢀ ofꢀ netꢀ win,ꢀ orꢀ a
combinationꢀofꢀbothꢀforꢀservicesꢀrelatedꢀtoꢀtheꢀdesign,ꢀassembly,ꢀinstallation,ꢀoperation,ꢀmaintenance,ꢀadministration,ꢀandꢀmarketing
ofꢀtheꢀWAPꢀsystems.ꢀTheꢀgamingꢀoperationsꢀrevenuesꢀwithꢀrespectꢀtoꢀWAPꢀmachinesꢀcompriseꢀaꢀseparateꢀperformanceꢀobligation
andꢀareꢀrecognizedꢀoverꢀtimeꢀbasedꢀonꢀtheꢀamountꢀexpectedꢀtoꢀbeꢀreceivedꢀwithꢀanyꢀvariabilityꢀbeingꢀresolvedꢀinꢀtheꢀreporting
period.ꢀTheseꢀarrangementsꢀareꢀgenerallyꢀshort-termꢀinꢀnatureꢀwithꢀaꢀmajorityꢀofꢀinvoicesꢀpayableꢀwithinꢀ30ꢀtoꢀ45ꢀdays.ꢀSuch
revenuesꢀareꢀpresentedꢀinꢀtheꢀStatementsꢀofꢀIncomeꢀ(Loss)ꢀnetꢀofꢀtheꢀjackpotꢀexpense,ꢀwhichꢀisꢀcomprisedꢀofꢀincrementalꢀamounts
fundedꢀbyꢀaꢀportionꢀofꢀtheꢀcoin-inꢀfromꢀplayers.ꢀAtꢀtheꢀtimeꢀaꢀjackpotꢀisꢀwonꢀbyꢀaꢀplayer,ꢀanꢀadditionalꢀjackpotꢀexpenseꢀisꢀrecorded
60
withꢀrespectꢀtoꢀtheꢀbaseꢀseedꢀamountꢀrequiredꢀtoꢀfundꢀtheꢀminimumꢀlevelꢀrequiredꢀbyꢀtheꢀrespectiveꢀWAPꢀarrangementꢀwithꢀthe
casinoꢀoperator.ꢀ
GamingꢀoperationsꢀrevenuesꢀalsoꢀincludeꢀamountsꢀreceivedꢀinꢀconnectionꢀwithꢀourꢀrelationshipꢀwithꢀtheꢀNewꢀYorkꢀStateꢀGaming
CommissionꢀtoꢀprovideꢀanꢀaccountingꢀandꢀcentralꢀdeterminantꢀsystemꢀforꢀtheꢀVLTsꢀinꢀoperationꢀatꢀlicensedꢀStateꢀofꢀNewꢀYork
gamingꢀfacilities.ꢀPursuantꢀtoꢀourꢀagreementꢀwithꢀtheꢀNewꢀYorkꢀStateꢀGamingꢀCommission,ꢀweꢀreceiveꢀaꢀportionꢀofꢀtheꢀnetwork-
wideꢀnetꢀwinꢀ(generally,ꢀcash-inꢀlessꢀprizesꢀpaid)ꢀperꢀdayꢀinꢀexchangeꢀforꢀprovisionꢀandꢀmaintenanceꢀofꢀtheꢀcentralꢀdeterminant
systemꢀandꢀrecordsꢀitꢀinꢀaccordanceꢀwithꢀASCꢀ606.ꢀWeꢀalsoꢀprovideꢀcentralꢀdeterminantꢀsystemꢀtechnologyꢀtoꢀNativeꢀAmerican
tribesꢀinꢀotherꢀlicensedꢀjurisdictionsꢀforꢀwhichꢀweꢀreceiveꢀaꢀportionꢀofꢀtheꢀrevenueꢀgeneratedꢀfromꢀtheꢀVLTsꢀconnectedꢀtoꢀthe
system.ꢀTheseꢀarrangementsꢀareꢀgenerallyꢀshort-termꢀinꢀnatureꢀwithꢀpaymentsꢀdueꢀmonthly.ꢀ
Gamingꢀ operationsꢀ revenuesꢀ alsoꢀ includeꢀ amountsꢀ generatedꢀ byꢀ ourꢀ Interactiveꢀ offeringꢀ comprisedꢀ ofꢀ business-to-consumer
(“B2C”)ꢀandꢀbusiness-to-businessꢀ(“B2B”)ꢀactivities.ꢀB2Cꢀrelatesꢀtoꢀgamesꢀofferedꢀdirectlyꢀtoꢀconsumersꢀtoꢀplayꢀwithꢀvirtual
currencyꢀwhichꢀcanꢀbeꢀpurchasedꢀthroughꢀourꢀsocial,ꢀmobileꢀapplication.ꢀControlꢀtransfersꢀandꢀweꢀrecognizeꢀrevenuesꢀinꢀaccordance
withꢀASCꢀ606ꢀfromꢀplayerꢀpurchasesꢀofꢀvirtualꢀcurrencyꢀasꢀitꢀisꢀconsumedꢀforꢀgameꢀplay,ꢀwhichꢀisꢀbasedꢀonꢀaꢀhistoricalꢀdata
analysis.ꢀB2Bꢀrelatesꢀtoꢀgamesꢀofferedꢀtoꢀtheꢀonlineꢀbusinessꢀpartners,ꢀorꢀsocialꢀcasinos,ꢀwhoꢀthenꢀofferꢀtheꢀgamesꢀtoꢀconsumers.
OurꢀB2BꢀarrangementsꢀprimarilyꢀprovideꢀaccessꢀtoꢀourꢀgameꢀcontentꢀandꢀrevenueꢀisꢀrecognizedꢀinꢀaccordanceꢀwithꢀASCꢀ606ꢀas
theꢀcontrolꢀtransfersꢀuponꢀtheꢀonlineꢀbusinessꢀpartners’ꢀdailyꢀaccessꢀtoꢀsuchꢀcontentꢀbasedꢀonꢀeitherꢀaꢀflatꢀfeeꢀorꢀrevenueꢀshare
arrangementsꢀwithꢀtheꢀsocialꢀcasinos.ꢀ
Gaming Equipment and Systems
GamingꢀequipmentꢀandꢀsystemsꢀrevenuesꢀareꢀaccountedꢀforꢀunderꢀASCꢀ606ꢀandꢀareꢀderivedꢀfromꢀtheꢀsaleꢀofꢀsomeꢀcombination
of:ꢀ(a)ꢀgamingꢀequipmentꢀandꢀplayerꢀterminals,ꢀincludingꢀTournEvent®ꢀthatꢀallowsꢀoperatorsꢀtoꢀswitchꢀfromꢀin-revenueꢀgaming
toꢀout-of-revenueꢀtournaments;ꢀ(b)ꢀgameꢀcontent;ꢀ(c)ꢀlicenseꢀfees;ꢀ(d)ꢀancillaryꢀequipment;ꢀandꢀ(e)ꢀmaintenance.ꢀSuchꢀarrangements
areꢀpredominatelyꢀshort-termꢀinꢀnatureꢀwithꢀpaymentꢀtermsꢀrangingꢀfromꢀ30ꢀtoꢀ180ꢀdaysꢀwithꢀcertainꢀagreementsꢀprovidingꢀfor
extendedꢀpaymentꢀterms,ꢀrangingꢀfromꢀ12ꢀtoꢀ24ꢀmonths.ꢀOurꢀcontractsꢀwithꢀcustomersꢀdoꢀnotꢀcontainꢀanyꢀfinancingꢀcomponents
thatꢀ haveꢀ beenꢀ determinedꢀ toꢀ beꢀ significantꢀ toꢀ theꢀ contract.ꢀ Performanceꢀ obligationsꢀ forꢀ gamingꢀ equipmentꢀ andꢀ systems
arrangementsꢀ includeꢀ gamingꢀ equipment,ꢀ playerꢀ terminals,ꢀ content,ꢀ systemꢀ software,ꢀ licenseꢀ fees,ꢀ ancillaryꢀ equipment,
maintenance,ꢀorꢀvariousꢀcombinationsꢀthereof.ꢀGamingꢀequipmentꢀandꢀsystemsꢀareꢀrecognizedꢀatꢀaꢀpointꢀinꢀtimeꢀwhenꢀcontrolꢀof
theꢀpromisedꢀgoodsꢀandꢀservicesꢀtransfersꢀtoꢀtheꢀcustomerꢀgenerallyꢀuponꢀshipmentꢀorꢀdeliveryꢀpursuantꢀtoꢀtheꢀtermsꢀofꢀtheꢀcontract.
Theꢀperformanceꢀobligationsꢀareꢀgenerallyꢀsatisfiedꢀatꢀtheꢀsameꢀtimeꢀorꢀwithinꢀaꢀshortꢀperiodꢀofꢀtime.ꢀ
Gaming Other
GamingꢀotherꢀrevenuesꢀconsistꢀofꢀamountsꢀgeneratedꢀbyꢀourꢀTournEvent of Champions®ꢀnationalꢀtournamentꢀthatꢀallowsꢀwinners
ofꢀlocalꢀandꢀregionalꢀtournamentsꢀthroughoutꢀtheꢀyearꢀtoꢀparticipateꢀinꢀaꢀnationalꢀtournamentꢀthatꢀresultsꢀinꢀtheꢀdeterminationꢀof
aꢀfinalꢀchampion.ꢀSuchꢀrevenuesꢀareꢀaccountedꢀforꢀunderꢀASCꢀ606. Asꢀtheꢀcustomerꢀsimultaneouslyꢀreceivesꢀandꢀconsumesꢀthe
benefitsꢀofꢀourꢀperformanceꢀasꢀitꢀoccurs,ꢀrevenuesꢀareꢀrecognizedꢀasꢀearnedꢀoverꢀaꢀperiodꢀofꢀtimeꢀusingꢀanꢀoutputꢀmethodꢀdepicting
theꢀtransferꢀofꢀcontrolꢀtoꢀtheꢀcustomer.ꢀTheseꢀarrangementsꢀareꢀgenerallyꢀshort-termꢀinꢀnatureꢀwithꢀpaymentꢀtermsꢀrangingꢀfrom
30ꢀtoꢀ90ꢀdays.
FinTech Revenues
Cash Access Services
CashꢀaccessꢀservicesꢀrevenuesꢀareꢀaccountedꢀforꢀunderꢀASCꢀ606ꢀandꢀareꢀgenerallyꢀcomprisedꢀofꢀtheꢀfollowingꢀdistinctꢀperformance
obligations:ꢀcashꢀadvance,ꢀATM,ꢀandꢀcheckꢀservices.ꢀWeꢀdoꢀnotꢀcontrolꢀtheꢀcashꢀadvanceꢀandꢀATMꢀservicesꢀprovidedꢀtoꢀaꢀcustomer
and,ꢀtherefore,ꢀweꢀareꢀactingꢀasꢀanꢀagentꢀwhoseꢀperformanceꢀobligationꢀisꢀtoꢀarrangeꢀforꢀtheꢀprovisionꢀofꢀtheseꢀservices.ꢀOurꢀcash
accessꢀservicesꢀinvolveꢀtheꢀmovementꢀofꢀfundsꢀbetweenꢀtheꢀvariousꢀpartiesꢀassociatedꢀwithꢀcashꢀaccessꢀtransactionsꢀandꢀgiveꢀrise
toꢀsettlementꢀreceivablesꢀandꢀsettlementꢀliabilities,ꢀbothꢀofꢀwhichꢀareꢀsettledꢀinꢀdaysꢀfollowingꢀtheꢀtransaction.ꢀ
Cashꢀadvanceꢀrevenuesꢀareꢀcomprisedꢀofꢀtransactionꢀfeesꢀassessedꢀtoꢀgamingꢀpatronsꢀinꢀconnectionꢀwithꢀcreditꢀcardꢀcashꢀaccess
andꢀPOSꢀdebitꢀcardꢀcashꢀaccessꢀtransactions.ꢀSuchꢀfeesꢀareꢀprimarilyꢀbasedꢀonꢀaꢀcombinationꢀofꢀaꢀfixedꢀamountꢀplusꢀaꢀpercentage
ofꢀtheꢀfaceꢀamountꢀofꢀtheꢀcreditꢀcardꢀcashꢀaccessꢀorꢀPOSꢀdebitꢀcardꢀcashꢀaccessꢀtransactionꢀamount.ꢀInꢀconnectionꢀwithꢀtheseꢀtypes
ofꢀ transactions,ꢀ weꢀ reportꢀ certainꢀ directꢀ costsꢀ incurredꢀ asꢀ reductionsꢀ toꢀ revenuesꢀ onꢀ aꢀ netꢀ basis,ꢀ whichꢀ generallyꢀ include:ꢀ (i)
commissionꢀexpensesꢀpayableꢀtoꢀcasinoꢀoperators;ꢀ(ii)ꢀinterchangeꢀfeesꢀpayableꢀtoꢀtheꢀnetworkꢀassociations;ꢀandꢀ(iii)ꢀprocessing
andꢀrelatedꢀcostsꢀpayableꢀtoꢀotherꢀthirdꢀpartyꢀpartners.
ATMꢀrevenuesꢀareꢀprimarilyꢀcomprisedꢀofꢀtransactionꢀfeesꢀinꢀtheꢀformꢀofꢀcardholderꢀsurchargesꢀassessedꢀtoꢀgamingꢀpatronsꢀin
connectionꢀwithꢀATMꢀcashꢀwithdrawalsꢀatꢀtheꢀtimeꢀtheꢀtransactionsꢀareꢀauthorizedꢀandꢀreverseꢀinterchangeꢀfeesꢀpaidꢀtoꢀusꢀbyꢀthe
61
patrons’ꢀissuingꢀbanks.ꢀTheꢀcardholderꢀsurchargesꢀassessedꢀtoꢀgamingꢀpatronsꢀinꢀconnectionꢀwithꢀATMꢀcashꢀwithdrawalsꢀare
currentlyꢀaꢀfixedꢀdollarꢀamountꢀandꢀnotꢀaꢀpercentageꢀofꢀtheꢀtransactionꢀamount.ꢀInꢀconnectionꢀwithꢀtheseꢀtypesꢀofꢀtransactions,ꢀwe
reportꢀcertainꢀdirectꢀcostsꢀincurredꢀasꢀreductionsꢀtoꢀrevenuesꢀonꢀaꢀnetꢀbasis,ꢀwhichꢀgenerallyꢀinclude:ꢀ(i)ꢀcommissionꢀexpenses
payableꢀtoꢀcasinoꢀoperators;ꢀ(ii)ꢀinterchangeꢀfeesꢀpayableꢀtoꢀtheꢀnetworkꢀassociations;ꢀandꢀ(iii)ꢀprocessingꢀandꢀrelatedꢀcostsꢀpayable
toꢀotherꢀthirdꢀpartyꢀpartners.
Checkꢀservicesꢀrevenuesꢀareꢀprincipallyꢀcomprisedꢀofꢀcheckꢀwarrantyꢀrevenuesꢀandꢀareꢀgenerallyꢀbasedꢀuponꢀaꢀpercentageꢀofꢀthe
faceꢀamountꢀofꢀchecksꢀwarranted.ꢀTheseꢀfeesꢀareꢀpaidꢀtoꢀusꢀbyꢀgamingꢀestablishments.
Forꢀcashꢀaccessꢀservicesꢀarrangements,ꢀsinceꢀtheꢀcustomerꢀsimultaneouslyꢀreceivesꢀandꢀconsumesꢀtheꢀbenefitsꢀasꢀtheꢀperformance
obligationsꢀoccur,ꢀweꢀrecognizeꢀrevenuesꢀasꢀearnedꢀoverꢀaꢀperiodꢀofꢀtimeꢀusingꢀanꢀoutputꢀmethodꢀdepictingꢀtheꢀtransferꢀofꢀcontrol
toꢀtheꢀcustomerꢀbasedꢀonꢀvariableꢀconsideration,ꢀsuchꢀasꢀvolumeꢀofꢀtransactionsꢀprocessedꢀwithꢀvariabilityꢀgenerallyꢀresolvedꢀin
theꢀreportingꢀperiod.
Equipment
EquipmentꢀrevenuesꢀareꢀderivedꢀfromꢀtheꢀsaleꢀofꢀequipmentꢀandꢀareꢀaccountedꢀforꢀunderꢀASCꢀ606.ꢀRevenuesꢀareꢀrecognizedꢀatꢀa
pointꢀinꢀtimeꢀwhenꢀcontrolꢀofꢀtheꢀpromisedꢀgoodsꢀandꢀservicesꢀtransfersꢀtoꢀtheꢀcustomerꢀgenerallyꢀuponꢀshipmentꢀorꢀdelivery
pursuantꢀtoꢀtheꢀtermsꢀofꢀtheꢀcontract.ꢀTheseꢀsalesꢀcontractsꢀareꢀgenerallyꢀshort-termꢀinꢀnatureꢀwithꢀpaymentꢀtermsꢀrangingꢀfrom
30ꢀtoꢀ90ꢀdays.ꢀ
Information Services and Other
InformationꢀservicesꢀandꢀotherꢀrevenuesꢀareꢀaccountedꢀforꢀunderꢀASCꢀ606ꢀandꢀincludeꢀamountsꢀderivedꢀfromꢀtheꢀsaleꢀof:ꢀ(i)
softwareꢀlicenses,ꢀsoftwareꢀsubscriptions,ꢀprofessionalꢀservicesꢀandꢀcertainꢀotherꢀancillaryꢀfees;ꢀ(ii)ꢀserviceꢀrelatedꢀfeesꢀassociated
withꢀtheꢀsale,ꢀinstallation,ꢀandꢀmaintenanceꢀofꢀequipmentꢀdirectlyꢀtoꢀourꢀcustomersꢀunderꢀcontracts,ꢀwhichꢀareꢀgenerallyꢀshort-
termꢀinꢀnatureꢀwithꢀpaymentꢀtermsꢀrangingꢀfromꢀ30ꢀtoꢀ90ꢀdays,ꢀsecuredꢀbyꢀtheꢀrelatedꢀequipment;ꢀ(iii)ꢀcreditꢀworthiness-related
softwareꢀsubscriptionꢀservicesꢀthatꢀareꢀbasedꢀuponꢀeitherꢀaꢀflatꢀmonthlyꢀunlimitedꢀusageꢀfeeꢀorꢀaꢀvariableꢀfeeꢀstructureꢀdrivenꢀby
theꢀvolumeꢀofꢀpatronꢀcreditꢀhistoriesꢀgenerated;ꢀandꢀ(iv)ꢀancillaryꢀmarketing,ꢀdatabase,ꢀandꢀInternet-basedꢀgamingꢀrelatedꢀactivities.
Ourꢀsoftwareꢀrepresentsꢀaꢀfunctionalꢀright-to-useꢀlicenseꢀandꢀtheꢀrevenuesꢀareꢀrecognizedꢀasꢀearnedꢀatꢀaꢀpointꢀinꢀtime.ꢀSubscription
servicesꢀareꢀrecognizedꢀoverꢀaꢀperiodꢀofꢀtimeꢀusingꢀanꢀinputꢀmethodꢀbasedꢀonꢀtimeꢀelapsedꢀasꢀweꢀtransferꢀtheꢀcontrolꢀratablyꢀby
providingꢀaꢀstand-readyꢀservice.ꢀProfessionalꢀandꢀotherꢀservicesꢀrevenuesꢀareꢀrecognizedꢀoverꢀaꢀperiodꢀofꢀtimeꢀusingꢀanꢀinput
methodꢀbasedꢀonꢀtimeꢀelapsedꢀasꢀservicesꢀareꢀprovided,ꢀtherebyꢀreflectingꢀtheꢀtransferꢀofꢀcontrolꢀtoꢀtheꢀcustomer.
Cost of Revenues (Exclusive of Depreciation and Amortization)
Theꢀcostꢀofꢀrevenuesꢀ(exclusiveꢀofꢀdepreciationꢀandꢀamortization)ꢀrepresentsꢀtheꢀdirectꢀcostsꢀrequiredꢀtoꢀperformꢀrevenueꢀgenerating
transactions.ꢀTheꢀcostsꢀincludedꢀwithinꢀcostꢀofꢀrevenuesꢀ(exclusiveꢀofꢀdepreciationꢀandꢀamortization)ꢀareꢀinventoryꢀandꢀrelated
costsꢀassociatedꢀwithꢀtheꢀsaleꢀofꢀourꢀfullyꢀintegratedꢀkiosks,ꢀelectronicꢀgamingꢀmachinesꢀandꢀsystemꢀsale,ꢀcheckꢀcashingꢀwarranties,
fieldꢀservice,ꢀandꢀnetworkꢀoperationsꢀpersonnel.
Advertising, Marketing, and Promotional Costs
Weꢀexpenseꢀadvertising,ꢀmarketing,ꢀandꢀpromotionalꢀcostsꢀasꢀincurred.ꢀTotalꢀadvertising,ꢀmarketing,ꢀandꢀpromotionalꢀcosts,ꢀincluded
inꢀoperatingꢀexpensesꢀinꢀtheꢀStatementsꢀofꢀIncomeꢀ(Loss),ꢀwereꢀ$3.4ꢀmillion,ꢀ$1.1ꢀmillion,ꢀandꢀ$1.2ꢀmillionꢀforꢀtheꢀyearsꢀended
Decemberꢀ31,ꢀ2018,ꢀ2017,ꢀandꢀ2016,ꢀrespectively.
Research and Development Costs
Weꢀconductꢀresearchꢀandꢀdevelopmentꢀactivitiesꢀprimarilyꢀtoꢀdevelopꢀgamingꢀsystems,ꢀgameꢀengines,ꢀcasinoꢀdataꢀmanagement
systems,ꢀcasinoꢀcentralꢀmonitoringꢀsystems,ꢀvideoꢀlotteryꢀoutcomeꢀdeterminationꢀsystems,ꢀgamingꢀplatformsꢀandꢀgamingꢀcontent,
andꢀtoꢀenhanceꢀourꢀexistingꢀproductꢀlines.ꢀWeꢀbelieveꢀourꢀabilityꢀtoꢀdeliverꢀdifferentiated,ꢀappealingꢀproductsꢀandꢀservicesꢀtoꢀthe
marketplaceꢀisꢀbasedꢀonꢀourꢀresearchꢀandꢀdevelopmentꢀinvestments,ꢀandꢀweꢀexpectꢀtoꢀcontinueꢀtoꢀmakeꢀsuchꢀinvestmentsꢀinꢀthe
future.ꢀResearchꢀandꢀdevelopmentꢀcostsꢀconsistꢀprimarilyꢀofꢀsalariesꢀandꢀbenefits,ꢀconsultingꢀfees,ꢀandꢀgameꢀlabꢀtestingꢀfees.ꢀOnce
theꢀtechnologicalꢀfeasibilityꢀofꢀaꢀprojectꢀhasꢀbeenꢀestablished,ꢀitꢀisꢀcapitalizedꢀuntilꢀitꢀbecomesꢀavailableꢀforꢀgeneralꢀrelease.ꢀ
Researchꢀandꢀdevelopmentꢀcostsꢀwereꢀ$20.5ꢀmillion,ꢀ$18.9ꢀmillion,ꢀandꢀ$19.4ꢀmillionꢀforꢀtheꢀyearsꢀendedꢀDecemberꢀ31,ꢀ2018,
2017,ꢀandꢀ2016,ꢀrespectively.
62
Income Taxes
WeꢀareꢀsubjectꢀtoꢀincomeꢀtaxesꢀinꢀtheꢀUnitedꢀStatesꢀasꢀwellꢀasꢀvariousꢀstatesꢀandꢀforeignꢀjurisdictionsꢀinꢀwhichꢀweꢀoperate.ꢀIn
accordanceꢀwithꢀaccountingꢀguidance,ꢀourꢀincomeꢀtaxesꢀincludeꢀamountsꢀfromꢀdomesticꢀandꢀinternationalꢀjurisdictions.ꢀDueꢀto
theꢀ2017ꢀTaxꢀAct,ꢀthereꢀisꢀnoꢀU.S.ꢀfederalꢀtaxꢀonꢀcashꢀrepatriationꢀfromꢀforeignꢀsubsidiaries;ꢀhowever,ꢀweꢀcouldꢀbeꢀsubjectꢀto
foreignꢀwithholdingꢀtaxꢀandꢀU.S.ꢀstateꢀincomeꢀtaxes.ꢀTheꢀ2017ꢀTaxꢀActꢀalsoꢀsubjectsꢀourꢀforeignꢀsubsidiaryꢀearningsꢀtoꢀtheꢀGlobal
IntangibleꢀLow-TaxedꢀIncomeꢀ(“GILTI”)ꢀtaxꢀprovisions.ꢀSomeꢀitemsꢀofꢀincomeꢀandꢀexpenseꢀareꢀnotꢀreportedꢀinꢀtaxꢀreturnsꢀand
ourꢀFinancialꢀStatementsꢀinꢀtheꢀsameꢀyear.ꢀTheꢀtaxꢀeffectꢀofꢀsuchꢀtemporaryꢀdifferencesꢀisꢀreportedꢀasꢀdeferredꢀincomeꢀtaxes.
Ourꢀdeferredꢀtaxꢀassetsꢀandꢀliabilitiesꢀareꢀrecognizedꢀforꢀtheꢀexpectedꢀfutureꢀtaxꢀconsequencesꢀofꢀeventsꢀthatꢀhaveꢀbeenꢀincluded
inꢀourꢀFinancialꢀStatementsꢀorꢀincomeꢀtaxꢀreturns.ꢀDeferredꢀtaxꢀassetsꢀandꢀliabilitiesꢀareꢀdeterminedꢀbasedꢀuponꢀdifferencesꢀbetween
financialꢀstatementꢀcarryingꢀamountsꢀofꢀexistingꢀassetsꢀandꢀtheirꢀrespectiveꢀtaxꢀbasesꢀusingꢀenactedꢀtaxꢀratesꢀexpectedꢀtoꢀapplyꢀto
taxableꢀincomeꢀinꢀyearsꢀinꢀwhichꢀthoseꢀtemporaryꢀdifferencesꢀareꢀexpectedꢀtoꢀbeꢀrecoveredꢀorꢀsettled.ꢀTheꢀeffectꢀonꢀtheꢀincome
taxꢀprovisionꢀorꢀbenefitꢀandꢀdeferredꢀtaxꢀassetsꢀandꢀliabilitiesꢀforꢀaꢀchangeꢀinꢀratesꢀisꢀrecognizedꢀinꢀtheꢀStatementsꢀofꢀIncomeꢀ(Loss)
inꢀtheꢀperiodꢀthatꢀincludesꢀtheꢀenactmentꢀdate.
Whenꢀmeasuringꢀdeferredꢀtaxꢀassets,ꢀcertainꢀestimatesꢀandꢀassumptionsꢀareꢀrequiredꢀtoꢀassessꢀwhetherꢀaꢀvaluationꢀallowanceꢀshould
beꢀestablishedꢀbyꢀevaluatingꢀbothꢀpositiveꢀandꢀnegativeꢀfactorsꢀinꢀaccordanceꢀwithꢀaccountingꢀguidance.ꢀThisꢀevaluationꢀrequires
thatꢀweꢀexerciseꢀjudgmentꢀinꢀdeterminingꢀtheꢀrelativeꢀsignificanceꢀofꢀeachꢀfactor.ꢀTheꢀassessmentꢀofꢀtheꢀvaluationꢀallowance
involvesꢀ significantꢀ estimatesꢀ regardingꢀ futureꢀ taxableꢀ incomeꢀ andꢀ whenꢀ itꢀ isꢀ recognized,ꢀ theꢀ amountꢀ andꢀ timingꢀ ofꢀ taxable
differences,ꢀtheꢀreversalꢀofꢀtemporaryꢀdifferencesꢀandꢀtheꢀimplementationꢀofꢀtax-planningꢀstrategies.ꢀAꢀvaluationꢀallowanceꢀis
establishedꢀbasedꢀonꢀtheꢀweightꢀofꢀavailableꢀevidence,ꢀincludingꢀbothꢀpositiveꢀandꢀnegativeꢀindicators,ꢀifꢀitꢀisꢀmoreꢀlikelyꢀthanꢀnot
thatꢀaꢀportion,ꢀorꢀall,ꢀofꢀtheꢀdeferredꢀtaxꢀassetsꢀwillꢀnotꢀbeꢀrealized.ꢀGreaterꢀweightꢀisꢀgivenꢀtoꢀevidenceꢀthatꢀisꢀobjectivelyꢀverifiable,
mostꢀnotablyꢀhistoricalꢀresults.ꢀIfꢀweꢀreportꢀaꢀcumulativeꢀlossꢀfromꢀcontinuingꢀoperationsꢀbeforeꢀincomeꢀtaxesꢀforꢀaꢀreasonable
periodꢀofꢀtime,ꢀthisꢀformꢀofꢀnegativeꢀevidenceꢀisꢀdifficultꢀtoꢀovercome.ꢀTherefore,ꢀweꢀincludeꢀcertainꢀaspectsꢀofꢀourꢀhistorical
resultsꢀinꢀourꢀforecastsꢀofꢀfutureꢀtaxableꢀincome,ꢀasꢀweꢀdoꢀnotꢀhaveꢀtheꢀabilityꢀtoꢀsolelyꢀrelyꢀonꢀforecastedꢀimprovementsꢀinꢀearnings
toꢀrecoverꢀdeferredꢀtaxꢀassets.ꢀWhenꢀweꢀreportꢀaꢀcumulativeꢀlossꢀposition,ꢀtoꢀtheꢀextentꢀourꢀresultsꢀofꢀoperationsꢀimprove,ꢀsuch
thatꢀweꢀhaveꢀtheꢀabilityꢀtoꢀovercomeꢀtheꢀmoreꢀlikelyꢀthanꢀnotꢀaccountingꢀstandard,ꢀweꢀmayꢀbeꢀableꢀtoꢀreverseꢀtheꢀvaluationꢀallowance
inꢀtheꢀapplicableꢀperiodꢀofꢀdetermination.ꢀInꢀaddition,ꢀweꢀrelyꢀonꢀdeferredꢀtaxꢀliabilitiesꢀinꢀourꢀassessmentꢀofꢀtheꢀrealizabilityꢀof
deferredꢀtaxꢀassetsꢀifꢀtheꢀtemporaryꢀtimingꢀdifferenceꢀisꢀanticipatedꢀtoꢀreverseꢀinꢀtheꢀsameꢀperiodꢀandꢀjurisdictionꢀandꢀtheꢀdeferred
taxꢀliabilitiesꢀareꢀofꢀtheꢀsameꢀcharacterꢀasꢀtheꢀtemporaryꢀdifferencesꢀgivingꢀriseꢀtoꢀtheꢀdeferredꢀtaxꢀassets.
WeꢀalsoꢀfollowꢀaccountingꢀguidanceꢀtoꢀaccountꢀforꢀuncertaintyꢀinꢀincomeꢀtaxesꢀasꢀrecognizedꢀinꢀourꢀFinancialꢀStatements.ꢀThe
accountingꢀstandardꢀcreatesꢀaꢀsingleꢀmodelꢀtoꢀaddressꢀuncertaintyꢀinꢀincomeꢀtaxꢀpositionsꢀandꢀprescribesꢀtheꢀminimumꢀrecognition
thresholdꢀaꢀtaxꢀpositionꢀisꢀrequiredꢀtoꢀmeetꢀbeforeꢀbeingꢀrecognizedꢀinꢀourꢀFinancialꢀStatements.ꢀTheꢀstandardꢀalsoꢀprovides
guidanceꢀonꢀderecognition,ꢀmeasurement,ꢀclassification,ꢀinterestꢀandꢀpenalties,ꢀaccountingꢀinꢀinterimꢀperiods,ꢀdisclosure,ꢀand
transition.
Underꢀthisꢀstandard,ꢀweꢀmayꢀrecognizeꢀtaxꢀbenefitsꢀfromꢀanꢀuncertainꢀpositionꢀonlyꢀifꢀitꢀisꢀmoreꢀlikelyꢀthanꢀnotꢀthatꢀtheꢀposition
willꢀbeꢀsustainedꢀuponꢀexaminationꢀbyꢀtaxingꢀauthoritiesꢀbasedꢀonꢀtheꢀtechnicalꢀmeritsꢀofꢀtheꢀissue.ꢀTheꢀamountꢀrecognizedꢀisꢀthe
largestꢀbenefitꢀthatꢀweꢀbelieveꢀhasꢀgreaterꢀthanꢀaꢀ50%ꢀlikelihoodꢀofꢀbeingꢀrealizedꢀuponꢀsettlement.ꢀActualꢀincomeꢀtaxesꢀpaidꢀmay
varyꢀfromꢀestimatesꢀdependingꢀuponꢀchangesꢀinꢀincomeꢀtaxꢀlaws,ꢀactualꢀresultsꢀofꢀoperations,ꢀandꢀtheꢀfinalꢀauditꢀofꢀtaxꢀreturnsꢀby
taxingꢀauthorities.ꢀTaxꢀassessmentsꢀmayꢀariseꢀseveralꢀyearsꢀafterꢀtaxꢀreturnsꢀhaveꢀbeenꢀfiled.
Employee Benefits Plan
TheꢀCompanyꢀprovidesꢀaꢀ401(k)ꢀPlanꢀthatꢀallowsꢀemployeesꢀtoꢀdeferꢀupꢀtoꢀtheꢀlesserꢀofꢀtheꢀInternalꢀRevenueꢀCodeꢀprescribed
maximumꢀamountꢀorꢀ100%ꢀofꢀtheirꢀincomeꢀonꢀaꢀpre-taxꢀbasisꢀthroughꢀcontributionsꢀtoꢀtheꢀplan.ꢀAsꢀaꢀbenefitꢀtoꢀemployees,ꢀthe
Companyꢀmatchesꢀaꢀpercentageꢀofꢀtheseꢀemployeeꢀcontributionsꢀ(asꢀdefinedꢀinꢀtheꢀplanꢀdocument).ꢀExpensesꢀrelatedꢀtoꢀtheꢀmatching
portionꢀofꢀtheꢀcontributionsꢀtoꢀtheꢀ401(k)ꢀPlanꢀwereꢀ$2.2ꢀmillion,ꢀ$2.3ꢀmillion,ꢀandꢀ$1.9ꢀmillionꢀforꢀtheꢀyearsꢀendedꢀDecemberꢀ31,
2018,ꢀ2017,ꢀandꢀ2016,ꢀrespectively.
Fair Values of Financial Instruments
Theꢀfairꢀvalueꢀofꢀaꢀfinancialꢀinstrumentꢀrepresentsꢀtheꢀamountꢀatꢀwhichꢀtheꢀinstrumentꢀcouldꢀbeꢀexchangedꢀinꢀaꢀcurrentꢀtransaction
betweenꢀwillingꢀparties,ꢀotherꢀthanꢀinꢀaꢀforcedꢀorꢀliquidationꢀsale.ꢀFairꢀvalueꢀestimatesꢀareꢀmadeꢀatꢀaꢀspecificꢀpointꢀinꢀtime,ꢀbased
uponꢀrelevantꢀmarketꢀinformationꢀaboutꢀtheꢀfinancialꢀinstrument.ꢀ
Theꢀ carryingꢀ amountꢀ ofꢀ cashꢀ andꢀ cashꢀ equivalents,ꢀ settlementꢀ receivables,ꢀ short-termꢀ tradeꢀ andꢀ otherꢀ receivables,ꢀ settlement
liabilities,ꢀaccountsꢀpayableꢀandꢀaccruedꢀexpensesꢀapproximateꢀfairꢀvalueꢀdueꢀtoꢀtheꢀshort-termꢀmaturitiesꢀofꢀtheseꢀinstruments.
Theꢀfairꢀvalueꢀofꢀtheꢀlong-termꢀtradeꢀandꢀloansꢀreceivableꢀisꢀestimatedꢀbyꢀdiscountingꢀexpectedꢀfutureꢀcashꢀflowsꢀusingꢀcurrent
63
interestꢀ ratesꢀ atꢀ whichꢀ similarꢀ loansꢀ wouldꢀ beꢀ madeꢀ toꢀ borrowersꢀ withꢀ similarꢀ creditꢀ ratingsꢀ andꢀ remainingꢀ maturities.ꢀAsꢀ of
Decemberꢀ31,ꢀ 2018ꢀ andꢀ Decemberꢀ31,ꢀ 2017,ꢀ theꢀ fairꢀ valueꢀ ofꢀ notesꢀ receivable,ꢀ net,ꢀ approximatedꢀ theꢀ carryingꢀ valueꢀ dueꢀ to
contractualꢀtermsꢀofꢀtradeꢀandꢀloansꢀreceivableꢀgenerallyꢀbeingꢀunderꢀ24ꢀmonths.ꢀTheꢀfairꢀvalueꢀofꢀourꢀborrowingsꢀisꢀestimated
basedꢀonꢀvariousꢀinputsꢀtoꢀdetermineꢀaꢀmarketꢀprice,ꢀsuchꢀas:ꢀmarketꢀdemandꢀandꢀsupply,ꢀsizeꢀofꢀtranche,ꢀmaturity,ꢀandꢀsimilar
instrumentsꢀtradingꢀinꢀmoreꢀactiveꢀmarkets.ꢀTheꢀestimatedꢀfairꢀvalueꢀandꢀoutstandingꢀbalancesꢀofꢀourꢀborrowingsꢀareꢀasꢀfollows
(inꢀthousands):
December 31, 2018
Termꢀloan
Seniorꢀunsecuredꢀnotes
December 31, 2017
Termꢀloan
Seniorꢀunsecuredꢀnotes
Level of
Hierarchy
Fair Value
Outstanding
Balance
2
1
2
1
$
$
$
$
784,479
354,863
826,099
372,656
$
$
$
$
807,700
375,000
815,900
375,000
TheꢀtermꢀloanꢀfacilityꢀwasꢀreportedꢀatꢀfairꢀvalueꢀusingꢀaꢀLevelꢀ2ꢀinputꢀasꢀthereꢀwereꢀquotedꢀpricesꢀinꢀmarketsꢀthatꢀwereꢀnotꢀconsidered
activeꢀasꢀofꢀDecemberꢀ31,ꢀ2018ꢀandꢀDecemberꢀ31,ꢀ2017.ꢀTheꢀseniorꢀunsecuredꢀnotesꢀwereꢀreportedꢀatꢀfairꢀvalueꢀusingꢀaꢀLevelꢀ1
inputꢀasꢀthereꢀwereꢀquotedꢀpricesꢀinꢀmarketsꢀthatꢀwereꢀconsideredꢀactiveꢀasꢀofꢀDecemberꢀ31,ꢀ2018ꢀandꢀDecemberꢀ31,ꢀ2017.
