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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
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 20-0723270
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
   
7250 S. Tenaya Way, Suite 100  
Las Vegas 
Nevada89113
(Address of principal executive offices) (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 classTrading symbol(s)Name of each exchange on which registered
Common Stock, $0.001 par valueEVRINew York Stock Exchange
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  x  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  x  No ¨
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 Accelerated filer¨
Non-accelerated filer¨Smaller reporting company
  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 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 x
As of October 30, 2020, there were 85,928,252 shares of the registrant’s $0.001 par value per share common stock outstanding.



TABLE OF CONTENTS

   Page
    
PART I: FINANCIAL INFORMATION
    
Item 1: Financial Statements
    
  Unaudited Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the three and nine months ended September 30, 2020 and 2019
    
  Unaudited Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019
    
  Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019
Unaudited Condensed Consolidated Statements of Stockholders’ (Deficit) Equity for the three and nine months ended September 30, 2020 and 2019
    
  Notes to Unaudited Condensed Consolidated Financial Statements
    
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
    
Item 3: Quantitative and Qualitative Disclosures About Market Risk
    
Item 4: Controls and Procedures
    
PART II: OTHER INFORMATION
    
Item 1: Legal Proceedings
    
Item 1A: Risk Factors
    
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
    
Item 3: Defaults Upon Senior Securities
    
Item 4: Mine Safety Disclosures
    
Item 5: Other Information
    
Item 6: Exhibits
    
Signatures  

2


PART I: FINANCIAL INFORMATION
Item 1. Financial Statements.
EVERI HOLDINGS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(In thousands, except earnings per share amounts)
 
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Revenues  
Games revenues  
Gaming operations$46,968 $48,515 $106,513 $138,377 
Gaming equipment and systems10,229 19,584 28,795 66,083 
Gaming other44 1,174 76 1,619 
Games total revenues57,241 69,273 135,384 206,079 
FinTech revenues  
Cash access services33,979 43,152 80,986 123,680 
Equipment6,248 10,188 16,004 25,051 
Information services and other14,630 11,956 31,748 33,240 
FinTech total revenues54,857 65,296 128,738 181,971 
Total revenues112,098 134,569 264,122 388,050 
Costs and expenses  
Games cost of revenues(1)
  
Gaming operations4,245 4,942 10,471 12,792 
Gaming equipment and systems5,730 11,126 16,625 37,087 
Gaming other 1,117 456 1,464 
Games total cost of revenues9,975 17,185 27,552 51,343 
FinTech cost of revenues(1)
  
Cash access services1,161 4,112 5,227 9,777 
Equipment3,548 5,957 9,452 14,884 
Information services and other859 1,024 2,057 2,952 
FinTech total cost of revenues5,568 11,093 16,736 27,613 
Operating expenses34,927 37,631 115,428 111,446 
Research and development7,034 8,196 20,958 22,399 
Depreciation16,163 16,015 48,700 46,062 
Amortization18,693 17,156 57,312 51,143 
Total costs and expenses92,360 107,276 286,686 310,006 
Operating income (loss)19,738 27,293 (22,564)78,044 
Other expenses  
Interest expense, net of interest income18,905 19,297 56,226 60,130 
Loss on extinguishment of debt  7,457  
Total other expenses18,905 19,297 63,683 60,130 
Income (loss) before income tax833 7,996 (86,247)17,914 
Income tax provision (benefit)1,711 (1,319)(3,434)(2,747)
Net (loss) income(878)9,315 (82,813)20,661 
Foreign currency translation, net of tax359 (658)(1,295)(189)
Comprehensive (loss) income $(519)$8,657 $(84,108)$20,472 

(1) Exclusive of depreciation and amortization.
3


 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
(Loss) earnings per share  
Basic$(0.01)$0.13 $(0.97)$0.29 
Diluted$(0.01)$0.12 $(0.97)$0.27 
Weighted average common shares outstanding  
Basic85,556 72,251 85,102 71,361 
Diluted85,556 79,125 85,102 77,854 

See notes to unaudited condensed consolidated financial statements.
4


EVERI HOLDINGS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value amounts)
 
 At September 30,At December 31,
 20202019
ASSETS  
Current assets  
Cash and cash equivalents
$235,407 $289,870 
Settlement receivables
33,126 70,282 
Trade and other receivables, net of allowances for credit losses of $3,754 and $5,786 at September 30, 2020 and December 31, 2019, respectively
75,997 87,910 
Inventory
33,779 26,574 
Prepaid expenses and other current assets
18,268 27,896 
Total current assets396,577 502,532 
Non-current assets
Property and equipment, net113,812 128,869 
Goodwill681,943 681,635 
Other intangible assets, net228,958 279,187 
Other receivables, net14,218 16,661 
Other assets22,696 20,339 
Total non-current assets1,061,627 1,126,691 
Total assets$1,458,204 $1,629,223 
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY  
Current liabilities  
 Accounts payable and accrued expenses165,217 173,103 
Settlement liabilities140,229 234,087 
 Current portion of long-term debt1,250  
Total current liabilities306,696 407,190 
Non-current liabilities
Long-term debt1,127,191 1,108,078 
Deferred tax liability, net22,613 26,401 
Other accrued expenses and liabilities17,114 33,566 
Total non-current liabilities1,166,918 1,168,045 
Total liabilities1,473,614 1,575,235 
Commitments and contingencies (Note 13)
Stockholders’ (deficit) equity  
Convertible preferred stock, $0.001 par value, 50,000 shares authorized and no shares outstanding at September 30, 2020 and December 31, 2019, respectively
  
Common stock, $0.001 par value, 500,000 shares authorized and 111,079 and 85,906 shares issued and outstanding at September 30, 2020, respectively, and 109,493 and 84,497 shares issued and outstanding at December 31, 2019, respectively
111 109 
Additional paid-in capital460,967 445,162 
Accumulated deficit(295,753)(212,940)
Accumulated other comprehensive loss(2,114)(819)
Treasury stock, at cost, 25,173 and 24,996 shares at September 30, 2020 and December 31, 2019, respectively
(178,621)(177,524)
Total stockholders’ (deficit) equity(15,410)53,988 
Total liabilities and stockholders’ (deficit) equity$1,458,204 $1,629,223 

See notes to unaudited condensed consolidated financial statements.
5


EVERI HOLDINGS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended September 30,
20202019
Cash flows from operating activities
Net (loss) income $(82,813)$20,661 
Adjustments to reconcile net (loss) income to cash (used in) provided by operating activities:
Depreciation48,700 46,062 
Amortization57,312 51,143 
Non-cash lease expense3,615 3,060 
Amortization of financing costs and discounts3,111 2,697 
Loss on sale or disposal of assets111 1,375 
Accretion of contract rights5,345 6,539 
Provision for credit losses6,925 10,010 
Deferred income taxes(3,788)(3,173)
Reserve for inventory obsolescence1,810 1,830 
Write-down of assets11,281 843 
Loss on extinguishment of debt7,457  
Stock-based compensation10,108 6,141 
Other non-cash items456  
Changes in operating assets and liabilities:
Settlement receivables36,922 26,774 
Trade and other receivables6,682 (23,820)
Inventory(10,614)(3,341)
Other assets(4,952)(20,866)
Settlement liabilities(93,622)(34,573)
Other liabilities(5,814)29,002 
Net cash (used in) provided by operating activities(1,768)120,364 
Cash flows from investing activities
Capital expenditures (52,428)(81,642)
Acquisitions, net of cash acquired(15,000)(20,000)
Proceeds from sale of property and equipment141 56 
Placement fee agreements(3,021)(17,102)
Net cash used in investing activities(70,308)(118,688)
Cash flows from financing activities
Proceeds from incremental term loan125,000  
Repayments of incremental term loan(313) 
Proceeds from revolving credit facility35,000  
Repayments of revolving credit facility(35,000) 
Repayments of existing term loan(13,500)(25,700)
Repayments of unsecured notes(89,619) 
Fees associated with debt transactions(11,128) 
Proceeds from exercise of stock options3,509 11,288 
Treasury stock(1,097)(1,021)
Net cash provided by (used in) financing activities12,852 (15,433)
Effect of exchange rates on cash and cash equivalents(1,370)(1,314)
Cash, cash equivalents and restricted cash
Net decrease for the period(60,594)(15,071)
Balance, beginning of the period296,610 299,181 
Balance, end of the period$236,016 284,110 

See notes to unaudited condensed consolidated financial statements.
6


 Nine Months Ended September 30,
 20202019
Supplemental cash disclosures  
Cash paid for interest$45,331 $52,077 
Cash paid (refunded) for income tax, net 81 (69)
Supplemental non-cash disclosures
Accrued and unpaid capital expenditures$2,970 $3,989 
Accrued and unpaid placement fees added during the year 585 
Accrued and unpaid liabilities for acquisitions added during the year 27,556 
Transfer of leased gaming equipment to inventory5,493 9,118 
 
See notes to unaudited condensed consolidated financial statements.