Foreign Currency Translation
Foreignꢀcurrencyꢀdenominatedꢀassetsꢀandꢀliabilitiesꢀforꢀthoseꢀforeignꢀentitiesꢀforꢀwhichꢀtheꢀlocalꢀcurrencyꢀisꢀtheꢀfunctionalꢀcurrency
areꢀtranslatedꢀintoꢀU.S.ꢀdollarsꢀbasedꢀonꢀexchangeꢀratesꢀprevailingꢀatꢀtheꢀendꢀofꢀeachꢀyear.ꢀRevenuesꢀandꢀexpensesꢀareꢀtranslated
atꢀaverageꢀexchangeꢀratesꢀduringꢀtheꢀyear.ꢀTheꢀeffectsꢀofꢀforeignꢀexchangeꢀgainsꢀandꢀlossesꢀarisingꢀfromꢀtheseꢀtranslationsꢀare
includedꢀ asꢀ aꢀ componentꢀ ofꢀ otherꢀ comprehensiveꢀ incomeꢀ onꢀ theꢀ Statementsꢀ ofꢀ Incomeꢀ (Loss).ꢀ Translationꢀ adjustmentsꢀ on
intercompanyꢀbalancesꢀofꢀaꢀlong-termꢀinvestmentꢀnatureꢀareꢀrecordedꢀasꢀaꢀcomponentꢀofꢀaccumulatedꢀotherꢀcomprehensiveꢀloss
onꢀourꢀBalanceꢀSheets.
Use of Estimates
Weꢀhaveꢀmadeꢀestimatesꢀandꢀjudgmentsꢀaffectingꢀtheꢀamountsꢀreportedꢀinꢀtheseꢀfinancialꢀstatementsꢀandꢀtheꢀaccompanyingꢀnotes
inꢀconformityꢀwithꢀaccountingꢀprinciplesꢀgenerallyꢀacceptedꢀinꢀtheꢀUnitedꢀStates.ꢀTheꢀactualꢀresultsꢀmayꢀdifferꢀfromꢀtheseꢀestimates.
Earnings Applicable to Common Stock
Basicꢀearningsꢀperꢀshareꢀisꢀcalculatedꢀbyꢀdividingꢀnetꢀincomeꢀbyꢀtheꢀweightedꢀaverageꢀnumberꢀofꢀcommonꢀsharesꢀoutstandingꢀfor
theꢀperiod.ꢀDilutedꢀearningsꢀperꢀshareꢀreflectꢀtheꢀeffectꢀofꢀpotentialꢀcommonꢀstockꢀresultingꢀfromꢀassumedꢀstockꢀoptionꢀexercises
andꢀvestingꢀofꢀrestrictedꢀstockꢀunlessꢀitꢀisꢀanti-dilutive.ꢀToꢀtheꢀextentꢀweꢀreportꢀaꢀnetꢀlossꢀfromꢀcontinuingꢀoperationsꢀinꢀaꢀparticular
period,ꢀnoꢀpotentialꢀdilutionꢀfromꢀtheꢀapplicationꢀofꢀtheꢀtreasuryꢀstockꢀmethodꢀwouldꢀbeꢀapplicableꢀinꢀaccordanceꢀwithꢀASCꢀ260,
EarningsꢀperꢀShare.ꢀ
Share‑Based Compensation
Share-basedꢀcompensationꢀisꢀconsideredꢀanꢀequityꢀawardꢀandꢀresultsꢀinꢀaꢀcostꢀthatꢀisꢀmeasuredꢀatꢀfairꢀvalueꢀonꢀtheꢀgrantꢀdateꢀof
anꢀaward.
Ourꢀtime-basedꢀstockꢀoptionsꢀwereꢀmeasuredꢀatꢀfairꢀvalueꢀonꢀtheꢀgrantꢀdateꢀusingꢀtheꢀBlackꢀScholesꢀmodel.ꢀOurꢀrestrictedꢀstock
awardsꢀandꢀrestrictedꢀstockꢀunits,ꢀincludingꢀtheꢀrestrictedꢀstockꢀunitsꢀboundꢀbyꢀcertainꢀperformance-basedꢀmetricsꢀissuedꢀinꢀ2018,
wereꢀmeasuredꢀatꢀfairꢀvalueꢀbasedꢀonꢀtheꢀstockꢀpriceꢀonꢀtheꢀgrantꢀdate.ꢀTheꢀcompensationꢀexpenseꢀisꢀrecognizedꢀonꢀaꢀstraight-line
basisꢀoverꢀtheꢀvestingꢀperiodꢀofꢀtheꢀawards.
Ourꢀmarket-basedꢀoptionsꢀgrantedꢀinꢀ2017ꢀandꢀ2016ꢀunderꢀourꢀ2014ꢀEquityꢀIncentiveꢀPlanꢀ(theꢀ“2014ꢀPlan”)ꢀandꢀ2012ꢀEquity
IncentiveꢀPlanꢀ(asꢀamended,ꢀtheꢀ“2012ꢀPlan”)ꢀvestꢀatꢀaꢀrateꢀofꢀ25%ꢀperꢀyearꢀonꢀeachꢀofꢀtheꢀfirstꢀfourꢀanniversariesꢀofꢀtheꢀgrant
date,ꢀprovidedꢀthatꢀasꢀofꢀtheꢀvestingꢀdateꢀforꢀeachꢀvestingꢀtranche,ꢀtheꢀclosingꢀpriceꢀofꢀtheꢀCompany’sꢀsharesꢀonꢀtheꢀNewꢀYork
StockꢀExchangeꢀisꢀatꢀleastꢀaꢀspecifiedꢀpriceꢀhurdle,ꢀdefinedꢀasꢀaꢀ25%ꢀandꢀ50%ꢀpremiumꢀforꢀ2017ꢀandꢀ2016,ꢀrespectively,ꢀtoꢀthe
closingꢀstockꢀpriceꢀonꢀtheꢀgrantꢀdate.ꢀIfꢀtheꢀpriceꢀhurdleꢀisꢀnotꢀmetꢀasꢀofꢀtheꢀvestingꢀdateꢀforꢀaꢀvestingꢀtranche,ꢀthenꢀtheꢀvested
trancheꢀshallꢀvestꢀandꢀbecomeꢀvestedꢀsharesꢀonꢀtheꢀlastꢀdayꢀofꢀaꢀperiodꢀofꢀ30ꢀconsecutiveꢀtradingꢀdaysꢀduringꢀwhichꢀtheꢀclosing
priceꢀisꢀatꢀleastꢀtheꢀpriceꢀhurdle.
64
Theꢀmarket-basedꢀoptionsꢀwereꢀmeasuredꢀatꢀfairꢀvalueꢀonꢀtheꢀgrantꢀdateꢀusingꢀaꢀlattice-basedꢀvaluationꢀmodelꢀbasedꢀonꢀtheꢀmedian
timeꢀhorizonꢀfromꢀtheꢀdateꢀofꢀgrantꢀforꢀtheseꢀoptionsꢀtoꢀtheꢀvestingꢀdateꢀforꢀthoseꢀpathsꢀthatꢀachievedꢀtheꢀtargetꢀthreshold(s).ꢀThe
compensationꢀexpenseꢀisꢀrecognizedꢀonꢀaꢀstraight-lineꢀbasisꢀoverꢀtheꢀmedianꢀvestingꢀperiodsꢀcalculatedꢀunderꢀsuchꢀvaluation
model.
Forfeituresꢀareꢀestimatedꢀatꢀtheꢀgrantꢀdateꢀforꢀourꢀtime-based,ꢀmarket-basedꢀandꢀperformance-basedꢀawards,ꢀwithꢀsuchꢀestimates
updatedꢀperiodically;ꢀandꢀwithꢀactualꢀforfeituresꢀrecognizedꢀcurrentlyꢀtoꢀtheꢀextentꢀtheyꢀdifferꢀfromꢀtheꢀestimates.
Unlessꢀotherwiseꢀprovidedꢀbyꢀtheꢀadministratorꢀofꢀourꢀequityꢀincentiveꢀplans,ꢀstockꢀoptionsꢀgrantedꢀunderꢀourꢀplansꢀgenerally
expireꢀtenꢀyearsꢀfromꢀtheꢀdateꢀofꢀgrant.ꢀTheꢀexerciseꢀpriceꢀofꢀstockꢀoptionsꢀisꢀgenerallyꢀtheꢀclosingꢀmarketꢀpriceꢀofꢀourꢀcommon
stockꢀonꢀtheꢀdateꢀofꢀtheꢀstockꢀoptionꢀgrant.
Acquisition-Related Costs
Weꢀrecognizeꢀaꢀliabilityꢀforꢀacquisition-relatedꢀcostsꢀwhenꢀtheꢀexpenseꢀisꢀincurred.ꢀAcquisition-relatedꢀcostsꢀinclude,ꢀbutꢀareꢀnot
limitedꢀto:ꢀfinancialꢀadvisory,ꢀlegalꢀandꢀdebtꢀfees;ꢀaccounting,ꢀconsulting,ꢀandꢀprofessionalꢀfeesꢀassociatedꢀwithꢀdueꢀdiligence,
valuation,ꢀandꢀintegration;ꢀseverance;ꢀandꢀotherꢀrelatedꢀcostsꢀandꢀadjustments.
Reclassification of Prior Year Balances
Reclassificationsꢀwereꢀmadeꢀtoꢀtheꢀprior-periodꢀFinancialꢀStatementsꢀtoꢀconformꢀtoꢀtheꢀcurrentꢀperiodꢀpresentation,ꢀexceptꢀforꢀthe
adoptionꢀimpactꢀofꢀtheꢀapplicationꢀofꢀASCꢀ606ꢀutilizingꢀtheꢀmodifiedꢀretrospectiveꢀtransitionꢀmethod.
Recent Accounting Guidance
Recently Adopted Accounting Guidance
InꢀMarchꢀ2018,ꢀtheꢀFASBꢀissuedꢀASUꢀNo.ꢀ2018-05,ꢀwhichꢀprovidesꢀguidanceꢀonꢀaccountingꢀforꢀtheꢀtaxꢀeffectsꢀofꢀtheꢀ2017ꢀTax
Actꢀ(pursuantꢀtoꢀSECꢀStaffꢀAccountingꢀBulletinꢀNo.ꢀ118).ꢀTheꢀnewꢀstandardꢀisꢀeffectiveꢀMarchꢀ13,ꢀ2018.ꢀWeꢀhaveꢀadoptedꢀthis
guidanceꢀinꢀtheꢀquarterꢀendedꢀMarchꢀ31,ꢀ2018.ꢀInꢀaccordanceꢀwithꢀthisꢀguidance,ꢀsomeꢀofꢀtheꢀincomeꢀtaxꢀeffectsꢀrecordedꢀinꢀ2017
wereꢀprovisionalꢀandꢀinsignificantꢀadjustmentsꢀwereꢀmadeꢀduringꢀ2018.ꢀAsꢀofꢀDecemberꢀ22,ꢀ2018,ꢀweꢀcompletedꢀourꢀanalysisꢀand
ourꢀupdatedꢀassessmentꢀisꢀthatꢀtheꢀ2017ꢀTaxꢀActꢀhasꢀnoꢀfurtherꢀimpactꢀonꢀourꢀpreviouslyꢀreportedꢀincomeꢀtaxꢀprovisionsꢀorꢀour
deferredꢀtaxꢀassetsꢀorꢀliabilities;ꢀtherefore,ꢀtheseꢀamountsꢀareꢀnoꢀlongerꢀconsideredꢀprovisionalꢀinꢀnature.ꢀ
InꢀMayꢀ2014,ꢀtheꢀFASBꢀissuedꢀASUꢀNo.ꢀ2014-09,ꢀwhichꢀcreatesꢀASCꢀ606ꢀandꢀsupersedesꢀASCꢀTopicꢀ605,ꢀ“RevenueꢀRecognition.”
Theꢀguidanceꢀreplacesꢀindustry-specificꢀguidanceꢀandꢀestablishesꢀaꢀsingleꢀfive-stepꢀmodelꢀtoꢀidentifyꢀandꢀrecognizeꢀrevenue.ꢀThe
coreꢀprincipleꢀofꢀtheꢀguidanceꢀisꢀthatꢀanꢀentityꢀshouldꢀrecognizeꢀrevenueꢀuponꢀtransferꢀofꢀcontrolꢀofꢀpromisedꢀgoodsꢀorꢀservices
toꢀcustomersꢀinꢀanꢀamountꢀthatꢀreflectsꢀtheꢀconsiderationꢀtoꢀwhichꢀanꢀentityꢀexpectsꢀtoꢀbeꢀentitledꢀinꢀexchangeꢀforꢀthoseꢀgoodsꢀor
services.ꢀAdditionally,ꢀtheꢀguidanceꢀrequiresꢀtheꢀentityꢀtoꢀdiscloseꢀfurtherꢀquantitativeꢀandꢀqualitativeꢀinformationꢀregardingꢀthe
natureꢀandꢀamountꢀofꢀrevenuesꢀarisingꢀfromꢀcontractsꢀwithꢀcustomers,ꢀasꢀwellꢀasꢀotherꢀinformationꢀaboutꢀtheꢀsignificantꢀjudgments
andꢀestimatesꢀusedꢀinꢀrecognizingꢀrevenuesꢀfromꢀcontractsꢀwithꢀcustomers.ꢀTheꢀguidanceꢀinꢀASUꢀ2014-9ꢀwasꢀfurtherꢀupdatedꢀby
ASUꢀ2016-08ꢀinꢀMarchꢀ2016,ꢀwhichꢀprovidedꢀclarificationꢀonꢀtheꢀimplementationꢀofꢀtheꢀprincipalꢀversusꢀagentꢀconsiderationsꢀin
ASUꢀ2014-09.ꢀInꢀAprilꢀ2016,ꢀtheꢀFASBꢀissuedꢀASUꢀ2016-10,ꢀwhichꢀprovidesꢀclarificationꢀonꢀtheꢀimplementationꢀofꢀperformance
obligationsꢀandꢀlicensingꢀinꢀASUꢀ2014-9.ꢀInꢀMayꢀ2016,ꢀtheꢀFASBꢀissuedꢀASUꢀ2016-11,ꢀwhichꢀamendedꢀguidanceꢀprovidedꢀin
twoꢀSECꢀStaffꢀAnnouncementsꢀatꢀtheꢀMarchꢀ3,ꢀ2016ꢀEmergingꢀIssuesꢀTaskꢀForceꢀmeetingꢀoverꢀvariousꢀtopicsꢀrelatingꢀtoꢀASU
606.ꢀInꢀMayꢀ2016,ꢀtheꢀFASBꢀissuedꢀASUꢀ2016-12,ꢀwhichꢀclarifiedꢀvariousꢀtopicsꢀinꢀASCꢀ606.ꢀInꢀDecemberꢀ2016,ꢀtheꢀFASBꢀissued
ASUꢀ2016-20,ꢀwhichꢀclarifiedꢀadditionalꢀtopicsꢀinꢀASCꢀ606.ꢀThisꢀguidanceꢀmayꢀbeꢀadoptedꢀretrospectivelyꢀorꢀunderꢀaꢀmodified
retrospectiveꢀmethodꢀwhereꢀtheꢀcumulativeꢀeffectꢀisꢀrecognizedꢀatꢀtheꢀdateꢀofꢀinitialꢀapplication.ꢀWeꢀadoptedꢀthisꢀguidanceꢀeffective
Januaryꢀ1,ꢀ2018ꢀandꢀhaveꢀprovidedꢀadditionalꢀinformationꢀwithꢀrespectꢀtoꢀtheꢀnewꢀrevenueꢀrecognitionꢀtopicꢀelsewhereꢀinꢀthis
Noteꢀ2ꢀdisclosureꢀandꢀalsoꢀinꢀ“Noteꢀ3ꢀ—ꢀAdoptionꢀofꢀASCꢀ606,ꢀRevenueꢀfromꢀContractsꢀwithꢀCustomers.”
InꢀMayꢀ2017,ꢀtheꢀFASBꢀissuedꢀASUꢀNo.ꢀ2017-09ꢀtoꢀclarifyꢀwhichꢀchangesꢀtoꢀtheꢀtermsꢀandꢀconditionsꢀofꢀshare-basedꢀpayment
awardsꢀrequireꢀanꢀentityꢀtoꢀapplyꢀmodificationꢀaccountingꢀunderꢀTopicꢀ718.ꢀAnꢀentityꢀisꢀrequiredꢀtoꢀaccountꢀforꢀtheꢀeffectsꢀofꢀa
modificationꢀunlessꢀallꢀofꢀtheꢀfollowingꢀconditionsꢀareꢀmet:ꢀ(i)ꢀtheꢀfairꢀvalueꢀ(orꢀcalculatedꢀvalueꢀorꢀintrinsicꢀvalue,ꢀifꢀsuchꢀan
alternativeꢀ measurementꢀ methodꢀ isꢀ used)ꢀ ofꢀ theꢀ modifiedꢀ awardꢀ isꢀ theꢀ sameꢀ asꢀ theꢀ fairꢀ valueꢀ (orꢀ valueꢀ usingꢀ anꢀ alternative
measurementꢀmethod)ꢀofꢀtheꢀoriginalꢀawardꢀimmediatelyꢀbeforeꢀtheꢀoriginalꢀawardꢀisꢀmodified.ꢀIfꢀtheꢀmodificationꢀdoesꢀnotꢀaffect
anyꢀofꢀtheꢀinputsꢀtoꢀtheꢀvaluationꢀtechniqueꢀthatꢀtheꢀentityꢀusesꢀtoꢀvalueꢀtheꢀaward,ꢀtheꢀentityꢀisꢀnotꢀrequiredꢀtoꢀestimateꢀtheꢀvalue
immediatelyꢀ beforeꢀ andꢀ afterꢀ theꢀ modification;ꢀ (ii)ꢀ theꢀ vestingꢀ conditionsꢀ ofꢀ theꢀ modifiedꢀ awardꢀ areꢀ theꢀ sameꢀ asꢀ theꢀ vesting
conditionsꢀofꢀtheꢀoriginalꢀawardꢀimmediatelyꢀbeforeꢀtheꢀoriginalꢀawardꢀisꢀmodified;ꢀandꢀ(iii)ꢀtheꢀclassificationꢀofꢀtheꢀmodified
awardꢀasꢀanꢀequityꢀinstrumentꢀorꢀaꢀliabilityꢀinstrumentꢀisꢀtheꢀsameꢀasꢀtheꢀclassificationꢀofꢀtheꢀoriginalꢀawardꢀimmediatelyꢀbefore
65
theꢀoriginalꢀawardꢀisꢀmodified.ꢀWeꢀadoptedꢀthisꢀguidanceꢀinꢀtheꢀquarterꢀendedꢀMarchꢀ31,ꢀ2018.ꢀTheꢀadoptionꢀofꢀthisꢀASUꢀdidꢀnot
haveꢀaꢀmaterialꢀimpactꢀonꢀourꢀFinancialꢀStatements.
InꢀJanuaryꢀ2017,ꢀtheꢀFASBꢀissuedꢀASUꢀNo.ꢀ2017-01,ꢀwhichꢀclarifiesꢀtheꢀdefinitionꢀofꢀaꢀbusiness.ꢀTheꢀamendmentsꢀaffectꢀall
companiesꢀandꢀotherꢀreportingꢀorganizationsꢀthatꢀmustꢀdetermineꢀwhetherꢀtheyꢀhaveꢀacquiredꢀorꢀsoldꢀaꢀbusiness.ꢀTheꢀamendments
areꢀintendedꢀtoꢀhelpꢀcompaniesꢀandꢀotherꢀorganizationsꢀevaluateꢀwhetherꢀtransactionsꢀshouldꢀbeꢀaccountedꢀforꢀasꢀacquisitionsꢀ(or
disposals)ꢀofꢀassetsꢀorꢀbusinesses.ꢀTheꢀnewꢀstandardꢀisꢀeffectiveꢀforꢀfiscalꢀyearsꢀbeginningꢀafterꢀDecemberꢀ15,ꢀ2017,ꢀincluding
interimꢀperiodsꢀwithinꢀthoseꢀfiscalꢀyears.ꢀThisꢀguidanceꢀisꢀtoꢀbeꢀappliedꢀusingꢀaꢀprospectiveꢀapproachꢀasꢀofꢀtheꢀbeginningꢀofꢀthe
firstꢀperiodꢀofꢀadoption.ꢀWeꢀadoptedꢀthisꢀguidanceꢀinꢀtheꢀquarterꢀendedꢀMarchꢀ31,ꢀ2018.ꢀTheꢀadoptionꢀofꢀthisꢀASUꢀdidꢀnotꢀhaveꢀa
materialꢀimpactꢀonꢀourꢀFinancialꢀStatements.
InꢀOctoberꢀ2016,ꢀtheꢀFASBꢀissuedꢀASUꢀNo.ꢀ2016-18,ꢀwhichꢀrequiresꢀthatꢀaꢀstatementꢀofꢀcashꢀflowsꢀexplainꢀtheꢀchangeꢀduringꢀthe
periodꢀinꢀtheꢀtotalꢀofꢀcash,ꢀcashꢀequivalentsꢀandꢀamountsꢀgenerallyꢀdescribedꢀasꢀrestrictedꢀcashꢀorꢀrestrictedꢀcashꢀequivalents.ꢀAs
aꢀresult,ꢀamountsꢀgenerallyꢀdescribedꢀasꢀrestrictedꢀcashꢀandꢀrestrictedꢀcashꢀequivalentsꢀshouldꢀbeꢀincludedꢀwithꢀcashꢀandꢀcash
equivalentsꢀwhenꢀreconcilingꢀtheꢀbeginning-of-periodꢀandꢀend-of-periodꢀtotalꢀamountsꢀshownꢀonꢀtheꢀstatementꢀofꢀcashꢀflows.ꢀThe
amendmentsꢀdoꢀnotꢀprovideꢀaꢀdefinitionꢀofꢀrestrictedꢀcashꢀorꢀrestrictedꢀcashꢀequivalents.ꢀWeꢀadoptedꢀthisꢀguidanceꢀinꢀtheꢀquarter
endedꢀMarchꢀ31,ꢀ2018ꢀusingꢀaꢀretrospectiveꢀapproachꢀtoꢀeachꢀperiodꢀpresented.ꢀTheꢀadoptionꢀofꢀthisꢀASUꢀdidꢀnotꢀhaveꢀaꢀmaterial
impactꢀonꢀourꢀFinancialꢀStatements.
InꢀOctoberꢀ2016,ꢀtheꢀFASBꢀissuedꢀASUꢀNo.ꢀ2016-16,ꢀwhichꢀprovidesꢀupdatedꢀguidanceꢀonꢀtheꢀrecognitionꢀofꢀtheꢀincomeꢀtax
consequencesꢀofꢀintra-entityꢀtransfersꢀofꢀassetsꢀotherꢀthanꢀinventoryꢀwhenꢀtheꢀtransferꢀoccurs,ꢀandꢀthisꢀeliminatesꢀtheꢀexception
forꢀ anꢀ intra-entityꢀ transferꢀ ofꢀ suchꢀ assets.ꢀ Thisꢀ guidanceꢀ willꢀ beꢀ appliedꢀ usingꢀ aꢀ modifiedꢀ retrospectiveꢀ approachꢀ throughꢀ a
cumulative-effectiveꢀadjustmentꢀdirectlyꢀtoꢀretainedꢀearningsꢀasꢀofꢀtheꢀbeginningꢀofꢀtheꢀperiodꢀofꢀadoption.ꢀWeꢀadoptedꢀthisꢀguidance
inꢀtheꢀquarterꢀendedꢀMarchꢀ31,ꢀ2018.ꢀTheꢀadoptionꢀofꢀthisꢀASUꢀdidꢀnotꢀhaveꢀaꢀmaterialꢀimpactꢀonꢀourꢀFinancialꢀStatements.
InꢀAugustꢀ2016,ꢀtheꢀFASBꢀissuedꢀASUꢀNo.ꢀ2016-15,ꢀwhichꢀprovidesꢀupdatedꢀguidanceꢀonꢀtheꢀclassificationꢀofꢀcertainꢀcashꢀreceipts
andꢀcashꢀpaymentsꢀinꢀtheꢀstatementꢀofꢀcashꢀflows.ꢀThisꢀguidanceꢀisꢀtoꢀbeꢀappliedꢀusingꢀaꢀretrospectiveꢀapproach.ꢀIfꢀitꢀisꢀimpracticable
toꢀapplyꢀtheꢀamendmentsꢀretrospectivelyꢀforꢀsomeꢀofꢀtheꢀissuesꢀwithinꢀthisꢀASU,ꢀtheꢀamendmentsꢀforꢀthoseꢀissuesꢀwouldꢀbeꢀapplied
prospectivelyꢀasꢀofꢀtheꢀearliestꢀdateꢀpracticable.ꢀWeꢀadoptedꢀthisꢀguidanceꢀinꢀtheꢀquarterꢀendedꢀMarchꢀ31,ꢀ2018.ꢀTheꢀadoptionꢀof
thisꢀASUꢀdidꢀnotꢀhaveꢀaꢀmaterialꢀimpactꢀonꢀourꢀFinancialꢀStatements.
Inꢀ Januaryꢀ 2016,ꢀ theꢀ FASBꢀ issuedꢀASUꢀ No.ꢀ 2016-01,ꢀ which,ꢀ amongꢀ otherꢀ things,ꢀ requiresꢀ equityꢀ investmentsꢀ (exceptꢀ those
accountedꢀforꢀunderꢀtheꢀequityꢀmethodꢀofꢀaccounting,ꢀorꢀthoseꢀthatꢀresultꢀinꢀconsolidationꢀofꢀtheꢀinvestee)ꢀtoꢀbeꢀmeasuredꢀatꢀfair
valueꢀwithꢀchangesꢀinꢀfairꢀvalueꢀrecognizedꢀinꢀnetꢀincome.ꢀWeꢀadoptedꢀthisꢀguidanceꢀinꢀtheꢀquarterꢀendedꢀMarchꢀ31,ꢀ2018.ꢀThe
adoptionꢀofꢀthisꢀASUꢀdidꢀnotꢀhaveꢀaꢀmaterialꢀimpactꢀonꢀourꢀFinancialꢀStatements.
Recent Accounting Guidance Not Yet Adopted
InꢀAugustꢀ2018,ꢀtheꢀFASBꢀissuedꢀASUꢀNo.ꢀ2018-15,ꢀwhichꢀalignsꢀtheꢀrequirementsꢀforꢀcapitalizingꢀimplementationꢀcostsꢀincurred
inꢀaꢀhostingꢀarrangementꢀthatꢀisꢀaꢀserviceꢀcontractꢀwithꢀtheꢀrequirementsꢀforꢀcapitalizingꢀimplementationꢀcostsꢀincurredꢀtoꢀdevelop
orꢀobtainꢀinternal-useꢀsoftwareꢀ(andꢀhostingꢀarrangementsꢀthatꢀincludeꢀanꢀinternalꢀuseꢀsoftwareꢀlicense).ꢀTheꢀnewꢀstandardꢀis
effectiveꢀforꢀfiscalꢀyearsꢀbeginningꢀafterꢀDecemberꢀ15,ꢀ2019,ꢀincludingꢀinterimꢀperiodsꢀwithinꢀthoseꢀfiscalꢀyears.ꢀEarlyꢀadoption
isꢀpermitted,ꢀincludingꢀadoptionꢀinꢀanyꢀinterimꢀperiod.ꢀWeꢀareꢀcurrentlyꢀevaluatingꢀtheꢀimpactꢀofꢀadoptingꢀthisꢀguidanceꢀonꢀour
FinancialꢀStatements;ꢀhowever,ꢀweꢀdoꢀnotꢀexpectꢀtheꢀimpactꢀtoꢀbeꢀmaterial.ꢀ
InꢀJuneꢀ2018,ꢀtheꢀFASBꢀissuedꢀASUꢀNo.ꢀ2018-07,ꢀwhichꢀexpandsꢀtheꢀscopeꢀofꢀTopicꢀ718,ꢀCompensation-StockꢀCompensation
(whichꢀcurrentlyꢀonlyꢀincludesꢀshare-basedꢀpaymentsꢀtoꢀemployees)ꢀtoꢀincludeꢀshare-basedꢀpaymentsꢀissuedꢀtoꢀnonemployeesꢀfor
goodsꢀorꢀservices.ꢀConsequently,ꢀtheꢀaccountingꢀforꢀshare-basedꢀpaymentsꢀtoꢀnonemployeesꢀandꢀemployeesꢀwillꢀbeꢀsubstantially
aligned.ꢀTheꢀnewꢀstandardꢀisꢀeffectiveꢀforꢀfiscalꢀyearsꢀbeginningꢀafterꢀDecemberꢀ15,ꢀ2018,ꢀincludingꢀinterimꢀperiodsꢀwithinꢀthose
fiscalꢀyears.ꢀEarlyꢀadoptionꢀisꢀpermitted.ꢀWeꢀdoꢀnotꢀexpectꢀtheꢀadoptionꢀofꢀthisꢀASUꢀtoꢀhaveꢀaꢀmaterialꢀimpactꢀonꢀourꢀFinancial
Statements.ꢀ
InꢀFebruaryꢀ2018,ꢀtheꢀFASBꢀissuedꢀASUꢀNo.ꢀ2018-02,ꢀwhichꢀprovidesꢀfinancialꢀstatementꢀpreparersꢀwithꢀanꢀoptionꢀtoꢀreclassify
strandedꢀtaxꢀeffectsꢀwithinꢀAOCIꢀtoꢀretainedꢀearningsꢀinꢀeachꢀperiodꢀinꢀwhichꢀtheꢀeffectꢀofꢀtheꢀchangeꢀinꢀtheꢀU.S.ꢀfederalꢀcorporate
incomeꢀtaxꢀrateꢀinꢀtheꢀTaxꢀCutsꢀandꢀJobsꢀActꢀ(orꢀportionꢀthereof)ꢀisꢀrecorded.ꢀTheꢀnewꢀstandardꢀisꢀeffectiveꢀforꢀfiscalꢀyearsꢀbeginning
afterꢀDecemberꢀ15,ꢀ2018,ꢀincludingꢀinterimꢀperiodsꢀwithinꢀthoseꢀfiscalꢀyears.ꢀWeꢀdoꢀnotꢀexpectꢀtheꢀadoptionꢀofꢀthisꢀASUꢀtoꢀhave
aꢀmaterialꢀimpactꢀonꢀourꢀFinancialꢀStatements.ꢀ
InꢀJuneꢀ2016,ꢀtheꢀFASBꢀissuedꢀASUꢀNo.ꢀ2016-13,ꢀwhichꢀprovidesꢀupdatedꢀguidanceꢀonꢀhowꢀanꢀentityꢀshouldꢀmeasureꢀcreditꢀlosses
onꢀfinancialꢀinstruments.ꢀTheꢀnewꢀguidanceꢀreplacesꢀtheꢀcurrentꢀincurredꢀlossꢀmeasurementꢀmethodologyꢀwithꢀaꢀlifetimeꢀexpected
lossꢀmeasurementꢀmethodology,ꢀandꢀisꢀeffectiveꢀforꢀfiscalꢀyearsꢀbeginningꢀafterꢀDecemberꢀ15,ꢀ2019,ꢀincludingꢀinterimꢀperiods
66
withinꢀthoseꢀfiscalꢀyears.ꢀThisꢀguidanceꢀwillꢀbeꢀappliedꢀusingꢀaꢀmodifiedꢀretrospectiveꢀapproachꢀforꢀtheꢀcumulative-effectꢀadjustment
toꢀretainedꢀearningsꢀasꢀofꢀtheꢀbeginningꢀofꢀtheꢀfirstꢀreportingꢀperiodꢀinꢀwhichꢀtheꢀguidanceꢀisꢀeffectiveꢀandꢀusingꢀaꢀprospective
approachꢀforꢀdebtꢀsecuritiesꢀforꢀwhichꢀanyꢀother-than-temporaryꢀimpairmentꢀhadꢀbeenꢀrecognizedꢀbeforeꢀtheꢀeffectiveꢀdate.ꢀIn
Novemberꢀ2018,ꢀtheꢀFASBꢀissuedꢀASUꢀNo.ꢀ2018-19ꢀtoꢀmitigateꢀtransitionꢀcomplexityꢀbyꢀrequiringꢀentitiesꢀotherꢀthanꢀpublic
businessꢀentitiesꢀtoꢀimplementꢀASUꢀNo.ꢀ2016-13ꢀforꢀfiscalꢀyearsꢀbeginningꢀafterꢀDecemberꢀ15,ꢀ2021,ꢀincludingꢀinterimꢀperiods
withinꢀthoseꢀfiscalꢀyears.ꢀThisꢀalignsꢀtheꢀimplementationꢀdateꢀforꢀtheirꢀannualꢀfinancialꢀstatementsꢀwithꢀtheꢀimplementationꢀdate
forꢀtheirꢀinterimꢀfinancialꢀstatements.ꢀTheꢀguidanceꢀalsoꢀclarifiedꢀthatꢀreceivablesꢀarisingꢀfromꢀoperatingꢀleasesꢀareꢀnotꢀwithinꢀthe
scopeꢀofꢀtheꢀcreditꢀlossesꢀstandard,ꢀbutꢀrather,ꢀshouldꢀbeꢀaccountedꢀforꢀinꢀaccordanceꢀwithꢀtheꢀleasesꢀstandard.ꢀWeꢀareꢀcurrently
evaluatingꢀtheꢀimpactꢀofꢀadoptingꢀthisꢀguidanceꢀonꢀourꢀFinancialꢀStatements;ꢀhowever,ꢀweꢀdoꢀnotꢀexpectꢀtheꢀimpactꢀtoꢀbeꢀmaterial.
Inꢀ Februaryꢀ 2016,ꢀ theꢀ FASBꢀ issuedꢀASUꢀ No.ꢀ 2016-02,ꢀ toꢀ increaseꢀ transparencyꢀ andꢀ comparabilityꢀ amongꢀ organizationsꢀ by
recognizingꢀleaseꢀassetsꢀandꢀleaseꢀliabilitiesꢀonꢀtheꢀbalanceꢀsheetꢀandꢀdisclosingꢀkeyꢀinformationꢀaboutꢀleasingꢀtransactions.ꢀThe
guidanceꢀestablishesꢀaꢀright-of-useꢀ(“ROU”)ꢀmodelꢀthatꢀrequiresꢀaꢀlesseeꢀtoꢀrecordꢀaꢀROUꢀassetꢀandꢀaꢀleaseꢀliabilityꢀonꢀtheꢀbalance
sheetꢀforꢀallꢀleasesꢀwithꢀtermsꢀlongerꢀthanꢀ12ꢀmonths.ꢀWeꢀmadeꢀanꢀaccountingꢀpolicyꢀelectionꢀwherebyꢀleasesꢀthatꢀareꢀ12ꢀmonths
orꢀlessꢀthatꢀdoꢀnotꢀincludeꢀanꢀoptionꢀtoꢀpurchaseꢀtheꢀunderlyingꢀassetsꢀwillꢀbeꢀaccountedꢀforꢀsimilarlyꢀtoꢀourꢀcurrentꢀoperating
leases;ꢀtherefore,ꢀtheseꢀarrangementsꢀwillꢀnotꢀbeꢀrecordedꢀonꢀtheꢀbalanceꢀsheet.ꢀForꢀlessees,ꢀleasesꢀwillꢀbeꢀclassifiedꢀasꢀeither
financingꢀorꢀoperatingꢀwithꢀclassificationꢀaffectingꢀtheꢀpatternꢀofꢀexpenseꢀrecognitionꢀinꢀtheꢀincomeꢀstatement.ꢀForꢀlessors,ꢀleases
willꢀbeꢀclassifiedꢀasꢀoperating,ꢀsales-typeꢀorꢀdirectꢀfinancingꢀwithꢀclassificationꢀaffectingꢀtheꢀpatternꢀofꢀrevenueꢀandꢀprofitꢀrecognition
inꢀtheꢀincomeꢀstatement.ꢀInꢀJulyꢀ2018,ꢀtheꢀFASBꢀissuedꢀASUꢀNo.ꢀ2018-10ꢀ-ꢀCodificationꢀImprovementsꢀtoꢀTopicꢀ842,ꢀLeasesꢀand
ASUꢀ No.ꢀ 2018-11ꢀ -ꢀ Leasesꢀ (Topicꢀ 842):ꢀ Targetedꢀ Improvements.ꢀASUꢀ No.ꢀ 2018-10ꢀ affectsꢀ narrowꢀ aspectsꢀ ofꢀ theꢀ guidance
previouslyꢀissuedꢀandꢀASUꢀNo.ꢀ2018-11ꢀprovidesꢀaꢀpracticalꢀexpedientꢀforꢀlessorsꢀonꢀseparatingꢀcomponentsꢀofꢀaꢀcontractꢀand
alsoꢀincludesꢀanꢀadditionalꢀoptionalꢀtransitionꢀreliefꢀmethodologyꢀforꢀadoptingꢀtheꢀnewꢀstandard.ꢀInꢀDecemberꢀ2018,ꢀtheꢀFASB
issuedꢀASUꢀNo.ꢀ2018-20ꢀ-ꢀLeasesꢀ(Topicꢀ842):ꢀNarrow-ScopeꢀImprovementsꢀforꢀLessors,ꢀwhichꢀaddressesꢀtheꢀfollowingꢀissues
facingꢀlessorsꢀwhenꢀapplyingꢀtheꢀstandard:ꢀsalesꢀtaxesꢀandꢀotherꢀsimilarꢀtaxesꢀcollectedꢀfromꢀlessees,ꢀcertainꢀlessorꢀcostsꢀpaid
directlyꢀbyꢀlessees,ꢀandꢀrecognitionꢀofꢀvariableꢀpaymentsꢀforꢀcontractsꢀwithꢀleaseꢀandꢀnon-leaseꢀcomponents.ꢀTheꢀguidanceꢀrequires
anꢀentityꢀtoꢀadoptꢀtheꢀnewꢀstandard,ꢀasꢀamended,ꢀunderꢀaꢀmodifiedꢀretrospectiveꢀapplication.ꢀWithꢀtheꢀoptionalꢀtransitionꢀrelief
methodologyꢀavailable,ꢀentitiesꢀhaveꢀanꢀopportunityꢀtoꢀadoptꢀtheꢀnewꢀleaseꢀstandardꢀprospectivelyꢀatꢀtheꢀbeginningꢀofꢀtheꢀperiod
ofꢀadoptionꢀthroughꢀaꢀcumulative-effectꢀadjustment,ꢀwithꢀcertainꢀpracticalꢀexpedientsꢀavailable.ꢀ
OnꢀJanuaryꢀ1,ꢀ2019,ꢀtheꢀCompanyꢀadoptedꢀtheꢀnewꢀleasingꢀstandardꢀpromulgatedꢀbyꢀtheꢀFASBꢀusingꢀtheꢀadoptionꢀdateꢀmethod.