7


EVERI HOLDINGS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
(In thousands)

Common Stock—
Series A
AdditionalAccumulated
Other
Total Stockholders’
Number of
Shares
AmountPaid-in
Capital
Accumulated
Deficit
Comprehensive
Loss
Treasury
Stock
(Deficit) Equity
Balance, January 1, 201995,100 $95 $298,929 $(229,457)$(1,998)$(176,464)$(108,895)
Net income— — — 5,860 — — 5,860 
Foreign currency translation— — — — 504 — 504 
Stock-based compensation expense— — 1,773 — — — 1,773 
Exercise of options864 1 4,970 — — — 4,971 
Restricted share vesting and withholding2 — — — — (15)(15)
Balance, March 31, 201995,966 $96 $305,672 $(223,597)$(1,494)$(176,479)$(95,802)
Net income— — — 5,486 — — 5,486 
Foreign currency translation— — — — (35)— (35)
Stock-based compensation expense— — 2,387 — — — 2,387 
Exercise of options764 1 4,491 — — — 4,492 
Restricted share vesting and withholding275 — — — — (965)(965)
Balance, June 30, 201997,005 $97 $312,550 $(218,111)$(1,529)$(177,444)$(84,437)
Net income— — — 9,315 — — 9,315 
Foreign currency translation— — — — (658)— (658)
Stock-based compensation expense— — 1,981 — — — 1,981 
Exercise of options263 — 1,825 — — — 1,825 
Restricted share vesting and withholding11 — — — — (41)(41)
Balance, September 30, 201997,279 $97 $316,356 $(208,796)$(2,187)$(177,485)$(72,015)

8


Balance, January 1, 2020109,493 $109 $445,162 $(212,940)$(819)$(177,524)$53,988 
Net loss— — — (13,454)— — (13,454)
Foreign currency translation— — — — (1,958)— (1,958)
Stock-based compensation expense— — 4,173 — — — 4,173 
Exercise of options298 1 1,641 — — — 1,642 
Restricted share vesting and withholding15 — — — — (42)(42)
Balance, March 31, 2020109,806 $110 $450,976 $(226,394)$(2,777)$(177,566)$44,349 
Net loss— — — (68,481)— — (68,481)
Foreign currency translation— — — — 304 — 304 
Stock-based compensation expense— — 4,638 — — — 4,638 
Issuance of warrants— — 502 — — — 502 
Exercise of options149 1 472 — — — 473 
Restricted share vesting and withholding579 — — — — (547)(547)
Balance, June 30, 2020110,534 $111 $456,588 $(294,875)$(2,473)$(178,113)$(18,762)
Net loss— — — (878)— — (878)
Foreign currency translation— — — — 359 — 359 
Stock-based compensation expense— — 2,985 — — — 2,985 
Exercise of options287 — 1,394 — — — 1,394 
Restricted share vesting and withholding258— — — — (508)(508)
Balance, September 30, 2020111,079 $111 $460,967 $(295,753)$(2,114)$(178,621)$(15,410)

See notes to unaudited condensed consolidated financial statements.
9


EVERI HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In this filing, we refer to: (i) our unaudited condensed consolidated financial statements and notes thereto as our “Financial Statements,” (ii) our Unaudited Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income as our “Statements of Operations,” and (iii) our Unaudited Condensed Consolidated Balance Sheets as our “Balance Sheets.”

1.          BUSINESS
Everi Holdings Inc. (“Everi Holdings,” or “Everi”) is a holding company, the assets of which are the issued and outstanding shares of capital stock of each of Everi Payments Inc. (“Everi FinTech” or “FinTech”) and Everi Games Holding Inc., which owns all of the issued and outstanding shares of capital stock of Everi Games Inc. (“Everi Games” or “Games”). Unless otherwise indicated, the terms the “Company,” “we,” “us,” and “our” refer to Everi Holdings together with its consolidated subsidiaries.
Everi is a leading supplier of imaginative entertainment and trusted technology solutions for the casino and digital gaming industry. Everi’s mission is to transform the casino floor through innovative gaming and financial technology and loyalty solutions. With a focus on both land-based and digital gaming operators and players, the Company develops entertaining games and gaming machines, gaming systems and services that facilitate memorable player experiences, and is a preeminent and comprehensive provider of financial products and services that offer convenient and secure cash and cashless-based financial transactions, self-service player loyalty tools and applications, and intelligence software and other intuitive solutions that improve casino operational efficiencies and fulfill regulatory compliance requirements.
Everi Holdings reports its results of operations based on two operating segments: Games and FinTech.
Everi Games provides gaming operators with gaming technology products and services, including: (i) gaming machines, primarily comprising Class II and Class III slot machines placed under participation or fixed-fee lease arrangements or sold to casino customers; (ii) providing and maintaining the central determinant systems for the video lottery terminals (“VLTs”) installed in the State of New York and similar technology in certain tribal jurisdictions; and (iii) business-to-business (“B2B”) and business-to-consumer (“B2C”) digital online gaming activities.
Everi FinTech provides gaming operators with financial technology products and services, including: (i) services and equipment that facilitate casino patrons’ self-service access to cash and cashless funding at gaming facilities via Automated Teller Machine (“ATM”) debit withdrawals (cash dispensing and cashless), credit card cash access transactions and point-of-sale (“POS”) debit card purchase and cash access transactions; (ii) check warranty services; (iii) self-service player loyalty enrollment and marketing equipment, including promotion management software and tools; (iv) software and services that improve credit decision making, automate cashier operations, and enhance patron marketing activities for gaming establishments; (v) equipment that provides cash access and other cash handling efficiency-related services; and (vi) compliance, audit, and data solutions.
Impact of Coronavirus Disease 2019 (“COVID-19”) Pandemic
The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, lowered equity market valuations, created significant volatility in the financial markets, increased unemployment levels, caused temporary, and in certain cases, closures of many businesses. The gaming industry was not immune to these factors as our casino customers closed their gaming establishments, and as a result, our operations experienced significant disruptions. At the immediate onset of the COVID-19 pandemic, we were affected by various measures, including, but not limited to: the institution of social distancing and sheltering-in-place requirements in many states and communities, which significantly impacted demand for our products and services, and resulted in office closures, the furlough of a majority of our employees, the implementation of temporary base salary reductions for our employees and the implementation of a work-from-home policy.
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During the second quarter of 2020, businesses began to adapt to social-distancing measures and various phases of reopening pursuant to government-mandated guidelines. As our gaming customers reopened, a number of their properties initially experienced an elevated level of activity as compared to what was originally anticipated. The revenues generated by this initial pent-up demand flattened to slightly below pre-COVID levels as more casinos reopened through the second quarter of 2020. Revenues then improved throughout the third quarter of 2020, though they still remained at pre-COVID levels. With a majority of our gaming customers reopening properties by the end of September 2020 and our results continuing to improve from the decreased activity rates in the second quarter, we have, among other measures: (i) returned nearly all of our furloughed employees to work on primarily a work-from-home basis; (ii) reinstated base compensation to pre-COVID levels for the employee base; (iii) reversed nearly all compensation reductions for both our Executives and Directors; and (iv) fully paid down the outstanding balance on our revolving line of credit.
It is unclear if and when customer volumes will return consistently to pre-COVID levels, or if in the future a resurgence of COVID-19 could result in the closure of casinos by federal, state, tribal and municipal governmental and regulatory agencies or by the casino operators themselves in an effort to contain the COVID-19 public health emergency or mitigate its impact; however, we continue to monitor the impacts of COVID-19 and we will make adjustments to our business accordingly to the extent the economic environment deteriorates.
In parallel, in connection with the uncertainty facing our customers as a result of COVID-19, we evaluated our business strategies in the second quarter of 2020 and implemented measures to reduce our ongoing operating costs. As a result of this evaluation, we permanently reduced our employee base, with most of the departures resulting from our furloughed employees, to accommodate the current and future operating needs of our customers and our business.
The impact of the COVID-19 pandemic also exacerbates the risks disclosed in our Annual Report, including, but not limited to: our ability to comply with the terms of our indebtedness, our ability to generate revenues, earn profits and maintain adequate liquidity, our ability to service existing and attract new customers, maintain our overall competitiveness in the market, the potential for significant fluctuations in demand for our services, overall trends in the gaming industry impacting our business, as well as potential volatility in our stock price, among other consequences such as cybersecurity exposure.
Results of Operations and Liquidity
To date, our operations have experienced revenue reductions and significant disruptions as a direct consequence of the circumstances surrounding the COVID-19 pandemic. This had a material adverse impact on our overall results of operations and financial condition for the current reporting period. As such, we have implemented a range of actions to maintain balance sheet flexibility and preserve liquidity as a result of the business disruption caused by the rapid nationwide spread of COVID-19, including, but not limited to:
At the onset of COVID-19 pandemic:
we completed the full draw down of our available capacity of $35.0 million under the Revolving Credit Facility in order to improve our liquidity and preserve financial flexibility in light of the uncertainty in our industry and the global economy as a result of COVID-19 (as discussed and defined in “Note 12 — Long-Term Debt”);
we entered into a fourth amendment (the “Fourth Amendment”) to our existing Credit Agreement (as defined in “Note 12 — Long-Term Debt”), which among other things, amended our debt covenants to provide relief with respect to our senior secured leverage ratio (as discussed and defined in “Note 12 — Long-term Debt”);
we also entered into a new credit agreement, which provides for a $125.0 million senior secured term loan, which is secured on a pari passu basis with the loans under our existing Credit Agreement. The entire amount was borrowed upon closing (as discussed and defined in “Note 12 — Long-term Debt”);
our executive officers elected to accept significant reductions to their compensation during the pendency of the COVID-19 pandemic in order to better position the Company to withstand the challenging conditions that have caused global and domestic disruption in the current economic environment;
our independent members of the Board of Directors of the Company elected to forgo their quarterly cash compensation for Board and related committee services;
we furloughed a majority of our staff;
we reduced the salaries of our employee-base from approximately 15% to 70%;
we suspended certain employee benefits, such as providing a Company match on 401(k) contributions;
11