Whileꢀweꢀareꢀfinalizingꢀtheꢀadoptionꢀprocedures,ꢀweꢀexpectꢀthatꢀtheꢀstandardꢀwillꢀhaveꢀaꢀmaterialꢀimpactꢀonꢀourꢀBalanceꢀSheets,
however,ꢀweꢀdoꢀnotꢀexpectꢀthatꢀtheꢀstandardꢀwillꢀhaveꢀaꢀmaterialꢀimpactꢀonꢀourꢀStatementsꢀofꢀIncomeꢀ(Loss).ꢀUponꢀadoption,ꢀwe
willꢀrecordꢀaꢀROUꢀassetꢀandꢀleaseꢀliability,ꢀrepresentingꢀourꢀobligationꢀtoꢀmakeꢀleaseꢀpaymentsꢀforꢀoperatingꢀleases,ꢀmeasuredꢀon
aꢀ discountedꢀ basis.ꢀ Weꢀ expectꢀ theꢀ ROUꢀ assetsꢀ andꢀ leaseꢀ liabilitiesꢀ ofꢀ operatingꢀ leasesꢀ recordedꢀ toꢀ beꢀ withinꢀ theꢀ rangeꢀ of
approximatelyꢀ1%-2%ꢀofꢀtotalꢀassets.ꢀWeꢀelectedꢀtheꢀpracticalꢀexpedientsꢀofferedꢀinꢀtheꢀaforementionedꢀguidance,ꢀincludingꢀthe
transitionꢀpracticalꢀexpedientꢀthatꢀstatesꢀthatꢀtheꢀCompanyꢀneedꢀnotꢀreassess:ꢀ(a)ꢀwhetherꢀexpiredꢀorꢀexistingꢀcontractsꢀcontain
leases;ꢀ(b)ꢀtheꢀleaseꢀclassificationꢀofꢀexpiredꢀorꢀexistingꢀleases;ꢀorꢀ(c)ꢀinitialꢀdirectꢀcostsꢀforꢀanyꢀexistingꢀleases.ꢀOtherꢀexpedients
adoptedꢀincludeꢀpracticalꢀexpedientꢀthatꢀallowsꢀaꢀCompany,ꢀasꢀanꢀaccountingꢀpolicyꢀelectionꢀbyꢀclassꢀofꢀunderlyingꢀassets,ꢀchoose
notꢀtoꢀseparateꢀnon-leaseꢀcomponentsꢀfromꢀleaseꢀcomponents;ꢀandꢀaꢀshort-termꢀleaseꢀrecognitionꢀexemptionꢀtoꢀnotꢀrecordꢀshort-
termꢀleasesꢀwithꢀanꢀinitialꢀtermꢀofꢀ12ꢀmonthsꢀorꢀlessꢀonꢀtheꢀbalanceꢀsheet.
Asꢀweꢀareꢀfinalizingꢀtheꢀadoptionꢀprocedures,ꢀweꢀexpectꢀtheꢀfollowingꢀimpactꢀtoꢀourꢀfinancialꢀstatementsꢀasꢀsummarizedꢀwithin
theꢀtableꢀbelow:ꢀ
Lessor Perspective
GamesꢀandꢀFinTechꢀSegments
Expected Impact Upon Adoption
TheꢀadoptionꢀofꢀASCꢀ842ꢀwillꢀnotꢀhaveꢀaꢀmaterialꢀimpactꢀonꢀtheꢀCompanyꢀfromꢀthe
lessorꢀperspectiveꢀasꢀourꢀlessorꢀaccountingꢀforꢀleasesꢀwillꢀbeꢀconsistentꢀwithꢀcurrent
practices.
Lessee Perspective
GamesꢀandꢀFinTechꢀSegments
Expected Impact Upon Adoption
WeꢀwillꢀrecognizeꢀoperatingꢀleaseꢀROUꢀassetsꢀandꢀliabilitiesꢀprimarilyꢀassociatedꢀwith
realꢀestateꢀleasesꢀonꢀourꢀBalanceꢀSheetsꢀforꢀleaseꢀcontractsꢀwithꢀtermsꢀthatꢀareꢀlonger
thanꢀ 12ꢀ monthsꢀ withꢀ noꢀ materialꢀ impactꢀ toꢀ theꢀ Statementsꢀ ofꢀ Incomeꢀ (Loss).ꢀ The
operatingꢀ leaseꢀ ROUꢀ assetsꢀ andꢀ liabilitiesꢀ areꢀ expectedꢀ toꢀ beꢀ recognizedꢀ atꢀ the
commencementꢀdateꢀbasedꢀonꢀtheꢀpresentꢀvalueꢀofꢀleaseꢀpaymentsꢀoverꢀtheꢀleaseꢀterms.
Weꢀdoꢀnotꢀanticipateꢀthatꢀanyꢀotherꢀrecentlyꢀissuedꢀaccountingꢀguidanceꢀwillꢀhaveꢀaꢀsignificantꢀeffectꢀonꢀourꢀconsolidatedꢀfinancial
statements.
67
3. ADOPTION OF ASC 606, “REVENUE FROM CONTRACTS WITH CUSTOMERS”
Change in accounting policies
OnꢀJanuaryꢀ1,ꢀ2018,ꢀweꢀadoptedꢀASCꢀ606ꢀusingꢀtheꢀmodifiedꢀretrospectiveꢀmethod,ꢀwhichꢀrequiredꢀusꢀtoꢀevaluateꢀwhetherꢀany
cumulativeꢀadjustmentꢀwasꢀrequiredꢀtoꢀbeꢀrecordedꢀtoꢀretainedꢀearningsꢀ(accumulatedꢀdeficit)ꢀasꢀaꢀresultꢀofꢀapplyingꢀtheꢀprovisions
setꢀforthꢀunderꢀASCꢀ606ꢀforꢀanyꢀexistingꢀarrangementsꢀnotꢀyetꢀcompletedꢀasꢀofꢀtheꢀadoptionꢀdateꢀofꢀJanuaryꢀ1,ꢀ2018.ꢀWeꢀdetermined
thatꢀthereꢀwasꢀanꢀimmaterialꢀcumulativeꢀadjustmentꢀinꢀtheꢀamountꢀofꢀapproximatelyꢀ$4.4ꢀmillion,ꢀwhichꢀweꢀrecordedꢀtoꢀaccumulated
deficitꢀasꢀofꢀtheꢀadoptionꢀdateꢀasꢀaꢀresultꢀofꢀapplyingꢀtheꢀmodifiedꢀretrospectiveꢀtransitionꢀmethod.ꢀRevenuesꢀandꢀcostsꢀrelatedꢀto
certainꢀcontractsꢀareꢀrecognizedꢀatꢀaꢀpointꢀinꢀtimeꢀunderꢀASCꢀ606ꢀasꢀtheꢀperformanceꢀobligationsꢀrelatedꢀtoꢀcertainꢀtypesꢀofꢀsales
areꢀsatisfied;ꢀwhereas,ꢀpreviouslyꢀtheseꢀrevenuesꢀandꢀcostsꢀwereꢀrecognizedꢀoverꢀaꢀperiodꢀofꢀtimeꢀunderꢀASCꢀ605.ꢀInꢀaddition,
underꢀtheꢀmodifiedꢀretrospectiveꢀmethod,ꢀourꢀpriorꢀperiodꢀresultsꢀwereꢀnotꢀrecastꢀtoꢀreflectꢀtheꢀnewꢀrevenueꢀrecognitionꢀstandard.
Exceptꢀforꢀtheꢀchangesꢀdiscussedꢀwithꢀrespectꢀtoꢀrevenueꢀrecognition,ꢀtheꢀimpactꢀofꢀwhichꢀisꢀsummarizedꢀinꢀtheꢀtablesꢀbelow,ꢀwe
haveꢀconsistentlyꢀappliedꢀourꢀaccountingꢀpoliciesꢀtoꢀtheꢀperiodsꢀpresentedꢀinꢀourꢀFinancialꢀStatements.
Balance Sheets and Statements of Cash Flows
TheꢀadoptionꢀofꢀASCꢀ606ꢀutilizingꢀtheꢀmodifiedꢀretrospectiveꢀtransitionꢀmethodꢀdidꢀnotꢀhaveꢀaꢀmaterialꢀimpactꢀtoꢀourꢀBalance
SheetsꢀandꢀStatementsꢀofꢀCashꢀFlowsꢀasꢀofꢀandꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2018.
Games revenuesꢀ
WeꢀpreviouslyꢀreportedꢀcertainꢀcostsꢀincurredꢀinꢀconnectionꢀwithꢀourꢀWAPꢀplatform,ꢀconsistingꢀprimarilyꢀofꢀtheꢀjackpotꢀexpenses,
asꢀ costꢀ ofꢀ revenues.ꢀ UnderꢀASCꢀ 606,ꢀ suchꢀ costsꢀ areꢀ reflectedꢀ asꢀ reductionsꢀ toꢀ gamingꢀ operationsꢀ revenuesꢀ onꢀ aꢀ netꢀ basisꢀ of
presentation.
FinTech revenuesꢀ
Weꢀpreviouslyꢀreportedꢀcostsꢀandꢀexpensesꢀrelatedꢀtoꢀourꢀcashꢀaccessꢀservices,ꢀwhichꢀincludeꢀcommissionꢀexpensesꢀpayableꢀto
casinoꢀoperators,ꢀinterchangeꢀfeesꢀpayableꢀtoꢀtheꢀnetworkꢀassociationsꢀandꢀprocessing,ꢀandꢀrelatedꢀcostsꢀpayableꢀtoꢀotherꢀthird
partyꢀpartners,ꢀasꢀcostsꢀofꢀrevenues.ꢀAsꢀtheꢀresultꢀofꢀourꢀevaluationꢀofꢀtheꢀfactorsꢀcontainedꢀinꢀASCꢀ605,ꢀweꢀpreviouslyꢀdetermined
thatꢀtheꢀindicatorsꢀrequiringꢀtheꢀgrossꢀreportingꢀoutweighedꢀthoseꢀforꢀnetꢀreportingꢀprimarilyꢀdueꢀtoꢀtheꢀriskꢀofꢀloss.ꢀUnderꢀASC
606,ꢀsuchꢀcostsꢀareꢀreflectedꢀasꢀreductionsꢀtoꢀrevenuesꢀonꢀaꢀnetꢀbasisꢀofꢀpresentation,ꢀsinceꢀweꢀdeterminedꢀthatꢀweꢀdoꢀnotꢀcontrol
certainꢀcashꢀaccessꢀservicesꢀprovidedꢀtoꢀaꢀcustomerꢀand,ꢀtherefore,ꢀweꢀareꢀactingꢀasꢀanꢀagentꢀwhoseꢀperformanceꢀobligationꢀisꢀto
arrangeꢀforꢀtheꢀprovisionꢀofꢀtheseꢀtypesꢀofꢀservices.ꢀInꢀaddition,ꢀcommissionꢀexpensesꢀpayableꢀtoꢀtheꢀgamingꢀoperatorsꢀareꢀdetermined
toꢀbeꢀconsiderationꢀpaidꢀtoꢀcustomersꢀunderꢀASCꢀ606.
TheꢀfollowingꢀtableꢀpresentsꢀtheꢀimpactꢀofꢀtheꢀapplicationꢀofꢀASCꢀ606ꢀutilizingꢀtheꢀmodifiedꢀretrospectiveꢀtransitionꢀmethodꢀto
certainꢀlineꢀitemsꢀonꢀourꢀStatementsꢀofꢀIncomeꢀ(Loss)ꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2018ꢀ(inꢀthousands):ꢀ
68
Revenues
Games revenues
Gamingꢀoperations
Games total revenues
FinTech revenues
Cashꢀaccessꢀservices
Equipment
FinTech total revenues
As Reported
Year Ended December 31, 2018
Adjustments
Without Adoption
of ASC 606
$
168,146
258,978
$
$
2,364
2,364
170,510
261,342
156,806
20,977
210,537
629,641
(1,622)
628,019
786,447
19,355
838,556
Total revenues
469,515
630,383
1,099,898
Costs and expenses
Games cost of revenues(1)
Gamingꢀoperations
Games total cost of revenues
FinTech cost of revenues(1)
Cashꢀaccessꢀservices
Equipment
FinTech total cost of revenues
17,603
68,009
9,717
12,601
26,428
2,364
2,364
629,092
(825)
628,267
19,967
70,373
638,809
11,776
654,695
Total costs and expenses
383,702
630,631
1,014,333
Operating income
Income before income tax
Incomeꢀtaxꢀbenefit
Net income
Comprehensive income
(1)ꢀExclusiveꢀofꢀdepreciationꢀandꢀamortization.
4. BUSINESS COMBINATIONS
85,813
2,646
(9,710)
12,356
10,611
(248)
(248)
—
(248)
(248)
85,565
2,398
(9,710)
12,108
10,363
Weꢀ accountꢀ forꢀ businessꢀ combinationsꢀ inꢀ accordanceꢀ withꢀASCꢀ 805,ꢀ whichꢀ requiresꢀ thatꢀ theꢀ identifiableꢀ assetsꢀ acquiredꢀ and
liabilitiesꢀassumedꢀbeꢀrecordedꢀatꢀtheirꢀestimatedꢀfairꢀvaluesꢀonꢀtheꢀacquisitionꢀdateꢀseparatelyꢀfromꢀgoodwill,ꢀwhichꢀisꢀtheꢀexcess
ofꢀtheꢀfairꢀvalueꢀofꢀtheꢀpurchaseꢀpriceꢀoverꢀtheꢀfairꢀvaluesꢀofꢀtheseꢀidentifiableꢀassetsꢀandꢀliabilities.ꢀWeꢀincludeꢀtheꢀresultsꢀof
operationsꢀofꢀanꢀacquiredꢀbusinessꢀasꢀofꢀtheꢀacquisitionꢀdate.ꢀWeꢀhadꢀnoꢀmaterialꢀacquisitionsꢀforꢀtheꢀyearsꢀendedꢀDecemberꢀ31,
2018,ꢀ2017,ꢀandꢀ2016.
69
InꢀAugustꢀ2015,ꢀweꢀacquiredꢀcertainꢀassetsꢀofꢀResortꢀAdvantage,ꢀLLCꢀ(“ResortꢀAdvantage”),ꢀaꢀsupplierꢀofꢀcomprehensiveꢀand
integratedꢀsolutionsꢀforꢀcompleteꢀFinancialꢀCrimesꢀEnforcementꢀNetworkꢀ(“FinCEN”)ꢀandꢀInternalꢀRevenueꢀServiceꢀregulatory
complianceꢀtoꢀtheꢀgamingꢀindustry,ꢀforꢀanꢀaggregateꢀpurchaseꢀpriceꢀofꢀapproximatelyꢀ$13.3ꢀmillion,ꢀofꢀwhichꢀweꢀestimatedꢀthat
approximatelyꢀ$4.7ꢀmillionꢀ(theꢀ“earnꢀoutꢀliability”)ꢀwouldꢀbeꢀpaidꢀunderꢀtheꢀprovisionsꢀofꢀtheꢀagreementꢀoverꢀaꢀperiodꢀofꢀ40
monthsꢀ(theꢀ“payoutꢀperiod”)ꢀbasedꢀuponꢀanꢀevaluationꢀoverꢀaꢀperiodꢀofꢀ36ꢀmonthsꢀ(theꢀ“earnꢀoutꢀperiod”)ꢀfollowingꢀtheꢀclosing
ofꢀ theꢀ transaction.ꢀ Uponꢀ expirationꢀ ofꢀ theꢀ earnꢀ outꢀ periodꢀ inꢀAugustꢀ 2018,ꢀ weꢀ analyzedꢀ theꢀ remainingꢀ earnꢀ outꢀ liabilityꢀ of
approximatelyꢀ$0.8ꢀmillionꢀandꢀdeterminedꢀthatꢀapproximatelyꢀ$0.6ꢀmillionꢀwouldꢀnotꢀbeꢀrealized;ꢀtherefore,ꢀweꢀreversedꢀthat
amountꢀintoꢀincome.ꢀWeꢀcontinuedꢀtoꢀrecordꢀapproximatelyꢀ$0.2ꢀmillionꢀinꢀremainingꢀearnꢀoutꢀliabilityꢀtoꢀpotentiallyꢀbeꢀpaidꢀunder
theꢀprovisionsꢀofꢀtheꢀagreementꢀduringꢀtheꢀfirstꢀquarterꢀofꢀ2019.ꢀTheꢀResortꢀAdvantageꢀacquisitionꢀdidꢀnotꢀhaveꢀaꢀmaterialꢀimpact
onꢀourꢀresultsꢀofꢀoperationsꢀorꢀfinancialꢀcondition.
5. FUNDING AGREEMENTS
Commercial Cash Arrangements
WeꢀhaveꢀcommercialꢀarrangementsꢀwithꢀthirdꢀpartyꢀvendorsꢀtoꢀprovideꢀcashꢀforꢀcertainꢀofꢀourꢀATMs.ꢀForꢀtheꢀuseꢀofꢀtheseꢀfunds,
weꢀpayꢀaꢀcashꢀusageꢀfeeꢀonꢀeitherꢀtheꢀaverageꢀdailyꢀbalanceꢀofꢀfundsꢀutilizedꢀmultipliedꢀbyꢀaꢀcontractuallyꢀdefinedꢀcashꢀusageꢀrate
orꢀtheꢀamountsꢀsuppliedꢀmultipliedꢀbyꢀaꢀcontractuallyꢀdefinedꢀcashꢀusageꢀrate.ꢀTheseꢀcashꢀusageꢀfees,ꢀreflectedꢀasꢀinterestꢀexpense
withinꢀtheꢀStatementsꢀofꢀIncomeꢀ(Loss),ꢀwereꢀ$7.0ꢀmillion,ꢀ$4.9ꢀmillion,ꢀandꢀ$3.1ꢀmillionꢀforꢀtheꢀyearsꢀendedꢀDecemberꢀ31,ꢀ2018,
2017,ꢀandꢀ2016,ꢀrespectively.ꢀWeꢀareꢀexposedꢀtoꢀinterestꢀrateꢀriskꢀtoꢀtheꢀextentꢀthatꢀtheꢀapplicableꢀratesꢀincrease.
Underꢀtheseꢀagreements,ꢀtheꢀcurrencyꢀsuppliedꢀbyꢀthirdꢀpartyꢀvendorsꢀremainꢀtheirꢀsoleꢀpropertyꢀuntilꢀtheꢀfundsꢀareꢀdispensed.ꢀAs
theseꢀfundsꢀareꢀnotꢀourꢀassets,ꢀsuppliedꢀcashꢀisꢀnotꢀreflectedꢀinꢀourꢀBalanceꢀSheets.ꢀTheꢀoutstandingꢀbalancesꢀofꢀATMꢀcashꢀutilized
byꢀusꢀfromꢀtheꢀthirdꢀpartiesꢀwereꢀapproximatelyꢀ$224.7ꢀmillionꢀandꢀ$289.8ꢀmillionꢀasꢀofꢀDecemberꢀ31,ꢀ2018ꢀandꢀ2017,ꢀrespectively.
Ourꢀprimaryꢀcommercialꢀarrangement,ꢀtheꢀContractꢀCashꢀSolutionsꢀAgreement,ꢀasꢀamended,ꢀwithꢀWellsꢀFargoꢀprovidesꢀusꢀwith
cashꢀinꢀtheꢀmaximumꢀamountꢀofꢀ$300ꢀmillionꢀwithꢀtheꢀabilityꢀtoꢀincreaseꢀtheꢀamountꢀbyꢀ$75ꢀmillionꢀoverꢀaꢀ5-dayꢀperiodꢀfor
holidays,ꢀsuchꢀasꢀtheꢀperiodꢀaroundꢀNewꢀYear’sꢀDay.ꢀTheꢀtermꢀofꢀtheꢀagreementꢀexpiresꢀonꢀJuneꢀ30,ꢀ2021ꢀandꢀwillꢀautoꢀrenewꢀfor
additionalꢀone-yearꢀperiodsꢀunlessꢀeitherꢀpartyꢀprovidesꢀaꢀ90-dayꢀwrittenꢀnoticeꢀofꢀitsꢀintentꢀnotꢀtoꢀrenew.ꢀ
WeꢀareꢀresponsibleꢀforꢀanyꢀlossesꢀofꢀcashꢀinꢀtheꢀATMsꢀunderꢀthisꢀagreementꢀandꢀweꢀself-insureꢀforꢀthisꢀrisk.ꢀWeꢀincurredꢀnoꢀmaterial
lossesꢀrelatedꢀtoꢀthisꢀself-insuranceꢀforꢀtheꢀyearsꢀendedꢀDecemberꢀ31,ꢀ2018,ꢀ2017,ꢀandꢀ2016.
Site‑Funded ATMs
WeꢀoperateꢀATMsꢀatꢀcertainꢀcustomerꢀgamingꢀestablishmentsꢀwhereꢀtheꢀgamingꢀestablishmentꢀprovidesꢀtheꢀcashꢀrequiredꢀforꢀthe
ATMꢀoperationalꢀneeds.ꢀWeꢀareꢀrequiredꢀtoꢀreimburseꢀtheꢀcustomerꢀforꢀtheꢀamountꢀofꢀcashꢀdispensedꢀfromꢀtheseꢀsite-fundedꢀATMs.
Theꢀsite-fundedꢀATMꢀliabilityꢀisꢀincludedꢀwithinꢀsettlementꢀliabilitiesꢀinꢀtheꢀaccompanyingꢀBalanceꢀSheetsꢀandꢀwasꢀ$249.6ꢀmillion
andꢀ$210.8ꢀmillionꢀasꢀofꢀDecemberꢀ31,ꢀ2018ꢀandꢀ2017,ꢀrespectively.
Everi-Funded ATMs
WeꢀenterꢀintoꢀagreementsꢀwithꢀcustomersꢀforꢀcertainꢀofꢀourꢀCanadianꢀATMsꢀwherebyꢀweꢀprovideꢀtheꢀcashꢀrequiredꢀtoꢀoperateꢀthe
ATMs.ꢀWeꢀsuppliedꢀapproximatelyꢀ$4.8ꢀmillionꢀandꢀ$6.9ꢀmillionꢀofꢀourꢀcashꢀforꢀtheseꢀATMsꢀatꢀDecemberꢀ31,ꢀ2018ꢀandꢀ2017,
respectively,ꢀwhichꢀrepresentsꢀanꢀoutstandingꢀbalanceꢀunderꢀsuchꢀagreementsꢀatꢀtheꢀendꢀofꢀtheꢀperiod.ꢀSuchꢀamountsꢀareꢀreported
withinꢀsettlementꢀreceivablesꢀlineꢀofꢀourꢀBalanceꢀSheets.
Prefunded Cash Access Agreements
Dueꢀ toꢀ certainꢀ regulatoryꢀ requirements,ꢀ someꢀ internationalꢀ gamingꢀ establishmentsꢀ requireꢀ prefundingꢀ ofꢀ cashꢀ toꢀ coverꢀ all
outstandingꢀsettlementꢀamountsꢀinꢀorderꢀforꢀusꢀtoꢀprovideꢀcashꢀaccessꢀservicesꢀtoꢀtheirꢀproperties.ꢀWeꢀenterꢀintoꢀagreementsꢀwith
theseꢀoperatorsꢀforꢀwhichꢀweꢀsupplyꢀourꢀcashꢀaccessꢀservicesꢀforꢀtheirꢀproperties.ꢀUnderꢀtheseꢀagreements,ꢀweꢀmaintainꢀsole
discretionꢀtoꢀeitherꢀcontinueꢀorꢀceaseꢀoperationsꢀasꢀwellꢀasꢀdiscretionꢀoverꢀtheꢀamountsꢀprefundedꢀtoꢀtheꢀpropertiesꢀandꢀmayꢀrequest
amountsꢀtoꢀbeꢀrefundedꢀtoꢀus,ꢀwithꢀappropriateꢀnoticeꢀtoꢀtheꢀoperator,ꢀatꢀanyꢀtime.ꢀTheꢀinitialꢀprefundedꢀamountsꢀandꢀsubsequent
amountsꢀfromꢀtheꢀsettlementꢀofꢀtransactionsꢀareꢀdepositedꢀintoꢀaꢀbankꢀaccountꢀthatꢀisꢀtoꢀbeꢀusedꢀexclusivelyꢀforꢀcashꢀaccessꢀservices,
andꢀweꢀmaintainꢀtheꢀrightꢀtoꢀmonitorꢀallꢀtransactionꢀactivityꢀinꢀthatꢀaccount.ꢀTheꢀtotalꢀamountꢀofꢀprefundedꢀcashꢀoutstandingꢀwas
approximatelyꢀ$6.1ꢀmillionꢀandꢀ$8.4ꢀmillionꢀatꢀDecemberꢀ31,ꢀ2018ꢀandꢀ2017,ꢀrespectively,ꢀandꢀisꢀincludedꢀinꢀprepaidꢀexpenses
andꢀotherꢀassetsꢀinꢀourꢀBalanceꢀSheets.
70
6. TRADE AND OTHER RECEIVABLES
Tradeꢀreceivablesꢀrepresentꢀshort-termꢀcreditꢀgrantedꢀtoꢀcustomersꢀasꢀwellꢀasꢀlong-termꢀloansꢀreceivableꢀonꢀourꢀgames,ꢀequipment,
andꢀcomplianceꢀproducts.ꢀTradeꢀandꢀloansꢀreceivablesꢀgenerallyꢀdoꢀnotꢀrequireꢀcollateral.ꢀTheꢀbalanceꢀofꢀtradeꢀandꢀloansꢀreceivables
consistsꢀofꢀoutstandingꢀbalancesꢀowedꢀtoꢀusꢀbyꢀgamingꢀestablishments.ꢀOtherꢀreceivablesꢀincludeꢀincomeꢀtaxꢀreceivablesꢀandꢀother
miscellaneousꢀreceivables.ꢀ
Theꢀbalanceꢀofꢀtradeꢀandꢀotherꢀreceivablesꢀconsistedꢀofꢀtheꢀfollowingꢀ(inꢀthousands):ꢀ
Trade and other receivables, net
Gamesꢀtradeꢀandꢀloansꢀreceivables
FinTechꢀtradeꢀandꢀloansꢀreceivables
Otherꢀreceivables
Total trade and other receivables, net
Non-current portion of receivables
Gamesꢀtradeꢀandꢀloansꢀreceivables
FinTechꢀtradeꢀandꢀloansꢀreceivables(1)
Total non-current portion of receivables
Total trade and other receivables, current portion
At December 31,
2018
2017
$
$
$
$
$
53,011
18,890
1,333
73,234
$
(2,922)
(5,925)
(8,847) $
64,387
$
38,070
10,780
1,570
50,420
(1,267)
(1,371)
(2,638)
47,782
ꢀ
(1)ꢀInꢀconnectionꢀwithꢀtheꢀadoptionꢀofꢀASCꢀ606ꢀutilizingꢀtheꢀmodifiedꢀretrospectiveꢀtransitionꢀmethod,ꢀweꢀrecordedꢀanꢀimmaterial
cumulativeꢀadjustmentꢀwithꢀrespectꢀtoꢀcertainꢀamountsꢀthatꢀhadꢀbeenꢀpreviouslyꢀdeferredꢀunderꢀtheꢀthenꢀexistingꢀrevenueꢀrecognition
guidanceꢀasꢀofꢀDecemberꢀ31,ꢀ2017ꢀthatꢀrequiredꢀrecognitionꢀunderꢀASCꢀ606ꢀasꢀofꢀtheꢀeffectiveꢀdateꢀofꢀadoptionꢀinꢀaccumulated
deficit.
Atꢀleastꢀquarterly,ꢀweꢀevaluateꢀtheꢀcollectabilityꢀofꢀtheꢀoutstandingꢀbalancesꢀandꢀestablishꢀaꢀreserveꢀforꢀtheꢀamountꢀofꢀtheꢀexpected
lossesꢀonꢀourꢀreceivables.ꢀTheꢀallowanceꢀforꢀdoubtfulꢀaccountsꢀforꢀtradeꢀreceivablesꢀwasꢀapproximatelyꢀ$6.4ꢀmillionꢀandꢀ$4.7
millionꢀasꢀofꢀDecemberꢀ31,ꢀ2018ꢀandꢀ2017,ꢀrespectively,ꢀandꢀincludedꢀapproximatelyꢀ$3.2ꢀmillionꢀandꢀ$2.7ꢀmillionꢀofꢀcheck
warrantyꢀreserves,ꢀrespectively.ꢀTheꢀprovisionꢀforꢀdoubtfulꢀcustomerꢀaccountsꢀreceivableꢀisꢀgenerallyꢀincludedꢀwithinꢀoperating
expensesꢀinꢀtheꢀStatementsꢀofꢀIncomeꢀ(Loss).
Aꢀsummaryꢀactivityꢀofꢀtheꢀreserveꢀforꢀcheckꢀwarrantyꢀlossesꢀisꢀasꢀfollowsꢀ(inꢀthousands):ꢀ
Balance, December 31, 2015
Warrantyꢀexpenseꢀprovision
Charge-offsꢀagainstꢀreserve
Balance, December 31, 2016
Warrantyꢀexpenseꢀprovision
Charge-offsꢀagainstꢀreserve
Balance, December 31, 2017
Warrantyꢀexpenseꢀprovision
Charge-offsꢀagainstꢀreserve
Balance, December 31, 2018
7. INVENTORY
Amount
2,973
8,694
(8,972)
2,695
9,418
(9,404)
2,709
9,819
(9,366)
3,162
$
$
Ourꢀinventoryꢀprimarilyꢀconsistsꢀofꢀcomponentꢀpartsꢀasꢀwellꢀasꢀwork-in-progressꢀandꢀfinishedꢀgoods.ꢀTheꢀcostꢀofꢀinventoryꢀincludes
costꢀofꢀmaterials,ꢀlabor,ꢀoverheadꢀandꢀfreight.ꢀTheꢀinventoryꢀisꢀstatedꢀatꢀtheꢀlowerꢀofꢀcostꢀorꢀnetꢀrealizableꢀvalueꢀandꢀaccounted
forꢀusingꢀtheꢀFIFOꢀmethod.
71
ThereꢀwasꢀnoꢀmaterialꢀimpairmentꢀofꢀourꢀinventoryꢀforꢀtheꢀyearsꢀendedꢀDecemberꢀ31,ꢀ2018ꢀandꢀ2017.
Weꢀrecordedꢀanꢀimmaterialꢀimpairmentꢀchargeꢀofꢀapproximatelyꢀ$1.8ꢀmillionꢀinꢀourꢀGamesꢀsegmentꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,
2018ꢀtoꢀreduceꢀtheꢀcarryingꢀvalueꢀofꢀcertainꢀcomponentꢀpartsꢀtoꢀtheirꢀfairꢀvalues.ꢀTheꢀadjustmentꢀwasꢀincludedꢀinꢀoperatingꢀexpenses
inꢀourꢀStatementsꢀofꢀIncomeꢀ(Loss).
Inventoryꢀconsistedꢀofꢀtheꢀfollowingꢀ(inꢀthousands):
Inventory
Componentꢀparts,ꢀnetꢀofꢀreservesꢀofꢀ$1,468ꢀandꢀ$1,327ꢀatꢀDecemberꢀ31,ꢀ2018ꢀand
Decemberꢀ31,ꢀ2017,ꢀrespectively
Work-in-progress
Finishedꢀgoods
Total inventory
8. PREPAID AND OTHER ASSETS
At December 31,
2018
2017
$
$
23,197
$
18,782
280
926
985
4,200
24,403
$
23,967
Prepaidꢀandꢀotherꢀassetsꢀincludeꢀtheꢀbalanceꢀofꢀprepaidꢀexpenses,ꢀdeposits,ꢀdebtꢀissuanceꢀcostsꢀonꢀourꢀNewꢀRevolvingꢀCredit
Facilityꢀ(definedꢀherein),ꢀrestrictedꢀcashꢀandꢀotherꢀassets.ꢀTheꢀcurrentꢀportionꢀofꢀtheseꢀassetsꢀisꢀincludedꢀinꢀprepaidꢀandꢀotherꢀassets
andꢀtheꢀnon-currentꢀportionꢀisꢀincludedꢀinꢀotherꢀassets,ꢀbothꢀofꢀwhichꢀareꢀcontainedꢀwithinꢀourꢀBalanceꢀSheets.
Theꢀbalanceꢀofꢀtheꢀcurrentꢀportionꢀofꢀprepaidꢀandꢀotherꢀassetsꢀconsistedꢀofꢀtheꢀfollowingꢀ(inꢀthousands):ꢀ
Prepaid expenses and other assets
Deposits
Prepaidꢀexpenses
Other
Total prepaid expenses and other assets
At December 31,
2018
2017
$
$
8,241
$
8,351
3,667
9,003
6,426
5,241
20,259
$
20,670
Theꢀbalanceꢀofꢀtheꢀnon-currentꢀportionꢀofꢀotherꢀassetsꢀconsistedꢀofꢀtheꢀfollowingꢀ(inꢀthousands):ꢀ
Other assets
Prepaidꢀexpensesꢀandꢀdeposits
Debtꢀissuanceꢀcostsꢀofꢀrevolvingꢀcreditꢀfacility
Other
Total other assets
At December 31,
2018
2017
$
$
5,289
$
654
309
6,252
$
4,103
849
2,657
7,609
72
9. PROPERTY, EQUIPMENT AND LEASED ASSETS
Property,ꢀequipmentꢀandꢀleasedꢀassetsꢀconsistꢀofꢀtheꢀfollowingꢀ(inꢀthousands):
ꢀ
Property, equipment and
leased assets
Rentalꢀpoolꢀ-ꢀdeployed
Rentalꢀpoolꢀ-ꢀundeployed
FinTechꢀequipment
Leaseholdꢀandꢀbuilding
ꢀꢀꢀimprovements
Machinery,ꢀofficeꢀandꢀother
ꢀꢀꢀequipment
Total
At December 31, 2018
At December 31, 2017
Useful Life
(Years)
Cost
Accumulated
Depreciation
Net Book
Value
Cost
Accumulated
Depreciation
Net Book
Value
2-4
2-4
3-5
Lease
Term
2-5
$
183,309
$
105,038
$
78,271
$
162,319
$
80,895
$
81,424
23,825
27,285
11,857
14,680
21,000
6,938
9,145
6,285
4,919
17,366
25,907
10,981
9,374
18,654
5,211
7,992
7,253
5,770
46,322
28,654
17,668
35,167
24,087
11,080
$
292,598
$
176,310
$
116,288
$
251,740
$
138,221
$
113,519
ꢀ
Depreciationꢀexpenseꢀrelatedꢀtoꢀproperty,ꢀequipmentꢀandꢀleasedꢀassetsꢀtotaledꢀapproximatelyꢀ$61.2ꢀmillion,ꢀ$47.3ꢀmillion,ꢀand
$50.0ꢀmillionꢀforꢀtheꢀyearsꢀendedꢀDecemberꢀ31,ꢀ2018,ꢀ2017,ꢀandꢀ2016,ꢀrespectively.
Thereꢀwasꢀnoꢀmaterialꢀimpairmentꢀofꢀourꢀproperty,ꢀequipmentꢀandꢀleasedꢀassetsꢀforꢀtheꢀyearsꢀendedꢀDecemberꢀ31,ꢀ2018ꢀandꢀ2017.