we implemented a remote working environment;
we canceled or delayed material capital expenditures;
we suspended our share repurchases under our previously authorized repurchase program; and
As of the end of the second quarter of 2020:
we implemented a safe workplace return policy for those of our employees who return to our facilities;
we returned most of our furloughed employees to work;
we returned a portion of base compensation to our executives;
we returned most base compensation to our employee-base;
we returned a portion of cash compensation to our Board of Directors;
we completed a reduction-in-force and incurred severance costs, among other expenses, of approximately $2.7 million; and
we recorded a write-down of assets of approximately $11.0 million, of which $9.2 million and $1.8 million related to our Games and FinTech businesses, respectively, for certain of our trade receivables, inventory, prepaid expenses and other assets, fixed assets and other intangible assets that were not expected to be recoverable. This charge was reflected in Operating Expenses in our Statements of Operations. While we are unable to determine the nature, or amount, of further write-down charges, it is possible that we may record additional amounts to the extent we experience a decline in operations and financial performance in the future.
As of the end of the third quarter of 2020:
we have returned base compensation to our executives and employee-base;
we have returned cash compensation to our Board of Directors; and
we fully repaid the $35.0 million Revolving Credit Facility in light of improved results of operations and liquidity.
Government Relief
In late March 2020, the U.S. government enacted the Coronavirus Aid Relief and Economic Security Act (the “CARES Act”) in response to the COVID-19 pandemic. We have taken advantage of the following components contained within the CARES Act:
Employee Retention Payroll Tax Credit: We are applying a credit against payroll taxes for 50% of eligible employee wages paid or incurred from March 13, 2020 to December 31, 2020. This employee retention payroll tax credit would be provided for as much as $10,000 of qualifying wages for each eligible employee, including health benefits;
Employer Social Security Tax Payment Deferral: We are deferring payment of the employer portion of the social security taxes due on remaining payments and from enactment of the CARES Act through December 31, 2020, with 50% due by December 31, 2021 and 50% due by December 31, 2022; and
Alternative Minimum Tax (“AMT”) Credit Refund: We are applying for a refund of our AMT tax credits as the CARES Act affords us the ability to accelerate the recovery of such credits.