Weꢀrecordedꢀanꢀimmaterialꢀimpairmentꢀchargeꢀofꢀapproximatelyꢀ$0.8ꢀmillionꢀinꢀourꢀGamesꢀsegmentꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,
2018ꢀtoꢀreduceꢀtheꢀcarryingꢀvalueꢀofꢀcertainꢀleasedꢀassetsꢀtoꢀtheirꢀfairꢀvalues.ꢀTheꢀadjustmentꢀwasꢀincludedꢀinꢀoperatingꢀexpenses
inꢀourꢀStatementsꢀofꢀIncomeꢀ(Loss).
10. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
Goodwillꢀrepresentsꢀtheꢀexcessꢀofꢀtheꢀpurchaseꢀpriceꢀoverꢀtheꢀidentifiableꢀtangibleꢀandꢀintangibleꢀassetsꢀacquiredꢀplusꢀliabilities
assumedꢀarisingꢀfromꢀbusinessꢀcombinations.
InꢀaccordanceꢀwithꢀASCꢀ350,ꢀweꢀtestꢀgoodwillꢀatꢀtheꢀreportingꢀunitꢀlevel,ꢀwhichꢀareꢀidentifiedꢀasꢀoperatingꢀsegmentsꢀorꢀoneꢀlevel
below,ꢀforꢀimpairmentꢀonꢀanꢀannualꢀbasisꢀandꢀbetweenꢀannualꢀtestsꢀifꢀeventsꢀandꢀcircumstancesꢀindicateꢀitꢀisꢀmoreꢀlikelyꢀthanꢀnot
thatꢀtheꢀfairꢀvalueꢀofꢀaꢀreportingꢀunitꢀisꢀlessꢀthanꢀitsꢀcarryingꢀamount.
Weꢀtestꢀforꢀimpairmentꢀannuallyꢀonꢀaꢀreportingꢀunitꢀbasis,ꢀatꢀtheꢀbeginningꢀofꢀourꢀfourthꢀfiscalꢀquarter,ꢀorꢀmoreꢀoftenꢀunderꢀcertain
circumstances.ꢀTheꢀannualꢀimpairmentꢀtestꢀisꢀcompletedꢀusingꢀeither:ꢀaꢀqualitativeꢀ“Stepꢀ0”ꢀassessmentꢀbasedꢀonꢀreviewingꢀrelevant
eventsꢀandꢀcircumstances;ꢀorꢀaꢀquantitativeꢀ“Stepꢀ1”ꢀassessment,ꢀwhichꢀdeterminesꢀtheꢀfairꢀvalueꢀofꢀtheꢀreportingꢀunit,ꢀusingꢀboth
anꢀincomeꢀapproachꢀthatꢀdiscountsꢀfutureꢀcashꢀflowsꢀbasedꢀonꢀtheꢀestimatedꢀfutureꢀresultsꢀofꢀourꢀreportingꢀunitsꢀandꢀaꢀmarket
approachꢀthatꢀcomparesꢀmarketꢀmultiplesꢀofꢀcomparableꢀcompaniesꢀtoꢀdetermineꢀwhetherꢀorꢀnotꢀanyꢀimpairmentꢀexists.
Goodwill Testing
Inꢀperformingꢀourꢀannualꢀgoodwillꢀimpairmentꢀtests,ꢀweꢀutilizeꢀtheꢀapproachꢀprescribedꢀunderꢀASCꢀ350.ꢀTheꢀ“Stepꢀ1”ꢀrequiredꢀa
comparisonꢀofꢀtheꢀcarryingꢀamountꢀofꢀeachꢀreportingꢀunitꢀtoꢀitsꢀestimatedꢀfairꢀvalue.ꢀToꢀestimateꢀtheꢀfairꢀvalueꢀofꢀourꢀreporting
unitsꢀforꢀ“Stepꢀ1”,ꢀweꢀusedꢀaꢀcombinationꢀofꢀanꢀincomeꢀvaluationꢀapproachꢀandꢀaꢀmarketꢀvaluationꢀapproach.ꢀTheꢀincomeꢀapproach
isꢀbasedꢀonꢀaꢀdiscountedꢀcashꢀflowꢀ(“DCF”)ꢀanalysis.ꢀThisꢀmethodꢀinvolvesꢀestimatingꢀtheꢀafter-taxꢀcashꢀflowsꢀattributableꢀtoꢀa
reportingꢀunitꢀandꢀthenꢀdiscountingꢀtheꢀafter-taxꢀcashꢀflowsꢀtoꢀaꢀpresentꢀvalue,ꢀusingꢀaꢀrisk-adjustedꢀdiscountꢀrate.ꢀAssumptions
usedꢀinꢀtheꢀDCFꢀrequireꢀtheꢀexerciseꢀofꢀsignificantꢀjudgment,ꢀincluding,ꢀbutꢀnotꢀlimitedꢀto:ꢀappropriateꢀdiscountꢀratesꢀandꢀterminal
values,ꢀgrowthꢀratesꢀandꢀtheꢀamountꢀandꢀtimingꢀofꢀexpectedꢀfutureꢀcashꢀflows.ꢀTheꢀprojectedꢀcashꢀflowsꢀareꢀbasedꢀonꢀourꢀmost
recentꢀannualꢀbudgetꢀandꢀprojectedꢀyearsꢀbeyond.ꢀOurꢀbudgetsꢀandꢀprojectedꢀcashꢀflowsꢀareꢀbasedꢀonꢀestimatedꢀfutureꢀgrowth
rates.ꢀWeꢀbelieveꢀourꢀassumptionsꢀareꢀconsistentꢀwithꢀtheꢀplansꢀandꢀestimatesꢀusedꢀtoꢀmanageꢀtheꢀunderlyingꢀbusinesses.ꢀThe
discountꢀrates,ꢀwhichꢀareꢀintendedꢀtoꢀreflectꢀtheꢀrisksꢀinherentꢀinꢀfutureꢀcashꢀflowꢀprojections,ꢀusedꢀinꢀtheꢀDCFꢀareꢀbasedꢀon
estimatesꢀofꢀtheꢀWACCꢀofꢀmarketꢀparticipantsꢀrelativeꢀtoꢀeachꢀrespectiveꢀreportingꢀunit.ꢀTheꢀmarketꢀapproachꢀconsidersꢀcomparable
marketꢀdataꢀbasedꢀonꢀmultiplesꢀofꢀrevenueꢀorꢀearningsꢀbeforeꢀinterest,ꢀtaxes,ꢀdepreciationꢀandꢀamortizationꢀ(“EBITDA”).ꢀIfꢀthe
fairꢀvalueꢀofꢀaꢀreportingꢀunitꢀisꢀlessꢀthanꢀitsꢀcarryingꢀamount,ꢀanꢀimpairmentꢀchargeꢀequalꢀtoꢀtheꢀamountꢀbyꢀwhichꢀtheꢀcarrying
amountꢀofꢀgoodwillꢀforꢀtheꢀreportingꢀunitꢀexceedsꢀtheꢀfairꢀvalueꢀofꢀthatꢀgoodwillꢀisꢀrecordedꢀinꢀaccordanceꢀwithꢀASCꢀ350.
73
Weꢀhadꢀapproximatelyꢀ$640.5ꢀmillionꢀandꢀ$640.6ꢀmillionꢀofꢀgoodwillꢀonꢀourꢀBalanceꢀSheetsꢀasꢀofꢀDecemberꢀ31,ꢀ2018ꢀandꢀ2017,
respectively,ꢀresultingꢀfromꢀacquisitionsꢀofꢀotherꢀbusinesses.
Inꢀ connectionꢀ withꢀ ourꢀ annualꢀ goodwillꢀ impairmentꢀ testingꢀ processꢀ forꢀ 2018ꢀ andꢀ 2017,ꢀ weꢀ determinedꢀ thatꢀ noꢀ impairment
adjustmentsꢀwereꢀnecessary.ꢀTheꢀfairꢀvalueꢀexceededꢀtheꢀcarryingꢀamountꢀforꢀeachꢀofꢀtheꢀGames,ꢀCashꢀAccessꢀServices,ꢀKiosk
SalesꢀandꢀServices,ꢀCentralꢀCreditꢀServicesꢀandꢀComplianceꢀSalesꢀandꢀServicesꢀreportingꢀunitsꢀforꢀ2018ꢀandꢀ2017.ꢀꢀ
Inꢀ connectionꢀ withꢀ ourꢀ annualꢀ goodwillꢀ impairmentꢀ testingꢀ processꢀ 2016,ꢀ weꢀ determinedꢀ thatꢀ impairmentꢀ adjustmentsꢀ were
necessary.ꢀTheꢀfairꢀvalueꢀexceededꢀtheꢀcarryingꢀamountꢀforꢀeachꢀofꢀtheꢀCashꢀAccessꢀServices,ꢀKioskꢀSalesꢀandꢀServices,ꢀCentral
CreditꢀServicesꢀandꢀComplianceꢀSalesꢀandꢀServicesꢀreportingꢀunits,ꢀwhileꢀGamesꢀreportingꢀunitꢀhadꢀaꢀgoodwillꢀimpairmentꢀof
$146.3ꢀmillionꢀforꢀ2016.ꢀTheꢀimpairmentꢀrecordedꢀinꢀ2016ꢀwasꢀprimarilyꢀbasedꢀuponꢀlimitedꢀgrowthꢀandꢀcapitalꢀexpenditure
constraintsꢀinꢀtheꢀgamingꢀindustry,ꢀconsolidationꢀandꢀincreasedꢀcompetitionꢀinꢀtheꢀgamingꢀmanufacturingꢀspace,ꢀstockꢀmarket
volatility,ꢀglobalꢀandꢀdomesticꢀeconomicꢀuncertainty,ꢀandꢀlowerꢀthanꢀforecastedꢀoperatingꢀprofitsꢀandꢀcashꢀflows.ꢀBasedꢀonꢀthese
indicators,ꢀweꢀrevisedꢀourꢀestimatesꢀandꢀassumptionsꢀforꢀtheꢀGamesꢀreportingꢀunit.
Managementꢀperformsꢀitsꢀannualꢀforecastingꢀprocess,ꢀwhich,ꢀamongꢀotherꢀfactors,ꢀincludesꢀreviewingꢀrecentꢀhistoricalꢀresults,
company-specificꢀ variablesꢀ andꢀ industryꢀ trends.ꢀ Thisꢀ processꢀ isꢀ generallyꢀ completedꢀ inꢀ theꢀ fourthꢀ quarterꢀ andꢀ consideredꢀ in
conjunctionꢀwithꢀtheꢀannualꢀgoodwillꢀimpairmentꢀevaluation.ꢀꢀ
Theꢀannualꢀevaluationꢀofꢀgoodwillꢀrequiresꢀtheꢀuseꢀofꢀestimatesꢀaboutꢀfutureꢀoperatingꢀresultsꢀofꢀeachꢀreportingꢀunitꢀtoꢀdetermine
itsꢀestimatedꢀfairꢀvalue.ꢀChangesꢀinꢀforecastedꢀoperationsꢀcanꢀmateriallyꢀaffectꢀtheseꢀestimates,ꢀwhichꢀcouldꢀmateriallyꢀaffectꢀour
resultsꢀofꢀoperations.ꢀTheꢀestimatesꢀofꢀfairꢀvalueꢀrequireꢀsignificantꢀjudgmentꢀandꢀareꢀbasedꢀonꢀassumptionsꢀweꢀdeterminedꢀtoꢀbe
reasonable;ꢀhowever,ꢀthatꢀareꢀunpredictableꢀandꢀinherentlyꢀuncertain,ꢀincluding,ꢀestimatesꢀofꢀfutureꢀgrowthꢀrates,ꢀoperatingꢀmargins,
andꢀassumptionsꢀaboutꢀtheꢀoverallꢀeconomicꢀclimateꢀasꢀwellꢀasꢀtheꢀcompetitiveꢀenvironmentꢀforꢀourꢀreportingꢀunits.ꢀThereꢀcanꢀbe
noꢀassuranceꢀthatꢀourꢀestimatesꢀandꢀassumptionsꢀmadeꢀforꢀpurposesꢀofꢀourꢀgoodwillꢀtestingꢀasꢀofꢀtheꢀtimeꢀofꢀtestingꢀwillꢀproveꢀto
beꢀaccurateꢀpredictionsꢀofꢀtheꢀfuture.ꢀIfꢀourꢀassumptionsꢀregardingꢀbusinessꢀplans,ꢀcompetitiveꢀenvironmentsꢀorꢀanticipatedꢀgrowth
ratesꢀareꢀnotꢀcorrect,ꢀweꢀmayꢀbeꢀrequiredꢀtoꢀrecordꢀgoodwillꢀimpairmentꢀchargesꢀinꢀfutureꢀperiods,ꢀwhetherꢀinꢀconnectionꢀwithꢀour
nextꢀannualꢀimpairmentꢀtesting,ꢀorꢀearlier,ꢀifꢀanꢀindicatorꢀofꢀanꢀimpairmentꢀisꢀpresentꢀpriorꢀtoꢀourꢀnextꢀannualꢀevaluation.
Ourꢀreportingꢀunitsꢀareꢀidentifiedꢀasꢀoperatingꢀsegmentsꢀorꢀoneꢀlevelꢀbelow.ꢀReportingꢀunitsꢀmust:ꢀ(a)ꢀengageꢀinꢀbusinessꢀactivities
fromꢀ whichꢀ theyꢀ earnꢀ revenuesꢀ andꢀ incurꢀ expenses;ꢀ (b)ꢀ haveꢀ operatingꢀ resultsꢀ thatꢀ areꢀ regularlyꢀ reviewedꢀ byꢀ ourꢀ segment
managementꢀtoꢀascertainꢀtheꢀresourcesꢀtoꢀbeꢀallocatedꢀtoꢀtheꢀsegmentꢀandꢀassessꢀitsꢀperformance;ꢀandꢀ(c)ꢀhaveꢀdiscreteꢀfinancial
informationꢀ available.ꢀ Ourꢀ reportingꢀ unitsꢀ included:ꢀ Games,ꢀ CashꢀAccessꢀ Services,ꢀ Kioskꢀ Salesꢀ andꢀ Services,ꢀ Centralꢀ Credit
Services,ꢀandꢀComplianceꢀSalesꢀandꢀServices.ꢀ
Theꢀchangesꢀinꢀtheꢀcarryingꢀamountꢀofꢀgoodwillꢀareꢀasꢀfollowsꢀ(inꢀthousands):
Cash
Access
Services
Kiosk
Sales and
Services
Central
Credit
Services
Compliance
Sales and
Services
Games
Total
Goodwill
Balance, December 31, 2016
Foreignꢀtranslationꢀadjustment
Balance, December 31, 2017
Foreignꢀtranslationꢀadjustment
Balance, December 31, 2018
$ 449,041
—
$ 449,041
—
$ 449,041
$ 157,055
43
$ 157,098
(52)
$ 157,046
$
$
$
5,745
—
5,745
—
5,745
$
$
$
17,127
—
17,127
—
17,127
$
$
$
11,578
—
11,578
—
11,578
$
$
$
640,546
43
640,589
(52)
640,537
74
Other Intangible Assets
Otherꢀintangibleꢀassetsꢀconsistꢀofꢀtheꢀfollowingꢀ(inꢀthousands):ꢀ
Weighted
Average
Remaining
Life
(Years)
4
6
8
2
4
Other intangible assets
Contractꢀrightsꢀunder
ꢀꢀꢀplacementꢀfeeꢀagreements
Customerꢀcontracts
Customerꢀrelationships
Developedꢀtechnologyꢀand
ꢀꢀꢀsoftware
Patents,ꢀtrademarksꢀandꢀother
Total
At December 31, 2018
At December 31, 2017
Cost
Accumulated
Amortization
Net Book
Value
Cost
Accumulated
Amortization
Net Book
Value
$ 57,440
$
12,178
$ 45,262
$ 57,231
$
3,910
$ 53,321
51,175
231,100
277,243
46,162
84,619
190,886
5,013
146,481
86,357
51,175
231,100
249,064
43,638
63,653
158,919
7,537
167,447
90,145
29,168
$ 646,126
24,884
358,729
4,284
$ 287,397
29,046
$ 617,616
23,185
293,305
5,861
$ 324,311
$
$
ꢀAmortizationꢀexpenseꢀrelatedꢀtoꢀotherꢀintangibleꢀassetsꢀtotaledꢀapproximatelyꢀ$65.2ꢀmillion,ꢀ$69.5ꢀmillion,ꢀandꢀ$94.6ꢀmillionꢀfor
theꢀyearsꢀendedꢀDecemberꢀ31,ꢀ2018,ꢀ2017,ꢀandꢀ2016,ꢀrespectively.ꢀWeꢀcapitalizedꢀ$33.3ꢀmillion,ꢀ$29.4ꢀmillion,ꢀandꢀ$24.2ꢀmillion
ofꢀinternalꢀsoftwareꢀdevelopmentꢀcostsꢀforꢀtheꢀyearsꢀendedꢀDecemberꢀ31,ꢀ2018,ꢀ2017,ꢀandꢀ2016,ꢀrespectively.
Onꢀaꢀquarterlyꢀbasis,ꢀweꢀevaluateꢀourꢀotherꢀintangibleꢀassetsꢀforꢀpotentialꢀimpairmentꢀasꢀpartꢀofꢀourꢀquarterlyꢀreviewꢀprocess.ꢀThere
wasꢀnoꢀmaterialꢀimpairmentꢀidentifiedꢀforꢀanyꢀofꢀourꢀotherꢀintangibleꢀassetsꢀforꢀtheꢀyearsꢀendedꢀDecemberꢀ31,ꢀ2018,ꢀ2017,ꢀand
2016.
Theꢀanticipatedꢀamortizationꢀexpenseꢀrelatedꢀtoꢀotherꢀintangibleꢀassets,ꢀassumingꢀnoꢀsubsequentꢀimpairmentꢀofꢀtheꢀunderlying
assets,ꢀisꢀasꢀfollowsꢀ(inꢀthousands):ꢀ
Anticipated amortization expense
2019
2020
2021
2022
2023
Thereafter
Total(1)
ꢀ
$
Amount
64,380
52,168
41,440
33,473
20,241
50,316
$
262,018
(1) ForꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2018,ꢀtheꢀCompanyꢀhadꢀ$25.4ꢀmillionꢀinꢀotherꢀintangibleꢀassetsꢀwhichꢀhadꢀnotꢀyetꢀbeen
placedꢀintoꢀservice.
Weꢀenterꢀintoꢀplacementꢀfeeꢀagreementsꢀtoꢀsecureꢀaꢀlong-termꢀrevenueꢀshareꢀpercentageꢀandꢀaꢀfixedꢀnumberꢀofꢀplayerꢀterminal
placementsꢀinꢀaꢀgamingꢀfacility.ꢀTheꢀfundingꢀunderꢀplacementꢀfeeꢀagreementsꢀisꢀnotꢀreimbursed.ꢀInꢀreturnꢀforꢀtheꢀfeesꢀunderꢀthese
agreements,ꢀeachꢀfacilityꢀdedicatesꢀaꢀpercentageꢀofꢀitsꢀfloorꢀspace,ꢀorꢀanꢀagreedꢀuponꢀunitꢀcount,ꢀforꢀtheꢀplacementꢀofꢀourꢀelectronic
gamingꢀmachinesꢀ(“EGMs”)ꢀoverꢀtheꢀtermꢀofꢀtheꢀagreement,ꢀgenerallyꢀfromꢀ12ꢀtoꢀ83ꢀmonths,ꢀandꢀweꢀreceiveꢀaꢀfixedꢀpercentage
orꢀflatꢀfeeꢀofꢀthoseꢀmachines’ꢀholdꢀperꢀday.ꢀCertainꢀofꢀtheꢀagreementsꢀcontainꢀEGMꢀperformanceꢀstandardsꢀthatꢀcouldꢀallowꢀthe
respectiveꢀfacilityꢀtoꢀreduceꢀaꢀportionꢀofꢀourꢀguaranteedꢀfloorꢀspace.
Placementꢀfeesꢀandꢀamountsꢀadvancedꢀinꢀexcessꢀofꢀthoseꢀtoꢀbeꢀreimbursedꢀbyꢀtheꢀcustomerꢀforꢀrealꢀpropertyꢀandꢀlandꢀimprovements
areꢀallocatedꢀtoꢀintangibleꢀassetsꢀandꢀareꢀgenerallyꢀamortizedꢀoverꢀtheꢀtermꢀofꢀtheꢀcontract,ꢀwhichꢀisꢀrecordedꢀasꢀaꢀreductionꢀof
revenueꢀgeneratedꢀfromꢀtheꢀfacility.ꢀInꢀtheꢀpastꢀweꢀhave,ꢀandꢀinꢀtheꢀfuture,ꢀweꢀmay,ꢀbyꢀmutualꢀagreement,ꢀamendꢀtheseꢀagreements
toꢀreduceꢀourꢀfloorꢀspaceꢀatꢀtheꢀfacilities.ꢀAnyꢀproceedsꢀreceivedꢀforꢀtheꢀreductionꢀofꢀfloorꢀspaceꢀareꢀfirstꢀappliedꢀagainstꢀthe
intangibleꢀassetꢀforꢀthatꢀparticularꢀplacementꢀfeeꢀagreement,ꢀifꢀany,ꢀandꢀtheꢀremainingꢀnetꢀbookꢀvalueꢀofꢀtheꢀintangibleꢀassetꢀis
prospectivelyꢀamortizedꢀonꢀaꢀstraight-lineꢀmethodꢀoverꢀtheꢀremainingꢀestimatedꢀusefulꢀlife.
75
InꢀJulyꢀ2017,ꢀweꢀenteredꢀintoꢀaꢀplacementꢀfeeꢀagreementꢀwithꢀaꢀcustomerꢀforꢀcertainꢀofꢀitsꢀlocationsꢀforꢀapproximatelyꢀ$49.1
million,ꢀnetꢀofꢀ$10.1ꢀmillionꢀofꢀunamortizedꢀfeesꢀrelatedꢀtoꢀsupersededꢀcontracts.ꢀWeꢀpaidꢀapproximatelyꢀ$22.7ꢀmillionꢀandꢀ$13.3
millionꢀinꢀplacementꢀfeesꢀtoꢀthisꢀcustomerꢀforꢀtheꢀyearsꢀendedꢀDecemberꢀ31,ꢀ2018ꢀandꢀ2017,ꢀrespectively.ꢀTheꢀpaymentsꢀmadeꢀin
2018ꢀincludedꢀapproximatelyꢀ$2.1ꢀmillionꢀofꢀimputedꢀinterest.
11. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Theꢀfollowingꢀtableꢀpresentsꢀourꢀaccountsꢀpayableꢀandꢀaccruedꢀexpensesꢀ(amountsꢀinꢀthousands):
Accounts payable and accrued expenses
Tradeꢀaccountsꢀpayable
Placementꢀfees(1)
Payrollꢀandꢀrelatedꢀexpenses
Deferredꢀandꢀunearnedꢀrevenues
Other
Cashꢀaccessꢀprocessingꢀandꢀrelatedꢀexpenses
Accruedꢀtaxes
Accruedꢀinterest
At December 31,
2018
2017
$
70,796
$
16,746
15,055
12,887
6,303
4,160
1,917
1,374
59,435
22,328
14,178
10,450
11,303
8,932
2,112
5,766
Total accounts payable and accrued expenses
$
129,238
$
134,504
ꢀ
(1) Theꢀ totalꢀ outstandingꢀ balanceꢀ ofꢀ theꢀ placementꢀ feeꢀ liabilityꢀ wasꢀ approximatelyꢀ $16.7ꢀ millionꢀ andꢀ $39.1ꢀ millionꢀ asꢀ of
Decemberꢀ31,ꢀ2018ꢀandꢀ2017,ꢀrespectively.ꢀTheꢀplacementꢀfeeꢀliabilityꢀwasꢀconsideredꢀcurrentꢀportionꢀdueꢀtoꢀtheꢀremaining
obligationꢀbeingꢀdueꢀwithinꢀtwelveꢀmonthsꢀofꢀDecemberꢀ31,ꢀ2018.ꢀTheꢀremainingꢀnon-currentꢀplacementꢀfeesꢀofꢀapproximately
$16.8ꢀmillionꢀasꢀofꢀDecemberꢀ31,ꢀ2017ꢀwereꢀincludedꢀinꢀotherꢀaccruedꢀexpensesꢀandꢀliabilitiesꢀinꢀourꢀBalanceꢀSheets.
12. LONG-TERM DEBT
Theꢀfollowingꢀtableꢀsummarizesꢀourꢀindebtednessꢀ(inꢀthousands):ꢀ
Long-term debt
Seniorꢀsecuredꢀtermꢀloan
Seniorꢀunsecuredꢀnotes
Total debt
Debtꢀissuanceꢀcostsꢀandꢀdiscount
Total debt after debt issuance costs and discount
Currentꢀportionꢀofꢀlong-termꢀdebt
Long-term debt, less current portion
Refinancings
At December 31,
2018
2017
$
807,700
$
815,900
375,000
1,182,700
(19,484)
1,163,216
(8,200)
1,155,016
$
375,000
1,190,900
(23,057)
1,167,843
(8,200)
1,159,643
$
OnꢀMayꢀ9,ꢀ2017ꢀ(theꢀ“ClosingꢀDate”),ꢀEveriꢀPayments,ꢀasꢀborrower,ꢀandꢀHoldingsꢀenteredꢀintoꢀaꢀcreditꢀagreementꢀwithꢀtheꢀlenders
partyꢀtheretoꢀandꢀJefferiesꢀFinanceꢀLLC,ꢀasꢀadministrativeꢀagent,ꢀcollateralꢀagent,ꢀswingꢀlineꢀlender,ꢀletterꢀofꢀcreditꢀissuer,ꢀsole
leadꢀarrangerꢀandꢀsoleꢀbookꢀmanagerꢀ(amendedꢀasꢀdescribedꢀbelow,ꢀtheꢀ“NewꢀCreditꢀAgreement”).ꢀTheꢀNewꢀCreditꢀAgreement
providesꢀfor:ꢀ(i)ꢀaꢀ$35.0ꢀmillion,ꢀfive-yearꢀseniorꢀsecuredꢀrevolvingꢀcreditꢀfacilityꢀ(theꢀ“NewꢀRevolvingꢀCreditꢀFacility”);ꢀandꢀ(ii)
anꢀ$820.0ꢀmillion,ꢀseven-yearꢀseniorꢀsecuredꢀtermꢀloanꢀfacilityꢀ(theꢀ“NewꢀTermꢀLoanꢀFacility,”ꢀandꢀtogetherꢀwithꢀtheꢀNewꢀRevolving
CreditꢀFacility,ꢀtheꢀ“NewꢀCreditꢀFacilities”).ꢀTheꢀfeesꢀassociatedꢀwithꢀtheꢀNewꢀCreditꢀFacilitiesꢀincludedꢀdiscountsꢀofꢀapproximately
$4.1ꢀmillionꢀandꢀdebtꢀissuanceꢀcostsꢀofꢀapproximatelyꢀ$15.5ꢀmillion.ꢀAllꢀborrowingsꢀunderꢀtheꢀNewꢀRevolvingꢀCreditꢀFacilityꢀare
subjectꢀtoꢀtheꢀsatisfactionꢀofꢀcustomaryꢀconditions,ꢀincludingꢀtheꢀabsenceꢀofꢀdefaultsꢀandꢀtheꢀaccuracyꢀofꢀrepresentationsꢀand
warranties.
76
TheꢀproceedsꢀfromꢀtheꢀNewꢀTermꢀLoanꢀFacilityꢀincurredꢀonꢀtheꢀClosingꢀDateꢀwereꢀusedꢀto:ꢀ(i)ꢀrefinance:ꢀ(a)ꢀEveriꢀPayments’
existingꢀcreditꢀfacilityꢀwithꢀanꢀoutstandingꢀbalanceꢀofꢀapproximatelyꢀ$462.3ꢀmillionꢀwithꢀBankꢀofꢀAmerica,ꢀN.A.,ꢀasꢀadministrative
agent,ꢀcollateralꢀagent,ꢀswingꢀlineꢀlenderꢀandꢀletterꢀofꢀcreditꢀissuer,ꢀDeutscheꢀBankꢀSecuritiesꢀInc.,ꢀasꢀsyndicationꢀagent,ꢀandꢀMerrill
Lynch,ꢀPierce,ꢀFennerꢀ&ꢀSmithꢀIncorporatedꢀandꢀDeutscheꢀBankꢀSecuritiesꢀInc.,ꢀasꢀjointꢀleadꢀarrangersꢀandꢀjointꢀbookꢀmanagers
(theꢀ“PriorꢀCreditꢀFacility”);ꢀandꢀ(b)ꢀEveriꢀPayments’ꢀ7.25%ꢀSeniorꢀSecuredꢀNotesꢀdueꢀ2021ꢀinꢀtheꢀaggregateꢀoriginalꢀprincipal
amountꢀofꢀ$335.0ꢀmillionꢀ(theꢀ“RefinancedꢀSecuredꢀNotes”);ꢀandꢀ(ii)ꢀpayꢀrelatedꢀtransactionꢀfeesꢀandꢀexpenses.
Inꢀconnectionꢀwithꢀtheꢀrefinancing,ꢀweꢀrecordedꢀaꢀnon-cashꢀchargeꢀofꢀapproximatelyꢀ$14.6ꢀmillionꢀduringꢀtheꢀsecondꢀquarterꢀof
2017ꢀrelatedꢀtoꢀtheꢀunamortizedꢀdeferredꢀfinancingꢀfeesꢀandꢀdiscountsꢀrelatedꢀtoꢀtheꢀextinguishedꢀtermꢀloanꢀunderꢀtheꢀPriorꢀCredit
FacilityꢀandꢀtheꢀredeemedꢀRefinancedꢀSecuredꢀNotes.ꢀNoꢀprepaymentꢀpenaltiesꢀwereꢀincurred.
OnꢀNovemberꢀ13,ꢀ2017ꢀ(theꢀ“RepricingꢀClosingꢀDate”),ꢀweꢀenteredꢀintoꢀanꢀamendmentꢀtoꢀtheꢀNewꢀCreditꢀAgreementꢀ(theꢀ“First
Amendment”)ꢀwhich,ꢀamongꢀotherꢀthings,ꢀreducedꢀtheꢀinterestꢀrateꢀonꢀtheꢀapproximatelyꢀ$818.0ꢀmillionꢀthen-outstandingꢀbalance
ofꢀtheꢀNewꢀTermꢀLoanꢀFacility;ꢀhowever,ꢀitꢀdidꢀnotꢀchangeꢀtheꢀmaturityꢀdatesꢀforꢀtheꢀNewꢀTermꢀLoanꢀFacilityꢀorꢀtheꢀNewꢀRevolving
CreditꢀFacilityꢀorꢀtheꢀfinancialꢀcovenantsꢀorꢀotherꢀdebtꢀrepaymentsꢀtermsꢀsetꢀforthꢀinꢀtheꢀNewꢀCreditꢀAgreement.ꢀWeꢀincurred
approximatelyꢀ$3.0ꢀmillionꢀofꢀdebtꢀissuanceꢀcostsꢀandꢀfeesꢀassociatedꢀwithꢀtheꢀrepricingꢀofꢀtheꢀNewꢀTermꢀLoanꢀFacility.
OnꢀMayꢀ17,ꢀ2018,ꢀweꢀenteredꢀintoꢀaꢀSecondꢀAmendmentꢀ(theꢀ“SecondꢀAmendment”)ꢀtoꢀtheꢀNewꢀCreditꢀAgreement,ꢀwhichꢀreduced
theꢀinterestꢀrateꢀonꢀtheꢀ$813.9ꢀmillionꢀoutstandingꢀbalanceꢀofꢀtheꢀseniorꢀsecuredꢀtermꢀloanꢀunderꢀtheꢀCreditꢀAgreementꢀbyꢀ50ꢀbasis
pointsꢀtoꢀLIBORꢀ+ꢀ3.00%ꢀfromꢀLIBORꢀ+ꢀ3.50%ꢀwithꢀtheꢀLIBORꢀfloorꢀunchangedꢀatꢀ1.00%.ꢀTheꢀseniorꢀsecuredꢀtermꢀloanꢀunder
theꢀCreditꢀAgreementꢀwillꢀbeꢀsubjectꢀtoꢀaꢀprepaymentꢀpremiumꢀofꢀ1.00%ꢀofꢀtheꢀprincipalꢀamountꢀrepaidꢀforꢀanyꢀvoluntaryꢀprepayment
orꢀmandatoryꢀprepaymentꢀwithꢀproceedsꢀofꢀdebtꢀthatꢀhasꢀaꢀlowerꢀeffectiveꢀyieldꢀthanꢀtheꢀrepricedꢀtermꢀloanꢀorꢀanyꢀamendmentꢀto
theꢀrepricedꢀtermꢀloanꢀthatꢀreducesꢀtheꢀinterestꢀrateꢀthereon,ꢀinꢀeachꢀcase,ꢀtoꢀtheꢀextentꢀoccurringꢀwithinꢀsixꢀmonthsꢀofꢀtheꢀeffective
dateꢀofꢀtheꢀSecondꢀAmendment.ꢀTheꢀmaturityꢀdateꢀforꢀtheꢀCreditꢀAgreementꢀremainsꢀMayꢀ9,ꢀ2024,ꢀandꢀnoꢀchangesꢀwereꢀmadeꢀto
theꢀfinancialꢀcovenantsꢀorꢀotherꢀdebtꢀrepaymentꢀterms.ꢀWeꢀincurredꢀapproximatelyꢀ$1.3ꢀmillionꢀofꢀdebtꢀissuanceꢀcostsꢀandꢀfees
associatedꢀwithꢀtheꢀrepricingꢀofꢀtheꢀNewꢀTermꢀLoanꢀFacility.
New Credit Facilities
TheꢀNewꢀTermꢀLoanꢀFacilityꢀmaturesꢀsevenꢀyearsꢀafterꢀtheꢀClosingꢀDateꢀandꢀtheꢀNewꢀRevolvingꢀCreditꢀFacilityꢀmaturesꢀfiveꢀyears
afterꢀ theꢀ Closingꢀ Date.ꢀ Theꢀ Newꢀ Revolvingꢀ Creditꢀ Facilityꢀ isꢀ availableꢀ forꢀ generalꢀ corporateꢀ purposes,ꢀ includingꢀ permitted
acquisitions,ꢀworkingꢀcapitalꢀandꢀtheꢀissuanceꢀofꢀlettersꢀofꢀcredit.
TheꢀinterestꢀrateꢀperꢀannumꢀapplicableꢀtoꢀloansꢀunderꢀtheꢀNewꢀRevolvingꢀCreditꢀFacilityꢀis,ꢀatꢀEveriꢀPayments’ꢀoption,ꢀtheꢀbase
rateꢀorꢀtheꢀEurodollarꢀRateꢀ(definedꢀtoꢀbeꢀtheꢀLondonꢀInterbankꢀOfferedꢀRateꢀorꢀaꢀcomparableꢀorꢀsuccessorꢀrate)ꢀ(theꢀ“Eurodollar
Rate”)ꢀplus,ꢀinꢀeachꢀcase,ꢀanꢀapplicableꢀmargin.ꢀTheꢀinterestꢀrateꢀperꢀannumꢀapplicableꢀtoꢀtheꢀNewꢀTermꢀLoanꢀFacilityꢀalsoꢀis,ꢀat
EveriꢀPayments’ꢀoption,ꢀtheꢀbaseꢀrateꢀorꢀtheꢀEurodollarꢀRateꢀplus,ꢀinꢀeachꢀcase,ꢀanꢀapplicableꢀmargin.ꢀTheꢀEurodollarꢀRateꢀisꢀreset
atꢀtheꢀbeginningꢀofꢀeachꢀselectedꢀinterestꢀperiodꢀbasedꢀonꢀtheꢀEurodollarꢀRateꢀthenꢀinꢀeffect;ꢀprovidedꢀthat,ꢀifꢀtheꢀEurodollarꢀRate
isꢀbelowꢀzero,ꢀthenꢀsuchꢀrateꢀwillꢀbeꢀequalꢀtoꢀzeroꢀplusꢀtheꢀapplicableꢀmargin.ꢀTheꢀbaseꢀrateꢀisꢀaꢀfluctuatingꢀinterestꢀrateꢀequalꢀto
theꢀhighestꢀof:ꢀ(i)ꢀtheꢀprimeꢀlendingꢀrateꢀannouncedꢀbyꢀtheꢀadministrativeꢀagent;ꢀ(ii)ꢀtheꢀfederalꢀfundsꢀeffectiveꢀrateꢀfromꢀtimeꢀto
timeꢀplusꢀ0.50%;ꢀandꢀ(iii)ꢀtheꢀEurodollarꢀRateꢀ(afterꢀtakingꢀaccountꢀofꢀanyꢀapplicableꢀfloor)ꢀapplicableꢀforꢀanꢀinterestꢀperiodꢀof
oneꢀmonthꢀplusꢀ1.00%.ꢀPriorꢀtoꢀtheꢀeffectivenessꢀofꢀtheꢀFirstꢀAmendmentꢀonꢀtheꢀRepricingꢀClosingꢀDate,ꢀtheꢀapplicableꢀmargins
forꢀbothꢀtheꢀNewꢀRevolvingꢀCreditꢀFacilityꢀandꢀtheꢀNewꢀTermꢀLoanꢀFacilityꢀwere:ꢀ(i)ꢀ4.50%ꢀinꢀrespectꢀofꢀEurodollarꢀRateꢀloans
andꢀ(ii)ꢀ3.50%ꢀinꢀrespectꢀofꢀbaseꢀrateꢀloans.ꢀTheꢀapplicableꢀmarginsꢀforꢀtheꢀNewꢀTermꢀLoanꢀFacilityꢀfromꢀandꢀafterꢀtheꢀeffectiveness
ofꢀtheꢀFirstꢀAmendmentꢀonꢀtheꢀRepricingꢀClosingꢀDateꢀthroughꢀtheꢀeffectivenessꢀofꢀtheꢀSecondꢀAmendmentꢀwere:ꢀ(i)ꢀ3.50%ꢀin
respectꢀofꢀEurodollarꢀRateꢀloansꢀandꢀ(ii)ꢀ2.50%ꢀinꢀrespectꢀofꢀbaseꢀrateꢀloans.ꢀTheꢀapplicableꢀmarginsꢀforꢀtheꢀNewꢀTermꢀLoan
FacilityꢀfromꢀandꢀafterꢀtheꢀeffectivenessꢀofꢀtheꢀSecondꢀAmendmentꢀare:ꢀ(i)ꢀ3.00%ꢀinꢀrespectꢀofꢀEurodollarꢀRateꢀloansꢀandꢀ(ii)
2.00%ꢀinꢀrespectꢀofꢀbaseꢀrateꢀloans.ꢀ
Voluntaryꢀprepaymentsꢀofꢀtheꢀtermꢀloanꢀandꢀtheꢀrevolvingꢀloansꢀandꢀvoluntaryꢀreductionsꢀinꢀtheꢀunusedꢀcommitmentsꢀareꢀpermitted
inꢀwhole,ꢀorꢀinꢀpart,ꢀinꢀminimumꢀamountsꢀasꢀsetꢀforthꢀinꢀtheꢀNewꢀCreditꢀAgreementꢀgoverningꢀtheꢀNewꢀCreditꢀFacilities,ꢀwith
priorꢀnotice,ꢀhowever,ꢀwithoutꢀpremiumꢀorꢀpenalty,ꢀexceptꢀthatꢀcertainꢀrefinancingsꢀofꢀtheꢀtermꢀloansꢀwithinꢀsixꢀmonthsꢀafterꢀthe
RepricingꢀClosingꢀDateꢀwillꢀbeꢀsubjectꢀtoꢀaꢀprepaymentꢀpremiumꢀofꢀ1.00%ꢀofꢀtheꢀprincipalꢀamountꢀrepaid.
Subjectꢀtoꢀcertainꢀexceptions,ꢀtheꢀobligationsꢀunderꢀtheꢀNewꢀCreditꢀFacilitiesꢀareꢀsecuredꢀbyꢀsubstantiallyꢀallꢀofꢀtheꢀpresentꢀand
subsequentlyꢀacquiredꢀassetsꢀofꢀeachꢀofꢀEveriꢀPayments,ꢀHoldingsꢀandꢀtheꢀsubsidiaryꢀguarantorsꢀpartyꢀtheretoꢀincluding:ꢀ(i)ꢀa
perfectedꢀfirstꢀpriorityꢀpledgeꢀofꢀallꢀtheꢀcapitalꢀstockꢀofꢀEveriꢀPaymentsꢀandꢀeachꢀdomesticꢀdirect,ꢀwhollyꢀownedꢀmaterialꢀrestricted
subsidiaryꢀheldꢀbyꢀHoldings,ꢀEveriꢀPaymentsꢀorꢀanyꢀsuchꢀsubsidiaryꢀguarantor;ꢀandꢀ(ii)ꢀaꢀperfectedꢀfirstꢀpriorityꢀsecurityꢀinterest
inꢀsubstantiallyꢀallꢀotherꢀtangibleꢀandꢀintangibleꢀassetsꢀofꢀHoldings,ꢀEveriꢀPayments,ꢀandꢀsuchꢀsubsidiaryꢀguarantorsꢀ(including,
butꢀnotꢀlimitedꢀto,ꢀaccountsꢀreceivable,ꢀinventory,ꢀequipment,ꢀgeneralꢀintangibles,ꢀinvestmentꢀproperty,ꢀrealꢀproperty,ꢀintellectual
77
propertyꢀandꢀtheꢀproceedsꢀofꢀtheꢀforegoing).ꢀSubjectꢀtoꢀcertainꢀexceptions,ꢀtheꢀNewꢀCreditꢀFacilitiesꢀareꢀunconditionallyꢀguaranteed
byꢀHoldingsꢀandꢀsuchꢀsubsidiaryꢀguarantors.
TheꢀNewꢀCreditꢀAgreementꢀgoverningꢀtheꢀNewꢀCreditꢀFacilitiesꢀcontainsꢀcertainꢀcovenantsꢀthat,ꢀamongꢀotherꢀthings,ꢀlimitꢀHoldings’
ability,ꢀandꢀtheꢀabilityꢀofꢀcertainꢀofꢀitsꢀsubsidiaries,ꢀtoꢀincurꢀadditionalꢀindebtedness,ꢀsellꢀassetsꢀorꢀconsolidateꢀorꢀmergeꢀwithꢀor
intoꢀ otherꢀ companies,ꢀ payꢀ dividendsꢀ orꢀ repurchaseꢀ orꢀ redeemꢀ capitalꢀ stock,ꢀ makeꢀ certainꢀ investments,ꢀ issueꢀ capitalꢀ stockꢀ of
subsidiaries,ꢀincurꢀliens,ꢀprepay,ꢀredeemꢀorꢀrepurchaseꢀsubordinatedꢀdebt,ꢀandꢀenterꢀintoꢀcertainꢀtypesꢀofꢀtransactionsꢀwithꢀits
affiliates.ꢀTheꢀNewꢀCreditꢀAgreementꢀgoverningꢀtheꢀNewꢀCreditꢀFacilitiesꢀalsoꢀrequiresꢀHoldings,ꢀtogetherꢀwithꢀitsꢀsubsidiaries,
toꢀcomplyꢀwithꢀaꢀconsolidatedꢀsecuredꢀleverageꢀratio.ꢀAtꢀDecemberꢀ31,ꢀ2018,ꢀourꢀconsolidatedꢀsecuredꢀleverageꢀratioꢀwasꢀ3.28ꢀto
1.00,ꢀwithꢀaꢀmaximumꢀallowableꢀratioꢀofꢀ4.75ꢀtoꢀ1.00.ꢀOurꢀmaximumꢀconsolidatedꢀsecuredꢀleverageꢀwillꢀbeꢀreducedꢀtoꢀ4.50ꢀto
1.00ꢀasꢀofꢀDecemberꢀ31,ꢀ2019,ꢀ4.25ꢀtoꢀ1.00ꢀasꢀofꢀDecemberꢀ31,ꢀ2020,ꢀandꢀ4.00ꢀtoꢀ1.00ꢀasꢀofꢀDecemberꢀ31,ꢀ2021ꢀandꢀeachꢀDecember
31ꢀthereafter.
WeꢀwereꢀinꢀcomplianceꢀwithꢀtheꢀcovenantsꢀandꢀtermsꢀofꢀtheꢀNewꢀCreditꢀFacilitiesꢀasꢀofꢀDecemberꢀ31,ꢀ2018.
EventsꢀofꢀdefaultꢀunderꢀtheꢀNewꢀCreditꢀAgreementꢀgoverningꢀtheꢀNewꢀCreditꢀFacilitiesꢀincludeꢀcustomaryꢀeventsꢀsuchꢀasꢀaꢀcross-
defaultꢀprovisionꢀwithꢀrespectꢀtoꢀotherꢀmaterialꢀdebt.ꢀInꢀaddition,ꢀanꢀeventꢀofꢀdefaultꢀwillꢀoccurꢀifꢀHoldingsꢀundergoesꢀaꢀchange
ofꢀcontrol.ꢀThisꢀisꢀdefinedꢀtoꢀincludeꢀtheꢀcaseꢀwhereꢀHoldingsꢀceasesꢀtoꢀownꢀ100%ꢀofꢀtheꢀequityꢀinterestsꢀofꢀEveriꢀPayments,ꢀor
whereꢀanyꢀpersonꢀorꢀgroupꢀacquiresꢀaꢀpercentageꢀofꢀtheꢀeconomicꢀorꢀvotingꢀinterestsꢀofꢀHoldings’ꢀcapitalꢀstockꢀofꢀ35%ꢀorꢀmore
(determinedꢀonꢀaꢀfullyꢀdilutedꢀbasis).
WeꢀareꢀrequiredꢀtoꢀrepayꢀtheꢀNewꢀTermꢀLoanꢀFacilityꢀinꢀanꢀamountꢀequalꢀtoꢀ0.25%ꢀperꢀquarterꢀofꢀtheꢀinitialꢀaggregateꢀprincipal,
withꢀtheꢀfinalꢀprincipalꢀrepaymentꢀinstallmentꢀonꢀtheꢀmaturityꢀdate.ꢀInterestꢀisꢀdueꢀinꢀarrearsꢀonꢀeachꢀinterestꢀpaymentꢀdateꢀapplicable
theretoꢀandꢀatꢀsuchꢀotherꢀtimesꢀasꢀmayꢀbeꢀspecifiedꢀinꢀtheꢀNewꢀCreditꢀAgreement.ꢀAsꢀtoꢀanyꢀloanꢀotherꢀthanꢀaꢀbaseꢀrateꢀloan,ꢀthe
interestꢀpaymentꢀdatesꢀshallꢀbeꢀtheꢀlastꢀdayꢀofꢀeachꢀinterestꢀperiodꢀapplicableꢀtoꢀsuchꢀloanꢀandꢀtheꢀmaturityꢀdateꢀ(provided,ꢀhowever,
thatꢀifꢀanyꢀinterestꢀperiodꢀforꢀaꢀEurodollarꢀRateꢀloanꢀexceedsꢀthreeꢀmonths,ꢀtheꢀrespectiveꢀdatesꢀthatꢀfallꢀeveryꢀthreeꢀmonthsꢀafter
theꢀbeginningꢀofꢀsuchꢀinterestꢀperiodꢀshallꢀalsoꢀbeꢀinterestꢀpaymentꢀdates).ꢀAsꢀtoꢀanyꢀbaseꢀrateꢀloan,ꢀtheꢀinterestꢀpaymentꢀdates
shallꢀbeꢀlastꢀbusinessꢀdayꢀofꢀeachꢀMarch,ꢀJune,ꢀSeptemberꢀandꢀDecemberꢀandꢀtheꢀmaturityꢀdate.ꢀꢀ
ForꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2018,ꢀtheꢀNewꢀTermꢀLoanꢀFacilityꢀhadꢀanꢀapplicableꢀweightedꢀaverageꢀinterestꢀrateꢀofꢀ5.17%.ꢀ
AtꢀDecemberꢀ31,ꢀ2018,ꢀweꢀhadꢀapproximatelyꢀ$807.7ꢀmillionꢀofꢀborrowingsꢀoutstandingꢀunderꢀtheꢀNewꢀTermꢀLoanꢀFacilityꢀand
noꢀborrowingsꢀoutstandingꢀunderꢀtheꢀNewꢀRevolvingꢀCreditꢀFacility.ꢀWeꢀhadꢀ$35.0ꢀmillionꢀofꢀadditionalꢀborrowingꢀavailability
underꢀtheꢀNewꢀRevolvingꢀCreditꢀFacilityꢀasꢀofꢀDecemberꢀ31,ꢀ2018.
Refinanced Senior Secured Notes
InꢀconnectionꢀwithꢀenteringꢀintoꢀtheꢀNewꢀCreditꢀAgreement,ꢀonꢀMayꢀ9,ꢀ2017,ꢀEveriꢀPaymentsꢀredeemedꢀinꢀfullꢀallꢀoutstanding
RefinancedꢀSecuredꢀNotesꢀinꢀtheꢀaggregateꢀprincipalꢀamountꢀofꢀ$335.0ꢀmillionꢀplusꢀaccruedꢀandꢀunpaidꢀinterest.ꢀAsꢀaꢀresultꢀofꢀthe
redemption,ꢀtheꢀCompanyꢀrecordedꢀnon-cashꢀchargesꢀinꢀtheꢀamountꢀofꢀapproximatelyꢀ$1.7ꢀmillion,ꢀwhichꢀconsistedꢀofꢀunamortized
deferredꢀfinancingꢀfeesꢀofꢀ$0.2ꢀmillionꢀandꢀdiscountsꢀofꢀ$1.5ꢀmillion,ꢀwhichꢀwereꢀincludedꢀinꢀtheꢀtotalꢀ$14.6ꢀmillionꢀnon-cash
charge.
Senior Unsecured Notes
InꢀDecemberꢀ2014,ꢀweꢀissuedꢀ$350.0ꢀmillionꢀinꢀaggregateꢀprincipalꢀamountꢀofꢀ10.0%ꢀSeniorꢀUnsecuredꢀNotesꢀdueꢀ2022ꢀ(theꢀ“2014
UnsecuredꢀNotes”)ꢀunderꢀanꢀindentureꢀ(asꢀsupplemented,ꢀtheꢀ“2014ꢀNotesꢀIndenture”),ꢀdatedꢀDecemberꢀ19,ꢀ2014,ꢀbetweenꢀEveri
Paymentsꢀ (asꢀ successorꢀ issuer),ꢀ andꢀ Deutscheꢀ BankꢀTrustꢀ CompanyꢀAmericas,ꢀ asꢀ trustee.ꢀTheꢀ feesꢀ associatedꢀ withꢀ theꢀ 2014
UnsecuredꢀNotesꢀincludedꢀoriginalꢀissueꢀdiscountsꢀofꢀapproximatelyꢀ$3.8ꢀmillionꢀandꢀdebtꢀissuanceꢀcostsꢀofꢀapproximatelyꢀ$14.0
million.ꢀInꢀDecemberꢀ2015,ꢀweꢀcompletedꢀanꢀexchangeꢀofferꢀinꢀwhichꢀallꢀofꢀtheꢀunregisteredꢀ2014ꢀUnsecuredꢀNotesꢀwereꢀexchanged
forꢀaꢀlikeꢀamountꢀofꢀ2014ꢀUnsecuredꢀNotesꢀthatꢀhadꢀbeenꢀregisteredꢀunderꢀtheꢀSecuritiesꢀAct.
InꢀDecemberꢀ2017,ꢀweꢀissuedꢀ$375.0ꢀmillionꢀinꢀaggregateꢀprincipalꢀamountꢀofꢀ7.50%ꢀSeniorꢀUnsecuredꢀNotesꢀdueꢀ2025ꢀ(theꢀ“2017
UnsecuredꢀNotes”)ꢀunderꢀanꢀindentureꢀ(theꢀ“2017ꢀNotesꢀIndenture”),ꢀdatedꢀDecemberꢀ5,ꢀ2017,ꢀamongꢀEveriꢀPaymentsꢀ(asꢀissuer),
Holdingsꢀandꢀcertainꢀofꢀitsꢀdirectꢀandꢀindirectꢀdomesticꢀsubsidiariesꢀasꢀguarantors,ꢀandꢀDeutscheꢀBankꢀTrustꢀCompanyꢀAmericas,
asꢀtrustee.ꢀInterestꢀonꢀtheꢀ2017ꢀUnsecuredꢀNotesꢀaccruesꢀatꢀaꢀrateꢀofꢀ7.50%ꢀperꢀannumꢀandꢀisꢀpayableꢀsemi-annuallyꢀinꢀarrearsꢀon
eachꢀJuneꢀ15ꢀandꢀDecemberꢀ15,ꢀcommencingꢀonꢀJuneꢀ15,ꢀ2018.ꢀTheꢀ2017ꢀUnsecuredꢀNotesꢀwillꢀmatureꢀonꢀDecemberꢀ15,ꢀ2025.
Weꢀincurredꢀapproximatelyꢀ$6.1ꢀmillionꢀofꢀdebtꢀissuanceꢀcostsꢀandꢀfeesꢀassociatedꢀwithꢀtheꢀrefinancingꢀofꢀourꢀ2017ꢀUnsecured
Notes.
78
OnꢀDecemberꢀ5,ꢀ2017,ꢀtogetherꢀwithꢀtheꢀissuanceꢀofꢀtheꢀ2017ꢀUnsecuredꢀNotes,ꢀEveriꢀPaymentsꢀsatisfiedꢀandꢀdischargedꢀtheꢀ2014
Notesꢀ Indentureꢀ relatingꢀ toꢀ theꢀ 2014ꢀ Unsecuredꢀ Notes.ꢀ Toꢀ effectꢀ theꢀ satisfactionꢀ andꢀ discharge,ꢀ Everiꢀ Paymentsꢀ issuedꢀ an
unconditionalꢀnoticeꢀofꢀredemptionꢀtoꢀDeutscheꢀBankꢀTrustꢀCompanyꢀAmericas,ꢀasꢀtrustee,ꢀofꢀtheꢀredemptionꢀinꢀfullꢀonꢀJanuaryꢀ15,
2018ꢀ(theꢀ“RedemptionꢀDate”)ꢀofꢀallꢀoutstandingꢀ2014ꢀUnsecuredꢀNotesꢀunderꢀtheꢀtermsꢀofꢀtheꢀ2014ꢀNotesꢀIndenture.ꢀInꢀaddition,
usingꢀtheꢀproceedsꢀfromꢀtheꢀsaleꢀofꢀtheꢀ2017ꢀUnsecuredꢀNotesꢀandꢀcashꢀonꢀhand,ꢀEveriꢀPaymentsꢀirrevocablyꢀdepositedꢀwithꢀthe
trusteeꢀfundsꢀsufficientꢀtoꢀpayꢀtheꢀredemptionꢀpriceꢀofꢀtheꢀ2014ꢀUnsecuredꢀNotesꢀofꢀ107.5%ꢀofꢀtheꢀprincipalꢀamountꢀthereof,ꢀplus
accruedꢀandꢀunpaidꢀinterestꢀto,ꢀbutꢀnotꢀincluding,ꢀtheꢀRedemptionꢀDateꢀ(theꢀ“RedemptionꢀPrice”),ꢀandꢀirrevocablyꢀinstructedꢀthe
trusteeꢀtoꢀapplyꢀtheꢀdepositedꢀmoneyꢀtowardꢀpaymentꢀofꢀtheꢀRedemptionꢀPriceꢀforꢀtheꢀ2014ꢀUnsecuredꢀNotesꢀonꢀtheꢀRedemption
Date.ꢀUponꢀtheꢀtrustee’sꢀreceiptꢀofꢀsuchꢀfundsꢀandꢀinstructions,ꢀalongꢀwithꢀanꢀofficer’sꢀcertificateꢀofꢀEveriꢀPaymentsꢀandꢀanꢀopinion
ofꢀcounselꢀcertifyingꢀandꢀopiningꢀthatꢀallꢀconditionsꢀunderꢀtheꢀ2014ꢀNotesꢀIndentureꢀtoꢀtheꢀsatisfactionꢀandꢀdischargeꢀofꢀtheꢀ2014
NotesꢀIndentureꢀhadꢀbeenꢀsatisfied,ꢀtheꢀ2014ꢀNotesꢀIndentureꢀwasꢀsatisfiedꢀandꢀdischarged,ꢀandꢀallꢀofꢀtheꢀobligationsꢀofꢀEveri
Paymentsꢀandꢀtheꢀguarantorsꢀunderꢀtheꢀ2014ꢀNotesꢀIndentureꢀceasedꢀtoꢀbeꢀofꢀfurtherꢀeffect,ꢀasꢀofꢀDecemberꢀ5,ꢀ2017ꢀ(subjectꢀto
certainꢀexceptions).ꢀTheꢀ2014ꢀUnsecuredꢀNotesꢀwereꢀthereafterꢀredeemedꢀonꢀtheꢀRedemptionꢀDate.
Inꢀconnectionꢀwithꢀtheꢀissuanceꢀofꢀtheꢀ2017ꢀUnsecuredꢀNotesꢀandꢀtheꢀredemptionꢀofꢀtheꢀ2014ꢀUnsecuredꢀNotes,ꢀweꢀincurredꢀa
$37.2ꢀmillionꢀlossꢀonꢀextinguishmentꢀofꢀdebtꢀconsistingꢀofꢀaꢀ$26.3ꢀmillionꢀmake-wholeꢀpremiumꢀrelatedꢀtoꢀtheꢀsatisfactionꢀand
redemptionꢀofꢀtheꢀ2014ꢀUnsecuredꢀNotesꢀandꢀapproximatelyꢀ$10.9ꢀmillionꢀforꢀtheꢀwrite-offꢀofꢀrelatedꢀunamortizedꢀdebtꢀissuance
costsꢀandꢀfees.
Weꢀwereꢀinꢀcomplianceꢀwithꢀtheꢀtermsꢀofꢀtheꢀ2017ꢀUnsecuredꢀNotesꢀasꢀofꢀDecemberꢀ31,ꢀ2018.
Principal Repayments
TheꢀmaturitiesꢀofꢀourꢀborrowingsꢀatꢀDecemberꢀ31,ꢀ2018ꢀareꢀasꢀfollowsꢀ(inꢀthousands):ꢀꢀꢀ
Maturities of borrowings
2019
2020
2021
2022
2023
Thereafter
Total
13. COMMITMENTS AND CONTINGENCIES
Placement Fee Arrangements
Amount
$
8,200
8,200
8,200
8,200
8,200
1,141,700
$
1,182,700
InꢀJulyꢀ2017,ꢀweꢀextendedꢀtheꢀtermꢀofꢀourꢀthen-existingꢀplacementꢀfeeꢀagreementꢀtoꢀ6ꢀyearsꢀandꢀ11ꢀmonthsꢀwithꢀourꢀlargestꢀcustomer
inꢀOklahoma.ꢀUnderꢀtheꢀtermsꢀofꢀtheꢀagreement,ꢀweꢀwillꢀpayꢀapproximatelyꢀ$5.6ꢀmillionꢀperꢀquarterꢀinꢀplacementꢀfees,ꢀinclusive
ofꢀimputedꢀinterest,ꢀbeginningꢀinꢀJanuaryꢀ2018ꢀandꢀendingꢀinꢀJulyꢀ2019.ꢀWeꢀpaidꢀapproximatelyꢀ$22.7ꢀmillionꢀandꢀ$13.3ꢀmillion
inꢀplacementꢀfeesꢀtoꢀthisꢀcustomerꢀforꢀtheꢀyearsꢀendedꢀDecemberꢀ31,ꢀ2018ꢀandꢀ2017,ꢀrespectively.ꢀTheꢀpaymentsꢀmadeꢀinꢀ2018
includedꢀapproximatelyꢀ$2.1ꢀmillionꢀofꢀimputedꢀinterest.
Lease Obligations
Weꢀ leaseꢀ officeꢀ facilitiesꢀ andꢀ operatingꢀ equipmentꢀ underꢀ cancelableꢀ andꢀ non-cancelableꢀ agreements.ꢀ Totalꢀ rentꢀ expenseꢀ was
approximatelyꢀ$7.8ꢀmillion,ꢀ$6.8ꢀmillion,ꢀandꢀ$6.8ꢀmillionꢀforꢀtheꢀyearsꢀendedꢀDecemberꢀ31,ꢀ2018,ꢀ2017,ꢀandꢀ2016,ꢀrespectively.
Weꢀhaveꢀaꢀlong‑termꢀleaseꢀagreementꢀrelatedꢀtoꢀofficeꢀspaceꢀforꢀourꢀcorporateꢀheadquartersꢀlocatedꢀinꢀLasꢀVegas,ꢀNevadaꢀthat
expiresꢀinꢀAprilꢀ2023.
InꢀSeptemberꢀ2014,ꢀtheꢀlong-termꢀleaseꢀagreementꢀforꢀofficeꢀspaceꢀinꢀAustin,ꢀTexasꢀwasꢀextendedꢀthroughꢀJuneꢀ2021.
WeꢀalsoꢀhaveꢀleasedꢀfacilitiesꢀinꢀChicago,ꢀIllinoisꢀandꢀReno,ꢀNevada,ꢀwhichꢀsupportꢀtheꢀdesign,ꢀproductionꢀandꢀexpansionꢀofꢀour
gamingꢀcontent.ꢀTheꢀlong-termꢀleaseꢀagreementꢀforꢀourꢀChicagoꢀfacilitiesꢀcommencedꢀinꢀNovemberꢀ2015ꢀandꢀexpiresꢀinꢀJune
2023.ꢀTheꢀlong-termꢀleaseꢀagreementꢀforꢀourꢀRenoꢀfacilitiesꢀcommencedꢀinꢀFebruaryꢀ2016ꢀandꢀexpiresꢀinꢀMayꢀ2021.
79
AsꢀofꢀDecemberꢀ31,ꢀ2018,ꢀtheꢀminimumꢀaggregateꢀrentalꢀcommitmentꢀunderꢀallꢀnon‑cancelableꢀoperatingꢀleasesꢀwereꢀasꢀfollows
(inꢀthousands):ꢀ
Minimum aggregate rental commitments
2019
2020
2021
2022
2023
Thereafter
Total
Litigation Claims and Assessments
Amount
$
$
5,570
5,680
4,598
2,799
1,074
—
19,721
Weꢀareꢀsubjectꢀtoꢀclaimsꢀandꢀsuitsꢀthatꢀariseꢀfromꢀtimeꢀtoꢀtimeꢀinꢀtheꢀordinaryꢀcourseꢀofꢀbusiness.ꢀWeꢀdoꢀnotꢀbelieveꢀtheꢀliabilities,
ifꢀany,ꢀwhichꢀmayꢀultimatelyꢀresultꢀfromꢀtheꢀoutcomeꢀofꢀsuchꢀmatters,ꢀindividuallyꢀorꢀinꢀtheꢀaggregate,ꢀwillꢀhaveꢀaꢀmaterialꢀadverse
impactꢀonꢀourꢀfinancialꢀposition,ꢀliquidity,ꢀorꢀresultsꢀofꢀoperations.
14. SHAREHOLDERS’ EQUITY
Preferred Stock. Ourꢀamendedꢀandꢀrestatedꢀcertificateꢀofꢀincorporation,ꢀasꢀamended,ꢀallowsꢀourꢀBoardꢀofꢀDirectors,ꢀwithoutꢀfurther
actionꢀbyꢀstockholders,ꢀtoꢀissueꢀupꢀtoꢀ50,000,000ꢀsharesꢀofꢀpreferredꢀstockꢀinꢀoneꢀorꢀmoreꢀseriesꢀandꢀtoꢀfixꢀtheꢀdesignations,ꢀpowers,
preferences,ꢀprivilegesꢀandꢀrelativeꢀparticipating,ꢀoptional,ꢀorꢀspecialꢀrightsꢀasꢀwellꢀasꢀtheꢀqualifications,ꢀlimitationsꢀorꢀrestrictions
ofꢀtheꢀpreferredꢀstock,ꢀincludingꢀdividendꢀrights,ꢀconversionꢀrights,ꢀvotingꢀrights,ꢀtermsꢀofꢀredemptionꢀandꢀliquidationꢀpreferences.
AsꢀofꢀDecemberꢀ31,ꢀ2018ꢀandꢀ2017,ꢀweꢀhadꢀnoꢀsharesꢀofꢀpreferredꢀstockꢀoutstanding.
Common Stock. Subjectꢀtoꢀtheꢀpreferencesꢀthatꢀmayꢀapplyꢀtoꢀsharesꢀofꢀpreferredꢀstockꢀthatꢀmayꢀbeꢀoutstandingꢀatꢀtheꢀtime,ꢀthe
holdersꢀofꢀoutstandingꢀsharesꢀofꢀcommonꢀstockꢀareꢀentitledꢀtoꢀreceiveꢀdividendsꢀoutꢀofꢀassetsꢀlegallyꢀavailableꢀatꢀtheꢀtimesꢀandꢀin
theꢀamountsꢀasꢀourꢀBoardꢀofꢀDirectorsꢀmayꢀfromꢀtimeꢀtoꢀtimeꢀdetermine.ꢀAllꢀdividendsꢀareꢀnon-cumulative.ꢀInꢀtheꢀeventꢀofꢀthe
liquidation,ꢀdissolutionꢀorꢀwindingꢀupꢀofꢀEveri,ꢀtheꢀholdersꢀofꢀcommonꢀstockꢀareꢀentitledꢀtoꢀshareꢀratablyꢀinꢀallꢀassetsꢀremaining
afterꢀtheꢀpaymentꢀofꢀliabilities,ꢀsubjectꢀtoꢀtheꢀpriorꢀdistributionꢀrightsꢀofꢀpreferredꢀstock,ꢀifꢀany,ꢀthenꢀoutstanding.ꢀEachꢀstockholder
isꢀentitledꢀtoꢀoneꢀvoteꢀforꢀeachꢀshareꢀofꢀcommonꢀstockꢀheldꢀonꢀallꢀmattersꢀsubmittedꢀtoꢀaꢀvoteꢀofꢀstockholders.ꢀCumulativeꢀvoting
forꢀtheꢀelectionꢀofꢀdirectorsꢀisꢀnotꢀprovidedꢀfor.ꢀTheꢀcommonꢀstockꢀisꢀnotꢀentitledꢀtoꢀpreemptiveꢀrightsꢀandꢀisꢀnotꢀsubjectꢀtoꢀconversion
orꢀredemption.ꢀThereꢀareꢀnoꢀsinkingꢀfundꢀprovisionsꢀapplicableꢀtoꢀtheꢀcommonꢀstock.ꢀEachꢀoutstandingꢀshareꢀofꢀcommonꢀstock
isꢀfullyꢀpaidꢀandꢀnon-assessable.ꢀAsꢀofꢀDecemberꢀ31,ꢀ2018ꢀandꢀ2017,ꢀweꢀhadꢀ95,099,532ꢀandꢀ93,119,988ꢀsharesꢀofꢀcommonꢀstock
issued,ꢀrespectively.
Treasury Stock. Employeesꢀmayꢀdirectꢀusꢀtoꢀwithholdꢀvestedꢀsharesꢀofꢀrestrictedꢀstockꢀtoꢀsatisfyꢀtheꢀminimumꢀstatutoryꢀwithholding
requirementsꢀapplicableꢀtoꢀtheirꢀrestrictedꢀstockꢀvesting.ꢀWeꢀrepurchasedꢀorꢀwithheldꢀfromꢀrestrictedꢀstockꢀawardsꢀ17,552ꢀand
15,457ꢀsharesꢀofꢀcommonꢀstockꢀatꢀanꢀaggregateꢀpurchaseꢀpriceꢀofꢀ$0.1ꢀmillionꢀforꢀtheꢀyearsꢀendedꢀDecemberꢀ31,ꢀ2018ꢀandꢀ2017
toꢀsatisfyꢀtheꢀminimumꢀapplicableꢀtaxꢀwithholdingꢀobligationsꢀrelatedꢀtoꢀtheꢀvestingꢀofꢀsuchꢀrestrictedꢀstockꢀawards.
80
15. WEIGHTED AVERAGE SHARES OF COMMON STOCK
Theꢀweightedꢀaverageꢀnumberꢀofꢀcommonꢀstockꢀoutstandingꢀusedꢀinꢀtheꢀcomputationꢀofꢀbasicꢀandꢀdilutedꢀearningsꢀperꢀshareꢀisꢀas
followsꢀ(inꢀthousands):ꢀ
At December 31,
2018
2017
2016
Weightedꢀaverageꢀshares
Weightedꢀaverageꢀnumberꢀofꢀcommonꢀsharesꢀoutstandingꢀ-ꢀbasic
ꢀꢀꢀꢀꢀPotentialꢀdilutionꢀfromꢀequityꢀawards(1)
Weightedꢀaverageꢀnumberꢀofꢀcommonꢀsharesꢀoutstandingꢀ-ꢀdiluted(1)
69,464
4,332
73,796
66,816
—
66,816
66,050
—
66,050
ꢀ
(1) Theꢀpotentialꢀdilutionꢀexcludesꢀtheꢀweightedꢀaverageꢀeffectꢀofꢀequityꢀawardsꢀtoꢀpurchaseꢀapproximatelyꢀ7.5ꢀmillionꢀsharesꢀof
commonꢀstockꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2018,ꢀasꢀtheꢀapplicationꢀofꢀtheꢀtreasuryꢀstockꢀmethod,ꢀasꢀrequired,ꢀmakes
themꢀanti-dilutive.ꢀTheꢀCompanyꢀwasꢀinꢀaꢀnetꢀlossꢀpositionꢀforꢀtheꢀyearsꢀendedꢀDecemberꢀ31,ꢀ2017ꢀandꢀ2016;ꢀtherefore,ꢀno
potentialꢀdilutionꢀfromꢀtheꢀapplicationꢀofꢀtheꢀtreasuryꢀstockꢀmethodꢀwasꢀapplicable.ꢀEquityꢀawardsꢀtoꢀpurchaseꢀapproximately
16.0ꢀmillionꢀandꢀ15.7ꢀmillionꢀsharesꢀofꢀcommonꢀstockꢀforꢀtheꢀyearsꢀendedꢀDecemberꢀ31,ꢀ2017ꢀandꢀ2016,ꢀrespectively,ꢀwere
excludedꢀfromꢀtheꢀcomputationꢀofꢀdilutedꢀnetꢀlossꢀperꢀshare,ꢀasꢀtheirꢀeffectꢀwouldꢀhaveꢀbeenꢀanti-dilutive.
16. SHARE‑BASED COMPENSATION
Equity Incentive Awards
Ourꢀ2014ꢀEquityꢀIncentiveꢀPlanꢀ(asꢀamendedꢀandꢀrestatedꢀeffectiveꢀMayꢀ23,ꢀ2017,ꢀtheꢀ“AmendedꢀandꢀRestatedꢀ2014ꢀPlan”)ꢀand
ourꢀ2012ꢀEquityꢀIncentiveꢀPlanꢀ(asꢀamended,ꢀtheꢀ“2012ꢀPlan”)ꢀareꢀusedꢀtoꢀattractꢀandꢀretainꢀtheꢀbestꢀavailableꢀpersonnel,ꢀtoꢀprovide
additionalꢀincentivesꢀtoꢀemployees,ꢀdirectorsꢀandꢀconsultantsꢀandꢀtoꢀpromoteꢀtheꢀsuccessꢀofꢀourꢀbusiness.ꢀOurꢀequityꢀincentive
plansꢀareꢀadministeredꢀbyꢀtheꢀCompensationꢀCommitteeꢀofꢀourꢀBoardꢀofꢀDirectors,ꢀwhichꢀhasꢀtheꢀauthorityꢀtoꢀselectꢀindividuals
whoꢀareꢀtoꢀreceiveꢀequityꢀincentiveꢀawardsꢀandꢀtoꢀspecifyꢀtheꢀtermsꢀandꢀconditionsꢀofꢀgrantsꢀofꢀsuchꢀawards,ꢀincluding,ꢀbutꢀnot
limitedꢀtoꢀtheꢀvestingꢀprovisionsꢀandꢀexerciseꢀprices.
Generally,ꢀweꢀgrantꢀtheꢀfollowingꢀawardꢀtypes:ꢀ(a)ꢀtime-basedꢀoptions;ꢀ(b)ꢀmarket-basedꢀoptions;ꢀ(c)ꢀtime-basedꢀrestrictedꢀstock;
andꢀ(d)ꢀrestrictedꢀstockꢀunitsꢀ(“RSUs”)ꢀwithꢀeitherꢀtime-ꢀorꢀperformance-basedꢀcriteria.ꢀ
Aꢀsummaryꢀofꢀawardꢀactivityꢀisꢀasꢀfollowsꢀ(inꢀthousands):ꢀ
Outstanding, December 31, 2017
Granted
Exercisedꢀoptionsꢀorꢀvestedꢀshares
Cancelledꢀorꢀforfeited
Outstanding, December 31, 2018
Stock Options
Granted
19,131
20
(1,980)
(1,497)
15,674
Restricted Stock
Awards Granted
74
—
(66)
—
8
Restricted Stock
Units Granted
—
1,877
—
(80)
1,797
Thereꢀwereꢀapproximatelyꢀ3.6ꢀmillionꢀawardsꢀofꢀourꢀcommonꢀstockꢀavailableꢀforꢀfutureꢀequityꢀgrants,ꢀbothꢀunderꢀtheꢀAmended
andꢀRestatedꢀ2014ꢀPlanꢀandꢀtheꢀ2012ꢀPlanꢀasꢀofꢀDecemberꢀ31,ꢀ2018.
Stock Options
Ourꢀtime-basedꢀstockꢀoptionsꢀgrantedꢀunderꢀourꢀequityꢀplansꢀgenerallyꢀvestꢀatꢀaꢀrateꢀofꢀ25%ꢀperꢀyearꢀonꢀeachꢀofꢀtheꢀfirstꢀfour
anniversariesꢀofꢀtheꢀoptionꢀgrantꢀdatesꢀandꢀtheꢀoptionsꢀexpireꢀafterꢀaꢀten-yearꢀperiod.ꢀWeꢀestimateꢀforfeitureꢀamountsꢀbasedꢀon
historicalꢀpatterns.