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2.          BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Our unaudited condensed consolidated financial statements included herein have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Some of the information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although we believe the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary for a fair statement of results for the interim periods have been made. The results for the three and nine months ended September 30, 2020 are not necessarily indicative of results to be expected for the full fiscal year. The Financial Statements should be read in conjunction with the consolidated financial statements and notes thereto included in the 2019 Annual Report.
We evaluate the composition of our revenues to maintain compliance with SEC Regulation S-X Section 210.5-3, which requires us to separately present certain categories of revenues that exceed the quantitative threshold on our Statements of Operations.
Revenue Recognition
Overview
We evaluate the recognition of revenue based on the criteria set forth in Accounting Standards Codification (“ASC”) 606 — Revenue from Contracts with Customers and ASC 842 — Leases, as appropriate. We recognize revenue upon transferring control of goods or services to our customers in an amount that reflects the consideration we expect to receive in exchange for those goods or services. We enter into contracts with customers that include various performance obligations consisting of goods, services, or combinations of goods and services. Timing of the transfer of control varies based on the nature of the contract. We recognize revenue net of any sales and other taxes collected from customers, which are subsequently remitted to governmental authorities and are not included in revenues or operating expenses. We measure revenue based on the consideration specified in a contract with a customer and adjust it, as necessary.
Disaggregation of Revenues
We disaggregate revenues based on the nature and timing of the cash flows generated by such revenues as presented in “Note 18 — Segment Information.”
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Contract Balances
Since our contracts may include multiple performance obligations, there is often a timing difference between cash collections and the satisfaction of such performance obligations and revenue recognition. Such arrangements are evaluated to determine whether contract assets and liabilities exist. We generally record contract assets when the timing of cash collections differs from when revenue is recognized due to contracts containing specific performance obligations that are required to be met prior to a customer being invoiced. We generally record contract liabilities when cash is collected in advance of us satisfying performance obligations, including those that are satisfied over a period of time. Balances of our contract assets and contract liabilities may fluctuate due to timing of cash collections.
The following table summarizes our contract assets and contract liabilities arising from contracts with customers (in thousands):
Nine Months Ended September 30,
20202019
Contract assets(1)
Balance at January 1 — current$8,634 $6,821 
Balance at January 1 — non-current6,774 4,489 
Total
15,408 11,310 
Balance at September 30 - current8,945 8,037 
Balance at September 30 - non-current7,545 4,049 
Total
16,490 12,086 
         Increase $1,082 $776 
Contract liabilities(2)
Balance at January 1 — current$28,510 $14,661 
Balance at January 1 — non-current354 809 
Total
28,864 15,470 
Balance at September 30 - current34,846 28,827 
Balance at September 30 - non-current32 798 
Total
34,878 29,625 
Increase
$6,014 $14,155 
(1)  The current portion of contract assets is included within trade and other receivables, net, and the non-current portion is included within other receivables, net in our Balance Sheets.
(2)  The current portion of contract liabilities is included within accounts payable and accrued expenses, and the non-current portion is included within other accrued expenses and liabilities in our Balance Sheets.
We recognized approximately $19.3 million and $10.7 million in revenue that was included in the beginning contract liability balance during the nine months ended September 30, 2020 and 2019, respectively.
Games Revenues
Our products and services include electronic gaming devices, such as Native American Class II offerings and other electronic bingo products, Class III slot machine offerings, VLTs, B2B and B2C digital online gaming activities, accounting and central determinant systems, and other back office systems. We conduct our Games segment business based on results generated from the following major revenue streams: (i) Gaming Operations; (ii) Gaming Equipment and Systems; and (iii) Gaming Other.
We recognize our Gaming Operations revenue based on criteria set forth in ASC 842 or ASC 606, as applicable. The amount of lease revenue included in our Gaming Operations revenues and recognized under ASC 842 was approximately $35.9 million and $80.3 million for the three and nine months ended September 30, 2020, respectively and $36.6 million and $104.3 million for the three and nine months ended September 30, 2019, respectively.
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FinTech Revenues
Our FinTech products and services include solutions that we offer to gaming establishments to provide their patrons with cash access-related services, self-service player loyalty and marketing tools, and other information and regulatory compliance-related products and services. These solutions include: access to cash and cashless funding at gaming facilities via debit withdrawals (cash dispensing and cashless), credit card cash access transactions, and POS debit card purchase and cash access transactions; check warranty services; self-service ATMs and fully integrated kiosks and maintenance services; self-service player loyalty enrollment and marketing equipment, including promotion management software and tools; compliance, audit, and data software; casino credit data and reporting services; marketing and promotional offering subscription-based services; and other ancillary offerings. We conduct our FinTech segment business based on results generated from the following major revenue streams: (i) Cash Access Services; (ii) Equipment; and (iii) Information Services and Other.
Equipment revenues are derived from the sale of our cash access and loyalty kiosks and related equipment and are accounted for under ASC 606, unless such transactions meet the definition of a sales type or direct financing lease, which are accounted for under ASC 842. We did not have any new cash access kiosk and related equipment sales contracts accounted for under ASC 842 during the three and nine months ended September 30, 2020. Sales contracts accounted for under ASC 842 were approximately $0.1 million and $2.7 million for the three and nine months ended September 30, 2019, respectively.
Restricted Cash
Our restricted cash primarily consists of: (i) funds held in connection with certain customer agreements; (ii) deposits held in connection with a sponsorship agreement; (iii) wide area progressive (“WAP”)-related restricted funds; and (iv) Internet-related cash access activities. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Balance Sheets that sum to the total of the same such amounts shown in the statement of cash flows for the nine months ended September 30, 2020 (in thousands).
Classification on our Balance Sheets
At September 30, 2020At December 31, 2019
Cash and cash equivalentsCash and cash equivalents$235,407 $289,870 
Restricted cash - currentPrepaid expenses and other current assets508 6,639 
Restricted cash - non-currentOther assets101 101 
Total
$236,016 $296,610 