Ourꢀmarket-basedꢀoptionsꢀgrantedꢀinꢀ2017ꢀandꢀ2016ꢀunderꢀourꢀ2014ꢀPlanꢀandꢀ2012ꢀPlanꢀvestꢀatꢀaꢀrateꢀofꢀ25%ꢀperꢀyearꢀonꢀeachꢀof
theꢀfirstꢀfourꢀanniversariesꢀofꢀtheꢀgrantꢀdate,ꢀprovidedꢀthatꢀasꢀofꢀtheꢀvestingꢀdateꢀforꢀeachꢀvestingꢀtranche,ꢀtheꢀclosingꢀpriceꢀofꢀthe
Company’sꢀsharesꢀonꢀtheꢀNewꢀYorkꢀStockꢀExchangeꢀisꢀatꢀleastꢀaꢀspecifiedꢀpriceꢀhurdle,ꢀdefinedꢀasꢀaꢀ25%ꢀandꢀ50%ꢀpremiumꢀfor
2017ꢀandꢀ2016,ꢀrespectively,ꢀtoꢀtheꢀclosingꢀstockꢀpriceꢀonꢀtheꢀgrantꢀdate.ꢀIfꢀtheꢀpriceꢀhurdleꢀisꢀnotꢀmetꢀasꢀofꢀtheꢀvestingꢀdateꢀforꢀa
81
vestingꢀtranche,ꢀthenꢀtheꢀvestedꢀtrancheꢀshallꢀvestꢀandꢀbecomeꢀvestedꢀsharesꢀonꢀtheꢀlastꢀdayꢀofꢀaꢀperiodꢀofꢀ30ꢀconsecutiveꢀtrading
daysꢀduringꢀwhichꢀtheꢀclosingꢀpriceꢀisꢀatꢀleastꢀtheꢀpriceꢀhurdle.ꢀTheseꢀoptionsꢀexpireꢀafterꢀaꢀten-yearꢀperiod.ꢀ
Thereꢀwereꢀnoꢀmarket-basedꢀoptionꢀawardsꢀgrantedꢀduringꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2018.
Theꢀfairꢀvaluesꢀofꢀourꢀstandardꢀtime-basedꢀoptionsꢀwereꢀdeterminedꢀasꢀofꢀtheꢀdateꢀofꢀgrantꢀusingꢀtheꢀBlack-Scholesꢀoptionꢀpricing
modelꢀwithꢀtheꢀfollowingꢀassumptions:
Risk-freeꢀinterestꢀrate
Expectedꢀlifeꢀofꢀoptionsꢀ(inꢀyears)
Expectedꢀvolatility
Expectedꢀdividendꢀyield
Year Ended December 31,
2017
2016
2018
3%
6
53%
—
2%
6
54%
—
1%
5
51%
—
Theꢀfairꢀvaluesꢀofꢀourꢀmarket-basedꢀoptionsꢀwereꢀdeterminedꢀasꢀofꢀtheꢀdateꢀofꢀgrantꢀusingꢀaꢀlattice-basedꢀoptionꢀvaluationꢀmodel
withꢀtheꢀfollowingꢀassumptions:ꢀ
Risk-freeꢀinterestꢀrate
Measurementꢀperiodꢀ(inꢀyears)
Expectedꢀvolatility
Expectedꢀdividendꢀyield
Theꢀfollowingꢀtableꢀpresentsꢀtheꢀoptionsꢀactivity:ꢀ
Outstanding, December 31, 2017
Granted
Exercised
Canceledꢀorꢀforfeited
Outstanding, December 31, 2018
Vested and expected to vest, December 31, 2018
Exercisable, December 31, 2018
Number of
Options
(in thousands)
19,131
20
(1,980)
(1,497)
15,674
14,947
9,728
Year Ended December 31,
2017
2016
3%
10
70%
—
2%
10
68%
—
Weighted Average
Exercise Price
(per Share)
Weighted
Average Life
Remaining
(Years)
Aggregate
Intrinsic Value
(in thousands)
45,887
6.4 $
$
$
$
$
5.34
7.88
4.84
5.51
5.39
5.44
6.15
6.0 $
5.9 $
5.3 $
17,733
16,559
7,284
Theꢀfollowingꢀtableꢀpresentsꢀtheꢀoptionsꢀoutstandingꢀandꢀexercisableꢀbyꢀpriceꢀrange:ꢀꢀ
Options Outstanding
Options Exercisable
Number
Outstanding
Weighted
Average
Remaining
Contract
Range of Exercise Prices
(in thousands)
Life (Years)
$
$
1.46
2.70
3.29
3.41
7.09
7.74
2.40
2.78
3.29
7.05
7.61
9.74
2,630
565
3,326
2,611
929
5,613
15,674
7.3 $
7.1
8.2
4.1
5.5
4.9
82
Weighted
Average
Exercise
Prices
1.54
2.77
3.29
5.81
7.34
8.19
Number
Exercisable
(in thousands)
1,110
$
515
741
2,545
810
4,007
9,728
Weighted
Average
Exercise
Price
1.55
2.77
3.29
5.79
7.32
8.36
Thereꢀ wereꢀ 20,000,ꢀ 4.3ꢀ million,ꢀ andꢀ 4.4ꢀ millionꢀ optionsꢀ grantedꢀ forꢀ theꢀ yearsꢀ endedꢀ Decemberꢀ31,ꢀ 2018,ꢀ 2017,ꢀ andꢀ 2016,
respectively.ꢀTheꢀweightedꢀaverageꢀgrantꢀdateꢀfairꢀvalueꢀperꢀshareꢀofꢀtheꢀoptionsꢀgrantedꢀwasꢀ$4.15,ꢀ$1.98,ꢀandꢀ$0.83ꢀforꢀtheꢀyears
endedꢀDecemberꢀ31,ꢀ2018,ꢀ2017,ꢀandꢀ2016,ꢀrespectively.ꢀTheꢀtotalꢀintrinsicꢀvalueꢀofꢀoptionsꢀexercisedꢀwasꢀ$6.5ꢀmillionꢀandꢀ$5.3
millionꢀforꢀtheꢀyearsꢀendedꢀDecemberꢀ31,ꢀ2018ꢀandꢀ2017.ꢀThereꢀwereꢀnoꢀoptionsꢀexercisedꢀinꢀ2016.
Thereꢀwasꢀapproximatelyꢀ$3.4ꢀmillionꢀinꢀunrecognizedꢀcompensationꢀexpenseꢀrelatedꢀtoꢀoptionsꢀexpectedꢀtoꢀvestꢀasꢀofꢀDecemberꢀ31,
2018.ꢀThisꢀcostꢀwasꢀexpectedꢀtoꢀbeꢀrecognizedꢀonꢀaꢀstraight‑lineꢀbasisꢀoverꢀaꢀweightedꢀaverageꢀperiodꢀofꢀ2.8ꢀyears.ꢀWeꢀrecorded
approximatelyꢀ $5.1ꢀ millionꢀ inꢀ non‑cashꢀ compensationꢀ expenseꢀ relatedꢀ toꢀ optionsꢀ grantedꢀ thatꢀ wereꢀ expectedꢀ toꢀ vestꢀ asꢀ of
Decemberꢀ31,ꢀ2018.ꢀWeꢀreceivedꢀapproximatelyꢀ$9.6ꢀmillionꢀinꢀcashꢀproceedsꢀfromꢀtheꢀexerciseꢀofꢀoptionsꢀduringꢀ2018.
Thereꢀwasꢀapproximatelyꢀ$7.9ꢀmillionꢀandꢀ$11.7ꢀmillionꢀinꢀunrecognizedꢀcompensationꢀexpenseꢀrelatedꢀtoꢀoptionsꢀexpectedꢀto
vestꢀasꢀofꢀDecemberꢀ31,ꢀ2017ꢀandꢀ2016,ꢀrespectively.ꢀThisꢀcostꢀwasꢀexpectedꢀtoꢀbeꢀrecognizedꢀonꢀaꢀstraight-lineꢀbasisꢀoverꢀa
weightedꢀaverageꢀperiodꢀofꢀ3.5ꢀyearsꢀandꢀ2.1ꢀyearsꢀforꢀtheꢀyearsꢀendedꢀDecemberꢀ31,ꢀ2017ꢀandꢀ2016,ꢀrespectively.ꢀWeꢀrecorded
approximatelyꢀ$6.0ꢀmillionꢀandꢀ$6.3ꢀmillionꢀinꢀnon‑cashꢀcompensationꢀexpenseꢀrelatedꢀtoꢀoptionsꢀgrantedꢀthatꢀwereꢀexpectedꢀto
vestꢀasꢀofꢀDecemberꢀ31,ꢀ2017ꢀandꢀ2016,ꢀrespectively.ꢀWeꢀreceivedꢀapproximatelyꢀ$10.9ꢀmillionꢀinꢀcashꢀproceedsꢀfromꢀtheꢀexercise
ofꢀoptionsꢀduringꢀ2017ꢀandꢀthereꢀwasꢀnoꢀexerciseꢀofꢀoptionsꢀduringꢀ2016,ꢀasꢀnoꢀexercisesꢀoccurredꢀduringꢀtheꢀperiod.ꢀ
Restricted Stock Awards
Theꢀfollowingꢀisꢀaꢀsummaryꢀofꢀnon‑vestedꢀshareꢀawardsꢀforꢀourꢀtime‑basedꢀrestrictedꢀshares:ꢀ
Outstanding, December 31, 2017
Granted
Vested
Forfeited
Outstanding, December 31, 2018
Shares
Outstanding
(in thousands)
74
—
(66)
—
8
Weighted
Average Grant
Date Fair Value
(per Share)
$
$
7.00
—
7.04
—
6.66
ThereꢀwereꢀnoꢀsharesꢀofꢀrestrictedꢀstockꢀgrantedꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2018.ꢀTheꢀtotalꢀfairꢀvalueꢀofꢀrestrictedꢀstock
vestedꢀwasꢀapproximatelyꢀ$0.5ꢀmillionꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2018.ꢀThereꢀwasꢀ$31,952ꢀinꢀunrecognizedꢀcompensation
expenseꢀrelatedꢀtoꢀsharesꢀofꢀrestrictedꢀstockꢀexpectedꢀtoꢀvestꢀasꢀofꢀDecemberꢀ31,ꢀ2018,ꢀwhichꢀwasꢀexpectedꢀtoꢀbeꢀrecognizedꢀon
aꢀstraight‑lineꢀbasisꢀoverꢀaꢀweightedꢀaverageꢀperiodꢀofꢀ0.3ꢀyears.ꢀThereꢀwereꢀ65,501ꢀsharesꢀofꢀrestrictedꢀstockꢀthatꢀvestedꢀduring
2018,ꢀandꢀweꢀrecordedꢀapproximatelyꢀ$0.4ꢀmillionꢀinꢀnon-cashꢀcompensationꢀexpenseꢀrelatedꢀtoꢀtheꢀrestrictedꢀstockꢀgrantedꢀthat
wasꢀexpectedꢀtoꢀvestꢀduringꢀ2018.
Thereꢀwereꢀ50,000ꢀsharesꢀofꢀrestrictedꢀstockꢀgrantedꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2017ꢀandꢀnoꢀsharesꢀofꢀrestrictedꢀstock
grantedꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2016.ꢀTheꢀtotalꢀfairꢀvalueꢀofꢀrestrictedꢀstockꢀvestedꢀwasꢀapproximatelyꢀ$0.4ꢀmillionꢀand
approximatelyꢀ$0.2ꢀmillionꢀforꢀtheꢀyearsꢀendedꢀDecemberꢀ31,ꢀ2017ꢀandꢀ2016,ꢀrespectively.ꢀThereꢀwasꢀapproximatelyꢀ$0.5ꢀmillion
andꢀapproximatelyꢀ$1.0ꢀmillionꢀinꢀunrecognizedꢀcompensationꢀexpenseꢀrelatedꢀtoꢀsharesꢀofꢀtime‑basedꢀrestrictedꢀawardsꢀexpected
toꢀvestꢀasꢀofꢀDecemberꢀ31,ꢀ2017ꢀandꢀ2016,ꢀrespectively,ꢀandꢀisꢀexpectedꢀtoꢀbeꢀrecognizedꢀonꢀaꢀstraight‑lineꢀbasisꢀoverꢀaꢀweighted
averageꢀperiodꢀofꢀ1.1ꢀyearsꢀandꢀ1.7ꢀyears,ꢀrespectively.ꢀThereꢀwereꢀ56,578ꢀsharesꢀandꢀ74,919ꢀsharesꢀofꢀrestrictedꢀstockꢀthatꢀvested
duringꢀ2017ꢀandꢀ2016,ꢀrespectively,ꢀandꢀweꢀrecordedꢀapproximatelyꢀ$0.4ꢀmillionꢀandꢀapproximatelyꢀ$0.5ꢀmillionꢀinꢀnon‑cash
compensationꢀexpenseꢀrelatedꢀtoꢀtheꢀrestrictedꢀstockꢀgrantedꢀthatꢀwasꢀexpectedꢀtoꢀvestꢀduringꢀ2017ꢀandꢀ2016,ꢀrespectively.
83
Restricted Stock Units
Theꢀfollowingꢀisꢀaꢀsummaryꢀofꢀnon-vestedꢀRSUꢀawards:
Shares
Outstanding
(in thousands)
Weighted Average
Grant Date Fair
Value
(per Share)
Weighted
Average Life
Remaining
(Years)
Aggregate
Intrinsic Value
(in thousands)
Outstanding, December 31, 2017
Granted
Exercised
Canceledꢀorꢀforfeited
Outstanding, December 31, 2018
Vested and expected to vest, December 31, 2018
— $
1,877
—
(80)
1,797
1,219
$
$
—
7.49
—
7.46
7.49
7.49
2.0 $
1.8 $
9,254
6,278
Theꢀtime-basedꢀRSUsꢀgrantedꢀduringꢀ2018ꢀvestꢀatꢀaꢀrateꢀofꢀ25%ꢀperꢀyearꢀonꢀeachꢀofꢀtheꢀfirstꢀfourꢀanniversariesꢀofꢀtheꢀgrantꢀdates.
Theꢀperformance-basedꢀRSUsꢀgrantedꢀduringꢀ2018ꢀwillꢀbeꢀevaluatedꢀbyꢀourꢀCompensationꢀCommitteeꢀofꢀourꢀBoardꢀofꢀDirectors
afterꢀaꢀperformanceꢀperiod,ꢀbeginningꢀonꢀtheꢀdateꢀofꢀgrantꢀthroughꢀDecemberꢀ31,ꢀ2020,ꢀbasedꢀonꢀcertainꢀrevenueꢀandꢀAdjusted
EBITDAꢀgrowthꢀrateꢀmetrics,ꢀwithꢀachievementꢀofꢀeachꢀmeasureꢀtoꢀbeꢀdeterminedꢀindependentlyꢀofꢀoneꢀanother.ꢀIfꢀtheꢀperformance
criteriaꢀofꢀtheꢀmetricsꢀareꢀapproved,ꢀtheꢀeligibleꢀawardsꢀwillꢀbecomeꢀvestedꢀonꢀtheꢀthirdꢀanniversaryꢀofꢀtheꢀgrantꢀdates.
Theꢀtime-basedꢀRSUsꢀgrantedꢀduringꢀtheꢀfirstꢀquarterꢀofꢀ2018ꢀtoꢀindependentꢀmembersꢀofꢀourꢀBoardꢀofꢀDirectorsꢀvestꢀinꢀequal
installmentsꢀonꢀeachꢀofꢀtheꢀfirstꢀthreeꢀanniversaryꢀdatesꢀofꢀtheꢀgrantꢀdateꢀandꢀsettleꢀonꢀtheꢀearliestꢀofꢀtheꢀfollowingꢀevents:ꢀ(i)ꢀMarch
7,ꢀ2028;ꢀ(ii)ꢀdeath;ꢀ(iii)ꢀtheꢀoccurrenceꢀofꢀaꢀChangeꢀinꢀControlꢀ(asꢀdefinedꢀinꢀtheꢀAmendedꢀandꢀRestatedꢀ2014ꢀPlan),ꢀsubjectꢀto
qualifyingꢀconditions;ꢀorꢀ(iv)ꢀtheꢀdateꢀthatꢀisꢀsixꢀmonthsꢀfollowingꢀtheꢀseparationꢀfromꢀservice,ꢀsubjectꢀtoꢀqualifyingꢀconditions.
Thereꢀwereꢀapproximatelyꢀ1.9ꢀmillionꢀsharesꢀofꢀRSUꢀawardsꢀgrantedꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,ꢀ2018ꢀandꢀnoꢀRSUsꢀgranted
forꢀtheꢀyearsꢀendedꢀDecemberꢀ31,ꢀ2017ꢀandꢀ2016.ꢀThereꢀwereꢀzeroꢀRSUsꢀthatꢀvestedꢀduringꢀtheꢀyearsꢀendedꢀDecemberꢀ31,ꢀ2018,
2017ꢀandꢀ2016.
Thereꢀ wasꢀ approximatelyꢀ $6.7ꢀ millionꢀ inꢀ unrecognizedꢀ compensationꢀ expenseꢀ relatedꢀ toꢀ RSUꢀ awardsꢀ expectedꢀ toꢀ vestꢀ asꢀ of
Decemberꢀ31,ꢀ2018.ꢀThisꢀcostꢀisꢀexpectedꢀtoꢀbeꢀrecognizedꢀonꢀaꢀstraight-lineꢀbasisꢀoverꢀaꢀweightedꢀaverageꢀperiodꢀofꢀ3.0ꢀyears.
Weꢀrecordedꢀapproximatelyꢀ$1.8ꢀmillionꢀinꢀnon-cashꢀcompensationꢀexpenseꢀrelatedꢀtoꢀRSUꢀawardsꢀforꢀtheꢀyearꢀendedꢀDecemberꢀ31,
2018.ꢀ
17. INCOME TAXES
Theꢀfollowingꢀpresentsꢀconsolidatedꢀlossꢀbeforeꢀtaxꢀforꢀdomesticꢀandꢀforeignꢀoperationsꢀ(inꢀthousands):ꢀ
Consolidated income (loss) before tax
Domestic
Foreign
Total
Year Ended December 31,
2018
2017
2016
$
$
1,227
1,419
2,646
$
$
(73,445) $
1,378
(72,067) $
(225,538)
7,755
(217,783)
84
Theꢀ incomeꢀ taxꢀ (benefit)ꢀ provisionꢀ attributableꢀ toꢀ lossꢀ fromꢀ operationsꢀ beforeꢀ taxꢀ consistsꢀ ofꢀ theꢀ followingꢀ componentsꢀ (in
thousands):ꢀ
Income tax (benefit) provision
Domestic
Foreign
Total income tax (benefit) provision
Income tax (benefit) provision
Current
Deferred
Total income tax (benefit) provision
Year Ended December 31,
2017
2016
2018
$
$
$
$
(10,166) $
456
(9,710) $
$
633
(10,343)
(9,710) $
(20,507) $
343
(20,164) $
$
461
(20,625)
(20,164) $
30,400
1,296
31,696
1,756
29,940
31,696
Aꢀreconciliationꢀofꢀtheꢀfederalꢀstatutoryꢀrateꢀandꢀtheꢀeffectiveꢀincomeꢀtaxꢀrateꢀisꢀasꢀfollows:ꢀ
Income tax reconciliation
Federalꢀstatutoryꢀrate
Foreignꢀprovision
State/provinceꢀincomeꢀtax
Non-deductibleꢀcompensationꢀcost
ꢀꢀꢀꢀꢀAdjustmentꢀtoꢀcarryingꢀvalue(1)
Researchꢀcredit
Valuationꢀallowance
Goodwillꢀimpairment
Globalꢀintangibleꢀlow-taxedꢀincome
Non-deductibleꢀexpensesꢀ-ꢀother
Other
Effective tax rate
ꢀ
Year Ended December 31,
2017
2016
2018
21.0 %
6.8 %
12.4 %
(7.7)%
6.2 %
(76.3)%
(344.9)%
— %
9.1 %
7.2 %
(0.8)%
(367.0)%
35.0 %
0.3 %
2.4 %
(2.0)%
31.2 %
1.9 %
(39.6)%
— %
— %
(0.5)%
(0.7)%
28.0 %
35.0 %
0.5 %
0.8 %
(0.5)%
0.2 %
0.2 %
(27.4)%
(23.5)%
— %
(0.1)%
0.2 %
(14.6)%
(1) Theꢀadjustmentꢀtoꢀcarryingꢀvalueꢀinꢀ2017ꢀisꢀdueꢀprimarilyꢀtoꢀtheꢀfederalꢀtaxꢀrateꢀchangeꢀinꢀtheꢀTaxꢀCutsꢀandꢀJobsꢀActꢀofꢀ2017
(“2017ꢀTaxꢀAct”).
85
Theꢀmajorꢀtax‑effectedꢀcomponentsꢀofꢀtheꢀdeferredꢀtaxꢀassetsꢀandꢀliabilitiesꢀareꢀasꢀfollowsꢀ(inꢀthousands):
Deferred income tax assets related to:
Netꢀoperatingꢀlosses
Stockꢀcompensationꢀexpense
Accountsꢀreceivableꢀallowances
Accruedꢀandꢀprepaidꢀexpenses
Long-termꢀdebt
Other
Taxꢀcredits
InterestꢀLimitation
Valuationꢀallowance
Total deferred income tax assets
Deferred income tax liabilities related to:
Property,ꢀequipmentꢀandꢀleasedꢀassets
Intangibles
Long-termꢀdebt
Other
Total deferred income tax liabilities
Deferred income taxes, net
Year Ended December 31,
2017
2016
2018
$
$
$
$
$
$
97,190
7,264
$
87,250
6,601
1,582
3,639
—
1,319
9,244
2,738
(53,156)
69,820
3,855
89,865
3,614
$
$
1,117
3,953
—
479
6,822
—
(63,303)
42,919
3,129
73,597
3,292
$
$
353
97,687
$
(27,867) $
1,108
81,126
$
(38,207) $
98,664
11,559
1,745
6,276
493
1,399
6,394
—
(61,012)
65,518
13,216
106,307
—
3,606
123,129
(57,611)
Theꢀ2017ꢀTaxꢀActꢀwasꢀenactedꢀonꢀDecemberꢀ22,ꢀ2017.ꢀTheꢀ2017ꢀTaxꢀActꢀmadeꢀsignificantꢀchangesꢀtoꢀtheꢀfederalꢀtaxꢀlaw,ꢀincluding
aꢀreductionꢀinꢀtheꢀfederalꢀincomeꢀtaxꢀrateꢀfromꢀ35%ꢀtoꢀ21%ꢀeffectiveꢀJanuaryꢀ1,ꢀ2018,ꢀstricterꢀlimitsꢀonꢀdeductionꢀofꢀinterest,ꢀan
80%ꢀtaxableꢀincomeꢀlimitationꢀonꢀtheꢀuseꢀofꢀpost-2017ꢀnetꢀoperatingꢀlossꢀ(“NOL”),ꢀandꢀaꢀone-timeꢀtransitionꢀtaxꢀonꢀpreviously
deferredꢀearningsꢀofꢀcertainꢀforeignꢀsubsidiaries.ꢀAsꢀaꢀresultꢀofꢀourꢀinitialꢀanalysisꢀofꢀtheꢀ2017ꢀTaxꢀActꢀandꢀexistingꢀimplementation
guidance,ꢀweꢀremeasuredꢀourꢀdeferredꢀtaxꢀassetsꢀandꢀliabilities,ꢀwhichꢀresultedꢀinꢀaꢀ$22.5ꢀmillionꢀreductionꢀinꢀourꢀincomeꢀtax
expenseꢀinꢀ2017.ꢀWeꢀcomputedꢀourꢀtransitionꢀtaxꢀliabilityꢀofꢀ$1.3ꢀmillionꢀdueꢀtoꢀtheꢀ2017ꢀTaxꢀAct,ꢀnetꢀofꢀassociatedꢀforeignꢀtax
credits,ꢀwhichꢀwasꢀcompletelyꢀoffsetꢀbyꢀadditionalꢀforeignꢀtaxꢀcreditsꢀcarriedꢀforward.ꢀAnyꢀremainingꢀforeignꢀtaxꢀcreditsꢀnotꢀutilized
byꢀtheꢀtransitionꢀtaxꢀwereꢀfullyꢀoffsetꢀbyꢀaꢀvaluationꢀallowance.ꢀ
OnꢀDecemberꢀ22,ꢀ2017,ꢀtheꢀSECꢀstaffꢀissuedꢀStaffꢀAccountingꢀBulletinꢀ118ꢀ(“SABꢀ118”),ꢀwhichꢀprovidedꢀguidanceꢀonꢀaccounting
forꢀtheꢀtaxꢀeffectsꢀofꢀtheꢀ2017ꢀTaxꢀAct.ꢀInꢀaccordanceꢀwithꢀtheꢀSABꢀ118ꢀguidance,ꢀsomeꢀofꢀtheꢀincomeꢀtaxꢀeffectsꢀrecordedꢀinꢀ2017
andꢀthroughꢀDecemberꢀ22,ꢀ2018ꢀwereꢀprovisional,ꢀincludingꢀtheꢀone-timeꢀtransitionꢀtax,ꢀtheꢀeffectꢀonꢀourꢀvaluationꢀallowance
includingꢀtheꢀstricterꢀlimitsꢀonꢀinterestꢀdeductions,ꢀtheꢀGILTIꢀprovisionsꢀofꢀtheꢀ2017ꢀTaxꢀAct,ꢀandꢀtheꢀremeasurementꢀofꢀourꢀdeferred
taxꢀassetsꢀandꢀliabilities.ꢀDuringꢀ2018,ꢀweꢀrecognizedꢀinsignificantꢀadjustmentsꢀtoꢀtheꢀprovisionalꢀamountsꢀrecordedꢀatꢀDecember
31,ꢀ2017ꢀandꢀincludedꢀtheseꢀadjustmentsꢀasꢀaꢀcomponentꢀofꢀincomeꢀtaxꢀexpenseꢀfromꢀcontinuingꢀoperations.
Unrepatriatedꢀearningsꢀwereꢀapproximatelyꢀ$19.7ꢀmillionꢀasꢀofꢀDecemberꢀ31,ꢀ2018.ꢀAlmostꢀallꢀofꢀtheseꢀearningsꢀareꢀconsidered
permanentlyꢀreinvested,ꢀasꢀitꢀisꢀmanagement’sꢀintentionꢀtoꢀreinvestꢀforeignꢀearningsꢀinꢀforeignꢀoperations.ꢀWeꢀprojectꢀsufficient
cashꢀflow,ꢀorꢀborrowingsꢀavailableꢀunderꢀourꢀNewꢀCreditꢀFacilitiesꢀinꢀtheꢀU.S.;ꢀtherefore,ꢀweꢀdoꢀnotꢀneedꢀtoꢀrepatriateꢀourꢀforeign
earningsꢀtoꢀfinanceꢀU.S.ꢀoperationsꢀatꢀthisꢀtime.ꢀDueꢀtoꢀtheꢀ2017ꢀTaxꢀAct,ꢀthereꢀisꢀnoꢀU.S.ꢀfederalꢀtaxꢀonꢀcashꢀrepatriationꢀfrom
foreignꢀsubsidiaries,ꢀhowever,ꢀitꢀcouldꢀbeꢀsubjectꢀtoꢀforeignꢀwithholdingꢀtaxꢀandꢀU.S.ꢀstateꢀincomeꢀtaxes.
Theꢀ2017ꢀTaxꢀActꢀsubjectsꢀaꢀU.S.ꢀcorporationꢀtoꢀcurrentꢀtaxꢀonꢀtheꢀGILTIꢀearnedꢀbyꢀcertainꢀforeignꢀsubsidiariesꢀandꢀaꢀbaseꢀerosion
anti-avoidanceꢀtaxꢀ(“BEAT”).ꢀOurꢀforeignꢀsubsidiaries’ꢀearningsꢀforꢀtheꢀyear-endedꢀDecemberꢀ31,ꢀ2018ꢀhaveꢀbeenꢀsubjectꢀtoꢀU.S.
federalꢀincomeꢀtaxꢀviaꢀtheꢀnewlyꢀenactedꢀGILTIꢀprovision.ꢀWeꢀhaveꢀelectedꢀtoꢀrecognizeꢀtheꢀtaxesꢀonꢀGILTIꢀandꢀBEATꢀasꢀaꢀperiod
expenseꢀinꢀtheꢀperiodꢀtheꢀtaxesꢀareꢀincurred.ꢀ
Deferredꢀtaxꢀassetsꢀariseꢀprimarilyꢀbecauseꢀexpensesꢀhaveꢀbeenꢀrecordedꢀinꢀhistoricalꢀfinancialꢀstatementꢀperiodsꢀthatꢀwillꢀnot
becomeꢀdeductibleꢀforꢀincomeꢀtaxesꢀuntilꢀfutureꢀtaxꢀyears.ꢀWeꢀrecordꢀvaluationꢀallowancesꢀtoꢀreduceꢀtheꢀbookꢀvalueꢀofꢀourꢀdeferred
taxꢀassetsꢀtoꢀamountsꢀthatꢀareꢀestimatedꢀonꢀaꢀmoreꢀlikelyꢀthanꢀnotꢀbasisꢀtoꢀbeꢀrealized.ꢀThisꢀassessmentꢀrequiresꢀjudgmentꢀandꢀis
86
performedꢀonꢀtheꢀbasisꢀofꢀtheꢀweightꢀofꢀallꢀavailableꢀevidence,ꢀbothꢀpositiveꢀandꢀnegative,ꢀwithꢀgreaterꢀweightꢀplacedꢀonꢀinformation
thatꢀisꢀobjectivelyꢀverifiableꢀsuchꢀasꢀhistoricalꢀperformance.
Weꢀevaluatedꢀnegativeꢀevidenceꢀnotingꢀthatꢀweꢀreportedꢀcumulativeꢀnetꢀlossesꢀforꢀtheꢀthree-yearꢀperiodsꢀendedꢀasꢀofꢀDecember
31,ꢀ2016,ꢀ2017,ꢀandꢀ2018.ꢀPursuantꢀtoꢀaccountingꢀguidance,ꢀaꢀcumulativeꢀlossꢀinꢀrecentꢀyearsꢀisꢀaꢀsignificantꢀpieceꢀofꢀnegative
evidenceꢀthatꢀmustꢀbeꢀconsideredꢀandꢀisꢀdifficultꢀtoꢀovercomeꢀwithoutꢀsufficientꢀobjectivelyꢀverifiable,ꢀpositiveꢀevidence.ꢀAsꢀsuch,
certainꢀaspectsꢀofꢀourꢀhistoricalꢀresultsꢀwereꢀincludedꢀinꢀourꢀforecastedꢀtaxableꢀincome.ꢀAlthoughꢀourꢀforecastꢀofꢀfutureꢀtaxable
incomeꢀwasꢀaꢀpositiveꢀindicator,ꢀsinceꢀthisꢀformꢀofꢀevidenceꢀwasꢀnotꢀobjectivelyꢀverifiable,ꢀitsꢀweightꢀwasꢀnotꢀsufficientꢀtoꢀovercome
theꢀnegativeꢀevidence.ꢀHowever,ꢀbasedꢀonꢀourꢀcurrentꢀyearꢀactivityꢀandꢀtheꢀchangesꢀinꢀtheꢀ2017ꢀTaxꢀAct,ꢀweꢀdecreasedꢀourꢀvaluation
allowanceꢀforꢀdeferredꢀtaxꢀassetsꢀbyꢀ$10.1ꢀmillionꢀduringꢀ2018.ꢀTheꢀdecreaseꢀinꢀourꢀvaluationꢀallowanceꢀisꢀprimarilyꢀdueꢀtoꢀthe
netꢀoperatingꢀlossꢀduringꢀtheꢀyearꢀandꢀtheꢀinterestꢀdeductionꢀlimitationꢀ(deferredꢀtaxꢀassets)ꢀwhichꢀcanꢀbeꢀoffsetꢀagainstꢀourꢀindefinite
livedꢀdeferredꢀtaxꢀliabilities.ꢀTheꢀultimateꢀrealizationꢀofꢀdeferredꢀtaxꢀassetsꢀdependsꢀonꢀhavingꢀsufficientꢀtaxableꢀincomeꢀinꢀthe
futureꢀyearsꢀwhenꢀtheꢀtaxꢀdeductionsꢀassociatedꢀwithꢀtheꢀdeferredꢀtaxꢀassetsꢀbecomeꢀdeductible.ꢀTheꢀestablishmentꢀofꢀaꢀvaluation
allowanceꢀdoesꢀnotꢀimpactꢀcash,ꢀnorꢀdoesꢀitꢀprecludeꢀusꢀfromꢀusingꢀourꢀtaxꢀcredits,ꢀlossꢀcarry-forwardsꢀandꢀotherꢀdeferredꢀtax
assetsꢀinꢀtheꢀfuture.
Theꢀfollowingꢀisꢀaꢀtabularꢀreconciliationꢀofꢀtheꢀtotalꢀamountsꢀofꢀdeferredꢀtaxꢀassetꢀvaluationꢀallowanceꢀ(inꢀthousands):ꢀ
Balance at beginning of period
Chargedꢀtoꢀprovisionꢀforꢀincomeꢀtaxes
Other(1)ꢀ
Balance at end of period
Year Ended December 31,
2018
2017
2016
$
$
63,303
(9,125)
(1,022)
53,156
$
$
61,012
(2,263)
4,554
63,303
$
$
1,442
59,570
—
61,012
(1)ꢀForꢀ2017,ꢀtheꢀamountꢀwasꢀrecordedꢀasꢀaꢀresultꢀofꢀourꢀadoptionꢀofꢀASUꢀNo.ꢀ2016-09ꢀeffectiveꢀJanuaryꢀ1,ꢀ2017.ꢀForꢀ2018,ꢀthe
amountꢀwasꢀrecordedꢀasꢀaꢀresultꢀofꢀourꢀadoptionꢀofꢀASCꢀ606ꢀeffectiveꢀJanuaryꢀ1,ꢀ2018.
Weꢀhadꢀ$395.2ꢀmillion,ꢀorꢀ$83.0ꢀmillion,ꢀtaxꢀeffected,ꢀofꢀaccumulatedꢀfederalꢀnetꢀoperatingꢀlossesꢀasꢀofꢀDecemberꢀ31,ꢀ2018.ꢀThe
netꢀoperatingꢀlossesꢀcanꢀbeꢀcarriedꢀforwardꢀandꢀappliedꢀtoꢀoffsetꢀtaxableꢀincomeꢀforꢀ20ꢀyearsꢀandꢀwillꢀexpireꢀstartingꢀinꢀ2022ꢀ(for
lossesꢀincurredꢀbeforeꢀ2018).ꢀLossesꢀincurredꢀinꢀ2018ꢀofꢀapproximatelyꢀ$38.9ꢀmillion,ꢀorꢀ$8.2ꢀmillion,ꢀtaxꢀeffected,ꢀcanꢀbeꢀcarried
forwardꢀindefinitelyꢀtoꢀoffsetꢀtaxableꢀincome.ꢀWeꢀhadꢀ$8.5ꢀmillion,ꢀtaxꢀeffected,ꢀofꢀfederalꢀresearchꢀandꢀdevelopmentꢀcreditꢀcarry-
forwardsꢀandꢀ$0.5ꢀmillion,ꢀtaxꢀeffected,ꢀofꢀforeignꢀtaxꢀcreditꢀcarry-forwardsꢀasꢀofꢀDecemberꢀ31,ꢀ2018.ꢀTheꢀresearchꢀandꢀdevelopment
creditsꢀareꢀlimitedꢀtoꢀaꢀ20ꢀyearsꢀcarry-forwardꢀperiodꢀandꢀwillꢀexpireꢀstartingꢀinꢀ2029.ꢀTheꢀforeignꢀtaxꢀcreditsꢀcanꢀbeꢀcarriedꢀforward
10ꢀyearsꢀandꢀwillꢀexpireꢀinꢀ2020,ꢀifꢀnotꢀutilized.ꢀOurꢀ$0.3ꢀmillionꢀbalanceꢀofꢀalternativeꢀminimumꢀtaxꢀcreditsꢀatꢀDecemberꢀ31,
2018ꢀwillꢀbeꢀrefundedꢀoverꢀtheꢀnextꢀfourꢀyearsꢀinꢀaccordanceꢀwithꢀtheꢀ2017ꢀTaxꢀAct.ꢀWeꢀalsoꢀhaveꢀaꢀreceivableꢀforꢀ$0.6ꢀmillion
relatedꢀtoꢀalternativeꢀminimumꢀtaxꢀcreditsꢀforꢀwhichꢀaꢀrefundꢀwasꢀrequestedꢀonꢀourꢀDecemberꢀ31,ꢀ2017ꢀfederalꢀtaxꢀreturn.ꢀAsꢀof
Decemberꢀ31,ꢀ2018,ꢀ$46.6ꢀmillionꢀofꢀourꢀvaluationꢀallowanceꢀrelatesꢀtoꢀfederalꢀnetꢀoperatingꢀlossꢀcarry-forwardsꢀandꢀcreditsꢀthat
weꢀestimateꢀareꢀnotꢀmoreꢀlikelyꢀthanꢀnotꢀtoꢀbeꢀrealized.
Weꢀhadꢀtaxꢀeffectedꢀstateꢀnetꢀoperatingꢀlossꢀcarry-forwardsꢀofꢀapproximatelyꢀ$14.1ꢀmillionꢀasꢀofꢀDecemberꢀ31,ꢀ2018.ꢀTheꢀstate
netꢀoperatingꢀlossꢀcarry-forwardsꢀwillꢀexpireꢀbetweenꢀ2019ꢀandꢀ2039.ꢀTheꢀdeterminationꢀandꢀutilizationꢀofꢀtheseꢀstateꢀnetꢀoperating
lossꢀcarry-forwardsꢀareꢀdependentꢀuponꢀapportionmentꢀpercentagesꢀandꢀotherꢀrespectiveꢀstateꢀlaws,ꢀwhichꢀcanꢀchangeꢀfromꢀyear
toꢀyear.ꢀAsꢀofꢀDecemberꢀ31,ꢀ2018,ꢀ$6.5ꢀmillionꢀofꢀourꢀvaluationꢀallowanceꢀrelatesꢀtoꢀcertainꢀstateꢀnetꢀoperatingꢀlossꢀcarry-forwards
thatꢀweꢀestimateꢀareꢀnotꢀmoreꢀlikelyꢀthanꢀnotꢀtoꢀbeꢀrealized.ꢀTheꢀremainingꢀvaluationꢀallowanceꢀofꢀ$0.1ꢀmillionꢀrelatesꢀtoꢀforeign
netꢀoperatingꢀlosses.
Theꢀfollowingꢀisꢀaꢀtabularꢀreconciliationꢀofꢀtheꢀtotalꢀamountsꢀofꢀunrecognizedꢀtaxꢀbenefitsꢀ(inꢀthousands):ꢀ
Unrecognized tax benefit
Unrecognizedꢀtaxꢀbenefitꢀatꢀtheꢀbeginningꢀofꢀtheꢀperiod
Grossꢀincreasesꢀ-ꢀtaxꢀpositionsꢀinꢀpriorꢀperiod
Unrecognized tax benefit at the end of the period
Year Ended December 31,
2017
2016
2018
$
$
937
125
1,062
$
$
834
103
937
$
$
729
105
834
87
Weꢀhaveꢀanalyzedꢀfilingꢀpositionsꢀinꢀallꢀofꢀtheꢀfederal,ꢀstate,ꢀandꢀforeignꢀjurisdictionsꢀwhereꢀweꢀareꢀrequiredꢀtoꢀfileꢀincomeꢀtax
returns,ꢀasꢀwellꢀasꢀallꢀopenꢀtaxꢀyearsꢀinꢀtheseꢀjurisdictions.ꢀAsꢀofꢀDecemberꢀ31,ꢀ2018,ꢀtheꢀCompanyꢀrecordedꢀ$1.1ꢀmillionꢀof
unrecognizedꢀtaxꢀbenefits,ꢀallꢀofꢀwhichꢀwouldꢀimpactꢀourꢀeffectiveꢀtaxꢀrate,ꢀifꢀrecognized.ꢀWeꢀdoꢀnotꢀanticipateꢀthatꢀourꢀunrecognized
taxꢀbenefitsꢀwillꢀmateriallyꢀchangeꢀwithinꢀtheꢀnextꢀ12ꢀmonths.ꢀTheꢀCompanyꢀhasꢀnotꢀaccruedꢀanyꢀpenaltiesꢀandꢀinterestꢀforꢀits
unrecognizedꢀtaxꢀbenefits.ꢀOtherꢀthanꢀtheꢀunrecognizedꢀtaxꢀbenefitꢀrecorded,ꢀweꢀbelieveꢀthatꢀourꢀincomeꢀtaxꢀfilingꢀpositionsꢀand
deductionsꢀwillꢀbeꢀsustainedꢀuponꢀaudit,ꢀandꢀweꢀdoꢀnotꢀanticipateꢀanyꢀotherꢀadjustmentsꢀthatꢀwillꢀresultꢀinꢀaꢀmaterialꢀchangeꢀto
ourꢀ financialꢀ position.ꢀ Weꢀ may,ꢀ fromꢀ timeꢀ toꢀ time,ꢀ beꢀ assessedꢀ interestꢀ orꢀ penaltiesꢀ byꢀ taxꢀ jurisdictions,ꢀ althoughꢀ anyꢀ such
assessmentsꢀhistoricallyꢀhaveꢀbeenꢀminimalꢀandꢀimmaterialꢀtoꢀourꢀfinancialꢀresults.ꢀOurꢀpolicyꢀforꢀrecordingꢀinterestꢀandꢀpenalties
associatedꢀwithꢀauditsꢀandꢀunrecognizedꢀtaxꢀbenefitsꢀisꢀtoꢀrecordꢀsuchꢀitemsꢀasꢀaꢀcomponentꢀofꢀincomeꢀtaxꢀinꢀourꢀStatementsꢀof
Incomeꢀ(Loss).
WeꢀareꢀsubjectꢀtoꢀtaxationꢀinꢀtheꢀU.S.ꢀandꢀvariousꢀstatesꢀandꢀforeignꢀjurisdictions.ꢀWeꢀhaveꢀaꢀnumberꢀofꢀfederalꢀandꢀstateꢀincome
taxꢀyearsꢀstillꢀopenꢀforꢀexaminationꢀasꢀaꢀresultꢀofꢀourꢀnetꢀoperatingꢀlossꢀcarry-forwards.ꢀAccordingly,ꢀweꢀareꢀsubjectꢀtoꢀexamination
forꢀbothꢀU.S.ꢀfederalꢀandꢀsomeꢀofꢀtheꢀstateꢀtaxꢀreturnsꢀforꢀtheꢀyearsꢀ2004ꢀtoꢀpresent.ꢀForꢀtheꢀremainingꢀstate,ꢀlocalꢀandꢀforeign
jurisdictions,ꢀwithꢀsomeꢀexceptions,ꢀweꢀareꢀnoꢀlongerꢀsubjectꢀtoꢀexaminationꢀbyꢀtaxꢀauthoritiesꢀforꢀyearsꢀbeforeꢀ2015.
18. SEGMENT INFORMATION
Operatingꢀsegmentsꢀareꢀcomponentsꢀofꢀanꢀenterpriseꢀaboutꢀwhichꢀseparateꢀfinancialꢀinformationꢀisꢀavailableꢀthatꢀisꢀevaluated
regularlyꢀbyꢀtheꢀchiefꢀoperatingꢀdecision-makingꢀgroupꢀ(theꢀ“CODM”).ꢀOurꢀCODMꢀconsistsꢀofꢀtheꢀChiefꢀExecutiveꢀOfficerꢀand
theꢀChiefꢀFinancialꢀOfficer.ꢀOurꢀCODMꢀallocatesꢀresourcesꢀandꢀmeasuresꢀprofitabilityꢀbasedꢀonꢀourꢀoperatingꢀsegments,ꢀwhich
areꢀmanagedꢀandꢀreviewedꢀseparately,ꢀasꢀeachꢀrepresentꢀproductsꢀandꢀservicesꢀthatꢀcanꢀbeꢀsoldꢀseparatelyꢀtoꢀourꢀcustomers.ꢀOur
segmentsꢀareꢀmonitoredꢀbyꢀmanagementꢀforꢀperformanceꢀagainstꢀourꢀinternalꢀforecasts.
Weꢀhaveꢀreportedꢀourꢀfinancialꢀperformanceꢀbasedꢀonꢀourꢀsegmentsꢀinꢀbothꢀtheꢀcurrentꢀandꢀpriorꢀperiods.ꢀOurꢀCODMꢀdetermined
thatꢀourꢀoperatingꢀsegmentsꢀforꢀconductingꢀbusinessꢀare:ꢀ(a)ꢀGames;ꢀandꢀ(b)ꢀFinTech:
•
•
TheꢀGamesꢀsegmentꢀprovidesꢀsolutionsꢀdirectlyꢀtoꢀgamingꢀestablishmentsꢀtoꢀofferꢀtheirꢀpatronsꢀgamingꢀentertainment-
relatedꢀexperiencesꢀincluding:ꢀleasedꢀgamingꢀequipment;ꢀsalesꢀandꢀmaintenance-relatedꢀservicesꢀofꢀgamingꢀequipment;
gamingꢀsystems;ꢀinteractiveꢀsolutions;ꢀandꢀancillaryꢀproductsꢀandꢀservices.
TheꢀFinTechꢀsegmentꢀprovidesꢀsolutionsꢀ directlyꢀtoꢀ gamingꢀestablishmentsꢀtoꢀ offerꢀtheirꢀpatronsꢀcashꢀaccess-related
servicesꢀandꢀproducts,ꢀincluding:ꢀaccessꢀtoꢀcashꢀatꢀgamingꢀfacilitiesꢀviaꢀATMꢀcashꢀwithdrawals;ꢀcreditꢀcardꢀcashꢀaccess
transactionsꢀandꢀPOSꢀdebitꢀcardꢀcashꢀaccessꢀtransactions;ꢀcheck-relatedꢀservices;ꢀequipmentꢀandꢀmaintenanceꢀservices;
compliance,ꢀauditꢀandꢀdataꢀsoftware;ꢀcasinoꢀcreditꢀdataꢀandꢀreportingꢀservicesꢀandꢀotherꢀancillaryꢀofferings.
Corporateꢀoverheadꢀexpensesꢀhaveꢀbeenꢀallocatedꢀtoꢀtheꢀsegmentsꢀeitherꢀthroughꢀspecificꢀidentificationꢀorꢀbasedꢀonꢀaꢀreasonable
methodology.ꢀInꢀaddition,ꢀweꢀrecordꢀdepreciationꢀandꢀamortizationꢀexpensesꢀtoꢀtheꢀbusinessꢀsegments.
Ourꢀbusinessꢀisꢀpredominantlyꢀdomesticꢀwithꢀnoꢀspecificꢀregionalꢀconcentrationsꢀandꢀnoꢀsignificantꢀassetsꢀinꢀforeignꢀlocations.
Theꢀaccountingꢀpoliciesꢀofꢀtheꢀoperatingꢀsegmentsꢀareꢀgenerallyꢀtheꢀsameꢀasꢀthoseꢀdescribedꢀinꢀtheꢀsummaryꢀofꢀsignificantꢀaccounting
policies.ꢀSinceꢀweꢀadoptedꢀASCꢀ606ꢀutilizingꢀtheꢀmodifiedꢀretrospectiveꢀmethod,ꢀtheꢀpriorꢀyearꢀcomparativeꢀamountsꢀshownꢀin
theꢀtablesꢀbelowꢀhaveꢀnotꢀbeenꢀrestated.ꢀReferꢀtoꢀ“Noteꢀ2ꢀ—ꢀBasisꢀofꢀPresentationꢀandꢀSummaryꢀofꢀSignificantꢀAccountingꢀPolicies”
andꢀ“Noteꢀ3ꢀ—ꢀAdoptionꢀofꢀASCꢀ606,ꢀRevenueꢀfromꢀContractsꢀwithꢀCustomers”ꢀforꢀmoreꢀinformation.
88
Theꢀfollowingꢀtablesꢀpresentꢀsegmentꢀinformationꢀ(inꢀthousands):ꢀ
Games
Revenue
Gamingꢀoperations
Gamingꢀequipmentꢀandꢀsystems
Gamingꢀother
Total revenues
Costs and expenses
Cost of revenues(1)
Gamingꢀoperations
Gamingꢀequipmentꢀandꢀsystems
Gamingꢀother
Total cost of revenues
Operatingꢀexpenses
Researchꢀandꢀdevelopment
Goodwillꢀimpairment
Depreciation
Amortization
Total costs and expenses
Operating income (loss)
(1)ꢀExclusiveꢀofꢀdepreciationꢀandꢀamortization.
FinTech
Revenues
Cashꢀaccessꢀservices
Equipment
Informationꢀservicesꢀandꢀother
Total revenues
Costs and expenses
Cost of revenues(1)
Cashꢀaccessꢀservices
Equipment
Informationꢀservicesꢀandꢀother
Cost of revenues
Operatingꢀexpenses
Depreciation
Amortization
Total costs and expenses
Operating income
(1)ꢀExclusiveꢀofꢀdepreciationꢀandꢀamortization.
89
$
$
$
$
$
$
For the Year Ended December 31,
2017
2016
2018
168,146
87,038
3,794
258,978
$
$
148,654
70,118
4,005
222,777
$
$
152,514
56,277
4,462
213,253
17,603
47,121
3,285
68,009
57,244
20,497
—
55,058
55,099
15,741
35,707
3,247
54,695
42,780
18,862
—
40,428
57,060
15,265
31,602
3,441
50,308
42,561
19,356
146,299
41,582
79,390
255,907
3,071
$
213,825
8,952
$
379,496
(166,243)
For the Year Ended December 31,
2017
2016
2018
156,806
20,977
32,754
210,537
$
$
707,222
13,258
31,691
752,171
$
$
601,874
14,995
29,334
646,203
9,717
12,601
4,110
26,428
85,054
6,167
10,146
127,795
82,742
$
572,880
7,717
3,253
583,850
76,155
6,854
12,445
679,304
72,867
$
485,061
9,889
3,756
498,706
76,148
8,413
15,248
598,515
47,688
For the Year Ended December 31,
2017
2016
2018
Total Games and FinTech
Total revenues
Costs and expenses
Costꢀofꢀrevenues(1)
Operatingꢀexpenses
Researchꢀandꢀdevelopment
Goodwillꢀimpairment
Depreciation
Amortization
Total costs and expenses
Operating income (loss)
(1)ꢀExclusiveꢀofꢀdepreciationꢀandꢀamortization.
Total assets
Games
FinTech
Total assets
$
469,515
$
974,948
$
859,456
94,437
142,298
20,497
—
61,225
65,245
383,702
85,813
$
638,545
118,935
18,862
—
47,282
69,505
893,129
81,819
$
549,014
118,709
19,356
146,299
49,995
94,638
978,011
(118,555)
At December 31,
2018
2017
912,849
635,412
1,548,261
$
$
925,186
611,888
1,537,074
$
$
$
Major customers. ForꢀtheꢀyearsꢀendedꢀDecemberꢀ31,ꢀ2018,ꢀ2017,ꢀandꢀ2016,ꢀnoꢀsingleꢀcustomerꢀaccountedꢀforꢀmoreꢀthanꢀ10%ꢀof
ourꢀrevenues.ꢀOurꢀfiveꢀlargestꢀcustomersꢀaccountedꢀforꢀapproximatelyꢀ22%,ꢀ31%,ꢀandꢀ31%ꢀofꢀourꢀtotalꢀrevenueꢀinꢀ2018,ꢀ2017,
andꢀ2016,ꢀrespectively.
90
19. SELECTED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Theꢀunauditedꢀselectedꢀquarterlyꢀresultsꢀofꢀoperationsꢀareꢀasꢀfollowsꢀ(inꢀthousands,ꢀexceptꢀforꢀperꢀshareꢀamounts)*.ꢀSinceꢀwe
adoptedꢀASCꢀ606ꢀutilizingꢀtheꢀmodifiedꢀretrospectiveꢀmethod,ꢀtheꢀpriorꢀyearꢀcomparativeꢀamountsꢀshownꢀinꢀtheꢀtableꢀbelowꢀhave
notꢀbeenꢀrestated.ꢀ
Quarter
First
Second
Third
Fourth
Year
$ 111,001
24,491
$ 118,682
22,597
$ 120,330
21,510
$ 119,502
17,215
$ 469,515
85,813
4,609
0.07
0.06
$
$
1,475
0.02
0.02
$
$
2,069
0.03
0.03
$
$
4,203
0.06
0.06
$
$
12,356
0.18
0.17
$
$
68,686
73,285
69,203
73,440
69,750
74,594
70,196
74,024
69,464
73,796
$ 242,230
21,292
(19,057)
$ 237,537
22,603
(3,508)
(0.05) $
(0.05) $
$
$
(0.29) $
(0.29) $
$ 247,322
19,795
(4,289)
(0.06) $
(0.06) $
$ 247,859
18,129
(25,049)
(0.37) $
(0.37) $
$ 974,948
81,819
(51,903)
(0.78)
(0.78)
66,090
66,090
66,350
66,350
66,897
66,897
67,755
67,755
66,816
66,816
2018
Revenues
Operatingꢀincome
Netꢀincome
Basicꢀearningsꢀperꢀshare
Dilutedꢀearningsꢀperꢀshare
Weightedꢀaverageꢀcommonꢀsharesꢀoutstanding
Basic
Diluted
2017
Revenues
Operatingꢀincomeꢀ(loss)
Netꢀloss
Basicꢀlossꢀperꢀshare
Dilutedꢀlossꢀperꢀshare
Weightedꢀaverageꢀcommonꢀsharesꢀoutstanding
Basic
Diluted
ꢀ
*
Roundingꢀmayꢀcauseꢀvariances.
20. SUBSEQUENT EVENTS
OnꢀMarchꢀ8,ꢀ2019,ꢀweꢀenteredꢀintoꢀanꢀagreementꢀtoꢀacquireꢀcertainꢀassetsꢀfromꢀaꢀprivatelyꢀheldꢀcompanyꢀthatꢀdevelopsꢀand
distributesꢀhardwareꢀandꢀsoftwareꢀapplicationsꢀtoꢀgamingꢀoperatorsꢀtoꢀenhanceꢀgamingꢀpatronꢀloyalty.ꢀThisꢀacquisitionꢀincludes
existingꢀcontractsꢀwithꢀgamingꢀoperators,ꢀtechnologyꢀandꢀintellectualꢀpropertyꢀthatꢀallowꢀusꢀtoꢀprovideꢀgamingꢀoperatorsꢀaꢀself-
serviceꢀenrollmentꢀandꢀloyaltyꢀcardꢀprintingꢀkiosk,ꢀaꢀmobileꢀapplicationꢀtoꢀofferꢀaꢀgamingꢀoperator'sꢀpatronsꢀadditionalꢀflexibility
inꢀaccessingꢀcasinoꢀpromotions,ꢀandꢀaꢀmarketingꢀplatformꢀthatꢀmanagesꢀandꢀdeliversꢀaꢀgamingꢀoperator’sꢀmarketingꢀprograms
throughꢀtheseꢀpatronꢀinterfaces.ꢀThisꢀacquisitionꢀwillꢀexpandꢀourꢀfinancialꢀtechnologyꢀsolutionsꢀofferingsꢀwithinꢀourꢀFinTech
segment.ꢀUnderꢀtheꢀtermsꢀofꢀtheꢀassetꢀpurchaseꢀagreement,ꢀweꢀpaidꢀtheꢀsellerꢀ$20ꢀmillionꢀatꢀtheꢀclosingꢀofꢀtheꢀtransactionꢀandꢀwill
payꢀanꢀadditionalꢀ$10ꢀmillionꢀoneꢀyearꢀfollowingꢀafterꢀclosingꢀandꢀanotherꢀ$10ꢀmillionꢀtwoꢀyearsꢀfollowingꢀafterꢀtheꢀdateꢀof
closing.ꢀInꢀaddition,ꢀweꢀexpectꢀthatꢀanꢀadditionalꢀ$10ꢀmillionꢀinꢀcontingentꢀconsiderationꢀwillꢀbeꢀearnedꢀbyꢀtheꢀsellerꢀbasedꢀupon
theꢀ achievementꢀ ofꢀ certainꢀ revenueꢀ targetsꢀ overꢀ theꢀ firstꢀ twoꢀ yearsꢀ post-closing.ꢀWeꢀ expectꢀ theꢀ totalꢀ purchaseꢀ priceꢀ forꢀ this
acquisition,ꢀinclusiveꢀofꢀtheꢀcontingentꢀconsideration,ꢀtoꢀbeꢀapproximatelyꢀ$50ꢀmillion.ꢀWeꢀhaveꢀnotꢀcompletedꢀtheꢀpurchaseꢀprice
accountingꢀanalysis,ꢀhowever,ꢀweꢀdoꢀnotꢀexpectꢀthatꢀtheꢀacquisitionꢀwillꢀhaveꢀaꢀmaterialꢀimpactꢀonꢀourꢀresultsꢀofꢀoperationsꢀor
financialꢀcondition.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
91
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
TheꢀCompany’sꢀmanagement,ꢀincludingꢀitsꢀChiefꢀExecutiveꢀOfficerꢀandꢀChiefꢀFinancialꢀOfficer,ꢀhaveꢀevaluatedꢀtheꢀeffectiveness
ofꢀtheꢀCompany’sꢀdisclosureꢀcontrolsꢀandꢀproceduresꢀ(asꢀsuchꢀtermꢀisꢀdefinedꢀinꢀRulesꢀ13a-15(e)ꢀandꢀ15d-15(e)ꢀunderꢀtheꢀExchange
Act)ꢀasꢀofꢀtheꢀendꢀofꢀtheꢀreportingꢀperiodꢀcoveredꢀbyꢀthisꢀFormꢀ10-K.ꢀBasedꢀonꢀsuchꢀevaluation,ꢀtheꢀChiefꢀExecutiveꢀOfficerꢀand
ChiefꢀFinancialꢀOfficerꢀhaveꢀconcludedꢀthat,ꢀasꢀofꢀtheꢀendꢀofꢀtheꢀperiodꢀcoveredꢀbyꢀthisꢀreportꢀonꢀFormꢀ10-K,ꢀtheꢀCompany’s
disclosureꢀcontrolsꢀandꢀproceduresꢀareꢀeffectiveꢀsuchꢀthatꢀinformationꢀrequiredꢀtoꢀbeꢀdisclosedꢀbyꢀtheꢀCompanyꢀinꢀtheꢀreportsꢀthat
itꢀfilesꢀorꢀsubmitsꢀunderꢀtheꢀExchangeꢀActꢀisꢀ(i)ꢀrecorded,ꢀprocessed,ꢀsummarizedꢀandꢀreportedꢀwithinꢀtheꢀtimeꢀperiodsꢀspecified
inꢀtheꢀSEC’sꢀrulesꢀandꢀforms,ꢀandꢀ(ii)ꢀaccumulatedꢀandꢀcommunicatedꢀtoꢀtheꢀCompany’sꢀmanagement,ꢀincludingꢀitsꢀChiefꢀExecutive
OfficerꢀandꢀChiefꢀFinancialꢀOfficer,ꢀasꢀappropriateꢀtoꢀallowꢀtimelyꢀdecisionsꢀregardingꢀrequiredꢀdisclosures.
Management’s Report of Internal Control over Financial Reporting
TheꢀCompany’sꢀmanagement,ꢀincludingꢀitsꢀChiefꢀExecutiveꢀOfficerꢀandꢀChiefꢀFinancialꢀOfficer,ꢀisꢀresponsibleꢀforꢀestablishing
andꢀmaintainingꢀadequateꢀinternalꢀcontrolꢀoverꢀfinancialꢀreportingꢀasꢀdefinedꢀinꢀRulesꢀ13a-15(f)ꢀandꢀ15d-15(f)ꢀunderꢀtheꢀExchange
Act.ꢀTheꢀCompany’sꢀinternalꢀcontrolꢀoverꢀfinancialꢀreportingꢀisꢀdesignedꢀtoꢀprovideꢀreasonableꢀassuranceꢀregardingꢀtheꢀreliability
ofꢀfinancialꢀreportingꢀandꢀtheꢀpreparationꢀofꢀfinancialꢀstatementsꢀforꢀexternalꢀpurposesꢀinꢀaccordanceꢀwithꢀGAAP.ꢀBecauseꢀof
inherentꢀlimitations,ꢀinternalꢀcontrolꢀoverꢀfinancialꢀreportingꢀmayꢀnotꢀpreventꢀorꢀdetectꢀmisstatements.ꢀAlso,ꢀcontrolsꢀmayꢀbecome
inadequateꢀbecauseꢀofꢀchangesꢀinꢀconditions,ꢀorꢀtheꢀdegreeꢀofꢀcomplianceꢀwithꢀpoliciesꢀorꢀproceduresꢀmayꢀdeteriorate.ꢀManagement
assessedꢀtheꢀeffectivenessꢀofꢀinternalꢀcontrolꢀoverꢀfinancialꢀreportingꢀasꢀofꢀDecemberꢀ31,ꢀ2018,ꢀutilizingꢀtheꢀcriteriaꢀdescribedꢀin
theꢀ“InternalꢀControlꢀ-ꢀIntegratedꢀFrameworkꢀ(2013)”ꢀissuedꢀbyꢀtheꢀCommitteeꢀofꢀSponsoringꢀOrganizationsꢀofꢀtheꢀTreadway
Commission.ꢀManagement’sꢀassessmentꢀincludedꢀevaluationꢀofꢀelementsꢀsuchꢀasꢀtheꢀdesignꢀandꢀoperatingꢀeffectivenessꢀofꢀkey
financialꢀ reportingꢀ controls,ꢀ processꢀ documentation,ꢀ accountingꢀ policies,ꢀ andꢀ ourꢀ overallꢀ controlꢀ environment.ꢀBasedꢀ onꢀ this
assessment,ꢀmanagementꢀhasꢀconcludedꢀthatꢀourꢀinternalꢀcontrolꢀoverꢀfinancialꢀreportingꢀwasꢀeffectiveꢀatꢀaꢀreasonableꢀassurance
levelꢀasꢀofꢀDecemberꢀ31,ꢀ2018.
Ourꢀindependentꢀregisteredꢀpublicꢀaccountingꢀfirm,ꢀBDOꢀUSA,ꢀLLP,ꢀindependentlyꢀassessedꢀtheꢀeffectivenessꢀofꢀtheꢀCompany’s
internalꢀcontrolꢀoverꢀfinancialꢀreporting,ꢀasꢀstatedꢀinꢀtheꢀfirm’sꢀattestationꢀreport,ꢀwhichꢀisꢀincludedꢀwithinꢀPartꢀII,ꢀItemꢀ8ꢀofꢀthis
Formꢀ10-K.
Changes in Internal Control over Financial Reporting
Thereꢀ wasꢀ noꢀ changeꢀ toꢀ ourꢀ internalꢀ controlꢀ overꢀ financialꢀ reportingꢀ (asꢀ definedꢀ inꢀ Rulesꢀ13a‑15(f)ꢀ andꢀ 15d‑15(f)ꢀ underꢀ the
ExchangeꢀAct)ꢀthatꢀoccurredꢀduringꢀtheꢀfourthꢀquarterꢀendedꢀDecemberꢀ31,ꢀ2018ꢀthatꢀhasꢀmateriallyꢀaffected,ꢀorꢀisꢀreasonably
likelyꢀtoꢀmateriallyꢀaffect,ꢀourꢀinternalꢀcontrolꢀoverꢀfinancialꢀreporting.ꢀ
Item 9B. Other Information.
None.
92
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ShareholdersꢀandꢀBoardꢀofꢀDirectors
EveriꢀHoldingsꢀInc.ꢀandꢀsubsidiaries
LasꢀVegas,ꢀNevada
Opinion on Internal Control over Financial Reporting
WeꢀhaveꢀauditedꢀEveriꢀHoldingsꢀInc.ꢀandꢀsubsidiaries’ꢀ(theꢀ“Company’s”)ꢀinternalꢀcontrolꢀoverꢀfinancialꢀreportingꢀasꢀofꢀDecember
31,ꢀ2018,ꢀbasedꢀonꢀcriteriaꢀestablishedꢀinꢀInternal Control - Integrated Framework (2013)ꢀissuedꢀbyꢀtheꢀCommitteeꢀofꢀSponsoring
Organizationsꢀ ofꢀ theꢀTreadwayꢀ Commissionꢀ (theꢀ “COSOꢀ criteria”).ꢀ Inꢀ ourꢀ opinion,ꢀ theꢀ Companyꢀ maintained,ꢀ inꢀ allꢀ material
respects,ꢀeffectiveꢀinternalꢀcontrolꢀoverꢀfinancialꢀreportingꢀasꢀofꢀDecemberꢀ31,ꢀ2018,ꢀbasedꢀonꢀtheꢀCOSOꢀcriteria.
Weꢀalsoꢀhaveꢀaudited,ꢀinꢀaccordanceꢀwithꢀtheꢀstandardsꢀofꢀtheꢀPublicꢀCompanyꢀAccountingꢀOversightꢀBoardꢀ(UnitedꢀStates)
(“PCAOB”),ꢀtheꢀconsolidatedꢀbalanceꢀsheetsꢀofꢀtheꢀCompanyꢀandꢀsubsidiariesꢀasꢀofꢀDecemberꢀ31,ꢀ2018ꢀandꢀ2017,ꢀtheꢀrelated
consolidatedꢀstatementsꢀofꢀincomeꢀ(loss)ꢀandꢀcomprehensiveꢀincomeꢀ(loss),ꢀstockholders’ꢀdeficit,ꢀandꢀcashꢀflowsꢀforꢀeachꢀofꢀthe
threeꢀyearsꢀinꢀtheꢀperiodꢀendedꢀDecemberꢀ31,ꢀ2018,ꢀandꢀtheꢀrelatedꢀnotesꢀandꢀourꢀreportꢀdatedꢀMarchꢀ12,ꢀ2019ꢀexpressedꢀan
unqualifiedꢀopinionꢀthereon.
Basis for Opinion
TheꢀCompany’sꢀmanagementꢀisꢀresponsibleꢀforꢀmaintainingꢀeffectiveꢀinternalꢀcontrolꢀoverꢀfinancialꢀreportingꢀandꢀforꢀitsꢀassessment
ofꢀtheꢀeffectivenessꢀofꢀinternalꢀcontrolꢀoverꢀfinancialꢀreporting,ꢀincludedꢀinꢀtheꢀaccompanyingꢀItemꢀ9A,ꢀManagement’sꢀReportꢀon
InternalꢀControlꢀoverꢀFinancialꢀReporting.ꢀOurꢀresponsibilityꢀisꢀtoꢀexpressꢀanꢀopinionꢀonꢀtheꢀCompany’sꢀinternalꢀcontrolꢀover
financialꢀreportingꢀbasedꢀonꢀourꢀaudit.ꢀWeꢀareꢀaꢀpublicꢀaccountingꢀfirmꢀregisteredꢀwithꢀtheꢀPCAOBꢀandꢀareꢀrequiredꢀtoꢀbeꢀindependent
withꢀrespectꢀtoꢀtheꢀCompanyꢀinꢀaccordanceꢀwithꢀU.S.ꢀfederalꢀsecuritiesꢀlawsꢀandꢀtheꢀapplicableꢀrulesꢀandꢀregulationsꢀofꢀtheꢀSecurities
andꢀExchangeꢀCommissionꢀandꢀtheꢀPCAOB.
WeꢀconductedꢀourꢀauditꢀofꢀinternalꢀcontrolꢀoverꢀfinancialꢀreportingꢀinꢀaccordanceꢀwithꢀtheꢀstandardsꢀofꢀtheꢀPCAOB.ꢀThoseꢀstandards
requireꢀthatꢀweꢀplanꢀandꢀperformꢀtheꢀauditꢀtoꢀobtainꢀreasonableꢀassuranceꢀaboutꢀwhetherꢀeffectiveꢀinternalꢀcontrolꢀoverꢀfinancial
reportingꢀwasꢀmaintainedꢀinꢀallꢀmaterialꢀrespects.ꢀOurꢀauditꢀincludedꢀobtainingꢀanꢀunderstandingꢀofꢀinternalꢀcontrolꢀoverꢀfinancial
reporting,ꢀassessingꢀtheꢀriskꢀthatꢀaꢀmaterialꢀweaknessꢀexists,ꢀandꢀtestingꢀandꢀevaluatingꢀtheꢀdesignꢀandꢀoperatingꢀeffectivenessꢀof
internalꢀcontrolꢀbasedꢀonꢀtheꢀassessedꢀrisk.ꢀOurꢀauditꢀalsoꢀincludedꢀperformingꢀsuchꢀotherꢀproceduresꢀasꢀweꢀconsideredꢀnecessary
inꢀtheꢀcircumstances.ꢀWeꢀbelieveꢀthatꢀourꢀauditꢀprovidesꢀaꢀreasonableꢀbasisꢀforꢀourꢀopinion.
Definition and Limitations of Internal Control over Financial Reporting
Aꢀcompany’sꢀinternalꢀcontrolꢀoverꢀfinancialꢀreportingꢀisꢀaꢀprocessꢀdesignedꢀtoꢀprovideꢀreasonableꢀassuranceꢀregardingꢀtheꢀreliability
ofꢀfinancialꢀreportingꢀandꢀtheꢀpreparationꢀofꢀfinancialꢀstatementsꢀforꢀexternalꢀpurposesꢀinꢀaccordanceꢀwithꢀgenerallyꢀaccepted
accountingꢀprinciples.ꢀAꢀcompany’sꢀinternalꢀcontrolꢀoverꢀfinancialꢀreportingꢀincludesꢀthoseꢀpoliciesꢀandꢀproceduresꢀthatꢀ(1)ꢀpertain
toꢀtheꢀmaintenanceꢀofꢀrecordsꢀthat,ꢀinꢀreasonableꢀdetail,ꢀaccuratelyꢀandꢀfairlyꢀreflectꢀtheꢀtransactionsꢀandꢀdispositionsꢀofꢀtheꢀassets
ofꢀtheꢀcompany;ꢀ(2)ꢀprovideꢀreasonableꢀassuranceꢀthatꢀtransactionsꢀareꢀrecordedꢀasꢀnecessaryꢀtoꢀpermitꢀpreparationꢀofꢀfinancial
statementsꢀinꢀaccordanceꢀwithꢀgenerallyꢀacceptedꢀaccountingꢀprinciples,ꢀandꢀthatꢀreceiptsꢀandꢀexpendituresꢀofꢀtheꢀcompanyꢀare
beingꢀmadeꢀonlyꢀinꢀaccordanceꢀwithꢀauthorizationsꢀofꢀmanagementꢀandꢀdirectorsꢀofꢀtheꢀcompany;ꢀandꢀ(3)ꢀprovideꢀreasonable
assuranceꢀregardingꢀpreventionꢀorꢀtimelyꢀdetectionꢀofꢀunauthorizedꢀacquisition,ꢀuse,ꢀorꢀdispositionꢀofꢀtheꢀcompany’sꢀassetsꢀthat
couldꢀhaveꢀaꢀmaterialꢀeffectꢀonꢀtheꢀfinancialꢀstatements.
Becauseꢀ ofꢀ itsꢀ inherentꢀ limitations,ꢀ internalꢀ controlꢀ overꢀ financialꢀ reportingꢀ mayꢀ notꢀ preventꢀ orꢀ detectꢀ misstatements.ꢀAlso,
projectionsꢀofꢀanyꢀevaluationꢀofꢀeffectivenessꢀtoꢀfutureꢀperiodsꢀareꢀsubjectꢀtoꢀtheꢀriskꢀthatꢀcontrolsꢀmayꢀbecomeꢀinadequateꢀbecause
ofꢀchangesꢀinꢀconditions,ꢀorꢀthatꢀtheꢀdegreeꢀofꢀcomplianceꢀwithꢀtheꢀpoliciesꢀorꢀproceduresꢀmayꢀdeteriorate.ꢀ
/s/ꢀBDOꢀUSA,ꢀLLPꢀ
LasꢀVegas,ꢀNevadaꢀ
Marchꢀ12,ꢀ2019
93
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Theꢀinformationꢀregardingꢀourꢀdirectors,ꢀexecutiveꢀofficers,ꢀandꢀcertainꢀcorporateꢀgovernanceꢀrelatedꢀmattersꢀcontainedꢀunderꢀthe
headingsꢀ“ElectionꢀofꢀDirectors,”ꢀ“ExecutiveꢀOfficers,”ꢀ“Sectionꢀ16(a)ꢀBeneficialꢀOwnershipꢀReportingꢀCompliance,”ꢀandꢀ“Board
andꢀCorporateꢀGovernanceꢀMatters”ꢀinꢀtheꢀCompany’sꢀdefinitiveꢀproxyꢀstatementꢀtoꢀbeꢀfiledꢀwithꢀtheꢀSECꢀinꢀconnectionꢀwithꢀour
2019ꢀannualꢀmeetingꢀofꢀstockholdersꢀ(theꢀ“2019ꢀProxyꢀStatement”)ꢀisꢀincorporatedꢀhereinꢀbyꢀreference.
Item 11. Executive Compensation.
Theꢀinformationꢀregardingꢀdirectorꢀcompensationꢀandꢀexecutiveꢀofficerꢀcompensationꢀcontainedꢀunderꢀtheꢀheadingsꢀ“Boardꢀand
CorporateꢀGovernanceꢀMattersꢀ–ꢀ2018ꢀDirectorꢀCompensation”ꢀandꢀ“ExecutiveꢀCompensation,”ꢀrespectively,ꢀinꢀtheꢀ2019ꢀProxy
Statementꢀisꢀincorporatedꢀhereinꢀbyꢀreference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Theꢀinformationꢀregardingꢀshareꢀownershipꢀcontainedꢀunderꢀtheꢀheadingꢀ“SecurityꢀOwnershipꢀofꢀCertainꢀBeneficialꢀOwnersꢀand
Management”ꢀinꢀtheꢀ2019ꢀProxyꢀStatementꢀisꢀincorporatedꢀhereinꢀbyꢀreference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Theꢀ informationꢀ regardingꢀ directorꢀ independenceꢀ andꢀ relatedꢀ partyꢀ transactionsꢀ underꢀ theꢀ headingsꢀ “Boardꢀ andꢀ Corporate
GovernanceꢀMattersꢀ–ꢀDirectorꢀIndependence”ꢀandꢀ“TransactionsꢀwithꢀRelatedꢀPersons,”ꢀrespectively,ꢀinꢀtheꢀ2019ꢀProxyꢀStatement
isꢀincorporatedꢀhereinꢀbyꢀreference.ꢀꢀ
Item 14. Principal Accountant Fees and Services.
Theꢀinformationꢀregardingꢀauditꢀfees,ꢀaudit-relatedꢀfees,ꢀtaxꢀfees,ꢀallꢀotherꢀfees,ꢀandꢀtheꢀAuditꢀCommittee’sꢀpoliciesꢀandꢀprocedures
onꢀpre-approvalꢀofꢀauditꢀandꢀpermissibleꢀnon-auditꢀservicesꢀofꢀindependentꢀauditorsꢀcontainedꢀunderꢀtheꢀheadingꢀ“Ratificationꢀof
theꢀAppointmentꢀofꢀIndependentꢀRegisteredꢀPublicꢀAccountingꢀFirm”ꢀinꢀtheꢀ2019ꢀProxyꢀStatementꢀisꢀincorporatedꢀhereinꢀby
reference.ꢀꢀ
94
Item 15. Exhibits and Financial Statement Schedules.