Goodwill

Goodwill represents the excess of the purchase price over the identifiable tangible and intangible assets acquired plus liabilities assumed arising from business combinations. We test for impairment annually on a reporting unit basis, at the beginning of our fourth fiscal quarter and between annual tests if events and circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The annual impairment test is completed using either: a qualitative “Step 0” assessment based on reviewing relevant events and circumstances; or a quantitative “Step 1” assessment, which determines the fair value of the reporting unit, using both an income approach that discounts future cash flows based on the estimated future results of our reporting units and a market approach that compares market multiples of comparable companies to determine whether or not any impairment exists. To the extent the carrying amount of a reporting unit is less than its estimated fair value, an impairment charge is recorded.

The evaluation of impairment of goodwill requires the use of estimates about future operating results. Changes in forecasted operations can materially affect these estimates, which could materially affect our results of operations and financial condition. The estimates of expected future cash flows require significant judgment and are based on assumptions we determined to be reasonable; however, they are unpredictable and inherently uncertain, including, estimates of future growth rates, operating margins and assumptions about the overall economic climate as well as the competitive environment within which we operate. There can be no assurance that our estimates and assumptions made for purposes of our impairment assessments as of the time of evaluation will prove to be accurate predictions of the future. If our assumptions regarding business plans, competitive environments, or anticipated growth rates are not correct, we may be required to record non-cash impairment charges in future periods, whether in connection with our normal review procedures periodically, or earlier, if an indicator of an impairment is present prior to such evaluation.

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Our reporting units are identified as operating segments or one level below. Reporting units must: (i) engage in business activities from which they earn revenues and incur expenses; (ii) have operating results that are regularly reviewed by our segment management to ascertain the resources to be allocated to the segment and assess its performance; and (iii) have discrete financial information available. As of September 30, 2020, our reporting units included: (i) Games; (ii) Cash Access Services; (iii) Kiosk Sales and Services; (iv) Central Credit Services; (v) Compliance Sales and Services; and (vi) Player Loyalty Sales and Services.