PART IV
(a) TheꢀfollowingꢀdocumentsꢀareꢀfiledꢀasꢀpartꢀofꢀthisꢀAnnualꢀReportꢀonꢀFormꢀ10‑K:
1.ꢀFinancialꢀStatements
ꢀ
ꢀ
ReportꢀofꢀBDOꢀUSA,ꢀLLP,ꢀIndependentꢀRegisteredꢀPublicꢀAccountingꢀFirm
ConsolidatedꢀStatementsꢀofꢀIncomeꢀ(Loss)ꢀandꢀComprehensiveꢀIncomeꢀ(Loss)ꢀforꢀtheꢀthreeꢀyearsꢀendedꢀDecemberꢀ31,
2018
ConsolidatedꢀBalanceꢀSheetsꢀasꢀofꢀDecemberꢀ31,ꢀ2018ꢀandꢀ2017ꢀ
ConsolidatedꢀStatementsꢀofꢀCashꢀFlowsꢀforꢀtheꢀthreeꢀyearsꢀendedꢀDecemberꢀ31,ꢀ2018
ConsolidatedꢀStatementsꢀofꢀStockholders’ꢀ(Deficit)ꢀEquityꢀforꢀtheꢀthreeꢀyearsꢀendedꢀDecemberꢀ31,ꢀ2018
NotesꢀtoꢀConsolidatedꢀFinancialꢀStatements
48
49
51
52
54
55
2.ꢀFinancialꢀStatementꢀSchedules
Allꢀschedulesꢀhaveꢀbeenꢀomittedꢀasꢀtheyꢀareꢀeitherꢀnotꢀrequiredꢀorꢀnotꢀapplicableꢀorꢀtheꢀrequiredꢀinformationꢀisꢀincludedꢀinꢀthe
ConsolidatedꢀFinancialꢀStatementsꢀorꢀnotesꢀthereto.
3.ꢀSeeꢀItemꢀ15(b)
(b)ꢀExhibits:
Exhibit
Number
Exhibit Description
3.1
3.2
3.3
3.4
4.1
10.1
10.2
10.3
AmendedꢀandꢀRestatedꢀCertificateꢀofꢀIncorporationꢀofꢀHoldingsꢀ(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ3.1ꢀof
AmendmentꢀNo.1ꢀHoldings’ꢀRegistrationꢀStatementꢀonꢀFormꢀS-1ꢀ(RegistrationꢀNo.ꢀ333-123514)ꢀfiledꢀwith
theꢀSECꢀonꢀMayꢀ26,ꢀ2005).
CertificateꢀofꢀAmendmentꢀofꢀAmendedꢀandꢀRestatedꢀCertificateꢀofꢀIncorporationꢀofꢀHoldingsꢀ(incorporated
byꢀreferenceꢀtoꢀExhibitꢀ3.1ꢀofꢀHoldings’ꢀCurrentꢀReportꢀonꢀFormꢀ8-KꢀfiledꢀwithꢀtheꢀSECꢀonꢀAprilꢀ30,ꢀ2009).
CertificateꢀofꢀAmendmentꢀofꢀAmendedꢀandꢀRestatedꢀCertificateꢀofꢀIncorporationꢀofꢀHoldingsꢀ(incorporated
byꢀreferenceꢀtoꢀExhibitꢀ3.1ꢀofꢀHoldings’ꢀCurrentꢀReportꢀonꢀFormꢀ8-KꢀfiledꢀwithꢀtheꢀSECꢀonꢀAugustꢀ14,
2015).
SecondꢀAmendedꢀandꢀRestatedꢀBylawsꢀofꢀHoldingsꢀ(effectiveꢀasꢀofꢀAugustꢀ24,ꢀ2015)ꢀ(incorporatedꢀby
referenceꢀtoꢀExhibitꢀ3.2ꢀofꢀHoldings’ꢀCurrentꢀReportꢀonꢀFormꢀ8-KꢀfiledꢀwithꢀtheꢀSECꢀonꢀAugustꢀ14,ꢀ2015).
Indentureꢀ(andꢀFormꢀofꢀ7.50%ꢀSeniorꢀNoteꢀdueꢀ2025ꢀattachedꢀasꢀExhibitꢀAꢀthereto),ꢀdatedꢀasꢀofꢀDecember
5,ꢀ2017,ꢀbyꢀandꢀamongꢀEveriꢀPayments,ꢀEveriꢀHoldings,ꢀcertainꢀofꢀitsꢀwhollyꢀownedꢀsubsidiaries,ꢀas
guarantors,ꢀandꢀDeutscheꢀBankꢀTrustꢀCompanyꢀAmericas,ꢀasꢀtrusteeꢀ(incorporatedꢀbyꢀreferenceꢀtoꢀExhibit
4.1ꢀofꢀHoldings’ꢀCurrentꢀReportꢀonꢀFormꢀ8-KꢀfiledꢀwithꢀtheꢀSECꢀonꢀDecemberꢀ5,ꢀ2017).
CreditꢀAgreement,ꢀdatedꢀasꢀofꢀMayꢀ9,ꢀ2017,ꢀamongꢀEveriꢀPayments,ꢀHoldings,ꢀtheꢀlendersꢀpartyꢀtheretoꢀand
JefferiesꢀFinanceꢀLLC,ꢀasꢀadministrativeꢀagent,ꢀcollateralꢀagent,ꢀswingꢀlineꢀlender,ꢀletterꢀofꢀcreditꢀissuer,
soleꢀleadꢀarrangerꢀandꢀsoleꢀbookꢀmanagerꢀ(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.1ꢀofꢀHoldings’ꢀCurrent
ReportꢀonꢀFormꢀ8-KꢀfiledꢀwithꢀtheꢀSECꢀonꢀMayꢀ9,ꢀ2017).
SecurityꢀAgreement,ꢀdatedꢀasꢀofꢀMayꢀ9,ꢀ2017,ꢀamongꢀEveriꢀPayments,ꢀHoldings,ꢀasꢀaꢀguarantor,ꢀthe
subsidiaryꢀguarantorsꢀpartyꢀthereto,ꢀandꢀJefferiesꢀFinanceꢀLLC,ꢀasꢀcollateralꢀagent,ꢀrelatedꢀtoꢀtheꢀCredit
Agreementꢀ(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.2ꢀofꢀHoldings’ꢀCurrentꢀReportꢀonꢀFormꢀ8-Kꢀfiledꢀwith
theꢀSECꢀonꢀMayꢀ9,ꢀ2017).
Guaranty,ꢀdatedꢀMayꢀ9,ꢀ2017,ꢀbyꢀEveriꢀHoldings,ꢀasꢀaꢀguarantor,ꢀandꢀtheꢀsubsidiaryꢀguarantorsꢀpartyꢀthereto,
inꢀfavorꢀofꢀtheꢀlendersꢀpartyꢀfromꢀtimeꢀtoꢀtimeꢀtoꢀtheꢀCreditꢀAgreementꢀandꢀJefferiesꢀFinanceꢀLLC,ꢀas
administrativeꢀagentꢀ(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.3ꢀofꢀHoldings’ꢀCurrentꢀReportꢀonꢀFormꢀ8-K
filedꢀwithꢀtheꢀSECꢀonꢀMayꢀ9,ꢀ2017).
95
Exhibit
Number
10.4
10.5
10.6
†10.7
†10.8
†10.9
†10.10
†10.11
†10.12
†10.13
†10.14
†10.15
†10.16
†10.17
†10.18
†10.19
†10.20
†10.21
†10.22
Exhibit Description
FirstꢀAmendmentꢀtoꢀCreditꢀAgreement,ꢀdatedꢀNovemberꢀ13,ꢀ2017,ꢀamongꢀEveriꢀPayments,ꢀHoldings,ꢀthe
subsidiaryꢀguarantorsꢀpartyꢀthereto,ꢀtheꢀlendersꢀpartyꢀtheretoꢀandꢀJefferiesꢀFinanceꢀLLC,ꢀasꢀadministrative
agentꢀ(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.1ꢀofꢀHoldings’ꢀCurrentꢀReportꢀonꢀFormꢀ8-Kꢀfiledꢀwithꢀthe
SECꢀonꢀNovemberꢀ13,ꢀ2017).
AgreementꢀforꢀProcessingꢀServices,ꢀdatedꢀasꢀofꢀAugustꢀ20,ꢀ2013,ꢀbyꢀandꢀbetweenꢀColumbusꢀDataꢀServices,
LLCꢀandꢀEveriꢀPaymentsꢀ(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.10ꢀofꢀHoldings’ꢀAnnualꢀReportꢀonꢀForm
10-KꢀfiledꢀwithꢀtheꢀSECꢀonꢀMarchꢀ15,ꢀ2016).
SponsorshipꢀAgreement,ꢀdatedꢀFebruaryꢀ11,ꢀ2011,ꢀbetweenꢀEveriꢀPaymentsꢀandꢀAmericanꢀStateꢀBank
(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.54ꢀofꢀHoldings’ꢀAnnualꢀReportꢀonꢀFormꢀ10-KꢀfiledꢀwithꢀtheꢀSEC
onꢀMarchꢀ14,ꢀ2011).
Holdingsꢀ2005ꢀStockꢀIncentiveꢀPlanꢀ(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.25ꢀofꢀtheꢀAnnualꢀReportꢀon
Formꢀ10-KꢀofꢀEveriꢀPaymentsꢀfiledꢀwithꢀtheꢀSECꢀonꢀMarchꢀ10,ꢀ2005).
FormꢀofꢀStockꢀOptionꢀAwardꢀforꢀPerformanceꢀPriceꢀVestingꢀunderꢀtheꢀ2005ꢀStockꢀIncentiveꢀPlan
(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.1ꢀtoꢀHoldings’ꢀQuarterlyꢀReportꢀonꢀFormꢀ10-QꢀfiledꢀwithꢀtheꢀSEC
onꢀAugustꢀ5,ꢀ2014).
FormꢀofꢀStockꢀOptionꢀAwardꢀforꢀCliffꢀVestingꢀunderꢀtheꢀ2005ꢀStockꢀIncentiveꢀPlanꢀ(incorporatedꢀby
referenceꢀtoꢀExhibitꢀ10.2ꢀtoꢀHoldings’ꢀQuarterlyꢀReportꢀonꢀFormꢀ10-QꢀfiledꢀwithꢀtheꢀSECꢀonꢀAugustꢀ5,
2014).
FormꢀofꢀStockꢀOptionꢀAwardꢀforꢀNon-EmployeeꢀDirectorsꢀunderꢀtheꢀ2005ꢀStockꢀIncentiveꢀPlan
(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.3ꢀtoꢀHoldings’ꢀQuarterlyꢀReportꢀonꢀFormꢀ10-QꢀfiledꢀwithꢀtheꢀSEC
onꢀAugustꢀ5,ꢀ2014).
FormꢀofꢀStockꢀOptionꢀAwardꢀforꢀExecutivesꢀunderꢀtheꢀ2005ꢀStockꢀIncentiveꢀPlanꢀ(incorporatedꢀbyꢀreference
toꢀExhibitꢀ10.4ꢀtoꢀHoldings’ꢀQuarterlyꢀReportꢀonꢀFormꢀ10-QꢀfiledꢀwithꢀtheꢀSECꢀonꢀAugustꢀ5,ꢀ2014).
FormꢀofꢀStockꢀOptionꢀAwardꢀforꢀEmployeesꢀunderꢀtheꢀ2005ꢀStockꢀIncentiveꢀPlanꢀ(incorporatedꢀbyꢀreference
toꢀExhibitꢀ10.5ꢀtoꢀHoldings’ꢀQuarterlyꢀReportꢀonꢀFormꢀ10-QꢀfiledꢀwithꢀtheꢀSECꢀonꢀAugustꢀ5,ꢀ2014).
HoldingsꢀAmendedꢀandꢀRestatedꢀ2014ꢀEquityꢀIncentiveꢀPlanꢀ(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.1ꢀto
Holdings’ꢀCurrentꢀReportꢀonꢀFormꢀ8-KꢀfiledꢀwithꢀtheꢀSECꢀonꢀMayꢀ25,ꢀ2018).
FormꢀofꢀStockꢀOptionꢀAgreementꢀunderꢀtheꢀAmendedꢀandꢀRestatedꢀ2014ꢀEquityꢀIncentiveꢀPlan
(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.7ꢀtoꢀHoldings’ꢀCurrentꢀReportꢀonꢀFormꢀ8-KꢀfiledꢀwithꢀtheꢀSECꢀon
Mayꢀ10,ꢀ2016).
FormꢀofꢀStockꢀOptionꢀAwardꢀ(Performance-Based)ꢀ(Double-TriggerꢀAcceleration)ꢀforꢀNon-Employee
DirectorsꢀunderꢀtheꢀAmendedꢀandꢀRestatedꢀ2014ꢀEquityꢀIncentiveꢀPlanꢀ(incorporatedꢀbyꢀreferenceꢀto
Exhibitꢀ10.2ꢀtoꢀHoldings’ꢀCurrentꢀReportꢀonꢀFormꢀ8-KꢀfiledꢀwithꢀtheꢀSECꢀonꢀMayꢀ10,ꢀ2016).
FormꢀofꢀStockꢀOptionꢀAwardꢀ(Performance-Based)ꢀ(Double-TriggerꢀAcceleration)ꢀforꢀExecutivesꢀunderꢀthe
AmendedꢀandꢀRestatedꢀ2014ꢀEquityꢀIncentiveꢀPlanꢀ(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.3ꢀtoꢀHoldings’
CurrentꢀReportꢀonꢀFormꢀ8-KꢀfiledꢀwithꢀtheꢀSECꢀonꢀMayꢀ10,ꢀ2016).
FormꢀofꢀStockꢀOptionꢀAwardꢀ(Time-Based)ꢀ(Double-TriggerꢀAcceleration)ꢀforꢀNon-EmployeeꢀDirectors
underꢀtheꢀAmendedꢀandꢀRestatedꢀ2014ꢀEquityꢀIncentiveꢀPlanꢀ(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.4ꢀto
Holdings’ꢀCurrentꢀReportꢀonꢀFormꢀ8-KꢀfiledꢀwithꢀtheꢀSECꢀonꢀMayꢀ10,ꢀ2016).
FormꢀofꢀStockꢀOptionꢀAwardꢀ(Time-Based)ꢀ(Double-TriggerꢀAcceleration)ꢀforꢀExecutivesꢀunderꢀthe
AmendedꢀandꢀRestatedꢀ2014ꢀEquityꢀIncentiveꢀPlanꢀ(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.5ꢀtoꢀHoldings’
CurrentꢀReportꢀonꢀFormꢀ8-KꢀfiledꢀwithꢀtheꢀSECꢀonꢀMayꢀ10,ꢀ2016).
FormꢀofꢀStockꢀOptionꢀAwardꢀ(Time-Based)ꢀ(Double-TriggerꢀAcceleration)ꢀforꢀEmployeesꢀunderꢀthe
AmendedꢀandꢀRestatedꢀ2014ꢀEquityꢀIncentiveꢀPlanꢀ(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.6ꢀtoꢀHoldings’
CurrentꢀReportꢀonꢀFormꢀ8-KꢀfiledꢀwithꢀtheꢀSECꢀonꢀMayꢀ10,ꢀ2016).
Holdingsꢀ2012ꢀEquityꢀIncentiveꢀPlanꢀ(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ99.1ꢀtoꢀHoldings’ꢀCurrentꢀReport
onꢀFormꢀS-8ꢀfiledꢀwithꢀtheꢀSECꢀonꢀMarchꢀ16,ꢀ2015).
AmendmentꢀtoꢀtheꢀHoldingsꢀ2012ꢀEquityꢀIncentiveꢀPlanꢀ(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ99.2ꢀto
Holdings’ꢀCurrentꢀReportꢀonꢀFormꢀS-8ꢀfiledꢀwithꢀtheꢀSECꢀonꢀMarchꢀ16,ꢀ2015).
FormꢀofꢀStockꢀOptionꢀAgreementꢀunderꢀtheꢀ2012ꢀEquityꢀIncentiveꢀPlanꢀ(incorporatedꢀbyꢀreferenceꢀto
Exhibitꢀ10.13ꢀtoꢀHoldings’ꢀCurrentꢀReportꢀonꢀFormꢀ8-KꢀfiledꢀwithꢀtheꢀSECꢀonꢀMayꢀ10,ꢀ2016).
96
Exhibit
Number
†10.23
†10.24
†10.25
†10.26
†10.27
†10.28
†10.29
†10.30
†10.31
†10.32
†10.33
†10.34
†10.35
†10.36
†10.37
10.38
10.39
†*10.40
†*10.41
Exhibit Description
FormꢀofꢀStockꢀOptionꢀAwardꢀ(Performance-Based)ꢀ(Double-TriggerꢀAcceleration)ꢀforꢀNon-Employee
Directorsꢀunderꢀtheꢀ2012ꢀEquityꢀIncentiveꢀPlanꢀ(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.8ꢀtoꢀHoldings’
CurrentꢀReportꢀonꢀFormꢀ8-KꢀfiledꢀwithꢀtheꢀSECꢀonꢀMayꢀ10,ꢀ2016).
FormꢀofꢀStockꢀOptionꢀAwardꢀ(Performance-Based)ꢀ(Double-TriggerꢀAcceleration)ꢀforꢀExecutivesꢀunderꢀthe
2012ꢀEquityꢀIncentiveꢀPlanꢀ(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.9ꢀtoꢀHoldings’ꢀCurrentꢀReportꢀon
Formꢀ8-KꢀfiledꢀwithꢀtheꢀSECꢀonꢀMayꢀ10,ꢀ2016).
FormꢀofꢀStockꢀOptionꢀAwardꢀ(Time-Based)ꢀ(Double-TriggerꢀAcceleration)ꢀforꢀNon-EmployeeꢀDirectors
underꢀtheꢀ2012ꢀEquityꢀIncentiveꢀPlanꢀ(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.10ꢀtoꢀHoldings’ꢀCurrent
ReportꢀonꢀFormꢀ8-KꢀfiledꢀwithꢀtheꢀSECꢀonꢀMayꢀ10,ꢀ2016).
FormꢀofꢀStockꢀOptionꢀAwardꢀ(Time-Based)ꢀ(Double-TriggerꢀAcceleration)ꢀforꢀExecutivesꢀunderꢀtheꢀ2012
EquityꢀIncentiveꢀPlanꢀ(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.11ꢀtoꢀHoldings’ꢀCurrentꢀReportꢀonꢀFormꢀ8-K
filedꢀwithꢀtheꢀSECꢀonꢀMayꢀ10,ꢀ2016).
FormꢀofꢀStockꢀOptionꢀAwardꢀ(Time-Based)ꢀ(Double-TriggerꢀAcceleration)ꢀforꢀEmployeesꢀunderꢀtheꢀ2012
EquityꢀIncentiveꢀPlanꢀ(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.12ꢀtoꢀHoldings’ꢀCurrentꢀReportꢀonꢀFormꢀ8-K
filedꢀwithꢀtheꢀSECꢀonꢀMayꢀ10,ꢀ2016).
FormꢀofꢀIndemnificationꢀAgreementꢀbetweenꢀHoldingsꢀandꢀeachꢀofꢀitsꢀexecutiveꢀofficersꢀandꢀdirectors
(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.27ꢀtoꢀHoldings’ꢀRegistrationꢀStatementꢀonꢀFormꢀS-1ꢀ(Registration
No.ꢀ333-123514)ꢀfiledꢀwithꢀtheꢀSECꢀonꢀMarchꢀ22,ꢀ2005).
EmploymentꢀAgreementꢀwithꢀRandyꢀL.ꢀTaylorꢀ(effectiveꢀasꢀofꢀAugustꢀ5,ꢀ2014)ꢀ(incorporatedꢀbyꢀreference
toꢀExhibitꢀ10.1ꢀofꢀHoldings’ꢀCurrentꢀReportꢀonꢀFormꢀ8-KꢀfiledꢀwithꢀtheꢀSECꢀonꢀAugustꢀ5,ꢀ2014).
EmploymentꢀAgreementꢀwithꢀJulietꢀA.ꢀLimꢀ(effectiveꢀasꢀofꢀAugustꢀ5,ꢀ2014)ꢀ(incorporatedꢀbyꢀreferenceꢀto
Exhibitꢀ10.34ꢀofꢀHoldings’ꢀAnnualꢀReportꢀonꢀFormꢀ10-KꢀfiledꢀwithꢀtheꢀSECꢀonꢀMarchꢀ16,ꢀ2015).
FirstꢀAmendmentꢀtoꢀEmploymentꢀAgreementꢀwithꢀJulietꢀA.ꢀLimꢀ(effectiveꢀasꢀofꢀJanuaryꢀ3,ꢀ2017)
(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.45ꢀofꢀHoldings’ꢀAnnualꢀReportꢀonꢀFormꢀ10-KꢀfiledꢀwithꢀtheꢀSEC
onꢀMarchꢀ14,ꢀ2017).
EmploymentꢀAgreementꢀwithꢀDavidꢀLuccheseꢀ(effectiveꢀasꢀofꢀAugustꢀ5,ꢀ2014)ꢀ(incorporatedꢀbyꢀreferenceꢀto
Exhibitꢀ10.2ꢀofꢀHoldings’ꢀCurrentꢀReportꢀonꢀFormꢀ8-KꢀfiledꢀwithꢀtheꢀSECꢀonꢀAugustꢀ5,ꢀ2014).
FirstꢀAmendmentꢀtoꢀEmploymentꢀAgreementꢀwithꢀDavidꢀLuccheseꢀ(effectiveꢀasꢀofꢀJanuaryꢀ3,ꢀ2017)
(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.47ꢀofꢀHoldings’ꢀAnnualꢀReportꢀonꢀFormꢀ10-KꢀfiledꢀwithꢀtheꢀSEC
onꢀMarchꢀ14,ꢀ2017).
EmploymentꢀAgreementꢀwithꢀEdwardꢀA.ꢀPetersꢀ(effectiveꢀJanuaryꢀ15,ꢀ2015)ꢀ(incorporatedꢀbyꢀreferenceꢀto
Exhibitꢀ10.1ꢀofꢀHoldings’ꢀCurrentꢀReportꢀonꢀFormꢀ8-KꢀfiledꢀwithꢀtheꢀSECꢀonꢀJanuaryꢀ22,ꢀ2015).
AmendedꢀandꢀRestatedꢀEmploymentꢀAgreementꢀwithꢀMichaelꢀRumbolzꢀ(effectiveꢀMayꢀ5,ꢀ2017)
(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.4ꢀofꢀHoldings’ꢀCurrentꢀReportꢀonꢀFormꢀ8-KꢀfiledꢀwithꢀtheꢀSECꢀon
Mayꢀ9,ꢀ2017).
NoticeꢀofꢀGrantꢀofꢀStockꢀOptionꢀwithꢀMichaelꢀRumbolz,ꢀdatedꢀFebruaryꢀ13,ꢀ2016ꢀ(incorporatedꢀby
referenceꢀtoꢀExhibitꢀ10.1ꢀofꢀHoldings’ꢀCurrentꢀReportꢀonꢀFormꢀ8-KꢀfiledꢀwithꢀtheꢀSECꢀonꢀFebruaryꢀ16,
2016).
FormꢀofꢀNoticeꢀofꢀStockꢀOptionꢀAwardꢀandꢀStockꢀOptionꢀAwardꢀAgreementꢀforꢀMichaelꢀRumbolzꢀ(effective
Augustꢀ30,ꢀ2010)ꢀ(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.3ꢀofꢀHoldings’ꢀCurrentꢀReportꢀonꢀFormꢀ8-Kꢀfiled
withꢀtheꢀSECꢀonꢀSeptemberꢀ2,ꢀ2010).
TransitionꢀandꢀResignationꢀAgreementꢀandꢀGeneralꢀReleaseꢀofꢀAllꢀClaimsꢀwithꢀJulietꢀA.ꢀLimꢀdatedꢀOctober
25,ꢀ2017ꢀ(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.1ꢀofꢀHoldings’ꢀQuarterlyꢀReportꢀonꢀFormꢀ10-Qꢀfiledꢀwith
theꢀSECꢀonꢀNovemberꢀ7,ꢀ2017).
SecondꢀAmendmentꢀtoꢀCreditꢀAgreement,ꢀdatedꢀMayꢀ17,ꢀ2018,ꢀamongꢀEveriꢀPayments,ꢀHoldings,ꢀthe
subsidiaryꢀguarantorsꢀpartyꢀthereto,ꢀtheꢀlendersꢀpartyꢀtheretoꢀandꢀJefferiesꢀFinanceꢀLLC,ꢀasꢀadministrative
agentꢀ(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.1ꢀofꢀHoldings’ꢀCurrentꢀReportꢀonꢀFormꢀ8-Kꢀfiledꢀwithꢀthe
SECꢀonꢀMayꢀ17,ꢀ2018).
FirstꢀAmendmentꢀtoꢀAmendedꢀandꢀRestatedꢀEmploymentꢀAgreementꢀwithꢀMichaelꢀRumbolzꢀ(effective
Februaryꢀ1,ꢀ2019).ꢀ
NoticeꢀofꢀGrantꢀofꢀRestrictedꢀStockꢀUnitsꢀ(Time-Based)ꢀunderꢀtheꢀ2014ꢀEquityꢀIncentiveꢀPlanꢀforꢀMichael
Rumbolzꢀ(effectiveꢀFebruaryꢀ1,ꢀ2019).
97
Exhibit
Number
†10.42
†10.43
†10.44
†10.45
†10.46
†10.47
†10.48
†10.49
†10.50
*21.1
*23.1
*24.1
*31.1
*31.2
Exhibit Description
EmploymentꢀAgreementꢀwithꢀDeanꢀA.ꢀEhrlichꢀ(effectiveꢀJanuaryꢀ1,ꢀ2017)ꢀ(incorporatedꢀbyꢀreferenceꢀto
Exhibitꢀ10.1ꢀofꢀHoldings’ꢀQuarterlyꢀReportꢀonꢀFormꢀ10-QꢀfiledꢀwithꢀtheꢀSECꢀonꢀMayꢀ9,ꢀ2018).
FormꢀofꢀDeferredꢀRestrictedꢀStockꢀUnitsꢀAgreementꢀforꢀNon-EmployeeꢀDirectorsꢀunderꢀtheꢀ2012ꢀEquity
IncentiveꢀPlanꢀ(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.2ꢀtoꢀHoldings’ꢀQuarterlyꢀReportꢀonꢀFormꢀ10-Qꢀfiled
withꢀtheꢀSECꢀonꢀAugustꢀ7,ꢀ2018).
FormꢀofꢀNoticeꢀofꢀGrantꢀofꢀDeferredꢀRestrictedꢀStockꢀUnitsꢀforꢀtheꢀNon-EmployeeꢀDirectorsꢀunderꢀtheꢀ2012
EquityꢀIncentiveꢀPlanꢀ(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.3ꢀtoꢀHoldings’ꢀQuarterlyꢀReportꢀonꢀFormꢀ10-
QꢀfiledꢀwithꢀtheꢀSECꢀonꢀAugustꢀ7,ꢀ2018).
FormꢀofꢀDeferredꢀRestrictedꢀStockꢀUnitsꢀAgreementꢀforꢀNon-EmployeeꢀDirectorsꢀunderꢀtheꢀ2014ꢀEquity
IncentiveꢀPlanꢀ(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.4ꢀtoꢀHoldings’ꢀQuarterlyꢀReportꢀonꢀFormꢀ10-Qꢀfiled
withꢀtheꢀSECꢀonꢀAugustꢀ7,ꢀ2018).
FormꢀofꢀNoticeꢀofꢀGrantꢀofꢀDeferredꢀRestrictedꢀStockꢀUnitsꢀAgreementꢀforꢀNon-EmployeeꢀDirectorsꢀunder
theꢀ2014ꢀEquityꢀIncentiveꢀPlanꢀ(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.5ꢀtoꢀHoldings’ꢀQuarterlyꢀReportꢀon
Formꢀ10-QꢀfiledꢀwithꢀtheꢀSECꢀonꢀAugustꢀ7,ꢀ2018).
FormꢀofꢀRestrictedꢀStockꢀUnitsꢀAgreementꢀunderꢀtheꢀ2014ꢀEquityꢀIncentiveꢀPlanꢀ(incorporatedꢀbyꢀreference
toꢀExhibitꢀ10.6ꢀtoꢀHoldings’ꢀQuarterlyꢀReportꢀonꢀFormꢀ10-QꢀfiledꢀwithꢀtheꢀSECꢀonꢀAugustꢀ7,ꢀ2018).
FormꢀofꢀNoticeꢀofꢀGrantꢀofꢀRestrictedꢀStockꢀUnitsꢀ(Performance-Based)ꢀforꢀExecutivesꢀunderꢀtheꢀ2014
EquityꢀIncentiveꢀPlanꢀ(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.7ꢀtoꢀHoldings’ꢀQuarterlyꢀReportꢀonꢀFormꢀ10-
QꢀfiledꢀwithꢀtheꢀSECꢀonꢀAugustꢀ7,ꢀ2018).
FormꢀofꢀNoticeꢀofꢀGrantꢀofꢀRestrictedꢀStockꢀUnitsꢀ(Time-Based)ꢀunderꢀtheꢀ2014ꢀEquityꢀIncentiveꢀPlan
(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.8ꢀtoꢀHoldings’ꢀQuarterlyꢀReportꢀonꢀFormꢀ10-QꢀfiledꢀwithꢀtheꢀSEC
onꢀAugustꢀ7,ꢀ2018).
FormꢀofꢀNoticeꢀofꢀGrantꢀofꢀRestrictedꢀStockꢀUnitsꢀ(Time-Based)ꢀforꢀExecutivesꢀunderꢀtheꢀ2014ꢀEquity
IncentiveꢀPlanꢀ(incorporatedꢀbyꢀreferenceꢀtoꢀExhibitꢀ10.9ꢀtoꢀHoldings’ꢀQuarterlyꢀReportꢀonꢀFormꢀ10-Qꢀfiled
withꢀtheꢀSECꢀonꢀAugustꢀ7,ꢀ2018).
SubsidiariesꢀofꢀHoldings.
ConsentꢀofꢀBDOꢀUSA,ꢀLLP.
PowerꢀofꢀAttorneyꢀ(includedꢀonꢀsignatureꢀpage).
CertificationꢀofꢀChiefꢀExecutiveꢀOfficerꢀofꢀHoldingsꢀinꢀaccordanceꢀwithꢀRulesꢀ13a-14(a)ꢀandꢀ15d-14(a)ꢀof
theꢀSecuritiesꢀExchangeꢀAct,ꢀasꢀamended,ꢀasꢀadoptedꢀpursuantꢀtoꢀSectionꢀ302ꢀofꢀtheꢀSarbanes-OxleyꢀActꢀof
2002.
CertificationꢀofꢀChiefꢀFinancialꢀOfficerꢀofꢀHoldingsꢀinꢀaccordanceꢀwithꢀRulesꢀ13a-14(a)ꢀandꢀ15d-14(a)ꢀof
theꢀSecuritiesꢀExchangeꢀAct,ꢀasꢀamended,ꢀasꢀadoptedꢀpursuantꢀtoꢀSectionꢀ302ꢀofꢀtheꢀSarbanes-OxleyꢀActꢀof
2002.
**32.1
CertificationꢀofꢀtheꢀChiefꢀExecutiveꢀOfficerꢀandꢀChiefꢀFinancialꢀOfficerꢀofꢀHoldingsꢀinꢀaccordanceꢀwithꢀ18
U.S.C.ꢀ§1350,ꢀasꢀadoptedꢀpursuantꢀtoꢀSectionꢀ906ꢀofꢀtheꢀSarbanes-OxleyꢀActꢀofꢀ202.
*101.INS
XBRLꢀInstanceꢀDocument.
*101.SCH
XBRLꢀTaxonomyꢀExtensionꢀSchemaꢀDocument.
*101.CAL
XBRLꢀTaxonomyꢀExtensionꢀCalculationꢀLinkbaseꢀDocument.
*101.DEF
XBRLꢀTaxonomyꢀExtensionꢀDefinitionꢀLinkbaseꢀDocument.
*101.LAB
XBRLꢀTaxonomyꢀExtensionꢀLabelꢀLinkbaseꢀDocument.
*101.PRE
XBRLꢀTaxonomyꢀExtensionꢀPresentationꢀLinkbaseꢀDocument.
ꢀ
98
*
Filedꢀherewith.
** Furnishedꢀherewith.
† Managementꢀcontractsꢀorꢀcompensatoryꢀplansꢀorꢀarrangements.
+
ConfidentialꢀtreatmentꢀhasꢀbeenꢀgrantedꢀforꢀcertainꢀportionsꢀofꢀthisꢀexhibitꢀpursuantꢀtoꢀRuleꢀ24b-2ꢀofꢀtheꢀSecurities
ExchangeꢀActꢀofꢀ1934,ꢀasꢀamended.ꢀTheꢀconfidentialꢀinformationꢀhasꢀbeenꢀomittedꢀandꢀfiledꢀseparatelyꢀwithꢀtheꢀSEC.
Item 16. Form 10-K Summary.
None.
99
SIGNATURES
PursuantꢀtoꢀtheꢀrequirementsꢀofꢀSectionꢀ13ꢀorꢀ15(d)ꢀofꢀtheꢀSecuritiesꢀExchangeꢀActꢀofꢀ1934,ꢀtheꢀregistrantꢀhasꢀdulyꢀcausedꢀthis
reportꢀtoꢀbeꢀsignedꢀonꢀitsꢀbehalfꢀbyꢀtheꢀundersigned,ꢀthereuntoꢀdulyꢀauthorized.
ꢀ
Dated:ꢀMarchꢀ12,ꢀ2019
EVERI HOLDINGS INC.
By:
/s/ꢀTODDꢀA.ꢀVALLI
ToddꢀA.ꢀValli
Chief Accounting Officer (Principal
Accounting Officer)
ꢀ
POWER OF ATTORNEY
KNOWꢀALLꢀPERSONSꢀBYꢀTHESEꢀPRESENTS,ꢀthatꢀeachꢀpersonꢀwhoseꢀsignatureꢀappearsꢀbelowꢀconstitutesꢀandꢀappointsꢀMichael
D.ꢀRumbolz,ꢀRandyꢀL.ꢀTaylor,ꢀandꢀToddꢀA.ꢀValliꢀandꢀeachꢀofꢀthem,ꢀhisꢀattorneys‑in‑fact,ꢀeachꢀwithꢀtheꢀpowerꢀofꢀsubstitution,ꢀfor
himꢀinꢀanyꢀandꢀallꢀcapacities,ꢀtoꢀsignꢀanyꢀamendmentsꢀtoꢀthisꢀAnnualꢀReportꢀonꢀFormꢀ10‑Kꢀandꢀtoꢀfileꢀtheꢀsame,ꢀwithꢀexhibits
theretoꢀ andꢀ otherꢀ documentsꢀ inꢀ connectionꢀ therewith,ꢀ withꢀ theꢀ Securitiesꢀ andꢀ Exchangeꢀ Commission,ꢀ herebyꢀ ratifyingꢀ and
confirmingꢀallꢀthatꢀeachꢀofꢀsaidꢀattorneys‑in‑fact,ꢀorꢀhisꢀsubstituteꢀorꢀsubstitutes,ꢀmayꢀdoꢀorꢀcauseꢀtoꢀbeꢀdoneꢀbyꢀvirtueꢀhereof.
PursuantꢀtoꢀtheꢀrequirementsꢀofꢀtheꢀSecuritiesꢀExchangeꢀActꢀofꢀ1934,ꢀthisꢀreportꢀhasꢀbeenꢀsignedꢀbelowꢀbyꢀtheꢀfollowingꢀpersons
onꢀbehalfꢀofꢀtheꢀregistrantꢀandꢀinꢀtheꢀcapacitiesꢀandꢀonꢀtheꢀdateꢀindicated.
ꢀ
Signature
Title
Date
/s/ꢀMICHAELꢀD.ꢀRUMBOLZ
MichaelꢀD.ꢀRumbolz
PresidentꢀandꢀChiefꢀExecutiveꢀOfficer
(PrincipalꢀExecutiveꢀOfficer)ꢀandꢀDirector
/s/ꢀRANDYꢀL.ꢀTAYLOR
RandyꢀL.ꢀTaylor
ChiefꢀFinancialꢀOfficer
(PrincipalꢀFinancialꢀOfficer)
/s/ꢀTODDꢀA.ꢀVALLI
ToddꢀA.ꢀValli
ChiefꢀAccountingꢀOfficer
(PrincipalꢀAccountingꢀOfficer)
Marchꢀ12,ꢀ2019
Marchꢀ12,ꢀ2019
Marchꢀ12,ꢀ2019
/s/ꢀE.ꢀMILESꢀKILBURN
E.ꢀMilesꢀKilburn
/s/ꢀGEOFFREYꢀP.ꢀJUDGE
GeoffreyꢀP.ꢀJudge
/s/ꢀRONALDꢀV.ꢀCONGEMI
RonaldꢀV.ꢀCongemi
/s/ꢀEILEENꢀF.ꢀRANEY
EileenꢀF.ꢀRaney
/s/ꢀLINSTERꢀW.ꢀFOX
LinsterꢀW.ꢀFox
/s/ꢀMAUREENꢀT.ꢀMULLARKEY
MaureenꢀT.ꢀMullarkey
ꢀ
ChairmanꢀofꢀtheꢀBoardꢀandꢀDirector
Marchꢀ12,ꢀ2019
Marchꢀ12,ꢀ2019
Marchꢀ12,ꢀ2019
Marchꢀ12,ꢀ2019
Marchꢀ12,ꢀ2019
Marchꢀ12,ꢀ2019
Director
Director
Director
Director
Director
100
BR30034T-0419-COMBO