Fair Values of Financial Instruments
The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point in time, based upon relevant market information about the financial instrument.
The carrying amount of cash and cash equivalents, restricted cash, settlement receivables, short-term trade and other receivables, settlement liabilities, accounts payable, and accrued expenses approximate fair value due to the short-term maturities of these instruments. The fair value of the long-term trade and loans receivable is estimated by discounting expected future cash flows using current interest rates at which similar loans would be made to borrowers with similar credit ratings and remaining maturities. The fair value of the long-term accounts payable is estimated by discounting the total obligation using the appropriate interest rate. As of September 30, 2020 and December 31, 2019, the fair value of trade and loans receivable approximated the carrying value due to contractual terms generally being slightly over 12 months. The fair value of our borrowings is estimated based on various inputs to determine a market price, such as: market demand and supply, size of tranche, maturity, and similar instruments trading in more active markets. The estimated fair value and outstanding balances of our borrowings are as follows (dollars in thousands):
 Level of HierarchyFair ValueOutstanding Balance
September 30, 2020   
Term loan2$715,127 $735,500 
Incremental term loan2$127,805 $124,688 
Senior unsecured notes2$279,673 $285,381 
December 31, 2019   
Term loan2$753,494 $749,000 
Senior unsecured notes2$401,738 $375,000 
Our borrowings were reported at fair value using Level 2 inputs based on quoted market prices for these securities.
Reclassification of Prior Year Balances
Reclassifications were made to the prior-period Financial Statements to conform to the current period presentation where applicable.
Recent Accounting Guidance
Recently Adopted Accounting Guidance
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StandardDescriptionDate of AdoptionEffect on Financial Statements
Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent amendments
This ASU replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects lifetime expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.January 1, 2020
This guidance primarily impacts our trade and other receivables, including those related to revenues from contracts with customers that may contain contract assets with respect to performance obligations that are satisfied for which the customers have not yet been invoiced. We adopted this guidance using the modified retrospective method. The adoption of ASC 326 did not have a material effect on our Financial Statements and did not result in a cumulative-effect adjustment. Refer to “Note 6 — Trade and Other Receivables” for further discussion.
ASU No. 2018-15, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).January 1, 2020The adoption of this ASU did not have a material effect on our Financial Statements or on our disclosures.
ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
This ASU provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting for contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”).
March 12, 2020The adoption of this ASU did not have a material effect on our Financial Statements or on our disclosures.
Recent Accounting Guidance Not Yet Adopted
StandardDescriptionDate of Planned AdoptionEffect on Financial Statements
ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
This ASU simplifies the accounting for income taxes by removing certain exceptions for investments, intraperiod allocations, and interim calculations, and adds guidance to reduce the complexity of applying Topic 740.January 1, 2021We are currently evaluating the impact of adopting this ASU on our Financial Statements and our disclosures; however, we do not expect the impact to be material.
We do not anticipate recently issued accounting guidance to have a significant impact on our Financial Statements as of September 30, 2020.
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3.          LEASES
We determine if a contract is, or contains, a lease at the inception, or modification, of a contract based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control over the use of an asset is predicated upon the notion that a lessee has both the right to (i) obtain substantially all of the economic benefit from the use of the asset; and (ii) direct the use of the asset.
Operating lease right-of-use (“ROU”) assets and liabilities are recognized based on the present value of minimum lease payments over the expected lease term at commencement date. Lease expense is recognized on a straight-line basis over the expected lease term. Our lease arrangements have both lease and non-lease components, and we have elected the practical expedient to account for the lease and non-lease elements as a single lease.
Certain of our lease arrangements contain options to renew with terms that generally have the ability to extend the lease term to a range of approximately 1 to 10 years. The exercise of lease renewal options is generally at our sole discretion. The expected lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise such option. The depreciable life of leased assets and leasehold improvements are limited by the expected term of such assets, unless there is a transfer of title or purchase option reasonably certain to be exercised.
Lessee
The Company leases real estate and vehicles under operating and finance leases, respectively. We enter into operating lease agreements for real estate purposes that generally consist of buildings for office space and warehouses for manufacturing purposes. Certain of our lease agreements consist of rental payments that are periodically adjusted for inflation. Our lease agreements do not contain material residual value guarantees or material restrictive covenants. Our lease agreements do not generally provide explicit rates of interest; therefore, we use our incremental collateralized borrowing rate, which is based on a fully collateralized and fully amortizing loan with a maturity date the same as the length of the lease that is based on the information available at the commencement date to determine the present value of lease payments. Leases with an expected term of 12 months or less (short-term) are not accounted for on our Balance Sheets.

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Supplemental balance sheet information related to our operating leases is as follows (in thousands):
Classification on our Balance SheetsAt September 30, 2020At December 31, 2019
Assets
Operating lease ROU assetsOther assets, non-current$16,479 $12,257 
Finance lease ROU assets(2)
Other assets, non-current$522 $ 
Liabilities(1)
Current operating lease liabilitiesAccounts payable and accrued expenses$5,402 $5,824 
Current finance lease liabilitiesAccounts payable and accrued expenses$143 $ 
Non-current operating lease liabilitiesOther accrued expenses and liabilities$15,491 $9,628 
Non-current finance lease liabilitiesOther accrued expenses and liabilities$399 $ 
(1) The amount of operating lease liabilities recorded on our Balance Sheets upon the adoption of ASC 842 on January 1, 2019 was approximately $18.0 million.
(2) Presented net of accumulated depreciation.
Supplemental cash flow information related to leases is as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Cash paid for:
Long- and short-term operating leases$2,076 $1,869 $6,325 $5,602 
Finance leases$39 $ $44 $ 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases(1)
$7,594 $ $8,454 $14,595 
(2)
Finance leases(1)
$310 $ $592 $ 
(1) The amounts are presented net of current year terminations and exclude amortization for the period.
(2) The amount includes approximately $13.7 million of operating lease ROU assets obtained in exchange for existing lease obligations due to the adoption of ASC 842 and $0.9 million of operating lease ROU assets obtained in exchange for new lease obligations entered into during the nine months ended September 30, 2019.
Other information related to lease terms and discount rates is as follows:
At September 30, 2020At December 31, 2019
Weighted Average Remaining Lease Term (in years):
Operating leases4.212.96
Finance leases3.62— 
Weighted Average Discount Rate:
Operating leases5.25 %5.25 %
Finance leases3.85